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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 29, 1999
REGISTRATION NO.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR 12(G) OF THE
SECURITIES EXCHANGE ACT OF 1934
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C-CUBE SEMICONDUCTOR INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 77-0192108
(SATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
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1778 MCCARTHY BOULEVARD
MILPITAS, CALIFORNIA 95035
(408) 490-8000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE REGISTERED EACH CLASS IS TO BE REGISTERED
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NONE N/A
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SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $0.001 PER SHARE
(TITLE OF CLASS)
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C-CUBE SEMICONDUCTOR INC.
CROSS-REFERENCE SHEET
SHOWING LOCATION IN REGISTRATION STATEMENT OF INFORMATION
REQUIRED BY ITEMS ON FORM 10
<TABLE>
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ITEM NUMBER AND HEADING LOCATION
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1. Business................................... SUMMARY; RISK FACTORS; REASONS FOR THE
DISTRIBUTION; BUSINESS; UNAUDITED PRO-FORMA
FINANCIAL STATEMENTS; MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS;
ARRANGEMENTS BETWEEN C-CUBE MICROSYSTEMS
AND SEMICONDUCTOR; FINANCIAL STATEMENTS
2. Financial Information...................... SUMMARY; RISK FACTORS; REASONS FOR THE
DISTRIBUTION; BUSINESS; UNAUDITED PRO-FORMA
FINANCIAL STATEMENTS; MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS;
ARRANGEMENTS BETWEEN C-CUBE MICROSYSTEMS
AND SEMICONDUCTOR; FINANCIAL STATEMENTS
3. Properties................................. RISK FACTORS; BUSINESS
4. Securities Ownership of Certain Beneficial
Owners..................................... SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
5. Directors and Executive Officers........... MANAGEMENT
6. Executive Compensation..................... EXECUTIVE COMPENSATION
7. Certain Relationships and Related
Transactions............................... SUMMARY; RISK FACTORS; THE DISTRIBUTION;
REASONS FOR THE DISTRIBUTION; BUSINESS;
MANAGEMENT; SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT;
ARRANGEMENTS BETWEEN C-CUBE MICROSYSTEMS
AND SEMICONDUCTOR; AND DESCRIPTION OF
CAPITAL STOCK
8. Legal Proceedings.......................... LEGAL PROCEEDINGS
9. Market Price of and Dividends of the
Registrant's Common Equity and Related
Stockholder Matters........................ SUMMARY; RISK FACTORS; SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT; DESCRIPTION OF CAPITAL STOCK;
DIVIDEND POLICY; ARRANGEMENTS BETWEEN
C-CUBE MICROSYSTEMS AND SEMICONDUCTOR
10. Recent Sales of Unregistered Securities.... NOT APPLICABLE
11. Description of Registrant's Securities to
be Registered.............................. DESCRIPTION OF CAPITAL STOCK
12. Indemnification of Directors and
Officers................................... INDEMNIFICATION OF OFFICERS AND DIRECTORS
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<TABLE>
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ITEM NUMBER AND HEADING LOCATION
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13. Financial Statements and Supplementary
Data....................................... SUMMARY; RISK FACTORS; UNAUDITED PRO-FORMA
FINANCIAL STATEMENTS; BUSINESS;
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS; FINANCIAL STATEMENTS;
ARRANGEMENTS BETWEEN C-CUBE MICROSYSTEMS
AND SEMICONDUCTOR
14. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure................................. NOT APPLICABLE
15. Financial Statements and Exhibits.......... FINANCIAL STATEMENTS; EXHIBITS
</TABLE>
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INFORMATION STATEMENT
relating to the spin-off of
C-CUBE SEMICONDUCTOR INC.
from C-Cube Microsystems Inc.
We are sending you this information statement to describe the distribution
of shares of common stock of C-Cube Semiconductor Inc. or Semiconductor to the
stockholders of C-Cube Microsystems Inc. In this distribution, you will receive
share of Semiconductor common stock for each share of C-Cube
Microsystems common stock owned by you at the close of business on [ ,
2000]. Your shares of Semiconductor common stock will be mailed to you on or
about [ , 2000]. All references in this Information Statement to
Semiconductor refer to C-Cube Microsystems' semiconductor business before the
distribution and to C-Cube Semiconductor Inc., a Delaware corporation, after the
distribution.
Although the completion of the distribution is not contingent on the
receipt of an opinion regarding the distribution from any tax advisors, we have
been advised by Ernst & Young that in their opinion, the distribution will
qualify as a tax-free distribution to our stockholders, although C-Cube
Microsystems itself will recognize substantial gain in connection with the
distribution. This opinion is based on certain representations by Semiconductor
and is subject to certain limitations and qualifications, however, and you are
urged to read the information set forth under the caption "Material Federal
Income Tax Considerations" herein and consult your tax advisor with respect to
the tax consequences of the distribution to you.
No C-Cube Microsystems stockholder action is necessary to make the
distribution. You do not need to surrender shares of C-Cube Microsystems common
stock to receive Semiconductor common stock in the distribution. The number of
shares of C-Cube Microsystems common stock you own will not change as a result
of the distribution. Semiconductor has applied to have the Semiconductor common
stock included for quotation on the Nasdaq National Market under the symbol
[" "].
Semiconductor was formed in conjunction with C-Cube Microsystems' merger
with Harmonic, Inc. It is a condition to the consummation of the merger between
Harmonic and C-Cube Microsystems that C-Cube Microsystems either spin-off or
sell its semiconductor business, and C-Cube Microsystems intends to distribute
shares of Semiconductor stock to you contingent on the satisfaction of all
conditions to the merger between Harmonic and C-Cube Microsystems. The purpose
of the distribution is to separate the semiconductor business from C-Cube
Microsystems' DiviCom systems products business to (i) enable Harmonic to merge
with the DiviCom systems products business, (ii) allow the semiconductor
business to focus on its core strengths in the design, development,
manufacturing and sale of Semiconductor's semiconductor, software and systems
for digital video applications, and (iii) permit customers, stockholders and
other constituencies to better evaluate the respective businesses. C-Cube
Microsystems and Semiconductor have entered into a series of agreements relating
to the distribution and the relationship of Semiconductor and C-Cube
Microsystems thereafter. These agreements are attached as exhibits to this
information statement.
This document provides you with detailed information about Semiconductor
and the distribution. We are enthusiastic about this opportunity for
Semiconductor to better concentrate on its core semiconductor business and
dedicate its resources to the growth of its business. We encourage you to read
this document carefully to learn more about Semiconductor, the distribution and
Semiconductor's future plans.
Sincerely,
--------------------------------------
Alexandre Balkanski
President and Chief Executive Officer
C-Cube Microsystems Inc.
, 2000
3
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TABLE OF CONTENTS
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PAGE
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Summary..................................................... 5
Risk Factors................................................ 8
The Distribution............................................ 17
Pro Forma Capitalization.................................... 18
Reasons for the Distribution................................ 19
Business.................................................... 21
Where You Can Find More Information......................... 35
Management's Discussion and Analysis........................ 36
Pro Forma Consolidated Balance Sheet........................ 53
Management.................................................. 57
Executive Compensation and Other Matters.................... 59
Security Ownership of Certain Beneficial Owners and
Management................................................ 62
Arrangements Between C-Cube Microsystems and
Semiconductor............................................. 64
Descriptions of Employee Benefits Plans..................... 70
Material Federal Income Tax Considerations.................. 74
Description of Company's Capital Stock...................... 76
Indemnification of Directors and Officers................... 78
Transfer Agent and Registrar................................ 78
Index to Financial Statements...............................
</TABLE>
You should rely only on the information contained in this information
statement regarding the distribution. Semiconductor has not authorized any other
person to provide you with different information. If anyone provides you with
different or inconsistent information, you should not rely on it. Semiconductor
is not making an offer to sell these securities in any jurisdiction where the
offer or sale is not permitted. You should assume that the information appearing
in this information statement is accurate as of the date on the front cover of
this information statement only. Semiconductor's business, financial condition,
results of operations and prospects may have changed since that date.
4
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SUMMARY
This summary highlights selected information contained elsewhere in this
information statement. It is not complete and may not contain all of the
information that is important to you. To better understand the distribution and
Semiconductor, you should read the entire information statement carefully,
including the risk factors and financial statements.
WHY THIS INFORMATION STATEMENT WAS SENT TO YOU
This information statement is being delivered by C-Cube Microsystems Inc.
to you because you were an owner of C-Cube Microsystems common stock on
[ , 2000]. This entitles you to receive a distribution of [ ] shares
of the common stock of a new company, C-Cube Semiconductor Inc., a Delaware
corporation, for each share of C-Cube Microsystems common stock owned by you on
[ , ]. Although no action is required on your part
to cause this to happen and you do not have to pay cash or other consideration
to receive these shares, the distribution of these shares to you will have
certain tax and other consequences, so please read the information in this
document carefully.
C-Cube Microsystems has historically operated in two businesses or
segments: the semiconductor business and the systems business through its
DiviCom subsidiary. C-Cube Microsystems has entered into an agreement to merge
with Harmonic, Inc. after the distribution or sale of C-Cube Microsystems'
semiconductor business. Thus, the effect of the proposed transaction is the
acquisition of C-Cube Microsystems' DiviCom systems business by Harmonic.
Nonetheless, for accounting purposes the Harmonic merger will be treated as
discontinued operations and the distribution of Semiconductor will be treated as
a continuation of C-Cube Microsystems. The historical financial statements have
not been restated to give retroactive effect to the sale of DiviCom because that
transaction is subject to stockholder approval and therefore does not meet the
measurement date criteria for discontinued operations. The unaudited pro-forma
financial statements have been prepared to give effect to the sale of DiviCom as
if the transaction had taken place on January 1, 1998. Accordingly, the
historical financial statements included in this information statement are the
consolidated financial statements of C-Cube Microsystems Inc. You should read
the unaudited pro-forma financial statements at page to determine the effect
of selling DiviCom on historical results.
This information statement describes the business of Semiconductor, the
relationship between C-Cube Microsystems and Semiconductor, how this transaction
benefits C-Cube Microsystems and its stockholders and provides other information
to assist you in evaluating the benefits and risks of holding or disposing of
your shares of Semiconductor common stock. Semiconductor has applied to have the
Semiconductor common stock included for quotation on the Nasdaq National Market
under the symbol [" ."] All references in this Information Statement to
Semiconductor refer to C-Cube Microsystems' semiconductor business before and
after the distribution to C-Cube Semiconductor Inc., a Delaware corporation.
BUSINESS OF SEMICONDUCTOR
Semiconductor designs, develops, has manufactured and sells semiconductors,
software and systems for digital video applications. As a leading supplier of
such solutions, Semiconductor has played a major role in enabling the growth of
digital video. Semiconductor is focused on working with its original equipment
manufacturer or OEM customers to enable key applications in its consumer and
communications target markets. In the consumer market, it is focused on playback
and recordable Video Compact Disc or VCD, and Digital Video Disc or DVD as well
as Digital VHS players. The communications market targets interactive set-top
boxes, broadcast encoders and emerging appliances like non-linear editing, time
shifting, video e-mail and internet boxes. Please review the information set
forth under the caption "Business" for further details about Semiconductor's
business.
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RELATIONSHIP BETWEEN C-CUBE MICROSYSTEMS AND SEMICONDUCTOR
All Semiconductor common stock is being distributed to the C-Cube
Microsystems stockholders as described in this information statement. C-Cube
Microsystems will have no ownership interest in Semiconductor after the
distribution. Semiconductor's board of directors will consist of five to seven
directors. At the outset, all of the Semiconductor directors, with the exception
of Semiconductor's new Chief Executive Officer, will be former directors of
C-Cube Microsystems.
Upon consideration of the proposed merger of C-Cube Microsystems and
Harmonic, Harmonic will succeed by operation of law to all obligations of C-Cube
Microsystems. Therefore, references herein to C-Cube Microsystems also
constitute reference to Harmonic after the merger.
Please review the information set forth under the captions "Arrangements
Between C-Cube Microsystems and Semiconductor" and "Description of Capital
Stock" for further details about Semiconductor's relationship with C-Cube
Microsystems, its capital structure and matters related to corporate governance.
REASONS FOR THE DISTRIBUTION
The merger agreement with Harmonic contemplates the sale or distribution of
Semiconductor immediately prior to and in connection with the merger. After
thorough consideration, the board of directors of C-Cube Microsystems determined
that a distribution of shares of Semiconductor was in the best interest of the
stockholders of C-Cube Microsystems. The C-Cube Microsystems board of directors
considered a number of factors in determining to recommend approval of the
spin-off of Semiconductor including:
- The necessity of spinning off or selling Semiconductor in order to
complete C-Cube Microsystems' merger with Harmonic;
- The recent proposed valuation of Semiconductor;
- All purchase proposals relating to Semiconductor received by C-Cube
Microsystems; and
- Based on the current financial market conditions and the historical
market information concerning C-Cube Microsystems common stock, the
ability of Semiconductor to become a viable public company and create
substantial stockholder value by, among other things, allowing the
financial community to focus separately on the semiconductor business and
the DiviCom business.
Please review the information set forth under the caption "Reasons for the
Distribution" for further details about the reasons for the distribution.
THE DISTRIBUTION
Each C-Cube Microsystems stockholder will receive one share of
Semiconductor common stock for every [ ] shares of C-Cube Microsystems
common stock held. As of [ , ], C-Cube Microsystems had
[ ] shares of common stock outstanding.
Distribution and Transfer Information. Boston EquiServe, L.P. will act as
the distribution and transfer agent for the distribution. The distribution agent
will mail stock certificates beginning on or about the distribution date.
Record Date, Distribution Date. The record date for the distribution will
be the close of business on [ , 2000]. On the record date, C-Cube
Microsystems will transfer to a custodian all of the shares of Semiconductor
common stock pursuant to an irrevocable custody arrangement. On or about
[ , ], the custodian will deliver the shares to
Semiconductor's transfer agent which will then mail them to the C-Cube
Microsystems stockholders of record as of the record date.
No Fractional Shares. No fractional shares of Semiconductor common stock
will be distributed. Fractional shares of Semiconductor common stock will be
aggregated and sold by Boston EquiServe to provide cash to holders in lieu of
such fractional shares.
6
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Trading Market. Semiconductor has applied to have the Semiconductor common
stock included for quotation on the Nasdaq National Market under the symbol
"[ ]."
INVESTOR CONTACT
Semiconductor and C-Cube Microsystems stockholders with questions about the
distribution should contact Walt Walczykowski, Chief Financial Officer, at
C-Cube Microsystems' principal executive offices at 1778 McCarthy Boulevard,
Milpitas, California 95035; telephone (408) 490-8000. This contact information
will remain the same after the distribution.
7
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RISK FACTORS
You should carefully consider the risks described below when evaluating
your ownership of Semiconductor common stock. The risks and uncertainties
described below are not the only ones Semiconductor faces. Additional risks and
uncertainties Semiconductor is presently not aware of or that it currently
considers immaterial may also impair Semiconductor's business operations.
If any of the following risks actually occurs, Semiconductor's business,
financial condition or results of operations could be materially adversely
affected. In such case, the trading price of the Semiconductor common stock
could decline significantly.
This information statement also contains forward-looking statements. These
statements include words such as "may," "will," "expect," "believe," "intend,"
"anticipate," "estimate" or similar words. These statements are based on C-Cube
Microsystems' current beliefs, expectations and assumptions. Semiconductor's
actual results could differ materially from those anticipated in these
forward-looking statements due to certain factors, including the risks described
below and elsewhere in this information statement. Semiconductor undertakes no
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
C-CUBE MICROSYSTEMS OPERATED SOLELY AS A SEMICONDUCTOR BUSINESS UNTIL 1996,
WHEN IT ACQUIRED THE DIVICOM BUSINESS. SEMICONDUCTOR MAY INCUR LOSSES AS A
RESULT OF OPERATING SOLELY AS A SEMICONDUCTOR BUSINESS AGAIN.
Since acquiring the DiviCom business in 1996, C-Cube Microsystems
operations have consisted of the semiconductor business and the DivCom systems
business. The acquisition has allowed C-Cube Microsystems, among other things:
- The ability to leverage the DiviCom business's expertise in areas related
to C-Cube Microsystems' core competency in digital video compression;
- Increased sales of C-Cube Microsystems products for set-top boxes and an
increased understanding of such customer systems requirements;
- The opportunity to jointly develop various communications products;
- The ability to combine the expertise of the two businesses to serve the
digital video networking market;
- The ability to more effectively enable and cost reduce end-to-end video
networking solutions;
- The added benefit of a larger market capitalization due to the addition
of a systems business to a stand-alone semiconductor business; and
- The added diversification of serving both the digital video,
semiconductor and communications systems markets.
Semiconductor alone cannot be sure that its operating results will not be
adversely affected by the loss of one or more of the above attributes. It is
possible that since Semiconductor will not be able to provide a complete
broadcast/set-top solution as it was able to do with the additional DiviCom
products, these customers will seek to find a complete solution elsewhere. Any
loss of the benefits provided by the combination with the DiviCom business could
seriously harm Semiconductor's operating results which would negatively affect
the value of your investment.
8
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SEMICONDUCTOR'S OPERATING RESULTS HAVE VARIED SIGNIFICANTLY IN THE PAST AND ARE
LIKELY TO VARY SIGNIFICANTLY IN THE FUTURE. SEMICONDUCTOR'S STOCK PRICE MAY
DECLINE IF IT FAILS TO MEET THE EXPECTATIONS OF ANALYSTS AND INVESTORS.
Semiconductor's quarterly and annual operating results have been and will
likely continue to be affected by a wide variety of factors that could have a
negative effect on revenue and profitability. These factors include, but are not
limited to:
- The rescheduling or cancellation of orders from our customers at any
time;
- Availability and cost of raw materials, foundry capacity, assembly
capacity, packages and test capacity from our vendors;
- Fluctuations in yield on wafers and final test;
- Competitive pressures on average selling prices on products supplied by
Semiconductor;
- Changes in governmental policies in various regions in which
Semiconductor does a substantial amount of business;
- Ability to introduce new products and technologies on a timely basis to
meet customer needs;
- Competitive products introduced by Semiconductor's competitors;
- Market acceptance of products of both Semiconductor and its customers;
- Loss of strategic relationships in Semiconductor's markets;
- Delay in the emergence of new markets in which Semiconductor products are
used;
- The level of expenditures for research and development, sales,
administration and marketing needed to be successful in Semiconductor's
markets;
- Changes in product or customer mix;
- External factors such as a general economic slowdown in areas of the
world in which Semiconductor does substantial business; and
- The level of orders which are received and can be shipped in any given
quarter;
Further, a significant portion of Semiconductor's expenses is fixed and the
timing of increases in expenses is based in large part on its forecast of future
revenue. As a result, if revenue does not meet Semiconductor's expectations, it
may be unable to quickly adjust expenses to levels appropriate to actual
revenue. Any of the above factors could have an adverse effect on our operating
results.
IF SYSTEMS MANUFACTURERS DO NOT ACCEPT SEMICONDUCTOR'S PRODUCTS OR IF NEW
MARKETS FOR ITS PRODUCTS DO NOT EMERGE, SEMICONDUCTOR'S PRODUCTS COULD BECOME
OBSOLETE AND UNMARKETABLE OR REQUIRE SEMICONDUCTOR TO REDESIGN ITS PRODUCTS,
WHICH COULD BE COSTLY AND TIME-CONSUMING.
To date, Semiconductor has derived substantially all of its product revenue
from sales of products for linear video playback and karaoke, computer add-in
cards and direct broadcast satellite applications and from sales of products for
development, trials and early deployment of broadcast and other applications
that are not yet commercially available or are not yet in volume production.
Semiconductor's ability to generate increased revenue will depend on the
development of new opportunities for digital video compression in the consumer
electronics, computer and communications markets. The markets for
Semiconductor's products change and evolve rapidly, but the potential size of
new market opportunities and the timing of their development is uncertain. Some
of the potential new markets for digital video compression would require
extensive communications infrastructures that are not yet in place and that
would likely be expensive and heavily regulated by governmental entities. These
new markets may never materialize or they might not materialize for some time.
Semiconductor's success in any new market will depend upon whether system
manufacturers
9
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select its products for incorporation into the system manufacturers' products
and upon the successful introduction of such products.
A variety of alternate approaches to digital video compression have been
introduced, including wavelets, fractals, proprietary compression algorithms and
software-only solutions. Other companies are designing products around these or
alternative approaches. In addition, manufacturers of general purpose
microprocessors are positioning their products as offering digital video
compression capability. Semiconductor cannot be sure that system manufacturers
will not use such processors for video compression applications in place of
purchasing products from Semiconductor. If Semiconductor fails to develop the
types of products that systems manufacturers want in existing markets and in
potential new markets, our revenue may not meet analysts' expectations which may
affect the value of your investment.
IF THE WAFER SUPPLIERS AND SUBCONTRACTORS ON WHICH SEMICONDUCTOR DEPENDS DO NOT
PERFORM, SEMICONDUCTOR WILL NOT BE ABLE TO FILL ORDERS FOR ITS PRODUCTS.
All of Semiconductor's products are currently manufactured to its
specifications by independent foundries, and assembly, test and packaging are
subcontracted to third parties. Although Semiconductor primarily uses three
foundries to fabricate its products, the majority of its products are produced
by only one of the foundries and is therefore dependent on a single foundry for
many of its products. This dependence on single foundries subjects Semiconductor
to risks associated with an interruption in supply from any such foundry. These
risks include reduced control over:
- Delivery schedules;
- Quality assurance;
- Manufacturing yields and cost;
- The potential lack of adequate capacity; and
- The potential misappropriation of intellectual property.
Semiconductor obtains foundry capacity through forecasts that are generated
in advance of expected delivery dates and are binding. For example, certain of
Semiconductor's suppliers require it to make binding forecasts as much as eight
months in advance of expected delivery dates. Semiconductor's ability to obtain
the foundry capacity necessary to meet the future demand for its products is
based on its ability to accurately forecast such future demand. If Semiconductor
fails to accurately forecast future demand, it may be unable to timely obtain an
adequate supply of wafers necessary to manufacture the number of products
required to satisfy the actual demand. This obligation to make binding forecasts
far in advance of delivery subjects it to inventory risks, including the risk of
obsolescence. Semiconductor cannot be sure that it will continue to accurately
forecast the demand for its products and obtain sufficient foundry capacity. If
it is unable to do so, its results of operation would likely diminish.
In connection with the manufacture of its newer products, Semiconductor
also needs to qualify foundries that employ advanced manufacturing and process
technologies which are currently available from a limited number of foundries.
For example, certain of the new products that Semiconductor intends to introduce
require advanced complementary metal oxide semiconductor processes.
Semiconductor has in the past experienced increased costs and delays in
connection with the qualification of foundries. Such increased costs and delays
may adversely affect results of operation.
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COMPETITION IN THE SEMICONDUCTOR INDUSTRY IS INTENSE. IF SEMICONDUCTOR IS UNABLE
TO COMPETE EFFECTIVELY, THE DEMAND FOR, AND/OR THE PRICES OF, OUR PRODUCTS MAY
DECLINE.
The market for Semiconductor's products is intensely competitive and
characterized by declining average selling prices and rapid technological
change. Semiconductor will continue to compete with its principal competitors
including:
- Philips,
- SGS-Thomson,
- Oak Technology,
- ESS Technology,
- Sony,
- Winbond,
- NEC,
- Matsushita Electric Industrial Company (MEI),
- Zoran,
- SGS-Thomson,
- LSI Logic,
- Broadcom,
- Texas Instruments,
- National Semiconductor,
- Conexant, and
- IBM Microelectronics.
Though C-Cube Microsystems has always faced competition from these
competitors, it may be less able to react quickly to competitive threats without
the added joint research and development, complete solution and financial
stability benefits it enjoyed through its combination with DiviCom.
SEMICONDUCTOR DERIVES MUCH OF ITS PRODUCT REVENUE FROM SALES TO EMERGING GLOBAL
MARKETS. WITHOUT THE DIVICOM BUSINESS DIVERSIFICATION, ITS BUSINESS MIGHT BE
MORE SUSCEPTIBLE TO FLUCTUATIONS IN EMERGING MARKET ECONOMIES.
To date, Semiconductor has derived a substantial portion of its revenue
from sales of its VCD decoder family of products. It expects that revenue from
this family of products will decrease as a percentage of total revenue, but
continue to account for a significant portion of its product revenue in 2000.
Substantially all of the growth in the sales of Semiconductor's decoder products
over the last several years has occurred in the Asia-Pacific region. To date,
the DiviCom business has derived substantially all of its revenue from sales of
satellite delivery, cable and cable broadcasting systems. Much of the growth in
its sales has occurred in Europe and the United States. Without DiviCom's growth
in sales to Europe and the United States, Semiconductor's sales growth is less
geographically diversified which may limit its ability to offset the effect of
downturns in emerging global markets on its results of operations.
THE SPIN-OFF OF SEMICONDUCTOR WILL CAUSE SUBSTANTIAL CORPORATE TAX, AND THE IRS
MAY SUCCESSFULLY LATER ASSERT THAT THIS CORPORATE TAX LIABILITY IS HIGHER THAN
ORIGINALLY CALCULATED. SEMICONDUCTOR MAY NEED TO RAISE ADDITIONAL FUNDS TO PAY
ITS TAX OBLIGATIONS IF THOSE OBLIGATIONS ARE HIGHER THAN ANTICIPATED.
We will incur a substantial corporate tax in connection with the spin-off.
We will recognize a taxable gain approximately equal to the difference between
the fair market value of Semiconductor on the date of
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distribution, minus our aggregate basis in the assets (net of liabilities) that
we will transfer to Semiconductor before the spin-off, minus certain expenses
related to the transaction. Our basis in the assets that we will transfer to
Semiconductor is low and we currently estimate that this tax liability will be
approximately $140 million. The actual tax liability may differ from the
estimate based on a variety of factors, including the value of Semiconductor at
the time of the spin-off.
Under Semiconductor's tax sharing agreement with Harmonic, Semiconductor
will be liable for any increase in corporate tax liability (plus certain related
costs) that results, for example, from an IRS audit. If these tax liabilities
are significantly higher than anticipated, Semiconductor may be forced to
increase its debt or issue equity to pay its liabilities, and there can be no
assurance that these sources of funding will be available. An increase in debt
could negatively impact Semiconductor's financial position and future results of
operations and an issuance of equity could dilute your interest in
Semiconductor.
IN THE EVENT THE DISTRIBUTION OF C-CUBE SEMICONDUCTOR STOCK TO YOU IS TREATED AS
A TAXABLE DISTRIBUTION, YOU MAY BE TREATED AS RECEIVING TAXABLE CAPITAL GAINS OR
TAXABLE ORDINARY INCOME.
Although the completion of the distribution is not contingent on the
receipt of a tax opinion regarding the distribution, we have been advised by
Ernst & Young LLP that in their opinion the distribution of Semiconductor stock
to you will be treated as a tax-free distribution. This opinion is subject to
certain limitations and qualifications and is based on representations made by
us. This opinion represents only the best judgment of Ernst & Young LLP and is
not binding on the IRS or the courts. The IRS is not precluded from successfully
asserting a contrary interpretation. In addition, subsequent authorities could
result in the Ernst & Young opinion being incorrect. Thus, it is possible that
the distribution will be treated as taxable capital gain or as taxable ordinary
income up to the value of the stock distributed.
SEMICONDUCTOR MAY EXPERIENCE DIFFICULTY ATTRACTING AND RETAINING QUALITY
EMPLOYEES WHICH MAY HURT ITS ABILITY TO OPERATE ITS BUSINESS EFFECTIVELY.
The ability of Semiconductor to maintain its competitive technological
position will depend, in large part, on its ability to attract and retain highly
qualified technical and managerial personnel. Competition for such personnel is
intense, especially in Silicon Valley where Semiconductor's headquarters is
located, and there is a risk that some key employees will depart as a result of
the distribution. In addition, the announcement of the proposed distribution may
impede Semiconductor's ability to attract new employees. While Semiconductor was
combined with the DiviCom business, some employees had a choice of which
business to work for. In addition, the combination with the DiviCom business has
resulted in faster growth and greater scale for C-Cube Microsystems. Without
these benefits of a combined business, Semiconductor cannot be sure that it will
experience the same success attracting quality employees. Lack of success in
attracting such employees could lead to lower than expected operating results,
delays in the introduction of new products and a negative effect on
Semiconductor's ability to support customers.
SEASONAL TRENDS MAY CAUSE SEMICONDUCTOR'S QUARTERLY OPERATING RESULTS TO
FLUCTUATE, WHICH MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK.
A significant portion of our sales revenue comes from the consumer and
communications markets, both of which are characterized by seasonal sales. Both
markets tend to experience higher sales in the third and fourth calendar
quarters due to holiday purchases by system manufacturers and relatively less
strong sales in the first and second calendar quarters. Though seasonality
affects Semiconductor less and less due to diversified product lines, seasonal
trends may still cause its operating results to fluctuate which may have an
adverse effect on Semiconductor's stock price.
IF SEMICONDUCTOR IS UNABLE TO ADEQUATELY PROTECT ITS INTELLECTUAL PROPERTY,
THIRD PARTIES COULD USE ITS INTELLECTUAL PROPERTY WITHOUT ITS CONSENT.
Semiconductor's ability to successfully compete is substantially dependent
upon its internally developed technology and intellectual property, which it
protects through a combination of patents, copyright and trade
12
<PAGE> 14
secret law, confidentiality procedures and licensing arrangements. To that end,
Semiconductor has obtained certain patents and intends to continue to seek
patents on its technology when and where appropriate. Semiconductor may,
however, not be able to adequately protect its proprietary rights. Unauthorized
parties may attempt to obtain and use its proprietary information. Policing
unauthorized use of our proprietary information is difficult, and Semiconductor
cannot be certain that the steps it has taken will prevent misappropriation,
particularly in foreign countries where the laws may not protect its proprietary
rights as fully as in the United States. For a further discussion of its
intellectual property, please see "Business -- Intellectual Property Rights".
ECONOMIC, POLITICAL AND OTHER RISKS ASSOCIATED WITH INTERNATIONAL SALES AND
OPERATIONS COULD ADVERSELY AFFECT SEMICONDUCTOR'S SALES.
International revenue has accounted for a significant portion of
Semiconductor's net revenue in the past, and Semiconductor believes that
international revenue will continue to account for a significant portion of net
revenue. Semiconductor's success will depend in part upon its ability to manage
international marketing and sales operations and manufacturing relationships.
Semiconductor's international manufacturing and sales are subject to risks
inherent in international transactions including:
- Difficulties in collecting accounts receivable and longer collection
periods;
- Changing and conflicting regulatory requirements;
- Potentially adverse tax consequences;
- Tariffs and general export restrictions;
- Difficulties in staffing and managing foreign operations;
- Political instability;
- Fluctuations in currency exchange rates;
- Natural disasters;
- Seasonal reduction in business activity during the summer months in
Europe and certain other parts of the world; and
- The impact of local economic conditions and practices.
For example, China is a substantial market for consumer electronics
products such as VCD and Chaoji VCD players. As a result, any political or
economic instability in such countries could significantly reduce demand for
products from certain of Semiconductor's major customers. Another example is the
earthquake in Taiwan during the third quarter of 1999. The earthquake only
caused minimal wafer damage at the foundries utilized by Semiconductor, but
production capacity in the near future is anticipated to be tight. Any of the
above factors could have a material and adverse effect on Semiconductor's
international sales and operations, which, in turn, could adversely affect its
overall business, operating results and financial condition.
THERE HAS NEVER BEEN A TRADING MARKET FOR SEMICONDUCTOR COMMON STOCK WHICH MAY
CAUSE THE STOCK PRICE TO BE VOLATILE. THIS VOLATILITY MIGHT KEEP YOU FROM
RESELLING YOUR SHARES AT OR ABOVE THE PRICE ON THE DISTRIBUTION DATE.
Prior to the distribution, there has been no public market for
Semiconductor common stock. Semiconductor has applied to have its common stock
included for quotation on the Nasdaq National Market. Based on the trading
patterns of other companies which became publicly traded in similar
transactions, Semiconductor believes the initial trading volume in Semiconductor
common stock will be moderate as investors assess Semiconductor's progress as a
public, stand-alone company. An active, sustained trading market may not,
however, develop.
13
<PAGE> 15
A number of factors may affect the price and liquidity of the Semiconductor
common stock, including:
- actual or anticipated fluctuations in Semiconductor's operating results;
- changes in expectations as to Semiconductor's future financial
performance or changes in securities analysts' financial estimates; and
- the operating and stock price performance of other comparable companies.
In addition, Semiconductor common stock may be followed by few, if any,
market analysts and there may be few institutions acting as market makers for
the common stock. Either of these factors could adversely affect the liquidity
and trading price of the Semiconductor common stock. Also, the stock market in
general has experienced extreme price and volume volatility that has especially
affected the market prices of securities of many high technology companies. At
times, this volatility has been unrelated to the operating performance of
particular companies. These broad market and industry fluctuations may adversely
affect the trading price of the common stock, regardless of Semiconductor's
actual operating performance.
SEMICONDUCTOR HISTORICAL FINANCIAL INFORMATION MAY NOT BE REPRESENTATIVE OF ITS
RESULTS AS A SEPARATE COMPANY.
The historical financial information of Semiconductor is shown in the
unaudited pro-forma financial statements at page and does not necessarily
reflect what Semiconductor's financial position, results of operations and cash
flows would have been had it been a separate, stand-alone entity during the
periods presented. In addition, the historical information is not necessarily
indicative of what its results of operations, financial position and cash flows
will be in the future. Semiconductor has not made adjustments to reflect many
significant changes that will occur in its cost structure, funding and
operations as a result of its separation from C-Cube Microsystems, including
changes in its employee base, changes in its legal structure, increased costs
associated with reduced economies of scale, increased marketing expenses related
to establishing a new brand identity and increased costs associated with being a
public, stand-alone company.
For additional information, see "Unaudited Pro Forma Condensed Financial
Statements," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Semiconductor's historical consolidated financial
statements and notes thereto.
SEMICONDUCTOR CURRENTLY USES C-CUBE MICROSYSTEMS' INFORMATION SYSTEMS, SOME OF
WHICH REQUIRE C-CUBE MICROSYSTEMS TO TRANSFER LICENSES TO SEMICONDUCTOR OR TO BE
MODIFIED TO SUPPORT SEMICONDUCTOR'S BUSINESS AS A STAND-ALONE ENTITY.
Semiconductor currently uses C-Cube Microsystems' systems to support its
operations, including systems to manage inventory, order processing, human
resources, shipping, accounting, telecommunications and computer networking.
While several of the systems currently used by C-Cube Microsystems are specific
to Semiconductor, it has an agreement with C-Cube Microsystems for Semiconductor
to continue to provide certain information services to C-Cube Microsystems for
up to the next two years. Many of the systems Semiconductor currently uses are
proprietary to C-Cube Microsystems and are very complex. These systems have been
modified, and are in the process of being further modified, to enable
Semiconductor to separately track items related to its business. These
modifications, however, may result in unexpected system failures or the loss or
corruption of data.
Any failure or significant downtime in C-Cube Microsystems' or
Semiconductor's own information systems could prevent it from taking customer
orders, shipping products or billing customers and could harm its business. In
addition, C-Cube Microsystems' and Semiconductor's information systems require
the services of employees with extensive knowledge of these information systems
and the business environment in which it operates. In order to successfully
implement and operate its systems, it must be able to attract and retain a
significant number of current C-Cube Microsystems employees to Semiconductor. If
Semiconductor fails to attract and retain the highly skilled personnel required
to implement, maintain, and operate its information systems, Semiconductor's
business could suffer.
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<PAGE> 16
SEMICONDUCTOR MUST OBTAIN ASSIGNMENT OF ALL MAJOR CONTRACTS IT WILL ASSUME FROM
C-CUBE MICROSYSTEMS. SOME OF THE PARTIES TO THESE MAJOR CONTRACTS MAY NOT
CONSENT TO THE ASSIGNMENT AT ALL OR WITHOUT ADVERSE CHANGES TO THE EXISTING
COSTS TERMS AND CONDITIONS.
Because Semiconductor is a newly-formed entity, all of the contracts under
which it will operate must be either assigned from C-Cube Microsystems or newly
entered into. We cannot be certain that parties to these existing contracts will
be willing to assign them to Semiconductor at all or on terms no less favorable
than those currently in effect with C-Cube Microsystems. If any of the parties
to these contracts are unwilling to assign them on favorable terms,
Semiconductor's results of operations could be adversely affected.
SEMICONDUCTOR'S OPERATING RESULTS WOULD SUFFER IF IT WERE FORCED TO DEFEND
AGAINST A PROTRACTED INFRINGEMENT CLAIM OR IF A THIRD PARTY WERE AWARDED
SIGNIFICANT DAMAGES.
There is a substantial risk of litigation regarding intellectual property
rights in the semiconductor industry. A successful claim of patent or other
technology infringement against it and its failure or inability to license the
infringed or similar technology could harm Semiconductor's business.
Semiconductor cannot be certain that third parties will not make a claim of
infringement against it relating to its technology. Any claims, with or without
merit, could:
- Be time-consuming and costly to defend;
- Divert management's attention and resources;
- Cause delays in delivering products;
- Require the payment of monetary damages which may be tripled if the
infringement is found to be willful;
- Result in an injunction which would prohibit us from offering a
particular product; and
- Require us to enter into royalty or licensing agreements which may not be
available on acceptable terms.
SEMICONDUCTOR MAY ENGAGE IN FUTURE ACQUISITIONS THAT RESULT IN INCREASED DEBT,
ASSUMPTION OF LIABILITIES AND OTHER MANAGERIAL CHALLENGES THAT MAY RESULT IN A
NEGATIVE EFFECT ON OPERATIONS.
As part of its overall strategy to enhance or accelerate its product
development efforts, Semiconductor may acquire or invest in complementary
companies, products or technologies or enter into joint ventures or strategic
alliances with other companies. Risks commonly encountered in such transactions
include the difficulty of assimilating the operations and personnel of the
combined companies, the potential disruption of Semiconductor's ongoing
business, the inability to retain key technical and managerial personnel, the
inability of management to maximize the financial and strategic position of
Semiconductor through the successful integration of the acquired business,
decreases in reported earnings as a result of charges for in-process research
and development and amortization of acquired intangible assets, dilution of
existing equity holders, difficulty in maintaining controls, procedures and
policies, and the impairment of relationships with employees and customers as a
result of any integration of new personnel. There can be no assurances that
Semiconductor would be successful in overcoming these risks or any other
problems encountered in connection with such business combinations, investments
or joint ventures, or that such transactions will not have an adverse effect on
Semiconductor's business, financial condition and results of operations.
SEMICONDUCTOR'S DIRECTORS AND EXECUTIVE OFFICERS MAY HAVE CONFLICTS OF INTEREST
BECAUSE OF THEIR OWNERSHIP OF C-CUBE MICROSYSTEMS COMMON STOCK.
Certain of Semiconductor's directors and executive officers have a
substantial amount of their personal financial portfolios in C-Cube Microsystems
common stock and options to purchase C-Cube Microsystems common stock. Ownership
of C-Cube Microsystems common stock by Semiconductor's directors and officers
after its separation from C-Cube Microsystems could create, or appear to create,
potential conflicts of interest when directors and officers are faced with
decisions that could have different implications for C-Cube
15
<PAGE> 17
Microsystems and Semiconductor. For information regarding directors' and
officers' ownership of C-Cube Microsystems common stock, see
"Management -- Stock Ownership of Directors and Executive Officers."
SEMICONDUCTOR IS SUBJECT TO ANTI-TAKEOVER PROVISIONS
Certain provisions of Semiconductor's Certificate of Incorporation and
Bylaws could make it more difficult for a third party to gain control of
Semiconductor, even if a change in control might be beneficial to its
stockholders. This could adversely affect the market price of the common stock.
These provisions include:
- the elimination of the right of stockholders to act by written consent;
- the elimination of the right of stockholders to call special meetings of
the stockholders;
- the creation of a staggered board of directors; and
- the ability of the board of directors to designate and issue preferred
stock without stockholder consent.
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<PAGE> 18
THE DISTRIBUTION
The board of directors of C-Cube Microsystems has declared a distribution
to its stockholders, of [ ] of Semiconductor common stock for every share of
C-Cube Microsystems common stock held on , the record date for the
distribution. As a result of the distribution, all of the then outstanding
Semiconductor common stock will be distributed to C-Cube Microsystems'
stockholders. See "Description of Capital Stock."
Before , C-Cube Microsystems will complete preliminary
internal restructuring transactions related to the Semiconductor business. On
, C-Cube Microsystems will effect the distribution by delivering
all of the Semiconductor common stock to , which will hold such
shares as custodian for the benefit of the C-Cube Microsystems stockholders of
record as of the record date pursuant to an irrevocable custody arrangement. On
or about , the distribution agent will deliver the shares to
Boston EquiServe, C-Cube Microsystems' transfer agent, which will then mail the
shares to the C-Cube Microsystems stockholders of record as of the record date.
No fractional shares will be issued as part of the distribution. The
distribution agent will aggregate undistributed fractional shares and sell such
shares at the earliest practicable date at the then-prevailing market price.
Each person who would be otherwise entitled to receive a fractional share will
instead receive a cash payment equal to such person's proportionate share of the
net proceeds of the sale of such aggregated shares.
C-Cube Microsystems' stockholders will not be required to pay any cash or
other consideration for the Semiconductor common stock received in the
distribution. The distribution of the Semiconductor common stock to C-Cube
Microsystems stockholders will, however, have certain tax and other
consequences, as discussed in this document.
The general terms and conditions of the distribution and the arrangements
between Semiconductor and C-Cube Microsystems are set forth in the Separation
and Distribution Agreement, the Tax Sharing Agreement, the Real Estate Matters
Agreement, the Employee Matters Agreement, the Indemnification and Insurance
Matters Agreement, the Master Confidential Disclosure Agreement and the
Transitional Services Agreement. For more information regarding these
agreements, please see "Arrangements between C-Cube Microsystems and
Semiconductor". C-Cube Microsystems will pay the costs and expenses incurred in
connection with the distribution.
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<PAGE> 19
PRO FORMA CAPITALIZATION
The following table sets forth the capitalization and certain other balance
sheet data of Semiconductor as of September 30, 1999. This information should be
read in conjunction with the pro forma financial information included elsewhere
in this information statement.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-----------------------------------------------------------------
C-CUBE
MICROSYSTEMS, INC. PRO FORMA SEMICONDUCTOR,
HISTORICAL ADJUSTMENTS(1) PRO FORMA AS ADJUSTED
------------------------ -------------- ---------------------
<S> <C> <C> <C>
Cash, cash equivalents and short-term
investments............................ $277,373 $ (85,000) $192,373
======== ========= ========
Stockholders' Equity:
Preferred Stock........................ $ -- $ -- $ --
Common Stock........................... 270,932 (36,100) 234,832
Accumulated Other Comprehensive Loss... (1,992) 27 (1,965)
Retained Earnings (Deficit)............ 58,620 (114,903) (56,283)
-------- --------- --------
Total Stockholders' Equity..... 327,620 (150,976) 176,584
-------- --------- --------
Total Capitalization........... $327,620 $(150,976) $176,584
======== ========= ========
</TABLE>
- ---------------
(1) See notes to Semiconductor's Pro Forma Balance Sheet on Page F- for
a description of the pro forma adjustments reflected in the adjusted
balances.
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<PAGE> 20
REASONS FOR THE DISTRIBUTION
The Amended and Restated Agreement and Plan of Merger and Reorganization
with Harmonic contemplates the sale or distribution of the semiconductor
business immediately prior to and in connection with the merger. After thorough
consideration, the board of directors of C-Cube Microsystems determined that a
spin-off of the semiconductor business was in the stockholders' best interest.
The C-Cube Microsystems board of directors considered a number of factors in
determining to recommend approval of the spin-off of the semiconductor business
including:
- The necessity of spinning off Semiconductor in order to complete C-Cube
Microsystems' merger with Harmonic;
- The recent proposed valuation of Semiconductor;
- All purchase proposals relating to Semiconductor received by C-Cube
Microsystems; and
- Based on the current financial market conditions and the historical
market information concerning C-Cube Microsystems common stock, the
ability of Semiconductor to become a viable public company and create
substantial stockholder value by, among other things, allowing the
financial community to focus separately on the semiconductor business and
the DiviCom business.
After reviewing C-Cube Microsystems' goals and objectives and considering other
possible methods of enhancing the growth of Semiconductor, C-Cube Microsystems'
management and board of directors concluded that enhancing this business through
the formation of Semiconductor and the distribution would be in the best
interest of C-Cube Microsystems stockholders. C-Cube Microsystems' board of
directors approved the formation of Semiconductor and the distribution based on
information provided by C-Cube Microsystems' management and its financial
advisor Credit Suisse First Boston, or CSFB, which has in the past been an
advisor to companies effecting similar transactions.
In its capacity as financial advisor, representatives of CSFB made a
presentation to C-Cube Microsystems management in December 1999 regarding
potential structures for the sale or spin-off of C-Cube Microsystems'
semiconductor business. At the board meeting on December 14, 1999,
representatives of CSFB made presentations to the C-Cube Microsystems board of
directors regarding various potential transactions, including the transaction
described in this information statement. During the period from October through
December 1999, CSFB participated in various meetings and conference calls with
respect to the structuring of the transaction described herein. CSFB also
advised C-Cube Microsystems regarding the distribution considerations applicable
to spin-off transactions, including guidance with respect to communications with
stockholders and the investment community.
CSFB, as part of its investment banking business, engages in the valuation
of businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements, and valuations for estate, corporate and other purposes.
C-Cube Microsystems selected CSFB as its financial advisor because it is an
internationally recognized investment banking firm that has substantial
experience in transactions similar to the distribution.
Although CSFB participated in certain of the discussions regarding the
distribution, the terms of the distribution were determined by C-Cube
Microsystems' board of directors.
C-Cube Microsystems will account for the merger of the DiviCom business
into Harmonic and the spin-off of the semiconductor business follows. C-Cube
Microsystems will account for the merger of the DiviCom business into Harmonic
as a sale of the DiviCom business to Harmonic and will record DiviCom as a
discontinued operation. The basis of all remaining assets, liabilities and
stockholder's equity will carryover into the new entity, Semiconductor. The
effect of this will be to account for Semiconductor as though it were a
continuation of C-Cube Microsystems following the sale of the DiviCom business
to Harmonic. Because the legal structure of the merger with Harmonic is a merger
of C-Cube Microsystems, which consists of only the DiviCom business after the
distribution of Semiconductor, with Harmonic, C-Cube Microsystems will cease to
be a registrant and Semiconductor will become a new registrant with the SEC. For
tax and legal purposes, C-Cube Microsystems will record the distribution of
Semiconductor Stock as a taxable spin-off. [At the time
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<PAGE> 21
C-Cube Microsystems transfers the common stock of Semiconductor to the
custodian, C-Cube Microsystems will account for the fair market value of the
shares distributed as a distribution and will record as a taxable gain, the
difference between the tax basis of its Semiconductor assets, reduced by
liabilities assumed, and the fair market value of the shares of Semiconductor
common stock. The fair market value of the shares of Semiconductor common stock
will be based on the trading price at the date of distribution.]
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<PAGE> 22
BUSINESS
C-Cube Microsystems Inc. was established as a California corporation in
1988 and reincorporated in Delaware in 1994. In 1996, C-Cube Microsystems
acquired all of the capital stock of DiviCom Inc. After operating for three
years as a combined entity, C-Cube Microsystems Inc.'s semiconductor business is
being spun off to become C-Cube Semiconductor Inc., a Delaware corporation or
"Semiconductor". This spin-off will be contingent on the satisfaction of all
conditions precedent to C-Cube's merger with Harmonic. References herein to
Semiconductor refer to C-Cube Microsystems' semiconductor business before and
after the distribution to C-Cube Semiconductor Inc., a Delaware corporation.
Semiconductor designs, develops, manufactures and sells semiconductors,
software and systems for digital video applications. As a leading supplier of
such solutions, Semiconductor has played a major role in enabling the growth of
digital video. Semiconductor is focused on working with its OEM customers and
service providers to enable key applications in its consumer and communications
target markets. In the consumer market, it is focused on playback and recordable
Video Compact Disc or VideoCD and DVD as well as Digital VHS recorders and
Digital Video Recorders or DVR. The communications market targets interactive
set-top boxes, broadcast encoders and emerging appliances like non-linear
editing, time shifting, video e-mail and internet TV boxes.
COMPRESSION ENABLES MASS-MARKET APPLICATIONS OF DIGITAL VIDEO
Since the 1930s, video images have been transmitted and stored almost
exclusively using analog formats. Digital video provides several fundamental
benefits over analog video. Unlike analog video, digital video can be
compressed, providing significant storage and transmission efficiencies, and can
be transmitted and reproduced without perceptible image degradation. In the
1980s, the benefits of digital formats led the U.S. consumer audio industry to
convert from analog long-playing records to digital CDs, resulting in tremendous
growth in the market for CD players and displacing the analog formats. In the
1990s, the evolution from analog to digital began transforming the way in which
video is produced, stored, transmitted and viewed.
Representing video in uncompressed digital form requires a large amount of
data, which in the past has made storage or transmission economically
impractical. To transmit a single uncompressed digital video program requires
multiple satellite transponders -- each costing as much as $2 million per year.
The sheer size of uncompressed digital video has relegated it to niche
applications of small volumes.
However, the very nature of video information lends itself to compression.
Any video sequence has inherent redundancies, for example, one frame of a movie
often differs very little from the next successive frame. Through digital
compression techniques, the redundancies in video data can be detected and
eliminated, significantly reducing the overall amount of data needed to recreate
the original image without affecting the image quality. Using video compression
techniques, a single satellite transponder can broadcast 8 to 12 programs
instead of the partial program possible with uncompressed video. Semiconductor
believes that the design and deployment of cost-effective and practical video
compression technology is critical to the development of mass-market
applications.
STANDARDS ENHANCE THE GROWTH OF DIGITAL VIDEO MARKETS
As digital video markets develop, so does the need for standards to ensure
that products from different manufacturers use the same formats for video
information. Throughout its history, Semiconductor has been an active
participant and respected technology pioneer on International Organization for
Standardization (ISO) committees charged with creating standards for still image
and digital video compression.
Key standards that have driven the growth of digital video include the
Joint Photographic Experts Group (JPEG) standard for still-image compression and
two Moving Pictures Experts Group (MPEG) standards for digital video and audio
compression. The MPEG-1 standard enabled the first digital video consumer
products such as VideoCD, while the more recent MPEG-2 standard has become the
accepted compression format in diverse applications such as digital satellite,
cable and terrestrial TV as well as professional video editing,
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<PAGE> 23
D-VHS and DVD. The adoption and acceptance of these standards has contributed
greatly to the growth of digital video markets during the 1990s.
ENCODING ALGORITHMS DETERMINE VIDEO QUALITY
As vital as the ISO standards have been to the development of digital
video, they have a built-in limitation. The standards determine
interoperability, not video quality. More specifically, the standards define the
format for compressed video data. An MPEG-compliant encoder (the compression
device) will create data that an MPEG-compliant decoder (the decompression
device) can reconstruct into a video image. But the process of encoding
necessarily involves discarding some of the image information to achieve
compression. If the encoder is "smart," that is, if it can correctly determine
which information is redundant or insignificant to the video quality, then the
encoded video will be a faithful representation of the source video and the
decoder can create a high-quality video image. But if the encoder makes poor
choices and discards important video information, then the decoder cannot
compensate. The reconstructed image will be poor in comparison to the original
source image. Encoder design, therefore, is a critically important determining
factor for video quality.
At the heart of encoder design is the development of encoding algorithms,
the mathematical rules that govern how the large volume of uncompressed video is
reduced to a manageable size without adversely affecting image quality. One of
Semiconductor's core strengths has been its expertise in the development,
testing and refinement of compression algorithms. These mathematical formulas
are proprietary and represent vital intellectual property of Semiconductor. By
incorporating these highly efficient and powerful algorithms into our products,
Semiconductor has consistently been recognized as the industry leader in digital
video encoding. As evidence of this leadership, Semiconductor products perform
the encoding for the majority of digital video television currently being
broadcast. Also, Semiconductor is one of a select group of technology companies
that have been recognized by The National Academy of Television Arts and
Sciences for technical achievement, as shown by their award of a special
technology Emmy(TM) to C-Cube Microsystems' Semiconductor business in 1995.
Semiconductor differentiates its products from competitors by offering both
encoding and decoding solutions that are not only fully compliant with the
MPEG-1 and/or MPEG-2 international standards (and therefore interoperable with
equipment from many other suppliers), but at the same time provide superior
image quality (enhancing the viewing experience), are feature rich and are
highly integrated and therefore cost competitive. All Semiconductor products are
programmable, permitting the incorporation of sophisticated system-level
features after the chip design is completed, while lessening design time, risk
and system cost. Semiconductor also develops proprietary product extensions and
features such as RealSonic(TM) home theater sound enhancement and ClearView(TM)
error correction technology.
MARKET TRENDS
Semiconductor addresses two broad industries where digital video is used,
communications and consumer electronics. This section describes some of the
trends affecting these markets.
COMMUNICATIONS
Digital video compression is currently enabling a number of applications
and capabilities in the communications market in diverse segments such as
satellite, cable, telephone and wireless networks.
SATELLITE
The first full-scale digital video transmission systems to achieve full
deployment were a series of Direct Broadcast Satellite (DBS) networks (also
called Direct To Home or DTH). By combining digital video compression technology
with high-power Ku-band satellites, DBS systems typically provide 100 or more
channels to a large geographical area (e.g. the continental U.S.). This expanded
service usually imposes a relatively low cost per subscriber since the only
incremental investment needed by subscribers is the purchase of a small dish and
a decoder box.
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<PAGE> 24
To compete with other high-speed media, satellite service providers are
beginning DBS deployments using high-speed satellite data transmission to the
home. A disadvantage of this approach is that the return channel uses a standard
modem over telephone lines, thus limiting the interactive nature of the service.
A major trend in this market during 1998 and 1999 was consolidation through
a number of mergers and acquisitions, for example, the merger of DIRECTV and
USSB operations and the merger of AT&T and TCI operations. At the same time, the
satellite market saw the first trials of High Definition Television or HDTV
broadcasting.
CABLE
Cable providers are upgrading the level of their services using a variety
of network approaches including switched digital video (SDV), fiber-to-the-curb
(FTTC) and hybrid-fiber coax (HFC). Open standards, such as those developed by
DVB, DAVIC and the Open Cable consortium, are expected to drive increased cable
revenue opportunities by creating a competitive marketplace for system network
equipment and end-terminal devices.
With the advantage of being able to support high speed, two-way networks
combined with advanced interactive set-top boxes, the revenue base for cable
operators is expected to expand as it grows its client base at the same time as
growing its revenue per client through a broad offering of interactive services
including web browsing and electronic commerce.
Cable is also experiencing consolidation as smaller companies are unable to
make the transition to digital and also as telephony companies seek to get a
foothold in a competitive delivery mechanism into the home for both voice and
video.
CONSUMER ELECTRONICS
Through the use of MPEG compression, video can be stored, reproduced and
distributed on the same media currently in use for other types of digital data,
such as 5-inch (12 cm) CDs that are commonly used for digital audio. Emerging
applications for digital video capture, playback and distribution at the
consumer level are being advanced by the rapid adoption of new consumer-oriented
media formats such as VideoCD players, DVD players, Digital VHS and recordable
DVD as well as consumer digital video cameras and camcorders.
DIGITAL VHS AND RECORDABLE DIGITAL VIDEO DISC
In 1999, several OEMs demonstrated consumer-oriented products positioned as
VCR replacements. Semiconductor believes that rapid growth in this market will
occur only when single-chip codecs (encoder/ decoder combination) reach a price
point low enough to enable a recordable unit at prices that will support a mass
market. Once this milestone is achieved, however, the potential for wide
consumer acceptance of digital VCR replacements is expected to be high. Key
advantages of disc-based recording include higher video quality of digital
versus analog recording, the convenience of discs over tape, and the ability to
integrate the VCR recording function with other desirable consumer features such
as IntelligentTV program recording, timeshifting of programs and DVD playback.
Key advantages of D-VHS include the ability to record up to 24 hours of video on
a single tape, capability to record HDTV, and backward compatibility to VHS and
Super-VHS or S-VHS, thus preserving existing consumer video libraries stored in
VHS format.
DVD PLAYER
Unlike the VideoCD standard, which is an adaptation of the audio CD, the
DVD standard was defined specifically for the very high-quality playback of
feature-length movies. The DVD format now commercially available provides up to
135 minutes of playing time (270 for double-sided) on a disc the same physical
size as an audio CD with four times the image resolution of a standard VideoCD.
DVD uses MPEG-2 compression technology.
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VIDEOCD PLAYER
A VideoCD player is essentially an audio CD player with an MPEG-1 decoder
and a video output. While adding this functionality marginally increases the
cost to manufacture a typical CD player, these machines now have the ability to
play movies, music videos and other titles from MPEG-1 encoded CDs. The physical
VideoCD disc format is identical to a standard audio CD and is limited to 72
minutes playing time with video quality that is generally perceived as
comparable to an analog VHS tape. Several thousand VideoCD titles are now
available, including movies, music videos and karaoke titles. The VideoCD format
has thus far received mass-market adoption in China. In 1998, leading Chinese
manufacturers and the Chinese government introduced an enhanced version of
VideoCD known as Chaoji VCD. Chaoji VCD features improved video quality that is
comparable to DVD video and backward compatibility with VideoCD titles.
DESKTOP EDITING SYSTEMS
The capabilities of desktop editing systems continue to grow. Sophisticated
features such as non-linear editing, once the province of professional studios,
are now coming to the consumer and prosumer markets. An important enabling
factor is the availability of low-cost recordable CD-RW drives, which provide a
convenient and cost-effective means to store edited digital video. This trend is
expected to accelerate in 2000, as the higher capacity recordable DVD drives
become more common in personal computers.
PRODUCTS
Semiconductor supplies products for two main markets for Digital Video:
- Communications
- Consumer electronics
COMMUNICATIONS
In most digital video applications, the encoding and decoding functions are
separated. For example, in broadcasting, the video is encoded by one or a small
number of encoders at the transmission facility, while a decoder at the viewer's
home reconstructs the broadcast for viewing. Semiconductor has been, and
continues to be, a leader in supplying both encoders and decoders for a full
spectrum of digital video applications. However, Semiconductor has long
recognized that combining the encoding and decoding functions into one
processor, called a codec, creates significant new market opportunities.
Semiconductor invested heavily in the development of a single-chip MPEG-2 codec
architecture and introduced DVxpert, the first product based on the new
architecture, in August 1997. Semiconductor introduced two more codecs in 1998:
DVxpress(TM) for professional and prosumer editing applications and DVxplore(TM)
for recordable digital video applications in PCs and consumer electronics. In
1999, Semiconductor extended the capabilities of the architecture with the
introduction of DVx-HD, the industry's first codec architecture for HDTV
broadcasting and video production applications.
Broadcast and Distribution Encoders
Encoders in the DVxpert family offer improved image quality, efficient
bandwidth utilization and reliability for broadcasting and professional
applications. The DVxpert broadcast encoders target applications such as
distribution, contribution, DVD authoring and video servers. All DVxpert
encoders use Semiconductor's patented PerfectView(TM) feature, which provides
clear image quality with advanced capabilities such as pre-filtering, visual
masking and inverse telecine.
One of the big issues broadcasters currently face is the migration to high
definition programming. The FCC has established a target timeline for United
States broadcasters to begin HDTV transmissions, but many infrastructure issues
remain uncertain. In 1999, Semiconductor introduced the DVxpert-HD product to
address these issues. DVxpert-HD is an MPEG-2 encoder for HDTV broadcast
applications, but also retains the capabilities of the standard definition
DVxpert products, enabling equipment manufacturers to deliver flexible High
Definition/Standard Definition or HD/SD solutions and ease broadcaster's
transition issues.
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Encoders for Editing Applications
Professional non-linear editing had been primarily the province of
motion-JPEG products due to the need for accurate cuts and special effects.
Because MPEG encoders essentially "collapse" some frames to achieve high levels
of compression, industry analysts doubted whether MPEG could ever achieve the
accuracy needed to supplant motion-JPEG for professional needs. However,
Semiconductor showed that MPEG is a viable format for editing with the
introduction of the DVxpress codecs. Based on the same architecture as the
DVxpert product, the DVxpress codecs feature Semiconductor's proprietary
Frame-Accurate MPEG Editing (FAME(TM)) algorithm and dual-stream decoding, two
capabilities for professional non-linear editing.
DVxpress-MX codecs can support both MPEG and DV video formats to allow
mixed-format editing where, for example, an MPEG stream and a DV stream are
edited together. This innovation is particularly important because DV is the
most popular format for consumer and professional digital camcorders, while MPEG
is the prevailing standard for transmission and storage. Panasonic, the
developer of the DV format, and Avid, a leading non-linear editing OEM, both
endorsed the DVxpress-MX codec as a significant step toward unifying the MPEG
and DV worlds. During 1999, many leading providers of non-linear editing
solutions introduced products based on DVxpress-MX, including Matrox Electronic
Systems, Pinnacle Systems, Accom and Fast Multimedia.
Interactive Set-top Box Decoders
The primary communications application for MPEG-2 decoders is in the
set-top box market. To reconstruct the compressed broadcast program, several
steps are required. First, the MPEG-2 stream must be separated or demultiplexed
into its video and audio portions. Then the video and audio must be
decompressed. Finally, the video signal is combined with other on-screen
information, such as program guides and displayed on a monitor.
Semiconductor has been a technology leader in this arena, starting with the
introduction of the CL9100 MPEG-2 video decoder in 1994. C-Cube Microsystems
followed in 1995 by bringing to market the CL9110 Transport Demultiplexer which
was licensed from DiviCom, then a private company. Together, this two-chip
combination performed all the functions needed for digital video decoding and
was instrumental in enabling first-generation designs for digital set-top boxes.
1996 saw the introduction of the AViA(TM) family of set-top box ICs.
Building on the technology and market success of the CL9110 and CL9110 products,
the AViA platform offered high-performance graphics, better quality audio (Dolby
Digital(TM)), interoperability across both wired and wireless networks and a
tighter integration between the individual chips. By offering both high-end and
basic versions, the AViA family allowed OEMs to target their designs for the
needs of each deployment in terms of capabilities and price point.
Recognizing the trends toward the convergence of digital broadcast,
internet access, interactivity and advanced graphics, Semiconductor introduced
the AViA@TV(TM) platform in November 1998. Using AViA@TV products, service
providers can develop additional revenue-generating features and services such
as continuous two-way data exchange, advanced graphical user interfaces,
interactive advertising and internet services such as e-mail on TV, home banking
and on-line shopping. The AViA@TV line includes Semiconductor's integrated
FlickerFilter(TM), which dramatically improves the visual quality of HyperText
Markup Language (HTML) text displayed over video, an important feature for
interactive applications.
AViA@TV also provides the Media Access Control, or MAC and ATM Segmentation
and Reassembly, or SAR processors for two-way network support so cable providers
can deliver the interactive multimedia applications needed for next-generation
services at the same time as delivering digital television programming. The
embedded MAC supports the DVB/DAVIC Out of Band, or OOB, standards which are the
most widely supported in the world, including being in the Open Cable baseline
requirement for OOB two-way cable modem technology for Digital TV in the United
States.
An important endorsement came when Pace Micro Technology, a leading
European OEM, selected the AViA@TV architecture for its new set-top box design.
The Pace set-tops are incorporated in an interactive service developed by NTL,
the UK's largest Cable TV operator, which plans to offer interactive data
services
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such as web browsing, e-mail, chat, pay-per-view, games and home shopping.
Similarly, Philips, Europe's largest consumer electronics company, has designed
the product into their 2-way cable set-top box for MediaOne; the largest cable
operator in the United States.
In January of 1999, C-Cube Microsystems acquired the relevant
communications activities of the company formally known as TV/Com in order to
reinforce this successful strategic thrust into the arena of broadband
communications network products. One reason for the selection of TV/Com was that
its products have been successfully deployed in the same networks and set-top
boxes as Semiconductor's MPEG solutions. Through this purchase, Semiconductor
gained access to key people, intellectual property and designs including QAM and
QPSK modulation and demodulation. The combination of these capabilities with the
relevant designs and software from Semiconductor's AViA@TV product family and
expertise in analog design, gives Semiconductor all the necessary components
required to develop state-of-the-art, highly integrated solutions for
interactive Digital TV.
With this capability, Semiconductor is now able to service the end-to-end
requirements of a digital video network including video compression in the head
end, network interfaces and the full spectrum of data, video, audio and graphics
requirements in the consumer terminal. This enables a new generation of
interactive services available through the TV in the living room, including
web-based e-commerce, video e-mail and voice over IP.
CONSUMER ELECTRONICS SEMICONDUCTORS
Recordable Digital Video
While DVD playback has achieved increasing success in both consumer players
and personal computer applications, Semiconductor believes that the high-volume
applications of digital video in the consumer world depend on the ability to
both record and play back DVD-quality video. Thus, Semiconductor extended its
DVxpert technology to the consumer world with the DVxplore line of consumer
codecs. DVxplore codecs are the world's first single-chip consumer products to
support both MPEG and DV formats. The initial focus is on the personal computer
market, where OEMs use DVxplore codecs to offer personal content creation, PC/TV
and time-shifting applications. Users of these products are able to record hours
of DVD-quality video obtained from any video source, whether TV, VCR, DV
camcorder or analog camcorder. Once they record the video, they are able to edit
and play back the video on standard PCs and store the resulting video to optical
disc, web pages, e-mail or hard-disk drives.
VCR replacement products began to appear on the market in 1999, and are
likely to continue to expand in the market over the next few years. For consumer
digital recorders, three types of media have emerged as viable platforms for
recording and playing back digital video-tape Digital VHS or D-VHS, optial DVD-
Random Access Memory or DVD-RAM, DVD-Read Write or DVD-RW, MMVF, or DVD+RW, and
hard disk Digital Video Recorder or DVR. Semiconductor is developing products
for all three emerging consumer digital recordable platforms.
DVD Decoders
Semiconductor's ZiVA(TM) family of DVD products includes decoders and
system-level design solutions for consumer and multimedia OEMs. The ZiVA DVD
decoder family incorporates eight critical DVD functions into a single chip:
MPEG-2 video decoding, Dolby Digital decoding, MPEG audio decoding, sub-picture
decoding, on-screen display, linear Pulse Code Modulation (PCM) audio decoding,
demultiplexing and audio/video synchronization. Semiconductor addresses a
critical concern of content owners with SecureView(TM) copy protection and
decryption technology. SecureView made ZiVA decoders the first single-chip
products to support the DVD Consortium's Content Scramble System (CSS) copy
protection scheme.
Semiconductor collaborated with partner Toshiba to develop the ZiVA-PC
decoder targeted specifically at the notebook market, the first DVD hardware
chip with full PC98 compliance. The ZiVA-PC decoder offers one of the industry's
lowest overall system cost for hardware DVD playback, as well as one of the
lowest power consumption, while delivering true interactivity and flawless image
quality. In 1999, Semiconductor
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developed its third-generation DVD decoder, the ZiVA-3 line, which extended the
capabilities of the ZiVA line in a number of key areas, most particularly the
audio features. Personal computer OEMs including Toshiba, Dell and Gateway
adopted ZiVA decoders for DVD-enabled notebook.
VideoCD Decoders
VideoCD is a consumer entertainment format based on MPEG-1 technology.
VideoCD players allow consumers to enjoy movies, documentaries and karaoke
played from a disc similar to an audio CD disc. Semiconductor has been a leading
supplier of MPEG decoders used in VideoCD players throughout the mid-and
late-1990s. Semiconductor pioneered the MPEG-1 market with the introduction in
1992 of the CL450 MPEG-1 Video Decoder, the first commercially available MPEG-1
video decoder. The CL450 found uses in commercial and professional digital
karaoke players. It followed with the CL480 family of VideoCD decoders, products
that boosted Semiconductor to market leadership in the rapidly growing market
for VideoCD players in China in the mid-1990s. The CL484 VideoCD Decoder,
debuted in 1994, offers full VideoCD 1.1 and 2.0 compliance, DiscView(TM)
menuing, ClearView(TM) error concealment technology, FlexView(TM) National
Television Standards Committee (NTSC) to Phase Alternate Line (PAL) conversion
and additional karaoke features.
Semiconductor's current VideoCD product is the CL680 Advanced VideoCD
Decoder. The CL680 decoder integrates an NTSC/PAL encoder, improved ClearView
error concealment technology and a new WideSound(TM) feature, which simulates a
surround-sound experience from two stereo channels. By fully utilizing the
micro-code architecture of the CL680, Semiconductor was able to integrate the
system functions directly on the CL680, effectively eliminating the need for the
system micro-controller.
Chaoji VCD Decoders
As the VideoCD market matured in China, Chinese customers, OEMs and
government agencies all saw a need for a higher quality video experience. Due to
its expertise in both VideoCD and DVD, Semiconductor was well qualified to help
define the new standard. The result of this effort was the introduction of the
Chaoji VCD standard, an extension to VideoCD that was endorsed by the Chinese
government and leading OEMs. Chaoji VCD combines MPEG-2 video with VCD2.0 to
address the needs of China's consumers for high-quality video playback, improved
audio quality and low-cost players and disc media.
Soon after the adoption of the Chaoji VCD standard, Semiconductor
introduced the CL8800 family of Chaoji VCD decoders to its partner OEMs. The
CL8830 decoder is a full-featured product that features Semiconductor's patented
RealSonic(TM) audio technology, offering significant advances in audio quality
for home theater and Karaoke applications. The CL8820 decoder targets more
price-sensitive products that do not demand the same audio quality as the CL8830
decoder. Both decoders offer full backward compatibility with existing VideoCD
and audio CD formats. In 1999, Semiconductor introduced the most integrated
Chaoji VCD decoder chip, the CL8830A. Leading Chinese OEMs have adopted the
CL8800 decoders for their Chaoji VCD product offerings. In 2000, we believe that
the Chaoji VCD market will continue to encroach on the VCD market as prices for
Chaoji VCD systems decline.
CONSUMER BRANDING PROGRAM
Semiconductor's consumer branding program, begun in 1996, saw continued
success throughout 1999. In 1999, Semiconductor's brand recognition reached an
all-time high in the Chinese market. Our Chinese customers continue to use our
brand as well as our technology as they combine for strong market recognition
and preference. The brand represents quality, reliability and high technology.
The success of Semiconductor's consumer branding program remains predicated on
offering first-to-market technology, superior feature sets and video playback
quality and a roadmap to higher quality, feature-rich digital video products.
CHANGING PRODUCT MIX: DEPENDENCE ON DECODER PRODUCTS
Semiconductor offers a number of products for a variety of applications.
Since the second quarter of 1995, sales of Semiconductor's VCD decoder family of
products have represented a significant percentage of
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Semiconductor's total net revenues. Semiconductor expects that revenues from its
VCD decoder products including the CL680 and Chaoji VCD families of products
will decrease as a percentage of total revenues, but continue to account for a
significant portion of its product revenues in 2000. Semiconductor expects that
price competition will continue to result in declining average selling prices
for this family of products. Semiconductor has implemented several programs that
have reduced costs associated with these families of products. In the event that
increases in unit sales and other manufacturing efficiencies of these families
of products do not offset decreasing sales prices in the future, Semiconductor's
business and results of operations would be materially and adversely affected.
Semiconductor anticipates that overall gross margin may decrease as a result of
a number of factors including anticipated declines in average selling prices
over time. The timing of volume shipments and the life cycles of Semiconductor's
products are difficult to predict due in large measure to the emerging nature of
the markets for Semiconductor's products, the future effect of product
enhancements by Semiconductor and its current and future competitors. Declines
in demand for Semiconductor's products, particularly the CL680 and Chaoji VCD
families of products, whether as a result of competition, technological change
or otherwise, would have a material adverse effect on Semiconductor's business
and results of operations.
CUSTOMERS
<TABLE>
<CAPTION>
MARKET APPLICATIONS TYPICAL CUSTOMERS
------ ------------ -----------------
<S> <C> <C>
Communication......... Interactive set-top boxes, Avid, DiviCom, FAST, JVC, Matrox,
professional non-linear editing, Tandberg, Nokia, Pace, Pinnacle,
broadcast encoding, electronic Scientific Atlanta, Sharp, Sony,
news gathering Zenith, MEI/Panasonic, Motorola/
General Instrument, Philips
Consumer Recordable DVD players, Digital Acer, ChangHong, Dell, Gateway,
electronics........... VHS player, DVD players, DVD Hitachi, Idall, JVC, NEC, LG
add-in PC cards, VideoCD players Electronics, Malata, Samsung,
SAST, Sony, Tatung, Toshiba,
Xiamin Solid
</TABLE>
During the nine months ended September 30, 1999, no customer accounted for
10% or more of net revenue. During 1998, only Malata accounted for 10% or more
of net revenue. Sales to Sinorex, a distributor, accounted for 31% and 15% of
Semiconductor's net revenues during 1997 and 1996, respectively. Sales to
Samsung accounted for 10% of Semiconductor's net revenue during 1996.
RESEARCH AND DEVELOPMENT
Semiconductor believes that the continued introduction of new products in
its target markets is essential to its growth. As of September 30, 1999,
Semiconductor had 286 full-time employees engaged in research and development.
Expenditures for research and development in 1998, 1997 and 1996 were
approximately $52.6 million, $46.5 million and $36.6 million, respectively and
$39.8 million for the nine months ended September 30, 1999.
The markets for Semiconductor's products are characterized by rapidly
changing technology and evolving industry standards. In addition, markets for
Semiconductor's products are characterized by intense price competition. As the
markets for Semiconductor's products develop and competition increases,
Semiconductor anticipates that product life cycles will shorten and average
selling prices will decline. In particular, the average selling price and
product gross margin for each of Semiconductor's products will decline as such
products mature and as per order unit volumes for such products increase.
Semiconductor's operating results will depend to a significant extent on its
ability to continue to successfully introduce new products on a timely basis and
to reduce costs of existing products. In particular, Semiconductor currently
intends to announce several new products over the next year, including next
generation MPEG-2 encoders and decoders. There can be no assurance that these
products will be successfully developed or will achieve market acceptance, and
these products are not expected to contribute significantly to revenues in the
first half of 2000. The failure of any of these products to be successfully
introduced and achieve market acceptance could have a material adverse effect on
Semiconductor's business and results of operations. In addition, Semiconductor
continues to sell a number of earlier generation products; any failure to manage
the transition to new products effectively
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could have a material adverse effect on Semiconductor's business and results of
operations. The success of new product introductions is dependent on several
factors, including proper new product definition, product cost, timely
completion and introduction of new product designs, quality of new products,
differentiation of new products from those of Semiconductor's competitors and
market acceptance of Semiconductor's and its customers' products. As a result,
Semiconductor believes that continued significant expenditures for research and
development will be required in the future. Because of the complexity of its
products, Semiconductor has experienced delays from time-to-time in completing
development and introduction of new products, and as a result, has from
time-to-time not achieved the market share anticipated for such products. There
can be no assurance that such delays will not be encountered in the development
and introduction of future products, including the products currently expected
to be announced over the next year. There can be no assurance that Semiconductor
will successfully identify new product opportunities and develop and bring new
products to market in a timely manner, that products or technologies developed
by others will not render Semiconductor's products or technologies obsolete or
noncompetitive, or that Semiconductor's products will be selected for design
into the products of its targeted customers.
SALES AND MARKETING
Semiconductor's sales and marketing strategy targets markets for which
digital video compression is an enabling technology in order to achieve key
design wins with industry leaders, as well as early adopters of digital video
technology. To implement its strategy, Semiconductor has established a direct
sales force and a worldwide network of independent sales representatives and
distributors. In addition, Semiconductor has a team of application engineers who
assist customers with designing in Semiconductor's products.
In the United States, Semiconductor sells its products through direct sales
channels, independent representatives and distributors. Semiconductor records
revenues from products sales to customers at the time of shipment. Certain of
Semiconductor's agreements with its distributors permit limited stock rotation
and provide for price protection. Allowances for returns and adjustments,
including price protection, are provided at the time revenues from product sales
are recorded. Generally, Semiconductor pays its independent sales
representatives on a commission basis. As of September 30, 1999, Semiconductor
had North American regional sales offices in California and Quebec, and
international sales offices in Hong Kong, the United Kingdom, Korea, China,
Taiwan and Japan. In Japan, Semiconductor sells products through the direct
sales force of C-Cube Microsystems Japan, Inc. (CCJ) and two distributors. CCJ
was formed by Semiconductor and Kubota Corporation in 1988 and is currently
owned 65% by Semiconductor and 35% by Kubota. The primary business of CCJ is the
marketing, sales and support of Semiconductor's products in Japan.
Internationally, Semiconductor has commissioned sales representatives or
distributors in Canada, Denmark, Finland, France, Germany, Great Britain, Hong
Kong, Ireland, India, Israel, Italy, Korea, Sweden and Taiwan.
INTERNATIONAL BUSINESS ACTIVITIES
During 1998, 1997 and 1996, international revenues accounted for
approximately 82%, 88% and 78% of Semiconductor's net revenues, respectively,
and 79% of net revenues in the first nine months of 1999. Semiconductor believes
that international revenues will continue to account for a significant portion
of net revenues. Semiconductor's success will depend in part upon its ability to
manage international marketing and sales operations. In addition, Semiconductor
purchases a substantial portion of its manufacturing services from foreign
suppliers. Semiconductor's international manufacturing and sales are subject to
changes in foreign political and economic conditions, and to other risks,
including currency or export/import controls, changes in tax laws, tariffs and
freight rates and changes in the ownership and/or leadership of international
customers that may result in delayed or canceled orders. For example, China is
the primary market for VideoCD and Chaoji VCD players utilizing Semiconductor's
decoder products. As a consequence, any political or economic instability in
China could significantly reduce demand for Semiconductor's products.
Semiconductor has made and will continue to make significant investments in
additional foundry capacity in Taiwan and is subject to the risk of political
instability in Taiwan, including but not limited to the potential for conflict
between Taiwan and the People's Republic of China. Semiconductor sells products
to customers in Korea and is
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subject to the risk of economic and political instability in Korea, including
the potential for conflict between North and South Korea. In addition,
Semiconductor sells certain of its products in international markets and buys
certain products from its foundries in currencies other than the U.S. dollar. As
a result, currency fluctuations could, in the long term, have a material adverse
effect on Semiconductor's business and results of operations. With respect to
international sales that are denominated in U.S. dollars, increases in the value
of the U.S. dollar relative to foreign currencies can increase the effective
price of, and reduce demand for, Semiconductor's products relative to
competitive products priced in the local currency. The United States has
considered trade sanctions against Japan and has had disputes with China
relating to trade and human rights issues. If trade sanctions were imposed,
Japan or China could enact trade sanctions in response. Because a number of
Semiconductor's current and prospective customers and suppliers are located in
Japan and China, trade sanctions, if imposed, could have a material adverse
effect on Semiconductor's business and results of operations. Similarly,
protectionist trade legislation in either the United States or foreign countries
could have a material adverse effect on Semiconductor's ability to manufacture
or sell its products in foreign markets.
The Asian consumer electronics markets accounted for approximately 74%, 80%
and 73% of total sales in 1998, 1997 and 1996, respectively, and 67% in the
first nine months of 1999 Asia sales are expected to continue to account for a
substantial, though declining, percentage of sales in the future. Most of
Semiconductor's sales in Asia were of decoder chips, which are used in VideoCD
and Chaoji VCD players. Semiconductor believes purchases of VideoCD and Chaoji
VCD players are not as likely to be deferred as are purchases of higher priced
consumer durables and production equipment, which have impacted U.S. export
sales. However, there can be no assurance that Semiconductor will not experience
reduced sales of its products into Asia because of declining consumer spending
or because of its customers' increasing difficulty in obtaining letters of
credit, which Semiconductor generally requires prior to shipment.
MANUFACTURING
Semiconductor has chosen to use independent wafer foundries to fabricate
its integrated circuits. Assembly, test and packaging are also subcontracted to
third parties. This approach enables Semiconductor to concentrate its resources
on product design and development, where Semiconductor believes it has greater
competitive advantages. Semiconductor continually evaluates alternative sources
for wafer fabrication, assembly and test capacity.
During 1998, Semiconductor's devices were fabricated using complementary
metal oxide semiconductor or CMOS, process technology with 0.65 micron, 0.5
micron, 0.35 micron, 0.30 micron and 0.25 micron process feature sizes, using
either three or four layers of metal interconnect. In 1999, Semiconductor began
using 0.22 micron technology with five layers of metal interconnect. Fabricated
wafers are either tested by the fabrication facility to Semiconductor
specifications or Semiconductor takes receipt of untested wafers and works with
subcontractor testing facilities. Once the wafers are fully tested and accepted,
the dice are assembled into packages by subcontractors, primarily located in
Asia. Semiconductor utilizes multiple assembly subcontractors for its products.
In the second quarter of 1996, Semiconductor expanded and formalized its
relationship with Taiwan Semiconductor Manufacturing Co., Ltd. (TSMC) to provide
wafer production capacity in the years 1996 to 2001. The agreement with TSMC
provided that TSMC would produce and ship wafers to Semiconductor at specified
prices and required Semiconductor to make two advance payments totaling $49.0
million. An advance payment of $24.5 million was made in June 1996. In May 1997,
Semiconductor amended its agreement with TSMC which resulted in a reduction of
Semiconductor's future wafer purchase commitments and the forgiveness of the
second advance payment of $24.5 million. TSMC will apply the June 1996
prepayment against a portion of the wafer cost as product is delivered to
Semiconductor. Accordingly, the prepaid amount, which has been allocated between
current and long-term assets, will be amortized to inventory as wafers are
received. At September 30, 1999, $1.2 million of the remaining $5.2 million
production capacity rights is included in other current assets.
During the fourth quarter of 1999, Semiconductor signed a production
capacity agreement with United Microelectronics Corporation to provide wafer
fabrication capacity through at least 2002, for which it expects
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to pay a $20.0 million refundable payment. This refundable payment, due in the
first quarter of 2000, allows for certain discounts on purchased capacity based
upon the quantities purchased. The agreement does not commit Semiconductor to
purchase wafers, but does guarantee the availability of a set capacity of wafers
at "not to exceed" prices.
Semiconductor believes that an increase in the demand for semiconductor
wafers over currently expected levels, or a failure of foundry capacity in the
industry to grow at anticipated rates, could result in greater difficulty in
obtaining adequate foundry capacity, increased prices and increased lead times.
Semiconductor's future operating results depend in substantial part on its
ability to increase the capacity available to it from its existing or new
foundries. In order to secure such capacity, Semiconductor has considered and
will continue to consider various possible transactions, which could include,
without limitation, equity investments in, prepayments to, non-refundable
deposits with or loans to foundries in exchange for guaranteed capacity, "take
or pay" contracts that commit Semiconductor to purchase specified quantities of
wafers over extended periods, joint ventures or other partnership relationships
with foundries. There can be no assurance that Semiconductor will be able to
make any such arrangement in a timely fashion, or at all, that Semiconductor
will not require additional issuances of equity or debt in order to raise
capital for any such arrangements or that any such financing would be available
to Semiconductor on acceptable terms, or at all. If Semiconductor were not able
on a timely basis to obtain additional foundry capacity, its business and
results of operations would be materially and adversely affected.
Semiconductor sources its integrated circuit products from MEC, UMC, TSMC
and Yamaha. This dependence on a small number of foundries subjects
Semiconductor to risks associated with an interruption in supply from these
foundries. In connection with the manufacture of its newer products,
Semiconductor needs to continue to evaluate and qualify additional foundries
that employ advanced manufacturing and process technologies, which are currently
available from a limited number of foundries. For example, certain of the new
products that Semiconductor intends to introduce require advanced CMOS
processes. Semiconductor has in the past experienced increased costs and delays
in connection with the qualification of new foundries. There can be no assurance
that any delays, cost increases or quality problems resulting from the
qualification of new foundries will not have a material adverse effect on
Semiconductor's business and results of operations.
Semiconductor's reliance on subcontractors to manufacture and assemble its
products involves significant risks, including reduced control over delivery
schedules, quality assurance, manufacturing yields and cost; the potential lack
of adequate capacity and potential misappropriation of Semiconductor
intellectual property. Semiconductor obtains foundry capacity through forecasts
that are generated in advance of expected delivery dates. Semiconductor's
ability to obtain the foundry capacity necessary to meet the future demand for
its products is based on its ability to accurately forecast such future demand.
If Semiconductor fails to accurately forecast such future demand, Semiconductor
may be unable to timely obtain an adequate supply of wafers necessary to
manufacture the number of products required to satisfy the actual demand. There
can be no assurance that Semiconductor will continue to accurately forecast the
future demand for its products and obtain sufficient foundry capacity in the
future.
Semiconductor has from time-to-time experienced disruptions in supply,
although none of those disruptions have to date materially adversely affected
results. There can be no assurance that wafer fabrication or assembly problems
will not occur in the future or that any such disruptions will not have a
material adverse effect upon Semiconductor's results of operations. Further,
there can be no assurance that suppliers who have committed to provide product
will do so, or that Semiconductor will meet all conditions imposed by such
suppliers. Failure to obtain an adequate supply of products on a timely basis
would delay product delivery to Semiconductor's customers, which would have a
material adverse effect on Semiconductor's business and results of operations.
In addition, Semiconductor's business could also be materially and adversely
affected if the operations of any supplier are interrupted for a substantial
period of time, or if Semiconductor is required, as a result of capacity
constraints in the semiconductor industry or otherwise, to increase the
proportion of wafers or finished goods purchased from higher cost suppliers in
order to obtain adequate product volumes.
The markets into which Semiconductor sells its products are subject to
extreme price competition. Thus, Semiconductor expects to continue to experience
declines in the selling prices of its products over the life
31
<PAGE> 33
cycle of each product. In order to offset or partially offset declines in the
selling prices of its products, Semiconductor must continue to reduce the costs
of products through product design changes, manufacturing process changes,
volume discounts, yield improvements and other savings negotiated with its
manufacturing subcontractors. Since Semiconductor does not operate its own
manufacturing facilities and must make volume commitments to subcontractors at
prices that remain fixed over certain periods of time, it may not be able to
reduce its costs as rapidly as its competitors who perform their own
manufacturing. The failure of Semiconductor to design and introduce, in a timely
manner, lower cost versions of existing products or new products with higher
gross margins, or to successfully manage its manufacturing subcontractor
relationships would have a material adverse effect on Semiconductor's gross
margins.
COMPETITION
The markets in which Semiconductor competes are intensely competitive and
are characterized by declining average selling prices and rapid technology
change. Semiconductor believes that it competes favorably in the areas of
product definition, system cost, functionality, time-to-market, reliability and
reputation. Semiconductor competes with major domestic and international
companies, most of which have substantially greater financial and other
resources than Semiconductor with which to pursue engineering, manufacturing,
marketing and distribution of their products. Some of these companies own
proprietary video compression technology competitive with Semiconductor's
standards-based systems.
In the market for consumer electronics semiconductors, principal
competitors include ESS Technology, SGS-Thomson, Zoran, LSI Logic, Oak
Technology and Winbond as well as several large, integrated Japanese and Korean
consumer electronics companies, such as Sony, MEC, Toshiba, NEC and Samsung,
which have their own semiconductor design and manufacturing capacity. In the
computer segment of the consumer electronics market, principal Semiconductor
competitors include the increasingly powerful CPUs that are now available from,
among others, Intel, AMD and Motorola, as well as hardware solutions from Zoran,
LuxSonar and IBM. Graphics chip manufacturers such as ATI, S3 and Trident are
also potential competitors. In the market for communications decoders,
Semiconductor's principal competitors include SGS-Thomson, Philips, LSI Logic
and Broadcom.
IBM is the principal competitor in the broadcast encoder market, while Sony
is the principal competitor in the consumer encoder market. Semiconductor
expects that other companies will introduce competing encoder products in the
future. Although the timing of the production availability of such encoders is
uncertain, their availability could have an adverse impact on Semiconductor's
encoder product revenues and margins. Semiconductor may also face increased
competition in the future from new entrants into its markets. As the markets for
Semiconductor's products develop, competition from large semiconductor
companies, such as ST-Microelectronics and Philips, and from vertically
integrated companies such as Sony, MEC, Toshiba and NEC, may increase
significantly. If Semiconductor can offer low-cost hardware solutions, then it
may continue to compete with manufacturers of CPUs such as Intel, AMD and
Motorola in conjunction with software solutions. The ability of Semiconductor to
compete successfully in the rapidly evolving markets for high-performance video
compression technology depends on factors both within and outside of its
control, including success in designing and subcontracting the manufacture of
new products that implement new technologies, adequate sources of raw materials,
protection of Company products by effective utilization of intellectual property
laws, product quality, reliability, price and the efficiency of production, the
pace at which customers incorporate Semiconductor's integrated circuits into
their products or technologies, success of competitors' products and general
economic conditions. There can be no assurance that Semiconductor will be able
to compete successfully in the future.
A variety of other approaches to digital video compression have been
introduced, including wavelets, fractal image compression, proprietary
compression algorithms and software-only solutions. Competitor companies are
designing products around these and other alternative approaches. In addition,
manufacturers of general-purpose microprocessors, such as Intel, AMD and
Motorola and graphics chip manufacturers are positioning their products as
offering digital video compression capability. There can be no assurance that
system manufacturers will not use such processors for video compression
applications. While MPEG has become the accepted standard, any of the
alternative approaches, individually or collectively, could be adopted
32
<PAGE> 34
on a widespread basis in the emerging video compression market. If this were to
happen, Semiconductor's business and results of operations would be materially
and adversely affected.
INTELLECTUAL PROPERTY AND LICENSES
Semiconductor attempts to protect its technology through a combination of
patents, copyrights, trade secret laws, confidentiality procedures and licensing
arrangements. As of September 30, 1999, Semiconductor had 59 issued United
States patents and 43 U.S. patent applications pending and has filed certain
corresponding applications in certain foreign jurisdictions. These patents
expire at various times from 2010 to 2016. Semiconductor intends to continue to
seek patents on its technology where appropriate. Notwithstanding its patent
position, Semiconductor believes that, in view of the rapid pace of
technological change in the semiconductor industry, the technical experience and
creative skills of its engineers and other personnel are the most important
factors in determining Semiconductor's future technological success.
There can be no assurance that patents will issue from any pending
applications or that any claims allowed from existing or pending patents will be
sufficiently broad to protect Semiconductor's technology. While Semiconductor
intends to protect its intellectual property rights vigorously, there can be no
assurance that any patents held by Semiconductor will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
competitive advantages to Semiconductor. Moreover, while Semiconductor holds or
has applied for patents relating to the design of its products, Semiconductor's
products are based in part on standards, including MPEG-1, MPEG-2 and JPEG, and
Semiconductor does not hold patents or other intellectual property rights for
such standards. The semiconductor industry is characterized by frequent
litigation regarding patent and other intellectual property rights.
From time-to-time Semiconductor receives notices of potential infringement
of third-party rights and there can be no assurance that third parties will not
assert claims against Semiconductor with respect to existing or future products
or that licenses will be available on reasonable terms, or at all, with respect
to any third-party technology including third-party technology which is or may
be embodied in standards. In the event of litigation to determine the validity
of any third-party claims, such litigation could result in significant expense
to Semiconductor and divert the efforts of Semiconductor's technical and
management personnel, whether or not such litigation is determined in favor of
Semiconductor. In the event of an adverse result in any such litigation,
Semiconductor could be required to pay substantial amounts in damages and to
cease selling the infringing product unless and until Semiconductor is able to
develop non-infringing technology or to obtain licenses to the technology which
was the subject of the litigation. There can be no assurance that Semiconductor
would be successful in such development or that such licenses would be
available, and any such development or license could require expenditure of
substantial time and other resources.
In order to defray the cost of developing its products and to develop
products with specifications meeting customer requirements, Semiconductor has
established development relationships with certain companies. Under these
arrangements, these companies provided Semiconductor with development funding
and/or technical assistance, and participated with Semiconductor in determining
the specifications for the performance requirements of various products. As a
result of these relationships, Semiconductor believes it has been able to more
rapidly introduce products meeting the demands of these as well as other
customers for similar applications. In certain cases, as consideration for such
development assistance, Semiconductor has agreed to pay royalties to such
customers and generally Semiconductor retains ownership of such products.
EMPLOYEES
As of September 30, 1999, Semiconductor had approximately 603 employees,
286 of whom are engaged in, or directly support, Semiconductor's research and
development, 189 of whom are in sales and marketing, 36 of whom are in
operations and 92 of whom are in administration. Semiconductor's employees are
not represented by any collective bargaining agreement, and Semiconductor has
never experienced a work stoppage. Semiconductor believes its employee relations
are good.
Semiconductor's future success is heavily dependent upon its ability to
hire and retain qualified technical, marketing and management personnel. The
loss of the services of key personnel could have a material adverse
33
<PAGE> 35
effect on Semiconductor's business. Semiconductor is currently seeking certain
additional engineering, marketing and management personnel. Semiconductor's
success in the future will depend in part on the successful assimilation of such
new personnel. Semiconductor also obtains assistance from customers whose
engineers participate in development programs at Semiconductor. The continuing
availability of such support is dependent upon a number of factors, including
relationships with customers and the ability of such engineers, many of whom are
foreign residents, to obtain immigration visas. The competition for such
personnel, particularly for engineering personnel, is intense and the loss of
such personnel could have a material adverse effect on Semiconductor.
MERGERS AND ACQUISITIONS
On August 28, 1996, C-Cube Microsystems acquired the DiviCom business.
C-Cube Microsystems paid $65.7 million in cash, issued 2.3 million shares of its
common stock, assumed options exercisable for 264,000 shares of its common stock
and incurred $1.35 million in other costs in exchange for the outstanding shares
of DiviCom stock that C-Cube Microsystems did not already own.
C-Cube Microsystems has entered into an agreement to merge with Harmonic
Inc. after the distribution. The effect of the proposed merger is the
acquisition of C-Cube Microsystems' DiviCom systems business by Harmonic.
PROPERTIES
Semiconductor's principal facilities consist of approximately 182,300
square feet of space in three buildings located in Milpitas, California. This
space is leased pursuant to three agreements that expire on various dates
through April 14, 2005. Semiconductor believes its existing facilities and other
available facilities will be adequate to meet its requirements for at least the
next 12 months.
LEGAL PROCEEDINGS
From time-to-time Semiconductor is party to certain litigation or legal
claims. Management has reviewed all pending legal matters and believes that the
resolution of such matters will not have a significant adverse effect on
Semiconductor's financial position or results of operations.
34
<PAGE> 36
WHERE YOU CAN FIND MORE INFORMATION
As a result of the distribution, the Securities Exchange Act of 1934,
requires Semiconductor to file annual, quarterly and other reports with the
Securities and Exchange Commission. Semiconductor intends to provide annual
reports containing audited financial statements to its stockholders in
connection with its annual meetings of stockholders.
Semiconductor filed with the Securities and Exchange Commission a
registration statement, which includes certain exhibits, under the Exchange Act,
for the securities issued pursuant to this information statement. This
information statement contains general information about the contents of
contracts and other documents filed as exhibits to the registration statement.
However, this information statement does not contain all of the information set
forth in the registration statement and the exhibits filed with the registration
statement. You should read the registration statement and the exhibits for
further information about Semiconductor and the distribution.
The SEC allows Semiconductor to "incorporate by reference" information into
this joint proxy statement/prospectus/information statement, which means that
important information may be disclosed to you by referring you to another
document filed separately with the SEC. The information of Semiconductor
incorporated by reference is deemed to be part of this joint proxy
statement/prospectus/information statement, except for information superseded by
information in, or incorporated by reference in, this joint proxy
statement/prospectus/information statement. This joint proxy
statement/prospectus/information statement incorporates by reference the
documents set forth below that have been previously filed with the SEC. The
following documents contain important information about Semiconductor and its
financial condition and operating results and are hereby incorporated by
reference:
- C-Cube Microsystems' Annual Report on Form 10-K for the year ended
December 31, 1998;
- C-Cube Microsystems' Quarterly Report on Form 10-Q for the Quarter Ended
March 31, 1999;
- C-Cube Microsystems' Annual Report Pursuant to Section 15(d) of the
Securities Exchange Act of 1934, as amended, filed on Form 11-K with the
SEC on July 14, 1999;
- C-Cube Microsystems' Quarterly Report on Form 10-Q for the Quarter Ended
June 30, 1999;
- C-Cube Microsystems' Quarterly Report on Form 10-Q for the Quarter Ended
September 30, 1999; and
- C-Cube Microsystems's Current Report on Form 8-K dated October 29, 1999.
Semiconductor has supplied all information contained or incorporated by
reference in this joint proxy statement/prospectus/information statement
relating to Semiconductor.
If you would like to request documents from either company, please do so by
, to receive them before the special meeting.
You should rely only on the information in this document or to which we
have referred you. We have not authorized anyone to provide you with information
that is different. If you are in a jurisdiction where offers to exchange or
sell, or solicitations of offers to exchange or purchase, the securities offered
by this document or the solicitation of proxies is unlawful, or if you are a
person to whom it is unlawful to direct these types of activities, then the
offer presented in this document does not extend to you. The information
contained in this document speaks only as of the date of this document unless
the information specifically indicates that another date applies.
You may read and copy the registration statement and other materials that
Semiconductor files with the Securities and Exchange Commission at the Public
Reference Room of the Securities and Exchange Commission, 450 Fifth Street,
Washington, D.C. 20549 and at the Securities and Exchange Commission's regional
offices at 7 World Trade Center, Suite 1300, New York, New York 10048 and at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. You can request copies
of these documents, upon payment of a duplication fee, by writing to the
Securities and Exchange Commission's Public Reference Section. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information on
the operation of the Public Reference Rooms. The Securities and Exchange
Commission filings of Semiconductor are also available to the public on the
Securities and Exchange Commission Internet site (http://www.sec.gov).
35
<PAGE> 37
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW AND BASIS OF PRESENTATION
While the legal structure of the transaction pursuant to which this
information statement is being filed is an internal restructuring and spin-off
of the semiconductor business and a merger of C-Cube, which as restructured,
will consist of the DiviCom business, into Harmonic, for accounting purposes the
merger is being treated as a distribution of DiviCom's net investment and
Semiconductor is being treated as the continuing accounting entity. This is
primarily due to the fact that (i) the historical assets, revenue, profits and
employees of C-Cube Semiconductor, Inc. have been greater than those of DiviCom,
(ii) the corporate management of C-Cube will remain employees of Semiconductor,
and (iii) the C-Cube stockholders will receive common stock representing
approximately 44% ownership interest in Harmonic in the merger. Accordingly, the
historical financial information required by Form 10 is incorporated by
reference to the C-Cube Forms 10-K and 10-Q and the Management's Discussion and
Analysis as presented below is substantially identical to that in C-Cube
Microsystems' Form 10-Q filed for the quarter ended September 30, 1999 and 10-K
filed for the fiscal year ended December 31, 1998 which reflect the historical
consolidated operations of Semiconductor and the DiviCom business.
QUARTER ENDED SEPTEMBER 30, 1999
The following table sets forth certain operating data as a percentage of
net revenues for the quarters ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
QUARTER ENDED
SEPTEMBER 30,
--------------
1999 1998
----- -----
<S> <C> <C>
Net revenues................................................ 100.0% 100.0%
Costs and expenses:
Cost of revenues.......................................... 44.6 45.0
Research and development.................................. 20.8 21.9
Selling, general and administrative....................... 17.2 17.6
----- -----
Total............................................. 82.6 84.5
----- -----
Income from operations...................................... 17.4 15.5
Other income, net........................................... 2.6 1.9
----- -----
Income before income taxes, minority interest and
extraordinary item........................................ 20.0 17.4
Income tax expense.......................................... 6.0 5.2
----- -----
Income before minority interest and extraordinary item...... 14.0 12.2
Minority interest in net income of subsidiary............... 0.1 (0.2)
----- -----
Income before extraordinary item............................ 13.8 12.4
Extraordinary gain (net of tax)............................. -- 2.7
----- -----
Net income.................................................. 13.8% 15.1%
===== =====
</TABLE>
Merger
On October 27, 1999, C-Cube entered into an Agreement and Plan of Merger
and Reorganization with Harmonic Inc., a Delaware corporation ("Harmonic"),
pursuant to which, subsequent to the sale or spin-off of C-Cube's semiconductor
business, C-Cube has agreed to merge with and into Harmonic (the "Merger"). The
Merger will be effected through the issuance of 0.5427 shares of Harmonic stock
for each share of common stock of C-Cube outstanding immediately prior to the
consummation of the Merger. The merger is subject to the approval of the
stockholders of each company, customary closing conditions, including applicable
regulatory clearances, and the spin-off or sale of the semiconductor business.
The closing is anticipated to take place during Q1 2000.* The Company expects to
incur additional costs during the fourth quarter of 1999 and the first quarter
of 2000 for legal, accounting and other costs related to the Merger.*
36
<PAGE> 38
Readers are referenced to the Company's Form 8-K filed with the SEC on October
29, 1999 for more information.
Net Revenues
Net revenues in the third quarter of 1999 were $101.4 million, an increase
of 17.6% over the $86.2 million reported in the corresponding quarter a year
ago. This increase was led by growth in sales of DiviCom's encoder products,
primarily attributable to existing customer upgrades to next generationproducts,
contract wins in the cable and satellite markets, and higher selling prices on
next generation products due to design improvements and feature and quality
enhancements. The growth in revenues was also attributable to increased
Semiconductor revenues, primarily from increased volumes of DVD decoder chips
used in consumer applications and from increased volumes of codecs for nonlinear
editing and video server applications. These increases were partially offset by
decreases in revenues of VideoCD and Chaoji VCD decoder chips primarily due to
declines in average selling prices.
DiviCom revenues accounted for 48% of consolidated net revenues for the
third quarter of 1999, compared to 44% for the third quarter of 1998. DiviCom
integrates solutions for customers which involve its own and third party
products, with the integrations usually occurring over a number of months.
Difficulty in completing the stages of these integrations on the expected
schedule can adversely affect the timing of revenue recognition.
International revenues accounted for 58% of net revenues for the third
quarter of 1999, compared to 56% for the third quarter of 1998. The Company
expects that international revenues will continue to represent a significant
portion of net revenues.* The Company's success will depend in part upon its
ability to manage international marketing and sales operations. In addition,
C-Cube purchases a substantial portion of its manufacturing services from
foreign suppliers. The earthquake in Taiwan during the third quarter of 1999
caused minimal wafer damage at C-Cube's foundries, but resulted in temporary
production delays at such facilities. As a result, production capacity during
the fourth quarter of 1999 is anticipated to be constrained; however, C-Cube is
working with its existing partner, TSMC, with whom the Company has a capacity
agreement, to assure supply of product for the next several years.* In addition,
C-Cube has expanded its source of supplies by signing a production capacity
agreement for a term of up to three years, with another foundry, United
Microelectronics Corporation ("UMC"), during the fourth quarter of 1999.*
C-Cube's international manufacturing and sales are subject to changes in
foreign political and economic conditions and to other risks including currency
or export/import controls, changes in tax laws, tariffs and freight rates and
changes in the ownership and/or leadership of international customers that may
result in delayed or canceled orders. For example, China continues to be a large
market for VideoCD and Chaoji VCD players utilizing the Company's decoder
products. As a consequence, any political or economic instability in China could
significantly reduce demand for those products. The Company has made investments
in foundry capacity in Taiwan and is subject to the risk of political
instability in Taiwan, including but not limited to the potential for conflict
between Taiwan and the People's Republic of China. The Company sells products to
customers in Korea and is subject to the risk of economic and political
instability in Korea, including the potential for conflict between North and
South Korea. In addition, the Company sells certain of its products in
international markets and buys certain products from its foundries in currencies
other than the U.S. dollar and, as a result, currency fluctuations could have a
material adverse effect on the Company's business and results of operations. The
Company mitigates this risk through the use of foreign currency hedges for
transactions denominated in foreign currencies. However, with respect to
international sales that are denominated in U.S. dollars, increases in the value
of the U.S. dollar relative to foreign currencies can increase the effective
price of and reduce demand for the Company's products relative to competitive
products priced in the local currency. The United States has considered trade
sanctions against Japan and has had disputes with China relating to trade and
human rights issues. If trade sanctions were imposed, Japan or China could enact
trade sanctions in response. Because a number of the Company's current and
prospective customers and suppliers are located in Japan and China, trade
sanctions, if imposed, could have a material adverse effect on C-Cube's business
and results of operations. Similarly, protectionist trade legislation in either
the United States or foreign countries
37
<PAGE> 39
could have a material adverse effect on the Company's ability to manufacture or
sell its products in foreign markets.
The Asian markets accounted for approximately 43% of total Company sales in
the third quarter of 1999 and are expected to continue to account for a
substantial, though declining, percentage of sales in the future.* In the third
quarter of 1999, most of the Company's sales in Asia were of DVD, VideoCDand
Chaoji decoder chips. There can be no assurance that the Company will not
experience reduced sales of its semiconductor products into Asia because of
declining consumer spending or because of its customers' increasing difficulty
in obtaining letters of credit, which the Company generally requires prior to
shipment into that region.
Gross Margin
C-Cube's gross margin for the third quarter of 1999 was 55.4% compared to a
gross margin of 55.0% for the same period in the prior year. This moderate
improvement was primarily due to a reduction in product transition costs and a
moderate improvement in DiviCom product margins over the third quarter of 1998.
While the selling prices for semiconductor products have generally declined from
the prior year quarter, the Company was able to offset the related impact on
gross margin by realizing operating efficiencies, including reduced material
costs, refinement of its semiconductor fabrication process and the reduction of
outside manufacturing costs.
DiviCom's business involves transactions which can vary substantially in
the portions of DiviCom manufactured products, third party products and services
included. These variations can cause substantial differences in gross margin
from one contract to another. DiviCom has a number of competitors which are
divisions of larger corporations. Such corporations may decide from time-to-time
to aggressively lower prices of products that compete with DiviCom in order to
sell related products or achieve strategic goals. Such "strategic pricing" by
competitors can place strong pricing pressure on DiviCom products in certain
transactions, resulting in lower selling prices and gross margins for those
transactions.
The markets into which C-Cube sells its semiconductor products are subject
to extreme price competition. Thus, the Company expects to continue to
experience declines in the selling prices of its semiconductor products over the
life cycle of each product.* In particular, C-Cube expects to continue to
experience significant price competition in the markets for decoder chips.* In
order to offset or partially offset declines in the selling prices of its
products, C-Cube must continue to reduce the costs of products through product
design changes, manufacturing process changes, volume discounts, yield
improvements and other savings negotiated with its manufacturing subcontractors.
Since the Company does not believe that it can continually achieve cost
reductions which fully offset the price declines of its products, it expects
gross margin percentages to decline for existing products over their life
cycles.*
C-Cube does not operate its own manufacturing facilities and must make
volume commitments to subcontractors at prices that remain fixed over certain
periods of time. Therefore, the Company may not be able to reduce its costs as
rapidly as its competitors who perform their own manufacturing. Failure of the
Company to design and introduce in a timely manner lower cost versions of
existing products or higher gross margin new products, or to successfully manage
its manufacturing subcontractor relationships, would have a material adverse
effect on C-Cube's gross margins. The Company anticipates production capacity at
its foundries to be constrained during the fourth quarter of 1999 and the first
quarter of 2000 due to production delays caused by the earthquake in Taiwan,
which occurred during the third quarter of 1999, and due to higher projected
industry demand for semiconductor products causing a reduction of available
capacity.* As a result, product costs may increase at a rate faster than C-Cube
can offset those increases with other cost-saving measures, which could
adversely affect gross margins for semiconductor products during those periods.*
Research and Development Expenses
In the third quarter of 1999, research and development expenses were $21.1
million, or 20.8% of net revenues, compared with $18.9 million, or 21.9% of net
revenues in the third quarter of 1998. The increase in research and development
expenses primarily represents additional employee-related costs associated with
38
<PAGE> 40
increases in product engineering staff, reflecting the Company's continuing
efforts to provide industry leading digital video solutions at the chip and
systems levels.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $17.5 million, or
17.2% of net revenues, in the third quarter of 1999, compared to $15.2 million,
or 17.6% of net revenues, for the same quarter last year. The increase was
primarily due to increased headcount and related expenses, as the Company
continues to increase its international coverage in sales and marketing. The
increase was also due to higher sales commission expense resulting from the
growth in revenues over the third quarter of 1998.
Other Income (Expense)
Other income, net of other expense, increased to $2.7 million for the third
quarter of 1999, compared to $1.6 million for the third quarter of 1998. The
increase over the prior year quarter is primarily due to higher interest income
earned on higher average cash and investment balances and lower interest expense
on lower average outstanding debt balances.
Income Tax Expense
The Company's effective tax rate for the third quarters of 1999 and 1998
was 30%. The Company's effective tax rate is less than the combined federal and
state statutory rate primarily due to tax credits and lower foreign tax rates.
Extraordinary Item
During the third quarter of 1999, the Company did not repurchase any of the
outstanding balance of its 5 7/8% Convertible Subordinated Notes (the "Notes")
due 2005. During the third quarter of 1998, the Company repurchased $42.8
million of the face value of the Notes at 88.4% of principal amount, with
related accrued interest to the date of repurchase, and recognized an
extraordinary gain of $2.4 million, or $0.06 per diluted share, net of related
income taxes of $1.6 million.
39
<PAGE> 41
NINE MONTHS ENDED SEPTEMBER 30, 1999
The following table sets forth certain operating data as a percentage of
net revenues for the nine months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
--------------
1999 1998
----- -----
<S> <C> <C>
Net revenues................................................ 100.0% 100.0%
----- -----
Costs and expenses:
Cost of revenues.......................................... 44.9 45.6
Research and development.................................. 21.1 21.5
Selling, general and administrative....................... 17.4 17.1
----- -----
Total............................................. 83.3 84.2
----- -----
Income from operations...................................... 16.7 15.8
Other income, net........................................... 2.4 1.0
----- -----
Income before income taxes, minority interest and
extraordinary item........................................ 19.1 16.8
Income tax expense.......................................... 5.7 5.0
----- -----
Income before minority interest and extraordinary item...... 13.4 11.7
Minority interest in net income (loss) of Subsidiary........ 0.1 (0.1)
----- -----
Income before extraordinary item............................ 13.2 11.9
Extraordinary gain (net of tax)............................. -- 1.4
----- -----
Net income.................................................. 13.2% 13.2%
===== =====
</TABLE>
Production Capacity Rights
In the second quarter of 1996, the Company expanded and formalized its
relationship with Taiwan Semiconductor Manufacturing Co., Ltd. ("TSMC") to
provide additional wafer production capacity in the years 1996 to 2001. The
agreement with TSMC provided that TSMC would produce and ship wafers to C-Cube
at specified prices and required C-Cube to make two advance payments totaling
$49 million. An advance payment of $24.5 million was made in June 1996. In May
1997, the Company amended its agreement with TSMC which resulted in a reduction
of the Company's future wafer purchase commitments and the forgiveness of the
second advance payment of $24.5 million. In January 1999, TSMC refunded $11.8
million of the advance payment to the Company. TSMC will apply the remaining
prepayment against a portion of the wafer cost as product is delivered to
C-Cube. Accordingly, the prepaid amount, which has been allocated between
current and long-term assets, will be amortized to inventory as wafers are
received.
Net Revenues
Net revenues for the nine months ended September 30, 1999 were $291.9
million, a 14.0% increase from $256.0 million in revenues during the nine month
period ending September 30, 1998. This increase was led by growth in sales of
DiviCom's encoder products, primarily attributable to existing customer upgrades
to next generation products, contract wins in the cable and satellite markets,
and higher selling prices on next generation products, due to design
improvements and feature and quality enhancements. Semiconductor revenues were
slightly higher than in the first nine months of 1998; however, the revenue
product mix changed significantly. Revenues from DVD decoder chips used in
consumer applications increased due to higher volume shipments, despite price
reductions resulting from increasing competition. Revenues from encoder and
codec chipsets for broadcast, non-linear editing and video server applications
increased due to higher volume shipments. These increases were largely offset by
a reduction in revenues from VideoCD decoder chips due to reduced shipments and
increased price competition.
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Gross Margin
C-Cube's gross margin percentage increased to 55.1% in the nine months
ended September 30, 1999 from 54.4% in the nine month period in the prior year.
This increase was primarily the result of changes in product mix, as sales of
products with higher gross margins, including DiviCom encoders, DVD decoders and
digital set-top boxes, contributed more to revenues in the first nine months of
1999 than the first nine months of 1998. While the selling prices for
semiconductor products have generally declined from the prior year, the Company
was able to offset the related impact on gross margin by realizing operating
efficiencies, including reduced material costs, refinement of its semiconductor
fabrication process and the reduction of outside manufacturing costs.
Research and Development Expenses
In the first nine months of 1999, research and development expenses were
$61.7 million or 21.1% of net revenues, as compared to $55.1 million, or 21.5%
of net revenues, for the same period in the prior year. The increase in research
and development expenses primarily represents additional employee-related costs
associated with increases in product engineering staff, reflecting the Company's
continuing efforts to provide digital video solutions at the chip and systems
levels.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $50.7 million, or
17.4% of net revenues in the first nine months of 1999, as compared to $43.8
million, or 17.1% of net revenues for the same period in the prior year. The
increase was primarily due to increased headcount and related expenses, and also
due to higher sales commission expense resulting from the growth in revenues
over the first nine months of 1998.
Other Income (Expense)
Other income, net of other expense, was $7.1 million for the first nine
months of 1999, an increase from $2.5 million reported for the nine months ended
September 30, 1998. The increase is primarily due to higher interest income
earned on higher average cash and investment balances and lower interest expense
on lower average outstanding debt balances during the first nine months of 1999
compared to the same period last year.
Income Tax Expense
The Company's effective tax rate for the nine months ended September 30,
1999 and 1998 was 30%. The Company's effective tax rate is less than the
combined federal and state statutory rate primarily due to tax credits and lower
foreign tax rates.
Extraordinary Item
During the nine months ended September 30, 1999, the Company repurchased
$3.4 million of the face value of the Company's 5 7/8% Convertible Subordinated
Notes due 2005 at 95.5% of the principal amount, with related accrued interest
to the date of repurchase, and recognized an extraordinary gain of approximately
$33,000 (zero effect per diluted share), net of related income taxes of
approximately $23,000. During the nine months ended September 30, 1998, the
Company repurchased $63.5 million of the face value of the notes at 88.4% of the
principal amount, with related accrued interest to the date of repurchase, and
recognized an extraordinary gain of $3.5 million, or $0.09 per diluted share,
net of related taxes of $2.4 million.
FACTORS THAT MAY AFFECT FUTURE RESULTS
On October 27, 1999, C-Cube entered into an Agreement and Plan of Merger
and Reorganization with Harmonic Inc., a Delaware corporation ("Harmonic"),
pursuant to which, subsequent to the sale or spin-off of C-Cube's semiconductor
business, C-Cube has agreed to merge with and into Harmonic (the "Merger"). The
consummation of the Merger and the sale or spin-off of the semiconductor
business may have a material effect on the Company's financial statements taken
as a whole, as the execution of these transactions may
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<PAGE> 43
contribute to the Company's results differing from the investment community's
expectation in a given quarter. These activities may result in the cancellation
of orders and additional charges to earnings. The success of the merger between
C-Cube and Harmonic may require, among other things, integration or coordination
with a different company culture, management team organization and business
infrastructure. It may also require the development, manufacture and marketing
of C-Cube's product offerings with Harmonic's products in a way that enhances
the performance of the combined business or product line. Successful integration
of the companies depends on a variety of factors, including the hiring and
retention of key employees, management of geographically separate facilities,
and the integration or coordination of different research and development and
product manufacturing facilities. The success of the semiconductor business may
depend on a variety of factors, including the hiring and retention of key
employees and management team and business infrastructure reorganization. All of
these efforts require varying levels of management resources, which may
temporarily adversely impact business operations.
The Company's quarterly and annual operating results have been, and will
continue to be, affected by a wide variety of factors that could have a material
adverse effect on revenues and profitability during any particular period,
including the timing of revenue recognized under its systems contracts and the
level of orders which are received and can be shipped in a quarter, the
rescheduling or cancellation of orders by its customers, competitive pressures
on selling prices, changes in product or customer mix, availability and cost of
foundry capacity and raw materials, fluctuations in yield, loss of any strategic
relationships, C-Cube's ability to introduce new products and technologies on a
timely basis, unanticipated problems in the performance of the Company's next
generation or cost-reduced products, the ability to successfully introduce
products in accordance with OEM design requirements and design cycles, new
product introductions by the Company's competitors, market acceptance of
products of both C-Cube and its customers, compatibility of new products with
emerging digital video standards, purchase commitments for customized components
procured in advance of anticipated systems contracts, supply constraints for
other components incorporated into its customers' products, credit risk for
international customers not using letters of credit, fluctuations in foreign
currency exchange rates to the U.S. dollar, the level of expenditures in
manufacturing, research and development, and sales, general and administrative
functions, and a recent trend of mergers and acquisitions creating larger
competitors which may have established market share or greater financial or
technical resources than the Company.*
In addition, C-Cube's operating results are subject to fluctuations in the
markets for its customers' products, particularly the consumer electronics and
personal computer markets, which have been extremely volatile in the past, and
the digital satellite broadcast, cable and wireless cable markets, which are in
an early stage, creating uncertainty with respect to product volume and timing.
To the extent the Company is unable to fulfill its customers' purchase orders on
a timely basis, these orders may be canceled due to changes in demand in the
markets for its customers' products. Historically, the Company has shipped a
substantial portion of its product in the last month of a given quarter. A
significant portion of C-Cube's expenses are fixed in the short term, and the
timing of increases in expenses is based in large part on the Company's forecast
of future revenues. As a result, if revenues do not meet the Company's
expectations, it may be unable to quickly adjust expenses to levels appropriate
to actual revenues, which could have a material adverse effect on the Company's
business and results of operations.
The Company's dependence on the Asian consumer electronics market has
started to decline, and the Company believes it will either remain stable or
continue to decline in the future, as growth in the encoder, digital satellite
broadcast, non-linear editing, digital cable and wireless cable markets generate
larger contributions to revenues.* Nevertheless, the substantial seasonality of
sales in the consumerelectronics market could impact the Company's revenues and
net income. In particular, C-Cube believes that there may be seasonality in the
Asia-Pacific region related to the Chinese New Year, which falls within the
first calendar quarter, which could result in relatively lower product demand
during the second and third quarters of each year.* If in the future the
geographic mix of the Company's sales shifts towards the U.S. and Europe, C-Cube
would anticipate higher revenues and net income in the third and fourth calendar
quarters as system manufacturers in these regions make purchases in preparation
for the holiday season, and comparatively less revenues and net income in the
first and second calendar quarters.*
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As a result of the foregoing, the Company's operating results and stock
price may be subject to significant volatility, particularly on a quarterly
basis. Any shortfall in net revenues or net income from levels expected by
securities analysts could have an immediate and significant adverse effect on
the trading price of the Company's common stock.
The market price of C-Cube's common stock has fluctuated significantly
since its initial public offering in April 1994. The market price of the common
stock could be subject to significant fluctuations in the future based on
factors such as announcements of new products by C-Cube or its competitors,
quarterly fluctuations in C-Cube's financial results, quarterly fluctuations in
other semiconductor or digital video networking companies' financial results,
changes in analysts' estimates of C-Cube's financial performance, general
conditions in the semiconductor and digital video networking industries,
conditions in the financial markets and general conditions in the global economy
which might adversely affect consumer purchasing. In addition, the stock market
in general has experienced extreme price and volume fluctuations, which have
particularly affected the market prices for many high technology companies and
which have often been unrelated to the operating performance of the specific
companies. The market price of C-Cube's common stock has declined substantially
from its historic highs, and may continue to experience significant fluctuations
in the future.
Year 2000
The Company is aware of the issues associated with the programming code in
existing computer systems as the millennium (Year 2000) approaches. The Year
2000 problem is pervasive and complex, as virtually every computer operation
will be affected by the rollover of the two digit year value to 00. The issue is
whether computer systems will properly recognize date sensitive information when
the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail. C-Cube has
initiated a Year 2000 project designed to identify and assess the risks
associated with its information systems, products, operations and
infrastructure, suppliers and customers that are not Year 2000 compliant, and to
develop, implement and test remediation and contingency plans to mitigate these
risks. C-Cube is replacing or upgrading systems, equipment and facilities that
are known to be Year 2000 non-compliant. For the Year 2000 non-compliance issues
identified to date, the Company does not expect the cost of upgrade or
remediation to exceed $500,000, which is not expected to be material to the
Company's operating results.* If implementation of replacement systems is
delayed, or if significant new non-compliance issues are identified, the
Company's results of operations or financial condition could be materially
adversely affected.
Information Systems. Testing of all information systems has been completed
and all systems are believed to be Year 2000 compliant.* The Company has
reviewed its hardware and systems infrastructure, such as networks, and believes
all critical Year 2000 information systems issues have been resolved.* The
Company has not incurred to date, nor does it expect to incur, material Year
2000 costs pertaining to its information systems and hardware and systems
infrastructure.*
Products. The Company has assessed the capabilities of its semiconductor
products sold to customers and has not identified any significant problems
related to Year 2000 compliance. The Company has also identified and assessed
the risks related to integrated systems sold by its DiviCom segment. Products
manufactured by DiviCom are either believed to be Year 2000 compliant or have
anavailable upgrade to bring them into compliance. To be in compliance for the
Year 2000, the Company has suggested to customers that they obtain a full system
upgrade. All customers were sent a notification letter during the second quarter
of 1999 describing the compliance status of the products purchased by the
customer, along with the procedures necessary to bring those products into
compliance for the Year 2000. Customers with service contracts and customers
with whom the Company has specific Year 2000 contractual obligations have been
offered upgrades at no charge. At present, the majority of the customers in this
category have completed the upgrade. It is up to the customer to initiate the
request for upgrade based on the offer extended by DiviCom. The remaining
requested upgrades are expected to be completed during the fourth quarter of
1999.*
DiviCom products are often installed with third party hardware and
software. The Company has tested the Year 2000 compliance of standard third
party hardware and software products included in its systems and has not
encountered any non-compliance issues. The Company does not comment as to the
Year 2000
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compliance of non-standard third party hardware and software products.
Accordingly, DiviCom recommends that customers verify the Year 2000 compliance
status of non-standard third party hardware and software products and that
customers schedule their own Year 2000 system validation tests during 1999 after
Year 2000 upgrades are performed. DiviCom has not assessed all possible customer
configurations, nor can it anticipate all customer situations, particularly
those involving third party products. As a result, the Company may see an
increase in warranty and other claims resulting from the Year 2000 transition
process. In addition, litigation against the Company regarding Year 2000
compliance issues may occur in the future. For these reasons, the impact of
customer claims could have a material adverse impact on the Company's results of
operations or financial condition.
Operations And Infrastructure. Machinery and equipment and other items
used in the operations and facilities of the Company have been inventoried and
assessed for Year 2000 compliance. The Company has replaced and tested systems
found to be non-compliant, and believes all current systems are Year 2000
compliant.* All servers and employee desktop computers have been upgraded for
Year 2000 compliance. No other material deficiencies were detected from our
assessments.
Suppliers. C-Cube has contacted its critical suppliers and shippers to
inquire whether their operations, products, and services are Year 2000
compliant. All suppliers have responded favorably as to their status of Year
2000 compliance. Where practicable, C-Cube has attempted to mitigate its risks
with respect to the failure of primary suppliers to be Year 2000 compliant
through contracting with secondary suppliers.* In the event that suppliers are
not Year 2000 compliant, the Company will seek alternative sources of supplies
if they have not already been established. However, such failures remain a
possibility and could have a material adverse impact on the Company's results of
operations or financial condition.
Customers. The Company is actively responding to all customer requests for
compliance and other general information related to its Year 2000 programs.
General. The Company does not currently expect its costs associated with
the Year 2000 problem to exceed $500,000, and expects to be able to fund these
costs through operating cash flows.* While, the Company expects to complete its
Year 2000 compliance program during the fourth quarter of 1999, the risks
associated with the Year 2000 problem can be difficult to identify and to
address, and could result in material adverse consequences to the Company.* Even
when the Company completes all of its assessments, identifies and tests
remediation plans believed to be adequate, and develops contingency plans
believed to be adequate, some problems may not be identified or corrected in
time to prevent material adverse consequences to the Company.
As the Year 2000 project continues, the Company may discover additional
Year 2000 problems, may not be able to develop, implement, or test remediation
or contingency plans in a timely manner, or may find that the costs of these
activities exceed current expectations and become material. In many cases, the
Company is relying on assurances from suppliers and customers that new and
upgraded information systems and other products will be Year 2000 compliant. The
Company has tested certainthird-party products, but cannot be sure that its
tests will be adequate or that, if problems are identified, they will be
addressed by the supplier in a timely and satisfactory way.
Because the Company uses a variety of information systems and has
additional systems embedded in its operations and infrastructure, the Company
cannot be sure that all of its systems will work together in a Year
2000-compliant fashion. Furthermore, the Company cannot be sure that it will not
suffer business interruptions, either because of its own Year 2000 problems or
those of its customers or suppliers whose Year 2000 problems may make it
difficult or impossible for them to fulfill their commitments to the Company. If
the Company fails to satisfactorily resolve Year 2000 issues related to its
products in a timely manner, it could be exposed to liability to third parties.
The Company has not developed a "worst case" scenario with respect to Year
2000 issues, but instead has focused its resources on identifying material,
remediable problems and reducing uncertainties generally, through the Year 2000
project described above.
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If the Company or the third parties with which it has relationships were to
cease or not successfully complete its or their Year 2000 remediation efforts,
the Company would encounter disruptions to its business that could have a
material adverse effect on its business, financial position and results of
operations. The Company could be materially and adversely impacted by widespread
economic or financial market disruption or by Year 2000 computer system failures
at third parties with which it has relationships.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments were $277.4 million at
September 30, 1999 compared to $207.8 million at the end of 1998. Working
capital increased to $303.8 million at September 30, 1999 from $220.5 million at
December 31, 1998.
The Company's operating activities generated cash of $50.5 million in the
nine months ended September 30, 1999, primarily from net income and a refund of
$11.8 million prepaid production capacity rights, partially offset by a $23.8
million increase in accounts receivable. Receivable days outstanding increased
from 35 days at December 31, 1998 to 54 days at September 30, 1999 primarily due
to DiviCom's growing contribution to consolidated revenues, as a substantial
portion of DiviCom's revenues are generated under long-term contracts which
generally have longer payment terms than the semiconductor business. During the
fourth quarter of 1999, the Company signed a production capacity agreement with
UMC for which the Company expects to pay a $20 million refundable deposit to UMC
during the first quarter of 2000.*
C-Cube's investing activities, exclusive of sales and maturities of $188.6
million and purchases of $248.0 million of short-term investments, used cash of
$19.8 million, primarily for $17.1 million capital expenditures.
Cash provided by financing activities was $37.3 million, primarily from
proceeds of $40.6 million from sales of stock pursuant to employee stock plans,
partially offset by $3.3 million used to repurchase a portion of the Company's
Convertible Subordinated Notes.
At September 30, 1999, the Company had an available bank line of credit of
$30.0 million which expires in May 2001. Borrowings bear interest at LIBOR plus
1.25% or the bank's prime rate (8.25% at September 30, 1999). The line of credit
agreement requires that the Company, among other things, maintain a minimum
tangible net worth, a minimum annual net income (no quarterly loss exceeding $3
million) and certain financial ratios. In addition, this agreement prohibits the
payment of cash dividends. At September 30, 1999, the Company was in compliance
with these covenants, and there were no outstanding balances under this line.
Based on current plans and business conditions, C-Cube expects that its
cash, cash equivalents and short-term investments together with any amounts
generated from operations and available borrowings, will be sufficient to meet
the Company's cash requirements for at least the next 12 months.* However, there
can be no assurance that the Company will not be required to seek other
financing sooner or that such financing, if required, will be available on terms
satisfactory to the Company, or at all. In addition, the Company has considered
and will continue to consider various possible transactions with foundries to
secure additional foundry capacity, which could include, without limitation,
equity investments, prepayments, non-refundable deposits or loans in exchange
for guaranteed capacity, "take or pay" contracts that commit the Company to
purchase specified quantities of wafers over extended periods, joint ventures or
other partnership relationships.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Readers are referenced to "Part II, Item 7A. Quantitative and Qualitative
Disclosures about Market Risk", in the Company's most recent Annual Report on
Form 10-K, filed with the SEC on March 23, 1999, as there have been no material
changes since that filing.
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YEAR ENDED DECEMBER 31, 1998
The following table sets forth certain operating data for C-Cube
Microsystems as a percentage of net revenues for the years ended December 31,
1998, 1997 and 1996:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Net revenues................................................ 100.0% 100.0% 100.0%
----- ----- -----
Costs and expenses:
Cost of product revenues.................................. 45.7 44.9 45.3
Research and development.................................. 21.0 19.1 13.8
Selling, general and administrative....................... 17.2 15.6 12.2
Purchased in-process technology........................... -- -- 41.1
----- ----- -----
Total............................................. 84.0 79.6 112.4
----- ----- -----
Income (loss) from operations............................... 16.0 20.4 (12.4)
Interest income (expense), net.............................. 1.2 (0.5) --
----- ----- -----
Income (loss) before income taxes, minority interest and
extraordinary item........................................ 17.2 19.9 (12.4)
Income tax expense.......................................... 5.2 6.8 10.3
----- ----- -----
Income (loss) before minority interest and extraordinary
item...................................................... 12.1 13.1 (22.7)
Minority interest in net income (loss) of subsidiary........ (0.1) (0.1) 0.1
----- ----- -----
Income (loss) before extraordinary item..................... 12.2 13.2 (22.8)
Extraordinary gain on repurchase of convertible notes (net
of tax)................................................... 1.0 -- --
----- ----- -----
Net income (loss)........................................... 13.2% 13.2% (22.8)%
===== ===== =====
</TABLE>
Acquisitions
On August 28, 1996, C-Cube Microsystems acquired DiviCom Inc., a digital
video networking company. C-Cube Microsystems paid $65.7 million in cash, issued
2.3 million shares of its common stock, assumed options exercisable for 264,000
shares of its common stock and incurred $1.35 million in other costs in exchange
for the outstanding shares of DiviCom stock that C-Cube Microsystems did not
already own. C-Cube Microsystems assumed net liabilities of $1.9 million,
purchased technology of $14.2 million, which will be amortized over five years,
and wrote off $131.3 million of in-process technology.
C-Cube Microsystems incurred acquisition-related charges of $133 million in
the third quarter of 1996, which included the in-process technology write-off
and bonuses paid to DiviCom employees.
The acquisition of DiviCom was accounted for as a purchase and therefore
DiviCom's financial results from the date of acquisition, August 28, 1996, are
included in C-Cube Microsystems' consolidated financial results.
Net Revenues
Net revenues increased 4.0% to $351.8 million in 1998 compared to $337.0
million in 1997. Revenue from C-Cube Microsystems' family of encoder products
increased due to growth in sales of communications products, which was led by
DiviCom and increased sales of C-Cube Microsystems' DVxpress and DVxpert
families of codecs. Revenue from MPEG-2 decoder chips used primarily in digital
set-top boxes and in DVD-ROMs on PCs increased from 1997 due to customers'
adoption of C-Cube Microsystems' AViA and ZiVA families of decoder chips and the
wider acceptance of the DVD format. C-Cube Microsystems also had sales from the
introduction of its Chaoji VCD decoder. These increases were partially offset by
a decrease in revenues from MPEG-1 decoder chips used in VideoCD players sold
primarily in China, due to price reductions made in response to competitive
pricing pressures, partially offset by an increase in unit volumes.
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In 1997, net revenues increased 5% to $337.0 million compared to $319.8
million in 1996. Revenue from C-Cube Microsystems' family of encoder products
increased primarily due to sales of encoder systems developed by DiviCom, which
was acquired in the third quarter of 1996. See "Acquisitions." C-Cube
Microsystems also began volume shipments of its MPEG-2 DVD decoder chips used
primarily in DVD-ROMs on PCs. Revenue from MPEG-1 decoder chips used in VideoCD
players which are sold primarily in China, decreased from the prior year due to
price reductions made in response to competition. The decreased prices for these
products were partially offset by an increase in unit volumes.
The sales returns allowance at December 31, 1998 was $13.1 million, up from
$6.7 million at December 31, 1997. During 1998, additions to the sales returns
allowance were $12.6 million and deductions were $6.2 million. The deductions to
the allowance were primarily due to price protection credits given to
distributors and other pricing adjustments. The allowance at December 31, 1998
is to cover price protection, pricing adjustments and stock rotation credits to
distributors.
The sales returns allowance at December 31, 1997 was $6.7 million, down
from $11.5 million at December 31, 1996. During 1997, additions to the sales
returns allowance were $3.3 million and deductions were $8.1 million. The
deductions to the allowance were primarily due to price protection credits given
to distributors in the first quarter of 1997 as C-Cube Microsystems
significantly reduced the selling prices of its MPEG-1 decoder chips in response
to competitive pressures.
During 1998, no individual customer accounted for 10% or more of net
revenues. Sales to Sinorex, a distributor, accounted for 20% and 12% of C-Cube
Microsystems' net revenues during 1997 and 1996, respectively.
International revenues accounted for 62%, 65% and 67% of net revenues in
1998, 1997 and 1996, respectively. International revenues were a significant
portion of total revenues primarily due to volume shipments of the CL480, CL680
and CL8800 families of products in Asia for VideoCD and Chaoji VCD players in
the consumer market. C-Cube Microsystems sells products and supports customers
internationally through subsidiaries in Hong Kong and Japan. C-Cube Microsystems
expects that international revenues will continue to represent a significant
portion of net revenues. C-Cube Microsystems' international sales and
manufacturing are subject to changes in foreign political and economic
conditions and to other risks, including fluctuations in foreign exchange rates,
export/import controls and changes in tax laws, tariffs and freight rates. See
"Item 1. Business -- International Business Activities."
Gross Margin
C-Cube Microsystems' gross margin percentage decreased to 54.3% in 1998
from 55.1% in 1997. This decrease is due primarily to higher product transition
costs and lower average selling prices partially offset by reduced product
material costs and a shift in product mix to higher margin encoder products.
C-Cube Microsystems has been able to reduce product material costs through the
negotiation of lower foundry wafer prices, the adoption of finer geometry
fabrication processes and the redesign of products to reduce die size. C-Cube
Microsystems' gross margin percentage increased to 55.1% in 1997 from 54.6% in
1996. This improvement is due primarily to lower product transition costs,
reduced product costs and a shift in product mix to higher margin encoder
products.
The markets into which C-Cube Microsystems sells its products are subject
to extreme price competition. Thus, C-Cube Microsystems expects to continue to
experience declines in the selling prices of its products over the life cycle of
each product. In particular, C-Cube Microsystems expects to continue to
experience significant price competition in the markets for decoder chips. In
order to offset or partially offset declines in the selling prices of its
products, C-Cube Microsystems must continue to reduce the costs of products
through product design changes, manufacturing process changes, volume discounts,
yield improvements and other savings negotiated with its manufacturing
subcontractors. Since C-Cube Microsystems does not believe that it can
continually achieve cost reductions which fully offset the price declines of its
products, it expects gross margin percentages to decline for existing products
over their life cycles.
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C-Cube Microsystems does not operate its own manufacturing facilities and
must make volume commitments to subcontractors at prices that remain fixed over
certain periods of time. Therefore, C-Cube Microsystems may not be able to
reduce its costs as rapidly as its competitors who perform their own
manufacturing. Failure of C-Cube Microsystems to design and introduce, in a
timely manner, lower cost versions of existing products or new products with
higher gross margins, or to successfully manage its manufacturing subcontractor
relationships, would have a material adverse effect on C-Cube Microsystems'
gross margins.
Research and Development Expenses
In 1998, research and development expenses were $74.0 million or 21.0% of
net revenues, compared to $64.2 million or 19.1% of net revenues in 1997. The
increase in research and development expenses from the prior year is primarily
related to an increase in employee-related costs associated with increases in
product engineering staff, partially offset by decreases in start-up and
non-recurring engineering costs. In 1997, research and development expenses were
$64.2 million or 19.1% of net revenues, compared to $44.2 million or 13.8% of
net revenues in 1996. The increase in absolute research and development expenses
from the prior year primarily represents the inclusion of DiviCom's operations
for a full year in 1997, compared to the 1996 period subsequent to the August
28, 1996 date of acquisition. The increase over 1996 was also due to additional
employee-related costs associated with increased staffing, reflecting C-Cube
Microsystems' continuing efforts to provide industry leading digital video
solutions at the chip and systems levels. C-Cube Microsystems anticipates that
absolute levels of research and development expenses will continue to increase
in future periods.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $60.5 million or
17.2% of net revenues in 1998 compared to $52.7 million or 15.6% of net revenues
for 1997. The increase in absolute dollars was primarily due to increased
travel, staffing and related expenses partially offset by decreased commissions
to distributors. Selling, general and administrative expenses increased to $52.7
million or 15.6% of net revenues in 1997 compared to $39.0 million or 12.2% of
net revenues for 1996. The increase in spending was primarily due to the
inclusion of DiviCom's operations for a full year in 1997, compared to the 1996
period subsequent to the August 28, 1996 date of acquisition. The increase over
1996 was also due to increased headcount and related expenses, increased travel
costs and higher advertising costs. C-Cube Microsystems expects that absolute
levels of selling, general and administrative expenses will continue to increase
in future periods.
Other Income (Expense)
Interest income and other increased to $8.5 million in 1998 compared to
$4.3 million in 1997 primarily due to higher average balances of cash and
investments in 1998 compared to 1997. Interest income and other decreased to
$4.3 million in 1997 compared to $5.9 million in 1996 primarily due to lower
average balances in cash and investments in 1997 compared to 1996. Interest
expense and other decreased to $4.3 million in 1998 compared to $6.0 million in
1997 primarily due to lower average outstanding debt balances due to the
repurchase of a significant portion of C-Cube Microsystems' convertible
subordinated notes. Interest expense and other remained consistent at $6.0
million in 1997 and 1996 and consisted primarily of interest paid on the $86.3
million principal of convertible subordinated notes issued in the fourth quarter
of 1995.
Income Tax Expense
C-Cube Microsystems provided $18.2 million for income taxes in 1998 on
income before taxes, minority interest and extraordinary items of $60.7 million,
for an effective tax rate of 30%. In 1997, C-Cube Microsystems provided $22.9
million on income before taxes and minority interest of $67.0 million, for an
effective tax rate of 34%. In 1996, C-Cube Microsystems provided $32.9 million
on a loss before income taxes and minority interest of $39.8 million, as the
write-off of purchased in-process technology in 1996 was not tax deductible. The
effective tax rate in 1996 was 36% excluding the 1996 purchased in-process
technology
48
<PAGE> 50
charge. The effective tax rates for 1998, 1997 and 1996 are less than the
combined federal and state statutory rate primarily due to tax credits and lower
foreign taxes.
Extraordinary Item
During 1998, C-Cube Microsystems repurchased $63.5 million of the face
value of C-Cube Microsystems' 5.875% subordinated convertible notes due in 2005
at 88.4% of the principal amount, with accrued interest to the date of
repurchase. Upon repurchase of the notes, C-Cube Microsystems recognized
extraordinary gains of $3.5 million, or $0.09 per diluted share, net of related
income taxes of $2.4 million.
FACTORS THAT MAY AFFECT FUTURE RESULTS
C-Cube Microsystems' quarterly and annual operating results have been, and
will continue to be, affected by a wide variety of factors that could have a
material adverse effect on revenues and profitability during any particular
period, including the level of orders which are received and can be shipped in a
quarter, the rescheduling or cancellation of orders by its customers,
competitive pressures on selling prices, changes in product or customer mix,
availability and cost of foundry capacity and raw materials, fluctuations in
yield, loss of any strategic relationships, C-Cube Microsystems' ability to
introduce new products and technologies on a timely basis, unanticipated
problems in the performance of C-Cube Microsystems' next generation or cost-
reduced products, the ability to successfully introduce products in accordance
with OEM design requirements and design cycles, new product introductions by
C-Cube Microsystems' competitors, market acceptance of products of both C-Cube
Microsystems and its customers, supply constraints for other components
incorporated into its customers' products, fluctuations in the Japanese yen and
Great Britain pound to U.S. dollar exchange rates, and the level of expenditures
in manufacturing, research and development and sales, general and administrative
functions.
In addition, C-Cube Microsystems' operating results are subject to
fluctuations in the markets for its customers' products, particularly the
consumer electronics market, which has been extremely volatile in the past, and
the satellite broadcast and wireless cable markets, which are in an early stage,
creating uncertainty with respect to product volume and timing. C-Cube
Microsystems has devoted a substantial portion of its research and development
efforts in recent quarters to develop chips used in DVD systems. C-Cube
Microsystems' DVD products are subject to the new product risks described in the
preceding paragraph, including in particular C-Cube Microsystems' ability to
timely introduce these products and the market's acceptance of them, which could
have a materially adverse affect on its operating results. Furthermore, to the
extent C-Cube Microsystems is unable to fulfill its customers' purchase orders
on a timely basis, these orders may be canceled due to changes in demand in the
markets for its customers' products. Historically, C-Cube Microsystems has
generally shipped a substantial portion of its product in the last month of a
given quarter. A significant portion of C-Cube Microsystems' expenses are fixed
in the short term, and the timing of increases in expenses is based in large
part on C-Cube Microsystems' forecast of future revenues. As a result, if
revenues do not meet C-Cube Microsystems' expectations, it may be unable to
quickly adjust expenses to levels appropriate to actual revenues, which could
have a material adverse effect on C-Cube Microsystems' business and results of
operations.
Due to C-Cube Microsystems' dependence on the consumer electronics market,
the substantial seasonality of sales in that market could impact C-Cube
Microsystems' revenues and net income. In particular, C-Cube Microsystems
believes that there may be seasonality in the Asia-Pacific region related to the
Chinese New Year, which falls within the first calendar quarter, which could
result in relatively lower product demand from mid-first quarter until mid-third
quarter. If the future geographic mix of C-Cube Microsystems' sales shifts
towards the U.S. and Europe, C-Cube Microsystems would anticipate higher
revenues and net income in the third and fourth calendar quarters as system
manufacturers in these areas make purchases in preparation for the holiday
season, and comparatively less revenues and net income in the first and second
calendar quarters.
The economic crisis in Asia has been characterized by increases in idle
production capacity, real estate vacancies, unemployment and bank failures, and
has resulted in currency devaluation, falling consumer
49
<PAGE> 51
spending and domestic price deflation. Any of these factors could significantly
reduce the demand for the end user goods in which C-Cube Microsystems' products
are used.
As a result of the foregoing, C-Cube Microsystems' operating results and
stock price may be subject to significant volatility, particularly on a
quarterly basis. Any shortfall in net revenues or net income from levels
expected by securities analysts could have an immediate and significant adverse
effect on the trading price of C-Cube Microsystems' common stock. See
"Concentration of Credit Risk" and "Product and Geographic Risks" in Note 1 of
Notes to Consolidated Financial Statements.
The market price of C-Cube Microsystems' common stock has fluctuated
significantly since the initial public offering in April 1994. The market price
of the common stock could be subject to significant fluctuations in the future
based on factors such as announcements of new products by C-Cube Microsystems or
its competitors, quarterly fluctuations in C-Cube Microsystems' financial
results or other semiconductor companies' financial results, changes in
analysts' estimates of C-Cube Microsystems' financial performance, general
conditions in the semiconductor and digital video networking industries,
conditions in the financial markets and general conditions in the global economy
which might adversely affect consumer purchasing. In addition, the stock market
in general has experienced extreme price and volume fluctuations, which have
particularly affected the market prices for many high technology companies and
which have often been unrelated to the operating performance of the specific
companies. The market price of C-Cube Microsystems' common stock has declined
substantially from historic highs, and may continue to experience significant
fluctuations in the future.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments increased to $207.8
million at December 31, 1998 from the $166.4 million at the end of 1997. Working
capital increased to $220.5 million at December 31, 1998 from $208.4 million at
the end of 1997.
C-Cube Microsystems' operating activities generated cash of $98.3 million
in 1998, compared to $88.6 million in 1997 reflecting increased income taxes
payable, accounts payable and accrued liabilities balances and decreased
accounts receivable balances.
C-Cube Microsystems' investing activities, exclusive of the sales and
maturities and purchases of short-term investments of $69.7 million and $147.3
million, respectively, used cash of $19.8 million, primarily for capital
expenditures.
Cash used in financing activities was $37.5 million, primarily from $56.1
million used to repurchase a portion of C-Cube Microsystems' convertible
subordinated notes, partially offset by sales of stock pursuant to employee
stock plans of $20.1 million.
At December 31, 1998, C-Cube Microsystems had an available bank line of
credit of $30.0 million which expires May 1, 1999. Borrowings bear interest at
LIBOR plus 1.25% or the bank's prime rate (7.75% at December 31, 1998). The line
of credit agreement requires C-Cube Microsystems, among other things, to
maintain a minimum tangible net worth, annual net income (no quarterly loss
exceeding $3.0 million) and certain financial ratios. In addition, the bank
agreement prohibits the payment of cash dividends. At December 31, 1998, C-Cube
Microsystems was in compliance with these covenants, and there were no
borrowings under this line.
In the second quarter of 1996, C-Cube Microsystems expanded and formalized
its relationship with Taiwan Semiconductor Manufacturing Co., Ltd. (TSMC) to
provide additional wafer production capacity in the years 1996 to 2001. The
agreement with TSMC provided that TSMC would produce and ship wafers to C-Cube
Microsystems at specified prices and required C-Cube Microsystems to make two
advance payments totaling $49.0 million. An advance payment of $24.5 million was
made in June 1996. In May 1997, C-Cube Microsystems amended its agreement with
TSMC which resulted in a reduction of C-Cube Microsystems' future wafer purchase
commitments and the forgiveness of the second advance payment of $24.5 million.
TSMC will apply the June 1996 prepayment against a portion of the wafer cost as
product is delivered to C-Cube Microsystems. Accordingly, the prepaid amount,
which has been allocated between current and long-
50
<PAGE> 52
term assets, will be amortized to inventory as wafers are received. At December
31, 1998, $5.6 million of the remaining $18.2 million production capacity rights
is included in other current assets. In January 1999, C-Cube Microsystems signed
a second amendment to its agreement with TSMC which will result in a refund to
C-Cube Microsystems of $11.7 million from the remaining $18.2 million balance in
production capacity.
Based on current plans and business conditions, C-Cube Microsystems expects
that its cash, cash equivalents and short-term investments together with any
amounts generated from operations and available borrowings, will be sufficient
to meet C-Cube Microsystems' cash requirements for at least the next 12 months.
However, there can be no assurance that C-Cube Microsystems will not be required
to seek other financing sooner or that such financing, if required, will be
available on terms satisfactory to C-Cube Microsystems. In addition, C-Cube
Microsystems has considered and will continue to consider various possible
transactions to secure additional foundry capacity, which could include, without
limitation, equity investments in, prepayments to, non-refundable deposits with
or loans to foundries in exchange for guaranteed capacity, "take or pay"
contracts that commit C-Cube Microsystems to purchase specified quantities of
wafers over extended periods, joint ventures or other partnership relationships
with foundries.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about C-Cube Microsystems' market risk disclosures
involves forward-looking statements. Actual results could differ materially from
those projected in the forward-looking statements. C-Cube Microsystems is
exposed to market risk related to changes in interest rates and foreign currency
exchange rates. C-Cube Microsystems does not use derivative financial
instruments for speculative or trading purposes.
Interest Rate Sensitivity. C-Cube Microsystems maintains a short-term
investment portfolio consisting mainly of income securities with an average
maturity of less than two years. The market value of this portfolio was $99.6
million at December 31, 1998. These available-for-sale securities are subject to
interest rate risk and will fall in value if market interest rates increase. If
market interest rates were to increase immediately and uniformly by 10% from
current levels at December 31, 1998, the fair value of the portfolio would
decline by $0.4 million. C-Cube Microsystems has the ability to hold its fixed
income investments until maturity, and therefore C-Cube Microsystems would not
expect its operating results or cash flows to be affected to any significant
degree by the effect of a sudden change in market interest rates on its
securities portfolio. C-Cube Microsystems does not hedge any interest rate
exposures.
C-Cube Microsystems has fixed rate long-term debt of approximately $22.8
million, and a hypothetical 10% decrease in current interest rates from levels
at December 31, 1998 would not have a material impact on the fair market value
of this debt.
Foreign Currency Exchange Risk. C-Cube Microsystems enters into foreign
exchange forward contracts and foreign currency options to hedge certain
economic exposures, balance sheet exposures and intercompany balances against
future movements in the dollar/yen and dollar/pound exchange rates. Gains and
losses on the forward contracts are largely offset by gains and losses on the
underlying exposure. A hypothetical 10% appreciation of the U.S. dollar from
December 31, 1998 market rates would increase the unrealized value of C-Cube
Microsystems' forward contracts by $0.3 million. Conversely, a hypothetical 10%
depreciation of the U.S. dollar from December 31, 1998 market rates would
decrease the unrealized value of C-Cube Microsystems' forward contracts by $0.3
million. In either scenario, the gains or losses on the forward contracts are
largely offset by the gains or losses on the underlying transactions and
consequently a sudden or significant change in foreign exchange rates would not
be expected to have a material impact on future net income or cash flows.
All of the potential changes noted above are based on sensitivity analyses
performed on C-Cube Microsystems' financial positions at December 31, 1998.
Actual results may differ materially.
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<PAGE> 53
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The historical financial statements have not been restated to give
retroactive effect to the sale of the DivCom business because that transaction
is subject to stockholder approval and therefore does not meet the measurement
date criteria for discontinued operations. The unaudited pro forma financial
statements have been prepared to give effect to the sale of the DivCom business
as if the transaction had taken place on January 1, 1998.
The following unaudited pro forma financial statements are presented for
illustrative purposes only and are not necessarily indicative of the financial
position or results of operations of future periods or the results that actually
would have been realized had the Semiconductor business been a separate company
during the specified periods. The pro forma financial statements, including the
notes thereto, are qualified in their entirety by reference to, and should be
read in conjunction with, the historical consolidated financial statements of
C-Cube Microsystems, including the notes thereto, included herein or
incorporated herein by reference. See "Where You Can Find More Information" on
page F-31.
The following pro forma financial statements give effect to the proposed
spin-off of the DiviCom business. The financial statements of the Semiconductor
business exclude the results of operations and financial position of the DiviCom
business, which will be spun-off. The pro forma adjustments are preliminary and
based on management's estimates. In addition, management is in the process of
assessing and formulating its business plans. Management does not know the exact
amount of the restructuring costs but does not believe that they will be
material. Based on the timing of the closing of the transaction, the
finalization of the integration plans and other factors, final pro forma
adjustments may differ materially from those presented in these pro forma
financial statements.
The pro forma balance sheet assumes that the spin-off took place on
September 30, 1999. The pro forma statement of operations assumes the spin-off
took place as of the beginning of January 1, 1998.
52
<PAGE> 54
PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
C-CUBE SEMICONDUCTOR
MICROSYSTEMS, INC. PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED
------------------ ----------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents........................... $117,098 $ (73,068)(1)(2)(3) $ 44,030
Short-term investments......................... 160,275 (11,932)(1) 148,343
Accounts receivable, net of allowances......... 61,046 (52,504)(1) 8,542
Inventories.................................... 12,373 (9,948)(1) 2,425
Deferred income taxes.......................... 11,723 (9,190)(1)(5) 2,533
Other current assets........................... 14,914 (6,174)(1) 8,740
-------- --------- --------
Total current assets................... 377,429 (162,816) 214,613
Property and equipment -- net.................... 33,881 (14,063)(1) 19,818
Production capacity rights....................... 5,164 -- 5,164
Distribution rights -- net....................... 1,359 -- 1,359
Purchased technology -- net...................... 5,139 (2,595)(1) 2,544
Other assets..................................... 1,995 (499)(1) 1,496
-------- --------- --------
Total.................................. $424,967 $(179,973) $244,994
======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................... $ 24,356 $ (11,592)(1) $ 12,764
Accrued liabilities............................ 31,195 (2,615)(1)(4) 28,580
Income taxes payable........................... 12,162 (6,649)(1) 5,513
Deferred revenue............................... 5,537 (5,537)(1) --
Current portion of long-term obligations....... 368 (11)(1) 357
-------- --------- --------
Total current liabilities.............. 73,618 (26,404) 47,214
Long-term obligations............................ 20,150 (48)(1) 20,102
Deferred income taxes............................ 3,230 (2,545)(1) 685
-------- --------- --------
Total liabilities...................... 96,998 (28,997) 68,001
-------- --------- --------
Minority interest in subsidiary.................. 409 -- 409
Stockholders' equity:
Preferred stock................................ -- -- --
Common stock................................... 270,932 (36,100)(2) 234,832
Accumulated other comprehensive loss........... (1,992) 27(1) (1,965)
Retained earnings (deficit).................... 58,620 (114,903)(1)(4)(5) (56,283)
-------- --------- --------
Total stockholders' equity............. 327,560 (150,976) 176,584
-------- --------- --------
Total.................................. $424,967 $(179,973) $244,994
======== ========= ========
</TABLE>
53
<PAGE> 55
PRO FORMA STATEMENT OF CONSOLIDATED INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
C-CUBE SEMICONDUCTOR
MICROSYSTEMS, INC. PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED
------------------ ----------- -------------
<S> <C> <C> <C>
Net revenues:................................. $291,922 $(133,821)(1) $158,101
-------- --------- --------
Costs and expenses:
Cost of product revenues.................... 130,947 (67,852)(1) 63,095
Research and development.................... 61,659 (21,820)(1) 39,839
Selling, general and administrative......... 50,677 (20,595)(1)(4) 30,082
-------- --------- --------
Total............................... 243,283 (110,267) 130,014
-------- --------- --------
Income from operations........................ 48,639 (23,554) 28,173
Other income:
Interest income and other................... 7,084 (967)(1) 6,117
Interest expense and other.................. -- -- --
-------- --------- --------
Total............................... 7,084 (967) 6,117
Income before income taxes, minority interest
and extraordinary item...................... 55,723 (24,521) 34,290
Income tax expense............................ 16,717 (7,088)(1) 9,629
-------- --------- --------
Income before minority interest and
extraordinary item.......................... 39,006 (17,433) 24,661
Minority interest in net income of
subsidiary.................................. 381 -- 381
-------- --------- --------
Income before extraordinary item.............. 38,625 (17,433) 24,280
Extraordinary gain on repurchase of
convertible notes (net of tax).............. 33 -- 33
-------- --------- --------
Net income.................................... $ 38,658 $ (17,433) $ 24,313
======== ========= ========
Basic earnings per share:
Income before extraordinary item............ $ 0.98 $ 0.62
Extraordinary item (net of tax)............. 0.00 0.00
-------- --------
Net income.................................. $ 0.98 $ 0.62
======== ========
Diluted earnings per share:
Income before extraordinary item............ $ 0.91 $ 0.58
Extraordinary item (net of tax)............. $ 0.00 0.00
-------- --------
Net income.................................. $ 0.91 $ 0.58
======== ========
Shares:
Basic....................................... 39,368 39,368
======== ========
Diluted..................................... 43,224 41,835
======== ========
</TABLE>
54
<PAGE> 56
PRO FORMA STATEMENT OF CONSOLIDATED INCOME
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
C-CUBE SEMICONDUCTOR
MICROSYSTEMS, INC. PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED
------------------ ----------- -------------------
<S> <C> <C> <C>
Net revenues:................................ $351,797 $(142,715)(1) $209,082
-------- --------- --------
Costs and expenses:
Cost of product revenues................... 160,839 (75,088)(1) 85,751
Research and development................... 74,031 (21,449)(1) 52,582
Selling, general and administrative........ 60,512 (22,559)(1) 37,953
-------- --------- --------
Total.............................. 295,382 (119,096) 176,286
-------- --------- --------
Income from operations....................... 56,415 (23,619) 32,796
Other income:
Interest income and other.................. 8,511 (1,784)(1) 6,727
Interest expense and other................. (4,272) 33 (4,239)
-------- --------- --------
Total.............................. 4,239 (1,751) 2,488
Income before income taxes, minority interest
and extraordinary item..................... 60,654 (25,370) 35,284
Income tax expense........................... 18,196 (8,390)(1) 9,806
-------- --------- --------
Income before minority interest and
extraordinary item......................... 42,458 (16,980) 25,478
Minority interest in net loss of
subsidiary................................. (337) -- (337)
-------- --------- --------
Income before extraordinary item............. 42,795 (16,980) 25,815
Extraordinary gain on repurchase of
convertible notes (net of tax)............. 3,494 -- 3,494
-------- --------- --------
Net income................................... $ 46,289 $ (16,980) $ 29,309
======== ========= ========
Basic earnings per share:
Income before extraordinary item........... $ 1.14 $ 0.69
Extraordinary item (net of tax)............ 0.09 0.09
-------- --------
Net income................................. $ 1.24 $ 0.78
======== ========
Diluted earnings per share:
Income before extraordinary item........... $ 1.11 $ 0.67
Extraordinary item (net of tax)............ 0.09 0.09
-------- --------
Net income................................. $ 1.19 $ 0.76
======== ========
Shares:
Basic...................................... 37,382 37,382
======== ========
Diluted.................................... 40,754 38,729
======== ========
</TABLE>
55
<PAGE> 57
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. To carve out results of operations and assets and liabilities associated with
the DiviCom business.
2. To adjust for estimated cash inflows from stock the exercise of stock options
and the related tax benefit, and the estimated cash outflows associated with
the transfer of cash to Harmonic upon the consummation of the merger
agreement.
3. To record the estimated taxes expected to be incurred upon the distribution
of Semiconductor.
4. To record estimated direct expenses related to the merger.
5. In connection with the distribution, Semiconductor may be able to achieve a
tax basis step up in certain domestic assets. To the extent this is achieved,
Semiconductor will record a deferred tax asset with an offset in equity that
is not yet recorded in these proforma adjustments.
56
<PAGE> 58
MANAGEMENT
The following table lists the names, ages and positions of all directors
and executive officers of Semiconductor as of the distribution date. There are
no family relationships between any director or executive officer and any other
director or executive officer of Semiconductor. Executive officers serve at the
discretion of the board of directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Alexandre A. Balkanski, Ph.D............. 39 Director
Fred Brown............................... 55 Senior Vice President of Worldwide Sales
Richard Foreman.......................... 45 Vice President, Chief Information Officer and
Corporate Secretary
Baryn S. Futa............................ 44 Director
Donald McKinney.......................... 49 Director
Umesh Padval............................. 41 President, Chief Executive Officer and Director
Gregorio Reyes........................... 58 Director
T. J. Rodgers............................ 51 Director
Donald T. Valentine...................... 67 Director and Chairman
Walt Walczykowski........................ 50 Vice President, Finance and Chief Financial Officer
</TABLE>
Dr. Alexandre Balkanski co-founded C-Cube Microsystems in July 1988 and
served as President and Chief Executive Officer from July 1995 until the
distribution date. He had previously served as C-Cube Microsystems' Executive
Vice President and Chief Operating Officer. Prior to joining C-Cube
Microsystems, Dr. Balkanski co-founded and served as President of Diamond
Devices, a semiconductor company specializing in Digital Signal Processing
(DSP). Dr. Balkanski was elected to the Board of Directors of C-Cube
Microsystems in April 1993. He serves as an outside director on the board of
PMC-Sierra, Inc., a semiconductor company. Dr. Balkanski has a B.A. in physics
from Harvard College, and an M.S. in physics and a Ph.D. in business economics
from Harvard University.
Mr. Brown joined C-Cube Microsystems in December of 1993 as Director of
Asia Pacific Sales, and was named Vice President in November 1995. Mr. Brown was
promoted to Vice President, Worldwide Sales in May 1998 and Senior Vice
President in November 1998. Prior to joining C-Cube Microsystems, he spent
eleven years at LSI Logic, most recently as Vice President, Asia Pacific Sales
located in Hong Kong. Mr. Brown holds a BSEE degree from Carnegie Institute of
Technology (now Carnegie Mellon University).
Mr. Foreman joined C-Cube Microsystems in November 1994 as Director of
Information Technology. In January 1996 he was appointed Vice President, Chief
Information Officer and Corporate Secretary. During 1994, Mr. Foreman was Vice
President of the Intouch Group and an information systems consultant to Sybase
Corporation. From April 1983 to January 1994, Mr. Foreman held management
positions at Cypress Semiconductor, including Corporate Controller and Director
of Information Systems. Mr. Foreman holds a B.S., with honors, in Mechanical
Engineering from Villanova University, an M.S. in Systems Engineering from the
University of Pennsylvania and an M.B.A. from the Wharton Graduate School.
Mr. Futa has served on the Board of Directors since February 1994. In July
1996, he founded MPEG LA, LLC, a company which was formed to provide licensing
access to essential MPEG-2 intellectual property to users of the technology,
where he currently serves as Manager and Chief Executive Officer. From September
1988 to June 1996, he served as the Executive Vice President and Chief Operating
Officer of Cable Television Laboratories, Inc., a research and development
consortium of cable television system operators.
Mr. McKinney has served on the Board of Directors since February 1997. Mr.
McKinney, the founder of International Network Services, a network service
provider, served as President and Chief Executive Officer and Director of
International Network Services from its date of inception in August 1991 until
January 1996, and has since served as Chairman of the Board and Chief Executive
Officer until July 1998, when he chose to be C-Cube Microsystems' Chairman. Mr.
McKinney served as the Vice President of Sales and Marketing of Electronics for
Imaging Inc., a provider of hardware and software products for the digital color
imaging market, from May 1989 to February 1991. Mr. McKinney was the founding
Vice President of Sales, Marketing and Customer Service at Silicon Graphics,
Inc. Later Mr. McKinney opened Silicon Graphics'
57
<PAGE> 59
international operations and subsequently was General Manager of its OEM
Subsystems Division. Mr. McKinney worked for Silicon Graphics, Inc. from January
1982 to May 1987. Mr. McKinney has also served in various sales, management and
consulting positions at Sequoia Capital, Chromatics and International Business
Machines Corporation.
Mr. Padval begins to serve as President, Chief Executive Officer and
Director as of the distribution date. Mr. Padval joined C-Cube Microsystems as
President of C-Cube Microsystems' Semiconductor division in October 1998. He has
over 15 years of broad management experience in the semiconductor industry. His
management experience includes business unit, marketing, sales and engineering
positions at VLSI Technology and Advanced Micro Devices. Prior to joining C-Cube
Microsystems, Mr. Padval served as Senior Vice President and General Manager of
the Consumer Digital Entertainment division at VLSI Technology, Inc from May
1997 to October 1998. In this position he managed marketing, engineering,
applications and operational aspects of the division which focused on providing
solutions into global digital set-top box deployments. From August 1994 to May
1997, Mr. Padval served as Vice President and General Manager for VLSI's
Computing Solutions division, which focused on the PC, workstation, mass storage
and peripherals market. Before joining VLSI Technology, Mr. Padval worked for
Advanced Micro Devices where he held variety of marketing and engineering
positions. Mr. Padval holds a bachelor of technology from Indian Institute of
Technology in Bombay, an M.S. degree from Pennsylvania State University and an
M.S. degree from Stanford University.
Mr. Reyes has served on the Board of Directors since July 1992. Since
August 1994, Mr. Reyes has been a private investor and management consultant.
From September 1990 to August 1994, he served as Chairman and Chief Executive
Officer of Sunward Technologies, Inc., a provider of rigid disk magnetic
recording head products for the data storage industry. From March 1986 to August
1990, Mr. Reyes was Chairman and Chief Executive Officer of American
Semiconductor Equipment Technologies. Since January 1995, Mr. Reyes has served
as Chairman of the Board of Sync Research. Mr. Reyes also serves as a director
of Diamond Multimedia and several privately-held companies.
Mr. Rodgers has served on the Board of Directors since January 1994. He
founded Cypress Semiconductor Corporation in 1983, where he currently serves as
President, Chief Executive Officer and a director.
Mr. Valentine has served as Chairman of the Board of Directors since
December 1992. He has been a General Partner of Sequoia Capital, a venture
capital firm, since 1974. Mr. Valentine is also Chairman of the Board of Network
Appliance, Inc. and Vice Chairman of the Board of Cisco Systems, Inc.
Mr. Walczykowski joined C-Cube Microsystems as Corporate Controller in
September 1995, bringing nineteen years of financial management experience. He
was promoted to Vice President of Finance and Chief Financial Officer in July
1998. Prior to joining C-Cube Microsystems, Mr. Walczykowski served, from
January 1989 to August 1995, as Corporate Controller for Zycad Corporation, a
provider of technology and services to designers of integrated circuits and
systems. Since starting his career at Arthur Young and Company in San Francisco,
Mr. Walczykowski has held key positions at several Northern California high tech
companies including Measurex, Dataproducts Corporation, Triad Systems and Friden
Alcatel. Mr. Walczykowski holds an M.B.A. and a B.S. in Accounting from San Jose
State University.
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<PAGE> 60
EXECUTIVE COMPENSATION AND OTHER MATTERS
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation of
the Chief Executive Officer of C-Cube Microsystems and the four other most
highly compensated executive officers of C-Cube Microsystems as of December 31,
1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
----------------------------------- COMPENSATION
OTHER ANNUAL AWARDS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION OPTIONS(#) COMPENSATION
- --------------------------- ---- ------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Alexandre A. Balkanski..... 1998 216,329 294,250 6,975(2) 200,000 0
President and Chief 1997 207,500 79,744 5,400(2) 400,000 0
Executive Officer 1996 199,999 487,153 5,400(2) 150,000 0
Frederick Brown IV......... 1998 173,752(3) 205,557(4) 7,200(2) 95,000 0
Senior Vice President, 1997 150,000(3) 101,992 7,200(2) 100,000 0
Worldwide Sales 1996 120,000(3) 238,786 7,200(2) 30,000 0
Tom Lookabaugh............. 1998 232,814 142,906 0 210,600(8) 0
President of DiviCom
Inc., 1997 180,000(5) 45,000 0 127,000(8) 0
a wholly-owned subsidiary 1996 50,000(6) 346,310(7) 0 126,900(8) 0
of the Company
Richard Foreman............ 1998 172,500 88,275 0 20,000 0
Vice President, Chief 1997 161,250 21,930 0 40,000 0
Information Officer 1996 146,250 168,105 0 100,000 0
and Corporate Secretary
Walter Walczykowski........ 1998 151,016(9) 62,130 0 100,284 0
Vice President, Finance 1997 122,382(9) 20,606 0 13,327 0
and Chief Financial
Officer 1996 113,661(9) 79,453 0 0 0
</TABLE>
- ---------------
(1) The amounts shown under the Bonus column represents cash bonuses earned for
the indicated fiscal years.
(2) Consists of car allowances.
(3) Mr. Brown has served as Senior Vice President, Worldwide Sales since
November 1998. Mr. Brown's compensation for the period prior to his
appointment to Senior Vice President, Worldwide Sales includes compensation
he received while serving as Vice President, Worldwide Sales from May 1998
to November 1998, and while serving as Vice President, Asia Pacific Sales
for the period prior.
(4) Includes a retention bonus of $100,000, of which $50,000 will be vested on
December 31, 1999 and $50,000 vested on December 31, 2000, provided Mr.
Brown is an employee of the Company on those dates.
(5) Mr. Lookabaugh has served as President of DiviCom Inc. since December 1997.
Mr. Lookabaugh's compensation for the period prior to his appointment to
President of DiviCom includes compensation he received while serving as
Senior Vice President and General Manager of DiviCom from March 1997 to
December 1997, and while serving as Vice President of Marketing of DiviCom
for the period prior.
(6) Mr. Lookabaugh's salary is shown for the period subsequent to C-Cube's
acquisition of DiviCom on August 28, 1996. Mr. Lookabaugh's salary for the
period prior to the acquisition was $101,876.
(7) Includes a bonus of $200,000 granted on August 28, 1996, in connection with
the Company's acquisition of DiviCom Inc. Mr. Lookabaugh was not a
director, officer or employee of the Company prior to this date.
(8) Includes options granted to Mr. Lookabaugh's spouse, a former employee of
the Company, deemed to be beneficially owned by Mr. Lookabaugh.
(9) Mr. Walczykowski has served as Vice President, Finance and Chief Financial
Officer since July 1998. Mr. Walczykowski's compensation for the period
prior to his appointment to Vice President of Finance
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<PAGE> 61
and Chief Financial Officer includes compensation he received while serving
as Senior Director of Finance from April 1998 to July 1998, and while
serving as Corporate Controller for the period prior.
The Company does not have employment contracts with any of the persons
named in the Summary Compensation Table, or any defined benefit or actuarial
plan under which benefits are determined primarily by final compensation or
average final compensation and years of service.
STOCK OPTION GRANTS
The following table provides the specified information concerning grants of
options to purchase C-Cube Microsystems' common stock made during the fiscal
year ended December 31, 1998 to the persons named in the Summary Compensation
Table:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS IN FISCAL 1998 POTENTIAL REALIZABLE
---------------------------------------------- VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES
OPTIONS OF STOCK PRICE
GRANTED TO EXERCISE APPRECIATION FOR
OPTIONS EMPLOYEES OR BASE OPTION TERM(2)
GRANTED IN FISCAL PRICE EXPIRATION ---------------------
NAME (#) YEAR ($/SH)(1) DATE 5%($) 10%($)
---- ------- ----------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Alexandre A. Balkanski............ 200,000 3.8 18.5625 04/01/08 2,334,771 5,916,769
Frederick Brown IV................ 20,000 0.4 18.5625 04/01/08 233,477 591,677
Frederick Brown IV................ 75,000 1.4 17.8750 11/02/08 843,112 2,136,611
Tom Lookabaugh.................... 75,000 1.4 18.5625 04/01/08 875,539 2,218,788
Tom Lookabaugh.................... 125,000 2.4 16.8750 10/27/08 1,326,575 3,361,801
Tom Lookabaugh (3)................ 2,600 0.05 18.5625 04/01/08 30,352 76,918
Tom Lookabaugh (3)................ 8,000 0.2 14.8125 09/01/08 74,524 188,858
Richard Foreman................... 20,000 0.4 18.5625 04/01/08 233,477 591,677
Walter Walczykowski............... 3,900 0.1 18.5625 04/01/08 45,528 115,377
Walter Walczykowski............... 21,384 0.4 18.5625 04/01/08 249,634 632,621
Walter Walczykowski............... 75,000 1.4 19.5000 07/16/08 919,758 2,330,848
</TABLE>
- ---------------
(1) Options were granted at an exercise price equal to the fair market value per
share of C-Cube's Common Stock as of the date of the grant.
(2) Potential realizable values are net of exercise price, but before taxes
associated with exercise. Amounts represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. The assumed 5% and 10% rates of stock price appreciation are provided
in accordance with rules of the Securities and Exchange Commission and do
not represent the Company's estimate or projection of the future Common
Stock price. Actual gains, if any, on stock option exercises are dependent
on the future performance of the Common Stock, overall market conditions and
the option holders' continued employment through the vesting period. This
table does not take into account any appreciation in the price of the Common
Stock from the date of grant to date.
(3) Represents options granted to Mr. Lookabaugh's spouse, a former employee of
the Company, deemed to be beneficially owned by Mr. Lookabaugh.
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<PAGE> 62
STOCK OPTION EXERCISES
The following table provides the specified information concerning exercises
of options to purchase C-Cube Microsystems' common stock in the fiscal year
ended December 31, 1998, and unexercised options held as of December 31, 1998,
by the persons named in the Summary Compensation Table:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY
OPTIONS AT 12/31/98(2)
NUMBER OF UNEXERCISED ---------------------------
SHARES VALUE OPTIONS AT 12/31/98
ACQUIRED ON REALIZED --------------------------- EXERCISABLE UNEXERCISABLE
NAME EXERCISE ($)(1) EXERCISABLE UNEXERCISABLE ($) ($)
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alexandre A. Balkanski........ 0 0 722,085 551,667 10,209,600 3,268,547
Frederick Brown IV............ 0 0 104,733 189,385 1,349,001 1,543,532
Tom Lookabaugh (3)............ 0 0 121,897 355,903 1,150,337 3,069,900
Richard Foreman............... 0 0 115,697 104,303 1,491,489 773,511
Walter Walczykowski........... 0 0 35,162 108,449 264,653 851,210
</TABLE>
- ---------------
(1) Based upon the market price of the purchased shares on the exercise date
less the option exercise price paid for such shares.
(2) Based upon the market price of $27.125 per share, which was the closing
price per share of Common Stock on the Nasdaq National Market on December
31, 1998, less the option exercise price payable per share.
(3) Includes options held by Mr. Lookabaugh's spouse, a former employee of the
Company, deemed to be beneficially owned by Mr. Lookabaugh.
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<PAGE> 63
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of October 31, 1999,
with respect to the beneficial ownership of C-Cube Microsystems common stock by
(i) all persons known by C-Cube Microsystems to be the beneficial owners of more
than 5% of the outstanding common stock of C-Cube Microsystems, (ii) each
director of Semiconductor, (iii) the Chief Executive Officer and the four other
most highly compensated executive officers of Semiconductor as of December 31,
1999, whose salary and incentive compensation for the fiscal year ended December
31, 1999 exceeded $100,000, and (iv) all executive officers and directors of
Semiconductor as a group:
<TABLE>
<CAPTION>
SHARES OWNED
--------------------------
NUMBER OF PERCENTAGE OF
FIVE-PERCENT STOCKHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS(1) SHARES CLASS
- -------------------------------------------------------------- --------- -------------
<S> <C> <C>
FIVE-PERCENT STOCKHOLDERS:
Entities affiliated with J. & W. Seligman & Co.
Incorporated(2).............................................. 4,574,900 10.8%
100 Park Avenue -- 8th Floor New York, New York 10017
DIRECTORS AND EXECUTIVE OFFICERS:
Alexandre A. Balkanski(3).................................... 1,235,525 2.9%
Donald T. Valentine(4)....................................... 1,128,247 2.7%
Frederick Brown IV(5)........................................ 163,139 *
Richard Foreman(6)........................................... 158,652 *
T. J. Rodgers(7)............................................. 139,482 *
Umesh Padval(8).............................................. 135,388 *
Walter Walczykowski(9)....................................... 73,303 *
Baryn S. Futa(10)............................................ 70,002 *
Donald McKinney(11).......................................... 38,852 *
Gregorio Reyes(12)........................................... 37,991 *
All executive officers and directors as a group (10
persons)(13)............................................... 3,180,581 7.5%
</TABLE>
- ---------------
* Represents less than 1%
(1) The persons named in this table have the sole voting and investment power
with respect to all shares shown as beneficially owned by them, subject to
community property laws where applicable and to the information contained
in the footnotes to this table. Unless otherwise indicated, the business
address of each of the beneficial owners listed in this table is 1778
McCarthy Boulevard, Milpitas, California 95035.
(2) Based on a filing with the Securities and Exchange Commission dated October
7, 1999, reporting beneficial ownership as of October 7, 1999. This joint
filing was made by J. & W. Seligman & Co. Incorporated (JWS) on behalf of
Seligman Communications and Information Fund, Inc. (the Fund) and William
C. Morris. The filing states that Mr. Morris is the owner of the majority
of outstanding voting securities of JWS, and that JWS is the investment
advisor to the Fund; therefore, the 4,574,900 shares held by JWS are deemed
to be beneficially owned by Mr. Morris.
(3) Includes 947,085 shares subject to options that are presently exercisable
or will become exercisable within 60 days of October 31, 1999.
(4) Includes 43,332 shares subject to options that are presently exercisable or
will become exercisable within 60 days of October 31, 1999. Mr. Valentine
is a general partner of certain entities affiliated with Sequoia Capital
and, therefore, may be deemed to beneficially own the 920,687 shares of
Common Stock held by such entities. However, Mr. Valentine disclaims
beneficial ownership of all such shares held by entities affiliated with
Sequoia Capital, except those shares as to which he has a direct pecuniary
interest.
(5) Includes 158,247 shares subject to options that are presently exercisable
or will become exercisable within 60 days of October 31, 1999.
(6) Includes 148,485 shares subject to options that are presently exercisable
or will become exercisable within 60 days of October 31, 1999.
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<PAGE> 64
(7) Includes 135,624 shares subject to options that are presently exercisable
or will become exercisable within 60 days of October 31, 1999.
(8) Includes 133,334 shares subject to options that are presently exercisable
or will become exercisable within 60 days of October 31, 1999.
(9) Includes 69,460 shares subject to options that are presently exercisable or
will become exercisable within 60 days of October 31, 1999.
(10) Includes 70,000 shares subject to options that are presently exercisable or
will become exercisable within 60 days of October 31, 1999.
(11) Includes 37,500 shares subject to options that are presently exercisable or
will become exercisable within 60 days of October 31, 1999.
(12) Includes 33,332 shares subject to options that are presently exercisable or
will become exercisable within 60 days of October 31, 1999.
(13) Includes an aggregate of 1,776,399 shares subject to options that are
presently exercisable or will become exercisable by all executive officers
and directors as a group within 60 days of October 31, 1999, including
those shares listed in footnotes 3-12.
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<PAGE> 65
ARRANGEMENTS BETWEEN C-CUBE MICROSYSTEMS AND SEMICONDUCTOR
We have provided below a summary description of the master separation and
distribution agreement, effective as of , or the separation
agreement, and the key related agreements. This description, which summarizes
the material terms of such agreements, is not complete. You should read the full
text of these agreements, which have been filed with the Securities and Exchange
Commission as exhibits to the registration statement of which this prospectus is
a part.
MASTER SEPARATION AND DISTRIBUTION AGREEMENT
The master separation and distribution agreement contains the key
provisions relating to the separation and the distribution.
The Separation. The separation is scheduled to occur on or around
. On or before the separation date, C-Cube Microsystems and
Semiconductor will sign the general assignment and assumption agreement which
provides for the transfer to Semiconductor (or companies to be owned by
Semiconductor) of assets and liabilities from C-Cube Microsystems, effective on
the separation date. C-Cube Microsystems will deliver additional agreements
governing various interim and ongoing relationships between C-Cube Microsystems
and us following the separation date. The ancillary agreements include:
- a general assignment and assumption agreement;
- an employee matters agreement;
- a tax sharing agreement;
- a transitional services agreement;
- a real estate matters agreement;
- a master confidential disclosure agreement; and
- an indemnification and insurance matters agreement.
To the extent that the terms of any of these ancillary agreements conflict with
the separation agreement, the terms of these agreements govern. These agreements
are described more fully below.
Cash to be Transferred to Semiconductor. C-Cube Microsystems will provide
to Semiconductor all cash of C-Cube Microsystems and its subsidiaries (other
than Semiconductor) other than the following amounts which will be retained by
C-Cube Microsystems:
- sixty million dollars ($60,000,000);
- cash to pay all taxes of C-Cube Microsystems and its subsidiaries accrued
through the separation date (but not including taxes related to the
spin-off of Semiconductor);
- cash in an amount sufficient to pay the fees and expenses associated with
the transactions contemplated by the merger agreement, including, but not
limited to, the fees and expenses of C-Cube Microsystems' investment
bankers, attorneys, accountants and other professional advisors;
- cash to pay the corporate tax liability arising in connection with the
spin-off of Semiconductor; and
- cash in an amount sufficient to make all severance payments to any
employee of C-Cube Microsystems who will not be employed by either
Semiconductor or Harmonic after the merger.
The Distribution. On or prior to the date the distribution is effective,
C-Cube Microsystems intends to distribute the shares of common stock of
Semiconductor that C-Cube Microsystems holds to C-Cube Microsystems stockholders
on a pro rata basis. C-Cube Microsystems may, in its sole discretion, change the
distribution date. C-Cube Microsystems intends to consummate the distribution
only if the following conditions are met (any of which may be waived by C-Cube
Microsystems):
- all required government approvals must be in effect; and
- no legal restraints must exist preventing the distribution.
Covenants Between C-Cube Microsystems and Semiconductor. In addition to
signing documents that transfer control and ownership of various assets and
liabilities of C-Cube Microsystems relating to our
64
<PAGE> 66
business, we have agreed with C-Cube Microsystems to enter into additional
service level agreements, exchange information, engage in certain auditing
practices and resolve disputes in particular ways.
Information Exchange. Both C-Cube Microsystems and we have agreed to share
information with each other, at no cost to the requesting party, for the
following purposes, unless the sharing would be commercially detrimental:
- Each party has agreed to maintain adequate internal accounting to allow
the other party to satisfy its own reporting obligations and prepare its
own financial statements.
- Each party will retain records that may be beneficial to the other party
for a specified period of time. If the records are going to be destroyed,
the destroying party will give the other party an opportunity to retrieve
all relevant information from the records.
- Each party will do its best to provide the other party with personnel,
directors, officers or agents who may be used as witnesses in legal
proceedings.
Dispute Resolution. If problems arise between us and C-Cube Microsystems,
we have agreed to the following procedures:
- The parties will make a good faith effort to first resolve the dispute
through negotiation.
- If negotiations fail, the parties agree to attempt to resolve the dispute
through non-binding mediation.
- If mediation fails, the parties can resort to litigation. In addition,
nothing prevents either party acting in good faith from initiating
litigation at any time if failure to do so would substantially
disadvantage the party.
Termination of the Agreement. Both C-Cube Microsystems and Semiconductor
must agree to terminate the separation agreement and all ancillary agreements at
any time between the closing of this offering and the distribution.
GENERAL ASSIGNMENT AND ASSUMPTION AGREEMENT
The general assignment and assumption agreement identifies the assets
C-Cube Microsystems will transfer to us and the liabilities we will assume from
C-Cube Microsystems in the separation. The agreement also describes when and how
these transfers and assumptions will occur.
Asset Transfer. Effective on the separation date, C-Cube Microsystems will
transfer the following assets to us, except as provided in an ancillary
agreement or other agreement:
- all assets reflected on our unaudited consolidated balance sheet as of
September 30, 1999, minus any assets disposed of after September 30,
1999;
- all written off, expensed or fully depreciated assets that would have
appeared on our balance sheet as of September 30, 1999 if we had not
written off, expensed or fully depreciated them;
- all assets that C-Cube Microsystems acquired after September 30, 1999
that would have appeared in our financial statements as of the separation
date if we prepared such financial statements using the same principles
we used in preparing our balance sheet dated September 30, 1999;
- all assets that our business primarily uses as of the separation date but
are not reflected in our balance sheet as of September 30, 1999 due to
mistake or omission;
- all claims or other rights of C-Cube Microsystems or the Semiconductor
business that primarily relate to the Semiconductor business;
- all rights under all contracts in which C-Cube Microsystems is a party or
by which any of its assets is bound;
- all computers, desks, equipment and other assets used primarily by
employees of C-Cube Microsystems who will become our employees due to the
separation;
- all accounts receivable and other rights to payment for goods and
services payable to C-Cube Microsystems as of the separation date;
65
<PAGE> 67
- all rights in the trade and service marks and domain names incorporating
or based on the name "C-CUBE";
- all Intellectual Property owned or transferable by C-Cube Microsystems or
Semiconductor that arises out of the activities of, or that is primarily
related to, Semiconductor, including all Intellectual Property listed on
Schedule to this agreement, and all rights to sue for,
recover and retain any damages from any third party's infringement of any
such Intellectual Property rights;
- cash or cash equivalents, bank accounts, lock boxes and other deposit
arrangements;
- all outstanding shares of all subsidiaries conducting Semiconductor
business that are currently owned directly by C-Cube Microsystems;
- specified rights under existing insurance policies; and
- other specified assets.
Excluded Assets. The general assignment and assumption agreement also
provides that C-Cube Microsystems will not transfer certain assets to us,
including the C-Cube Microsystems registered intellectual property as set forth
in the merger agreement related to the DiviCom business.
Assumption of Liabilities. Effective on the separation date, we will
assume the following liabilities from C-Cube Microsystems, except as provided in
an ancillary agreement or other agreement:
- all liabilities reflected as liabilities on our unaudited consolidated
balance sheet as of September 30, 1999, minus any liabilities that were
discharged after such date of the balance sheet;
- all liabilities of C-Cube Microsystems that arise after September 30,
1999, that would have appeared in our financial statements as of the
separation date if we prepared such financial statements using the same
principles we used in preparing our balance sheet of Semiconductor as of
September 30, 1999;
- all liabilities that are primarily related to or primarily arise out of
our business, or the operation of any business conducted by us, at the
separation date but are not reflected in our balance sheet as of
September 30, 1999 due to mistake or omission;
- any liability of C-Cube Microsystems or Semiconductor that primarily
related to the semiconductor business.
- all liabilities (other than taxes) primarily resulting from the operation
of our business, or resulting from any asset that C-Cube Microsystems
transferred to us;
- all liabilities arising out of specified terminated, divested or
discontinued businesses and operations specifically set forth in the
merger agreement;
- all fees and expenses of C-Cube Microsystems incurred in connection with
the merger;
- all accounts payable and other obligations of payment for goods or
services purchased, leased or otherwise received in the conduct of the
semiconductor business;
- all employee compensation liabilities relating to employees of the
semiconductor business;
- all severance payments and related liabilities arising out of the
termination of employees that will not continue to be employed by either
Semiconductor or Harmonic; and
- other specified liabilities.
Excluded Liabilities. The general assignment and assumption agreement
provides that we will not assume specified liabilities, including:
- all liabilities to the extent that it is covered by a C-Cube Microsystems
insurance policy under which the Semiconductor business is not entitled
to benefits;
- all liabilities of pre-sale or pre-spin-off taxes not attributable to the
Semiconductor business; and
- all agreements and obligations of C-Cube Microsystems under the
agreements governing the distribution.
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<PAGE> 68
Terms of Other Ancillary Agreements Govern. To the extent that another
ancillary agreement expressly provides for the transfer of an asset or an
assumption of a liability, the terms of such other ancillary agreement will
determine the manner of the transfer and assumption.
Obtaining Approvals and Consents. The parties agree to use all reasonable
efforts to obtain any required consents, substitutions or amendments required to
novate or assign all rights and obligations under any contracts that will be
transferred in the separation.
Nonrecurring Costs and Expenses. Any nonrecurring costs and expenses that
are not allocated in the separation agreement or any other ancillary agreement
shall be the responsibility of the party that incurs the costs and expenses.
INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT
General Release of Pre-Separation Claims. Effective as of the separation
date, we will release C-Cube Microsystems and its affiliates, agents, successors
and assigns, and C-Cube Microsystems will release us, and our affiliates,
agents, successors and assigns, from any liabilities arising from events
occurring on or before the separation date, including events occurring in
connection with the activities to implement the separation, the merger and the
distribution. This provision will not impair a party from enforcing the
separation agreement, any ancillary agreement or any arrangement specified in
any of these agreements.
Indemnification. The indemnification and insurance matters agreement also
contains provisions governing indemnification. In general, we have agreed to
indemnify C-Cube Microsystems and its affiliates, agents, successors and assigns
from all liabilities arising from:
- our business, any of our liabilities or any of our contracts; and
- any breach by us of the separation agreement or any ancillary agreement.
C-Cube Microsystems has agreed to indemnify us and our affiliates, agents,
successors and assigns from all liabilities arising from:
- C-Cube Microsystems' business other than the businesses transferred to us
pursuant to the separation; and
- any breach by C-Cube Microsystems of the separation agreement or any
ancillary agreement.
The indemnifying party will make all indemnification payments net of
insurance proceeds that the indemnified party receives. The agreement also
contains provisions governing notice and indemnification procedures.
Employee Matters Agreement
Semiconductor and C-Cube Microsystems will enter into an employee matters
agreement to allocate assets, liabilities and responsibilities relating to
current [and former] employees of Semiconductor and their participation in the
benefit plans, including stock plans, that C-Cube Microsystems currently
sponsors and maintains.
All eligible Semiconductor employees will continue to participate in the
C-Cube Microsystems benefit plans on comparable terms and conditions to those
for C-Cube Microsystems employees until Semiconductor establishes comparable
benefit plans for current [and former] Semiconductor employees. Semiconductor
intends to establish these plans no later than the time of the distribution.
Once Semiconductor establishes its own corresponding benefit plans,
Semiconductor may modify or terminate each such plan in accordance with the
terms of the plan and Semiconductor policies. No Semiconductor benefit plan will
provide benefits that overlap benefits under the corresponding C-Cube
Microsystems benefit plan at the time of the distribution. Each Semiconductor
benefit plan will provide that all service, compensation and other benefit
determinations that, as of the distribution, were recognized under the
corresponding C-Cube Microsystems benefit plan will be taken into account under
that Semiconductor benefit plan.
Each Semiconductor benefit plan will assume any liabilities under the
corresponding C-Cube Microsystems benefit plan for Semiconductor active and
former employees. Assets relating to the employee liabilities
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<PAGE> 69
will also be transferred to Semiconductor or the related Semiconductor plans and
trusts and other funding vehicles associated with Semiconductor's benefit plans.
Options. All vested options to purchase C-Cube Microsystems common stock
held by Semiconductor employees will terminate on the date of the separation.
All unvested options to purchase C-Cube Microsystems common stock held by
Semiconductor employees will be replaced with substitute options to purchase
Semiconductor common stock, also referred to as spin-off Semiconductor options.
The number of shares and the exercise price of options to purchase C-Cube
Microsystems common stock that convert into spin-off Semiconductor options will
be adjusted using a conversion formula. The conversion formula will be based on
the closing per-share price of C-Cube Microsystems common stock on the date
immediately prior to the distribution, and the first trading per-share price of
Semiconductor common stock on the distribution date. The resulting spin-off
Semiconductor options will maintain the original vesting provisions and option
period.
All options held by non-employee directors of C-Cube Microsystems who will
become non-employee directors of Semiconductor will accelerate immediately prior
to the merger with Harmonic and become exercisable for all of the shares of
C-Cube Microsystems common stock then subject to the option. Immediately upon
the merger, each such non-employee director option will terminate.
Stock Purchase Plan. We anticipate that Semiconductor employees will
continue to participate in the C-Cube Microsystems stock purchase plan through
January 31, 2000. On or before , , Semiconductor will sponsor a
stock purchase plan that is comparable to the C-Cube Microsystems stock purchase
plan.
Tax Sharing Agreement
C-Cube Microsystems and Semiconductor have entered into a tax sharing
agreement providing for each of the party's obligations concerning various tax
liabilities. Consistent with the Merger Agreement, the tax sharing agreement
provides that Semiconductor will pay all federal, state, local and foreign taxes
for any taxable period ending on or prior to the Effective Time and all taxes
related to the distribution of the Semiconductor stock. Further, Semiconductor
is obligated to indemnify C-Cube Microsystems for all increases in taxes related
to the Semiconductor business prior to the spin-off or taxes incurred in
connection with the spin-off.
The tax sharing agreement further provides for cooperation with respect to
tax matters, the exchange of information and the retention of records which may
affect the income tax liability of either party.
Real Estate Matters Agreement
The real estate matters agreement addresses real estate matters relating to
the C-Cube Microsystems properties that C-Cube Microsystems will transfer to or
share with Semiconductor. The agreement describes the manner in which C-Cube
Microsystems will transfer to or share with Semiconductor various leased
properties, including the following types of transactions:
- assignments to Semiconductor of C-Cube Microsystems's leases for
specified leased properties; and
- subleases back to C-Cube Microsystems by Semiconductor of portions of
specified leased properties to be assigned to us.
The real estate matters agreement includes a description of each property
to be transferred to or shared with Semiconductor for each type of transaction.
The standard forms of the proposed transfer documents (e.g., assignment and
sublease) are contained in schedules.
The real estate matters agreement also requires both parties to use
reasonable efforts to obtain any landlord consents required for the proposed
transfers of leased sites, including C-Cube Microsystems paying commercially
reasonable consent fees and negotiating other commercially reasonable amendments
to the leases, if required by the landlords, and Semiconductor agreeing to
provide the security required under the applicable leases.
The real estate matters agreement further provides that Semiconductor will
be required to accept the transfer of all sites allocated to Semiconductor, even
if a site has been damaged by a casualty before the separation date. Transfers
with respect to leased sites where the underlying lease is terminated due to
casualty
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<PAGE> 70
or action by the landlord prior to the separation date will not be made, and
neither party will have any liability related thereto.
The real estate matters agreement also gives the parties the right to
change the allocation and terms of specified sites by mutual agreement based on
changes in the requirements of the parties. The real estate matters agreement
provides that all reasonable costs required to effect the transfers (including
landlord consent fees and landlord attorneys' fees) will be paid by C-Cube
Microsystems.
Master Transitional Services Agreement
Semiconductor will enter into a transitional services agreement with C-Cube
Microsystems covering the provision of various transitional services, including
telecommunications, networks, enterprise applications and other services by
Semiconductor to C-Cube Microsystems and, if necessary in certain circumstances,
vice versa. Except for the items for which substantially all of the use is by or
for the benefit of the DiviCom business, all infrastructure hardware and
software (including, but not limited to, telecommunications, networks, servers,
desktop computers and enterprise applications, unless prohibited by a third
party) shall be owned by Semiconductor. The services to be provided will
generally be provided for a fee equal to the actual direct and indirect costs of
providing the services plus 10%. The transition services agreement will
generally have a term of [two years] or less from the date of separation.
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<PAGE> 71
DESCRIPTIONS OF EMPLOYEE BENEFITS PLANS
2000 STOCK PLAN
Semiconductor intends to adopt a 2000 stock plan to provide for the grant
of incentive stock options to employees, including officers and employee
directors, and for the grant of nonstatutory stock options and stock purchase
rights to employees, directors and consultants. The total number of shares of
our common stock that Semiconductor will reserve for issuance under the 2000
stock plan equals [ ] shares[, PLUS ANNUAL INCREASES WILL BE ADDED TO
THE 2000 STOCK PLAN, BEGINNING ON [ ], EQUAL TO THE LESSER OF
[ ] SHARES, [ %] OF THE OUTSTANDING SHARES OR A LESSER AMOUNT
DETERMINED BY THE BOARD OF DIRECTORS.]
Administration
Semiconductor's board of directors or a committee of the board of directors
will administer the 2000 stock plan. The administrator of our 2000 stock plan
will have the power to determine among other things:
- the terms of the options or stock purchase rights granted, including the
exercise price of the option or stock purchase right;
- the number of shares subject to each option or stock purchase right;
- the exercisability of each option or stock purchase right; and
- the form of consideration payable upon the exercise of each option or
stock purchase right.
Options
The exercise price of all incentive stock options granted under the 2000
stock plan must be at least equal to the fair market value of the common stock
on the date of grant. The exercise price of nonstatutory stock options and stock
purchase rights granted under the 2000 stock plan is determined by the
administrator, but with respect to nonstatutory stock options intended to
qualify as "performance-based compensation" within the meaning of Section 162(m)
of the Internal Revenue Code, the exercise price must be at least equal to the
fair market value of Semiconductor common stock on the date of grant. With
respect to any participant who owns stock possessing more than 10% of the voting
power of all classes of the our outstanding capital stock, the exercise price of
any incentive stock option granted must be at least equal 110% of the fair
market value on the grant date and the term of such incentive stock option must
not exceed five years. The term of all other options granted under the 2000
stock plan may not exceed ten years.
During any fiscal year, each optionee may be granted options to purchase a
maximum of [ ] shares. In addition, in connection with an optionee's
initial employment with Semiconductor, such optionee may be granted an option
covering an additional [ ] shares.
Options granted under the 2000 stock plan must generally be exercised
within three months after the end of optionee's status as an employee, director
or consultant of Semiconductor, or within twelve months after such optionee's
termination by death or disability, but in no event later than the expiration of
the option's term. Upon the death of an optionee, vesting and exercisability of
the optionee's options or stock purchase rights will accelerate on the date of
death as to that number of shares which would have become vested and exercisable
if optionee had remained employed until the date one year following the date of
death.
Transferability of Options
Options and stock purchase rights granted under the 2000 stock plan are
generally not transferable by the optionee, and each option and stock purchase
right is exercisable during the lifetime of the optionee only by such optionee.
Stock Purchase Rights
In the case of stock purchase rights, unless the administrator determines
otherwise, the restricted stock purchase agreement shall grant Semiconductor a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment or consulting relationship with Semiconductor for any
reason, including death or disability. The purchase price for shares repurchased
pursuant to the restricted stock purchase agreement shall be the original price
paid by the purchaser and may be paid by cancellation of
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<PAGE> 72
any indebtedness of the purchaser to Semiconductor. The repurchase option shall
lapse at a rate determined by the administrator.
Adjustments upon Merger or Asset Sale
The 2000 stock plan provides that in the event of a merger of Semiconductor
with or into another corporation, or a sale of substantially all of
Semiconductor assets, each option and stock purchase right shall be assumed or
an equivalent option substituted for by the successor corporation. If the
outstanding options and stock purchase rights are not assumed or substituted for
by the successor corporation, the optionees will become fully vested in and have
the right to exercise such options or stock purchase rights. If an option or
stock purchase right becomes fully vested and exercisable in the event of a
merger or sale of assets, the administrator must notify the optionee that the
option or stock purchase right is fully exercisable for a period of 15 days from
the date of the notice, and the option or stock purchase right will terminate
upon the expiration of the 15 day period.
Amendment and Termination of the 2000 Stock Plan
The administrator will have the authority to amend, suspend or terminate
the 2000 stock plan, so long as no such action affects any shares of common
stock previously issued and sold or any option previously granted under the 2000
stock plan. Unless terminated sooner, the 2000 stock plan will terminate
automatically ten years from the date of its adoption.
2000 EMPLOYEE STOCK PURCHASE PLAN
Semiconductor intends to adopt a 2000 employee stock purchase plan to
encourage employee stock ownership. The total number of shares of Semiconductor
common stock that will be reserved for issuance under the 2000 employee stock
purchase plan equals [800,000] shares, plus annual increases will be added to
the 2000 employee stock purchase plan, beginning on [ ], equal to
the lesser of [500,000] shares, [1%] of the outstanding shares or a lesser
amount determined by Semiconductor's board of directors.
Structure of the 2000 Employee Stock Purchase Plan
The 2000 employee stock purchase plan, which is intended to qualify under
Section 423 of the Internal Revenue Code, contains consecutive, overlapping,
twenty-four month offering periods. Each offering period includes four six-month
purchase periods. The offering periods generally start on the first trading day
on or after [ ] and [ ] of each year, except for the
first such offering period which will commence on [ AND END ON THE
LAST TRADING DAY ON OR BEFORE .]
Eligibility
Employees are eligible to participate if they are customarily employed by
Semiconductor or any participating subsidiary for at least 20 hours per week and
more than five months in any calendar year. However, employees may not be
granted an option to purchase stock under the 2000 employee stock purchase plan
if they either:
- immediately after grant, own stock possessing 5% or more of the total
combined voting power or value of all classes of our capital stock, or
- hold rights to purchase stock under our employee stock purchase plans
which exceeds $25,000 worth of stock for each calendar year.
Purchases
The 2000 employee stock purchase plan permits participants to purchase our
common stock through payroll deductions of up to [10%] of the participant's
"compensation." [COMPENSATION IS DEFINED AS THE PARTICIPANT'S BASE STRAIGHT TIME
GROSS EARNINGS AND COMMISSIONS BUT EXCLUSIVE OF PAYMENTS FOR SHIFT PREMIUM,
INCENTIVE COMPENSATION, INCENTIVE PAYMENTS AND OTHER COMPENSATION.] The maximum
number of shares a participant may purchase during a single purchase period is
[5,000] shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each purchase period. The price of stock
purchased under the 2000 purchase plan is generally 85% of the lower of the fair
market value of the common stock either:
- at the beginning of the offering period; or
- at the end of the purchase period.
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<PAGE> 73
In the event the fair market value at the end of a purchase period is less
than the fair market value at the beginning of the offering period, the
participants will be withdrawn from the current offering period following
exercise and automatically re-enrolled in a new offering period. The new
offering period will use the fair market value as of the first date of the new
offering period to determine the purchase price for future purchase periods.
Participants may end their participation at any time during an offering period,
and they will be paid their payroll deductions to date. Participation ends
automatically upon termination of employment with Semiconductor.
Transferability of Rights
Rights granted under the 2000 employee stock purchase plan are not
transferable by a participant other than by will, the laws of descent and
distribution, or as otherwise provided under the 2000 employee stock purchase
plan.
Merger or Asset Sale
The 2000 employee stock purchase plan provides that, in the event we merge
with or into another corporation or there is a sale of substantially all of our
assets, each outstanding option may be assumed or substituted for by the
successor corporation. If the successor corporation refuses to assume or
substitute for the outstanding options, the offering period then in progress
will be shortened and a new exercise date will be set.
Amendment and Termination of the 2000 Employee Stock Purchase Plan
The 2000 employee stock purchase plan will terminate in 2010. Our board of
directors has the authority to amend or terminate the 2000 employee stock
purchase plan, except that no such action may adversely affect any outstanding
rights to purchase stock under the 2000 employee stock purchase plan.
2000 DIRECTOR OPTION PLAN
We intend to adopt a 2000 director option plan to help attract and retain
non-employee directors. The total number of shares of our common stock that we
will reserve for issuance under the 2000 stock plan equals [450,000] shares[,
PLUS ANNUAL INCREASES WILL BE ADDED TO THE 2000 EMPLOYEE STOCK PURCHASE PLAN,
BEGINNING ON [ ], EQUAL TO THE LESSER OF [ ] SHARES,
[ %] OF THE OUTSTANDING SHARES OR A LESSER AMOUNT DETERMINED BY OUR BOARD OF
DIRECTORS.]
Administration
Our board of directors or a committee of the board of directors will
administer the 2000 director option plan.
Option Grants
The 2000 director option plan provides for an automatic initial grant of an
option to purchase [40,000] shares of our common stock to each non-employee
director on the date which the later of the following events occur:
- the effective date of the 2000 director option plan, if such non-employee
director does not then hold an option to acquire shares of our stock; or
- the date when a person first becomes a non-employee director.
After the initial grant, a non-employee director will automatically be
granted subsequent options to purchase [10,000] shares of our common stock each
year on his or her anniversary date, if on such date he or she is serving as a
non-employee director of Semiconductor. If a non-employee director holds office
on the effective date of the 1999 director option plan then his or her
anniversary date is the anniversary of the effective date of the director option
plan.
Any non-employee director may waive his or her option grant by filing an
irrevocable election with Semiconductor.
Each initial option grant and each subsequent option grant shall have a
term of 10 years. Generally, each option grant will vest as to 25% of the shares
subject to the option on the anniversary of its date of grant and 1/48 of the
shares subject to the option shall vest each month thereafter, subject to the
optionee's continuous service as a director of Semiconductor. The exercise price
of all options will be 100% of the fair market value per share of Semiconductor
common stock on the date of grant.
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<PAGE> 74
Options granted under the 1999 director option plan must be exercised
within three months of the end of the optionee's tenure as a director of
Semiconductor, or within six months after such director's termination by death
or disability, but in no event later than the expiration of the option's ten
year term.
Transferability of Options
No option granted under the 1999 director option plan is transferable by
the optionee other than by will or the laws of descent and distribution, and
each option is exercisable, during the lifetime of the optionee, only by the
optionee.
Transfer of Control
The 1999 director option plan provides that in the event of certain
transfers of control of Semiconductor within the first two years after the
effective date of the director option plan, including a merger of Semiconductor
with or into another corporation, or a sale of substantially all of
Semiconductor's assets, the board of directors may arrange to have the successor
entity to assume all outstanding options. Any options not so assumed will be
cancelled. If the transfer of control occurs more than two years after the
effective date of the director option plan, all outstanding options will
accelerate and become immediately exercisable and vested immediately prior to
such transfer of control, provided such transfer of control is actually
consummated.
Amendment and Termination of the 1999 Director Option Plan
The administrator will have the authority to amend, suspend or terminate
the 1999 director option plan, so long as no such action affects any shares of
common stock previously issued and sold or any option previously granted under
the 1999 director option plan. Unless terminated sooner, the 1999 director
option plan will terminate automatically ten years from the effective date of
this director option plan.
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MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain material federal income tax
considerations of the spin-off and the merger. Insofar as this discussion
relates to C-Cube Microsystems stockholders, it does not include all federal
income tax considerations that may be relevant to particular C-Cube Microsystems
stockholders in light of their particular circumstances, or to C-Cube
Microsystems stockholders who are subject to special tax rules, such as dealers
in securities, banks or other financial institutions, insurance companies,
individuals who are not citizens or residents of the United States, foreign
entities, or tax-exempt organizations. This discussion also assumes that C-Cube
Microsystems stockholders hold their shares as capital assets, and it does not
apply to C-Cube Microsystems stockholders who are subject to alternative minimum
tax or mark-to-market rules, stockholders who hold their shares as part of a
hedge, straddle or other risk reduction or conversion transaction, or
stockholders who acquired their C-Cube Microsystems common stock through stock
option or stock purchase programs or otherwise as compensation. In addition, it
does not address the tax consequences of the spin-off or the merger under
foreign, state or local tax laws. This discussion is based on the Internal
Revenue Code, applicable Treasury Regulations, judicial decisions and
administrative rulings and practice, all as of the date hereof, all of which are
subject to change. Any such changes could be applied retroactively and could
affect the accuracy of the statements and conclusions in this discussion and the
tax consequences of the spin-off and the merger to C-Cube Microsystems, Harmonic
and their stockholders. No ruling has been or will be requested from the
Internal Revenue Service with regard to any of the tax consequences of the
spin-off or the merger.
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE TAX
CONSEQUENCES TO THEM OF THE SPIN-OFF AND THE MERGER BASED ON THEIR OWN
CIRCUMSTANCES, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES TO THEM OF THE SPIN-OFF AND THE MERGER.
Material Federal Income Tax Considerations of the Spin-Off -- Stockholder Tax
Considerations
Tax-Free Treatment. Although the completion of the distribution is not
contingent on the receipt of a tax opinion with respect to the distribution, we
have been advised by Ernst & Young LLP that in their opinion, for federal income
tax purposes, the distribution will qualify as a spin-off that will be tax-free
to C-Cube Microsystems stockholders under Section 355(a) of the Internal Revenue
Code. Provided the distribution so qualifies:
- You will not recognize income, gain or loss as a result of your receipt
of Semiconductor stock.
- Your tax basis in your Semiconductor stock and your C-Cube Microsystems
stock (which will be converted into Harmonic stock in the merger) will be
determined by allocating your basis in the C-Cube Microsystems stock
immediately before the distribution and merger between the Harmonic stock
received in the merger and the Semiconductor stock received in proportion
to their relative fair market values on the date of the distribution.
- Your holding period in the Semiconductor stock received in the
distribution will include the holding period of the C-Cube Microsystems
stock with respect to which the Semiconductor stock is distributed,
provided the C-Cube Microsystems stock was held as a capital asset on the
date of the distribution.
- You will recognize gain or loss with respect to cash you receive in lieu
of fractional shares of Semiconductor stock. This gain or loss will be a
capital gain or loss provided your C-Cube Microsystems stock was held as
a capital asset on the date of the distribution, and it will be a
long-term capital gain or loss if you have held your C-Cube stock for
more than one year on the date of the distribution.
- Upon the future sale or other disposition of your Semiconductor stock,
you should have a taxable gain or loss equal to the difference between
the value of the consideration received and your basis in your
Semiconductor stock.
The Ernst & Young LLP opinion referred to above will be based on and
subject to certain limitations, qualifications, assumptions and representations
provided by C-Cube Microsystems and Semiconductor. C-Cube Microsystems is not
aware of any present facts or circumstances which would make such assumptions
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or representations untrue. However, certain future events not within the control
of C-Cube Microsystems or Semiconductor, including, for example, certain
dispositions of C-Cube Semiconductor stock, could cause the distribution of
Semiconductor stock not to qualify for tax-free treatment to our stockholders.
In addition, even in the absence of an inaccurate assumption or representation,
the IRS is not precluded from successfully asserting that the distribution is
taxable to the C-Cube shareholders. The opinion of Ernst & Young LLP merely
represents its interpretation of existing authorities and is not binding on the
IRS.
Risk of Taxable Treatment. If the distribution of Semiconductor stock did
not qualify for tax-free treatment for the stockholders of C-Cube Microsystems,
each holder of C-Cube Microsystems stock who received C-Cube Semiconductor stock
would be treated as receiving a taxable distribution, which might be treated as
taxable capital gains or taxable ordinary income up to the value of the stock
distributed.
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS OF THE SPIN-OFF -- CORPORATE TAX
CONSIDERATIONS.
Notwithstanding the treatment of the transaction for our stockholders, the
spin-off will be taxable to C-Cube Microsystems. C-Cube Microsystems will
recognize a taxable gain approximately equal to the difference between the fair
market value of Semiconductor on the date of distribution, minus our basis in
the assets (net of liabilities) that we will transfer to Semiconductor, minus
certain expenses related to the spin-off transaction. We currently estimate that
this liability will be approximately $140 million. The actual tax liability may
differ from the estimate based on a variety of factors.
Under Semiconductor's tax sharing agreement with Harmonic, Semiconductor
will be liable for the originally calculated corporate tax incurred as a result
of the spin-off, plus any increase in that corporate tax liability (plus related
costs) that results , for example, from an IRS audit.
THE FOREGOING SUMMARY OF MATERIAL INCOME TAX CONSIDERATIONS IS ONLY A
GENERAL DESCRIPTION. EACH C-CUBE MICROSYSTEMS STOCKHOLDER SHOULD CONSULT SUCH
HOLDER'S OWN TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES OF THE
DISTRIBUTION IN LIGHT OF SUCH STOCKHOLDER'S PARTICULAR CIRCUMSTANCES, INCLUDING
APPLICATION OF FEDERAL, STATE, LOCAL AND FOREIGN LAWS, AND THE EFFECT OF
POSSIBLE CHANGES IN TAX LAWS THAT MAY AFFECT THE ABOVE DISCUSSION.
Material Federal Income Tax Considerations of the Merger.
For information regarding the material federal income tax considerations of
the merger of C-Cube Microsystems and Harmonic, please see the section entitled
"Material Federal Income Tax Consequences of the Merger" beginning on page
of the joint proxy statement/prospectus/information statement of Harmonic and
C-Cube Microsystems to which this information statement is attached.
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DESCRIPTION OF THE COMPANY'S CAPITAL STOCK
Following the distribution, Semiconductor authorized capital stock will
consist of 200,000,000 shares of common stock, $.001 par value, and 10,000,000
shares of preferred stock, $.001 par value. The description set forth below is
incomplete and is qualified by reference to certificate of incorporation or
certificate and bylaws, which are set forth in Exhibits 3.1 and 3.2.
COMMON STOCK
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Except as
otherwise provided by law, the holders of common stock vote together with the
holders of preferred stock as one class. Subject to the rights of holders of any
shares of preferred stock which may at the time be outstanding, holders of
common stock will be entitled to such dividends as the board of directors may
declare out of funds legally available therefor. Subject to the prior rights of
creditors and holders of any preferred stock which may be outstanding from time
to time, the holders of common stock are entitled, in the event of liquidation,
dissolution or winding up of Semiconductor, to share pro rata in the
distribution of all remaining assets. The common stock is not liable for any
calls or assessments and is not convertible into any other securities. In
addition, there are no redemption or sinking fund provisions applicable to the
common stock.
PREFERRED STOCK
The certificate provides that the board of directors is authorized to
provide for the issuance of shares of preferred stock, from time to time, in one
or more series. Prior to the issuance of shares in each series, the board of
directors is required by the certificate and the DGCL to adopt resolutions and
file a Certificate of Designations, Preferences and Relative, Participating,
Optional and Other Special Rights of Preferred Stock and Qualifications,
Limitations and Restrictions Thereof or the Certificate of Designation with the
Secretary of State of Delaware, fixing for each such series the designations,
preferences and relative, participating, optional or other special rights
applicable to the shares to be included in any such series and any
qualifications, limitations or restrictions thereon, including, but not limited
to, dividend rights, dividend rate or rates, conversion rights, voting rights,
rights and terms of redemption (including sinking fund provisions), the
redemption price or prices, and the liquidation preferences as are permitted by
Delaware law.
DISTRIBUTION AGENT; TRANSFER AGENT AND REGISTRAR
The Distribution Agent, Transfer Agent and Registrar for the common stock
and preferred stock is Boston Equiserve.
CERTAIN CHARTER AND BYLAW PROVISIONS AND DELAWARE LAW
After the distribution, certain provisions of the certificate and bylaws
could discourage potential acquisition proposals and could delay or prevent a
change in control. The certificate provides, among other things, for a
classified board of directors and eliminates the right of stockholders to take
action by written consent. The issuance of preferred stock authorized in the
certificate could have the effect of delaying or preventing a change in control.
Such preferred stock could be utilized to implement, without stockholder
approval, a stockholders' rights plan that could be triggered by certain change
in control transactions, which could delay or prevent a change in control or
could impede a merger, consolidation, takeover or other business combination
involving Semiconductor. The issuance of preferred stock with voting and
conversion rights may adversely affect the voting power of the holders of common
stock, including the loss of voting control to others. We have no current plans
to issue shares of preferred stock.
In addition, the bylaws provide, among other things, that special meetings
of our stockholders may be called only by the board of directors or, the
chairman of the board of directors. The bylaws also establish procedures,
including advance notice procedures with regard to the nomination, other than by
or at the direction of the board of directors, of candidates for election as
directors.
We are subject to the provisions of Section 203 of the DGCL, an
antitakeover law. In general, the statute prohibits a publicly held Delaware
corporation from entering into a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person
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became an interested stockholder, unless the business combination is approved in
a prescribed manner. For purposes of Section 203, a "business combination"
includes a merger, asset sale or transaction resulting in a financial benefit to
the interested stockholder, and an "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years prior, did
own) 15% or more of our voting capital stock.
THE PROVISIONS OF THE CERTIFICATE, BYLAWS AND DELAWARE LAW ARE INTENDED TO
ENCOURAGE POTENTIAL ACQUIRORS TO NEGOTIATE WITH US AND ALLOW OUR BOARD OF
DIRECTORS THE OPPORTUNITY TO CONSIDER ALTERNATIVE PROPOSALS IN THE INTEREST OF
MAXIMIZING STOCKHOLDER VALUE. SUCH PROVISIONS, HOWEVER, MAY ALSO HAVE THE EFFECT
OF DISCOURAGING ACQUISITION PROPOSALS OR DELAYING OR PREVENTING A CHANGE IN
CONTROL, WHICH MAY HAVE AN ADVERSE EFFECT ON THE MARKET PRICE OF THE COMMON
STOCK.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain all future earnings, if any, for use in the operation
and expansion of our business and do not anticipate declaring or paying cash
dividends.
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INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the DGCL, Semiconductor has included in its certificate a
provision to eliminate the personal liability of its directors for monetary
damages for breach or alleged breach of their fiduciary duties as directors,
subject to certain exceptions. In addition, the bylaws require the companies to
(i) indemnify their officers and directors under certain circumstances,
including those circumstances in which indemnification would otherwise be
discretionary, and (ii) advance expenses to their officers and directors as
incurred in connection with proceedings against them for which they may be
indemnified. We have entered into indemnification agreements with our officers
and directors containing provisions that are in some respects broader than the
specific indemnification provisions contained in the DGCL. The indemnification
agreements may require the companies, among other things, to indemnify such
officers and directors against certain liabilities that may arise by reason of
their status or service as directors or officers (other than liabilities arising
from willful misconduct of a culpable nature), to advance expenses incurred as a
result of any proceeding against them as to which they could be indemnified, and
to obtain directors' and officers' insurance if available on reasonable terms.
We believe that these charter provisions and indemnification agreements are
necessary to attract and retain qualified persons as directors and officers.
We understand that the staff of the Securities and Exchange Commission is
of the opinion that statutory, charter and contractual provisions as are
described above have no effect on claims arising under the federal securities
laws.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Semiconductor common stock is
Boston EquiServe, L.P., 150 Royall Street, Canton, MA 02021; telephone: (781)
575-3120.
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ITEM 15(B). EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
3.1 Certificate of Incorporation of C-Cube Semiconductor Inc.
3.2 Bylaws of C-Cube Semiconductor Inc.
10.1 Form of Separation and Distribution Agreement between C-Cube
Microsystems Inc. and C-Cube Semiconductor Inc.
10.2+ Form of Tax Sharing Agreement between C-Cube Microsystems
Inc. and C-Cube Semiconductor Inc.
10.3 Form of Assignment and Assumption Agreement between C-Cube
Microsystems Inc. and C-Cube Semiconductor Inc.
10.4+ Form of Indemnification and Insurance Matters Agreement
between C-Cube Microsystems Inc. and C-Cube Semiconductor
Inc.
10.5+ Form of Transitional Services Agreement between C-Cube
Microsystems Inc. and C-Cube Semiconductor Inc.
10.6 Form of Officers' and Directors' Indemnification Agreement
</TABLE>
- ------------------------
+ To be filed by amendment.
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, Semiconductor Inc. has duly caused this Registration Statement on Form
10 to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Milpitas, State of California on December 29, 1999.
C-CUBE SEMICONDUCTOR INC.
By: /s/ UMESH PADVAL
------------------------------------
Umesh Padval
President and Chief Executive
Officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
3.1 Certificate of Incorporation of C-Cube Semiconductor Inc.
3.2 Bylaws of C-Cube Semiconductor Inc.
10.1 Form of Separation and Distribution Agreement between C-Cube
Microsystems Inc. and C-Cube Semiconductor Inc.
10.2+ Form of Tax Sharing Agreement between C-Cube Microsystems
Inc. and C-Cube Semiconductor Inc.
10.3 Form of Assignment and Assumption Agreement between C-Cube
Microsystems Inc. and C-Cube Semiconductor Inc.
10.4+ Form of Indemnification and Insurance Matters Agreement
between C-Cube Microsystems Inc. and C-Cube Semiconductor
Inc.
10.5+ Form of Transitional Services Agreement between C-Cube
Microsystems Inc. and C-Cube Semiconductor Inc.
10.6 Form of Officers' and Directors' Indemnification Agreement
</TABLE>
- ------------------------
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EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
C-CUBE SEMICONDUCTOR INC.
ARTICLE I
The name of the Corporation is C-Cube Semiconductor Inc. (the
"Corporation").
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, Wilmington, Delaware 19801, County of New Castle. The
name of its registered agent at such address is The Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State of Delaware, as
the same exists or may hereafter be amended.
ARTICLE IV
The Corporation is authorized to issue two classes of stock to be
designated, respectively, Common Stock, par value $0.001 per share ("Common
Stock"), and Preferred Stock, par value $0.001 per share ("Preferred Stock").
The total number of shares of Common Stock that the Corporation shall have
authority to issue is two hundred million (200,000,000). The total number of
shares of Preferred Stock that the Corporation shall have authority to issue is
ten million (10,000,000). The Preferred Stock may be issued from time to time in
one or more series.
The Corporation shall from time to time in accordance with the laws of the
State of Delaware increase the authorized amount of its Common Stock if at any
time the number of shares of Common Stock remaining unissued and available for
issuance shall not be sufficient to permit conversion of all outstanding
Preferred Stock.
The Board of Directors is hereby authorized, subject to limitations
prescribed by law and the provisions of this Article IV, by resolution to
provide for the issuance of the shares of Preferred Stock in one or more series,
and to establish from time to time the number of shares to be included in
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each such series, and to fix the designation, powers, privileges, preferences,
and relative participating, optional or other rights, if any, of the shares of
each such series and the qualifications, limitations or restrictions thereof.
The authority of the Board of Directors with respect to each series shall
include, but not be limited to, determination of the following:
A. The number of shares constituting that series (including an
increase or decrease in the number of shares of any such series (but not
below the number of shares in any such series then outstanding)) and the
distinctive designation of that series;
B. The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that
series;
C. Whether that series shall have the voting rights (including
multiple or fractional votes per share) in addition to the voting rights
provided by law, and, if so, the terms of such voting rights;
D. Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such privileges, including provision for
adjustment of the conversion rate in such events as the Board of Directors
shall determine;
E. Whether or not the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable, and the amount per
share payable in case of redemption, which amount may vary under different
conditions and at different redemption rates;
F. Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and the amount of
such sinking funds;
G. The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the Corporation,
and the relative rights of priority, if any, of payment of shares of that
series; and
H. Any other relative rights, preferences and limitations of that
series.
No holders of shares of the Corporation of any class, now or hereafter
authorized, shall have any preferential or preemptive rights to subscribe for,
purchase or receive any shares of the Corporation of any class, now or hereafter
authorized, or any options or warrants for such shares, or any rights to
subscribe for, purchase or receive any securities convertible to or exchangeable
for such shares, which may at any time be issued, sold or offered for sale by
the Corporation, except in the case of any shares of Preferred Stock to which
such rights are specifically granted by any resolution or resolutions of the
Board of Directors adopted pursuant to this Article IV.
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ARTICLE V
Effective as of the time at which C-Cube Microsystems Inc., a Delaware
corporation, shall cease to be the beneficial owner of an aggregate of at least
a majority of the then outstanding shares of Common Stock (the "Trigger Date"),
any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of such
holders and may not be effected by any consent in writing by such holders.
Effective as of the Trigger Date, except as otherwise required by law, special
meetings of stockholders of the Corporation for any purpose or purposes may be
called only by the Board of Directors or by the Chairman of the Board of
Directors of the Corporation and, effective as of the Trigger Date, any power of
stockholders to call a special meeting is specifically denied. No business other
than that stated in the notice shall be transacted at any special meeting.
ARTICLE VI
The Corporation is to have perpetual existence.
ARTICLE VII
For the management of the business and for the conduct of affairs of the
Corporation, and in further definition, limitation and regulation of powers of
the Corporation, of its directors and of its stockholders or any class thereof,
as the case may be, it is further provided that:
A. The management of the business and the conduct of the affairs of
the Corporation shall be vested in its Board of Directors. The number of
directors of this Corporation shall be fixed and may be changed from time to
time by resolution of the Board of Directors.
B. The Directors, other than those who may be elected by the holders
of any class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation, shall be classified, with respect to the time for
which they severally hold office, into three classes, as nearly equal in number
as possible, one class to be originally elected for a term expiring at the
annual meeting of stockholders to be held in 2000, another class to be
originally elected for a term expiring at the annual meeting of stockholders to
be held in 2001, and another class to be originally elected for a term expiring
at the annual meeting of stockholders to be held in 2002, with each class to
hold office until its successor is duly elected and qualified. At each
succeeding annual meeting of stockholders, directors elected to succeed those
directors whose terms then expire shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders after their
election.
C. Notwithstanding the foregoing provisions of this Article VII, each
director shall serve until his or her successor is duly elected and qualified or
until his or her death, resignation
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or removal. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
D. Any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal, or other causes unless the Board of
Directors determines by resolution that any such vacancies or newly created
directorships shall be filled by stockholders, and except as otherwise provided
by law, shall be filled only by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the Board
of Directors and not by the stockholders.
E. In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the Board of Directors is expressly authorized to
make, alter, amend or repeal the Bylaws of the Corporation.
F. The directors of the Corporation need not be elected by written
ballot unless the Bylaws of the Corporation so provide.
G. Advance notice of stockholder nomination for the election of
directors and of any other business to be brought by stockholders before any
meeting of the stockholders of the Corporation shall be given in the manner
provided in the Bylaws of the Corporation.
ARTICLE VIII
A. To the fullest extent permitted by the Delaware General Corporation Law
as the same exists or as may hereafter be amended, no director of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director.
B. The Corporation may indemnify to the fullest extent permitted by law any
person made or threatened to be made a party to an action or proceeding, whether
criminal, civil, administrative or investigative, by reason of the fact that he,
his testator or intestate is or was a director, officer or employee of the
Corporation or any predecessor of the Corporation or serves or served at any
other enterprise as a director, officer or employee at the request of the
Corporation or any predecessor to the Corporation.
C. Neither any amendment nor repeal of this Article VIII, nor the adoption
of any provision of this Corporation?s Certificate of Incorporation inconsistent
with this Article VIII, shall eliminate or reduce the effect of this Article
VIII, in respect of any matter occurring, or any action or proceeding accruing
or arising or that, but for this Article VIII, would accrue or arise, prior to
such amendment, repeal or adoption of an inconsistent provision.
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ARTICLE IX
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the laws of the State of Delaware)
outside of the State of Delaware at such place or places as may be designated
from time to time by the Board of Directors or in the Bylaws of the Corporation.
ARTICLE X
Except as provided in Article VIII above, the Corporation reserves the
right to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, in the manner now or hereafter prescribed by the
laws of the state of Delaware, and all rights conferred upon stockholders herein
are granted subject to this reservation. Notwithstanding anything contained in
this Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 80% of the voting power of all shares of the Corporation
entitled to vote generally in the election of directors (the "Voting Stock")
then outstanding, voting together as a single class shall be required to alter,
amend, adopt any provision inconsistent with or repeal Article V or VII or this
sentence.
The undersigned, for the purpose of forming a corporation under the laws of
the State of Delaware, does make this Certificate, hereby declaring and
certifying that the facts herein stated are true, and accordingly has hereunto
set her hand this 10th day of November, 1999.
/s/ deAnna Toney
----------------------------------------
deAnna Toney, Incorporator
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<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
C-CUBE SEMICONDUCTOR INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I -- CORPORATE OFFICES...................................................1
1.1 Registered Office..............................................1
1.2 Other Offices..................................................1
ARTICLE II -- MEETINGS OF STOCKHOLDERS ..........................................1
2.1 Place of Meetings..............................................1
2.2 Annual Meeting.................................................1
2.3 Special Meeting................................................2
2.4 Organization...................................................2
2.5 Notice of Stockholders' Meetings...............................3
2.6 Manner of Giving Notice; Affidavit of Notice...................3
2.7 Quorum.........................................................3
2.8 Adjourned Meeting; Notice......................................4
2.9 Voting.........................................................4
2.10 Validation of Meetings; Waiver of Notice; Consent..............4
2.11 No Stockholder Action by Written Consent.......................4
2.12 Record Date for Stockholder Notice; Voting; Giving Consents....4
2.13 Proxies........................................................5
2.14 Inspectors of Election.........................................5
ARTICLE III -- DIRECTORS.........................................................6
3.1 Powers.........................................................6
3.2 Number.........................................................6
3.3 Election and Term of Office of Directors.......................6
3.4 Resignation and Vacancies......................................6
3.5 Removal........................................................7
3.6 Place of Meetings; Meetings by Telephone.......................7
3.7 Regular Meetings...............................................7
3.8 Special Meetings; Notice.......................................7
3.9 Quorum.........................................................8
3.10 Waiver of Notice...............................................8
3.11 Adjournment....................................................8
3.12 Notice of Adjournment..........................................8
3.13 Board Action by Written Consent Without a Meeting..............8
3.14 Organization...................................................8
3.15 Fees and Compensation of Directors.............................9
ARTICLE IV -- COMMITTEES.........................................................9
4.1 Committees of Directors........................................9
4.2 Meetings and Action of Committees..............................9
4.3 Committee Minutes..............................................9
4.4 Executive Committee............................................9
ARTICLE V -- OFFICERS............................................................9
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
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<S> <C>
5.1 Officers.......................................................9
5.2 Election of Officers..........................................10
5.3 Terms of Office and Compensation..............................10
5.4 Removal; Resignation of Officers and Vacancies................10
5.5 Chairman of the Board.........................................10
5.6 Vice Chairman of the Board....................................10
5.7 Chairman of Executive Committee...............................10
5.8 President.....................................................10
5.9 Vice Presidents...............................................11
5.10 Secretary.....................................................11
5.11 Chief Financial Officer.......................................12
ARTICLE VI -- INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS.............................................12
6.1 Indemnification of Directors and Officers.....................12
6.2 Indemnification of Others.....................................12
6.3 Insurance.....................................................13
6.4 Expenses......................................................13
6.5 Non-Exclusivity of Rights.....................................13
6.6 Survival of Rights............................................13
6.7 Amendments....................................................13
ARTICLE VII -- RECORDS AND REPORTS..............................................14
7.1 Maintenance and Inspection of Records.........................14
7.2 Inspection by Director........................................14
7.3 Representation of Shares of Other Corporations................14
ARTICLE VIII -- GENERAL MATTERS.................................................14
8.1 Record Date for Purposes Other than Notice and Voting.........14
8.2 Checks; Drafts; Evidences of Indebtedness.....................14
8.3 Corporate Contracts and Instruments; How Executed.............15
8.4 Fiscal Year...................................................15
8.5 Stock Certificates............................................15
8.6 Special Designation on Certificates...........................15
8.7 Lost Certificates.............................................15
8.8 Construction; Definitions.....................................15
8.9 Provisions Additional to Provisions of Law....................15
8.10 Provisions Contrary to Provisions of Law......................16
8.11 Notices.......................................................16
ARTICLE IX -- AMENDMENTS ......................................................16
</TABLE>
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<PAGE> 4
BYLAWS
OF
C-CUBE SEMICONDUCTOR INC.
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE. The registered office of the corporation shall be
fixed in the Certificate of Incorporation of the corporation.
1.2 OTHER OFFICES. The board of directors may at any time establish branch
or subordinate offices at any place or places where the corporation is qualified
to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS. Meetings of stockholders shall be held at any place
within or outside the State of Delaware designated by the board of directors. In
the absence of any such designation, stockholders' meetings shall be held at the
registered office of the corporation.
2.2 ANNUAL MEETING.
(a) The annual meeting of stockholders shall be held each year on a date
and at a time designated by the board of directors. At the meeting,
directors shall be elected, and any other proper business may be
transacted.
(b) At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To
be properly brought before an annual meeting, business must be: (A)
specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the board of directors, (B) otherwise
properly brought before the meeting by or at the direction of the
board of directors, or (C) otherwise properly brought before the
meeting by a stockholder. For nominations or other business to be
properly brought before a stockholders meeting by a stockholder
pursuant to clause (C) of the preceding sentence, the stockholder must
have given timely notice thereof in writing to the Secretary of the
corporation and such other business must otherwise be a proper matter
for stockholder action. To be timely, a stockholder's notice shall be
delivered to the Secretary at the principal executive offices of the
corporation not less than one hundred twenty (120) calendar days in
advance of the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that (i) no annual
meeting was held in the previous year or (ii) the date of the annual
meeting has been changed by more than thirty (30) days from the date
of the previous year's meeting, notice by the stockholder to be timely
must be so delivered not earlier than the close of business on the
later of: (i) the day one hundred and twenty (120) calendar days in
advance of such meeting or (ii) the day ten (10) calendar days
following the day on which public announcement of the date of the
meeting is first made. For purposes of determining whether a
stockholder's notice shall have been delivered in a timely manner for
the annual meeting of stockholders in 2000, the first anniversary of
the previous year's meeting shall be deemed to be February 23, 2000.
In no event shall the public announcement of an adjournment of a
stockholders meeting commence a new time period for the giving of a
stockholder's notice as described above. A stockholder's notice to the
secretary shall set forth as to each matter the stockholder proposes
to bring before the annual meeting: (a) a
<PAGE> 5
brief description of the business desired to be brought before the
meeting, (b) the name and address, as they appear on the corporation's
books, of the stockholder proposing such business, (c) the class
number of shares of the corporation which are owned beneficially by
such stockholder, (d) any material interest of the stockholder in such
business, and (e) any other information that is required to be
provided by the stockholder pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "1934 Act") (or any
successor thereto) in such stockholder's capacity as a proponent of a
stockholder proposal. Notwithstanding anything in these Bylaws to the
contrary, no business shall be conducted at any annual meeting except
in accordance with the procedures set forth in this paragraph (b). The
chairman of the annual meeting shall, if the facts warrant, determine
and declare at the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this
paragraph (b), and, if he should so determine, he shall so declare at
the meeting that any such business not properly brought before the
meeting shall not be transacted.
(c) Only persons who are nominated in accordance with the procedures set
forth in this paragraph (c) shall be eligible for election as
directors. Nominations of persons for election to the board of
directors of the corporation may be made at a meeting of stockholders
by or at the direction of the board of directors or by any stockholder
of the corporation entitled to vote in the election of directors at
the meeting who complies with the notice procedures set forth in this
paragraph (c). Such nominations, other than those made by or at the
direction of the board of directors, shall be made pursuant to timely
notice in writing to the secretary of the corporation in accordance
with the provisions of paragraph (b) of this Section 2.2. Such
stockholder's notice shall set forth (i) as to each person, if any,
whom the stockholder proposes to nominate for election or re-election
as a director: (A) the name, age, business address and residence
address of such person, (B) the principal occupation or employment of
such person, (C) the class and number of shares of the corporation
which are beneficially owned by such person, (D) a description of all
arrangements or understandings between the stockholder and each
nominee and any other person or persons (naming such person or
persons) pursuant to which the nominations are to be made by the
stockholder, and (E) any other information relating to such person
that is required to be disclosed in solicitations of proxies for
elections of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the 1934 Act (or any successor
thereto) (including without limitation such person's written consent
to being named in the proxy statement, if any, as a nominee and to
serving as a director if elected); and (ii) as to such stockholder
giving notice, the information required to be provided pursuant to
paragraph (b) of this Section 2.2. At the request of the board of
directors, any person nominated by a stockholder for election as a
director shall furnish to the secretary of the corporation that
information required to be set forth in the stockholder's notice of
nomination which pertains to the nominee. No person shall be eligible
for election as a director of the corporation unless nominated in
accordance with the procedures set forth in this paragraph (c). The
chairman of the meeting shall, if the facts warrant, determine and
declare at the meeting that a nomination was not made in accordance
with the procedures prescribed by these Bylaws, and if he should so
determine, he shall so declare at the meeting, and the defective
nomination shall be disregarded.
2.3 SPECIAL MEETING. A special meeting of the stockholders may be called at
any time by the board of directors or the chairman of the board. In addition,
prior to the Trigger Date (as defined in the Certificate of Incorporation), the
corporation will call a special meeting of stockholders promptly upon request by
C-Cube Microsystems Inc., a Delaware corporation, so long as such entity is a
stockholder of the corporation. Special meetings of the stockholders may not be
called by any other person or persons. Only such business shall be considered at
a special meeting of stockholders as shall have been stated in the notice for
such meeting.
2.4 ORGANIZATION. Meetings of stockholders shall be presided over by the
chairman of the board, if any, or in his or her absence by the vice chairman of
the board, if any, or in his or her absence, or in the absence of the foregoing
persons by a chairman of the meeting, which chairman must be an officer or
director of the Company,
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designated by the board of directors. The secretary or in his or her absence an
assistant secretary or in the absence of the secretary and all assistant
secretaries a person whom the chairman of the meeting shall appoint shall act as
secretary of the meeting and keep a record of the proceedings thereof.
The board of directors of the corporation shall be entitled to make such
rules or regulations for the conduct of meetings of stockholders as it shall
deem necessary, appropriate or convenient. Subject to such rules and regulations
of the board of directors, if any, the chairman of the meeting shall have the
right and authority to prescribe such rules, regulations and procedures and to
do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies, and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting and matters which are to be voted
on by ballot. Unless and to the extent determined by the board of directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.
2.5 NOTICE OF STOCKHOLDERS' MEETINGS. All notices of meetings of
stockholders shall be sent or otherwise given in accordance with Section 2.6 of
these Bylaws not less than ten (10) nor more than sixty (60) days before the
date of the meeting. The notice shall specify the place, date, and hour of the
meeting and (i) in the case of a special meeting, the purpose or purposes for
which the meeting is called (no business other than that specified in the notice
may be transacted) or (ii) in the case of the annual meeting, those matters
which the board of directors, at the time of giving the notice, intends to
present for action by the stockholders (but any proper matter may be presented
at the meeting for such action). The notice of any meeting at which directors
are to be elected shall include the name of any nominee or nominees who, at the
time of the notice, the board intends to present for election.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any meeting of
stockholders shall be given either personally or by mail, telecopy, telegram or
other electronic or wireless means. Notices not personally delivered shall be
sent charges prepaid and shall be addressed to the stockholder at the address of
that stockholder appearing on the books of the corporation or given by the
stockholder to the corporation for the purpose of notice. Notice shall be deemed
to have been given at the time when delivered personally or deposited in the
mail or at the time of transmission when sent by telecopy, telegram or other
electronic or wireless means.
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice or report.
2.7 QUORUM. The holders of a majority in voting power of the stock issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (i) the chairman of
the meeting or (ii) the stockholders by the vote of the holders of a majority of
the stock, present in person or represented by proxy shall have power to adjourn
the meeting in accordance with Section 2.8 of these Bylaws.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which, by express provision of the laws of the State of Delaware or
of the Certificate of Incorporation or these Bylaws, a vote of a greater number
or voting by classes is required, in which case such express provision shall
govern and control the decision of the question.
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If a quorum be initially present, the stockholders may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken is approved by a
majority of the stockholders initially constituting the quorum.
2.8 ADJOURNED MEETING; NOTICE. Any stockholders' meeting, annual or
special, whether or not a quorum is present, may be adjourned from time to time
by the vote of the majority of the voting power of the shares represented at
that meeting, either in person or by proxy. In the absence of a quorum, no other
business may be transacted at that meeting except as provided in Section 2.7 of
these Bylaws.
When any meeting of stockholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place are announced at the meeting at which the adjournment is taken.
However, if a new record date for the adjourned meeting is fixed or if the
adjournment is for more than thirty (30) days from the date set for the original
meeting, then notice of the adjourned meeting shall be given. Notice of any such
adjourned meeting shall be given to each stockholder of record entitled to vote
at the adjourned meeting in accordance with the provisions of Sections 2.5 and
2.6 of these Bylaws. At any adjourned meeting the corporation may transact any
business which might have been transacted at the original meeting.
2.9 VOTING. The stockholders entitled to vote at any meeting of
stockholders shall be determined in accordance with the provisions of Section
2.12 of these Bylaws, subject to the provisions of Sections 217 and 218 of the
General Corporation Law of Delaware (relating to voting rights of fiduciaries,
pledgers and joint owners, and to voting trusts and other voting agreements).
Except as may be otherwise provided in the Certificate of Incorporation, by
these Bylaws or required by law, each stockholder shall be entitled to one vote
for each share of capital stock held by such stockholder.
Any stockholder entitled to vote on any matter may vote part of the shares
in favor of the proposal and refrain from voting the remaining shares or, except
when the matter is the election of directors, may vote them against the
proposal; but if the stockholder fails to specify the number of shares which the
stockholder is voting affirmatively, it will be conclusively presumed that the
stockholder's approving vote is with respect to all shares which the stockholder
is entitled to vote.
2.10 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT. The transactions of
any meeting of stockholders, either annual or special, however called and
noticed, and wherever held, shall be as valid as though they had been taken at a
meeting duly held after regular call and notice, if a quorum be present either
in person or by proxy.
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the Certificate of Incorporation or these
Bylaws, a written waiver thereto, signed by the person entitled to notice,
whether before or after the time stated therein, will be deemed equivalent to
notice. Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by law to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the stockholders need be specified
in any written waiver of notice unless so required by the Certificate of
Incorporation or these Bylaws.
2.11 NO STOCKHOLDER ACTION BY WRITTEN CONSENT. Effective as of the Trigger
Date, any action required or permitted to be taken by the stockholders of the
corporation must be effected at a duly called annual or special meeting of such
holders and may not be effected by any consent in writing by such holders.
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS. For
purposes of determining the stockholders entitled to notice of any meeting or to
vote thereat, the board of directors may fix, in advance, a record
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<PAGE> 8
date, which shall not be more than sixty (60) days nor less than ten (10) days
before the date of any such meeting, and in such event only stockholders of
record on the date so fixed are entitled to notice and to vote, notwithstanding
any transfer of any shares on the books of the corporation after the record
date, except as otherwise provided in the Certificate of Incorporation, by these
Bylaws, by agreement or by applicable law.
If the board of directors does not so fix a record date, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the business day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting
unless the board of directors fixes a new record date for the adjourned meeting,
but the board of directors shall fix a new record date if the meeting is
adjourned for more than thirty (30) days from the date set for the original
meeting.
The record date for any other purpose shall be as provided in Section 8.1
of these Bylaws.
2.13 PROXIES. Every person entitled to vote for directors, or on any other
matter, shall have the right to do so either in person or by one or more agents
authorized by a written proxy filed with the secretary of the corporation. A
written proxy may be in the form of a telegram, cablegram, or other means of
electronic transmission which sets forth or is submitted with information from
which it can be determined that the telegram, cablegram, or other means of
electronic transmission was authorized by the person. No such proxy shall be
voted or acted upon after three (3) years from its date, unless the proxy
provides for a longer period. A duly executed proxy shall be irrevocable if it
states that it is irrevocable and if, and only as long as, it is coupled with an
interest sufficient in law to support an irrevocable power. The revocability of
a proxy that states on its face that it is irrevocable shall be governed by the
provisions of Section 212(e) of the General Corporation Law of Delaware. A
stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or by filing another duly executed proxy bearing a later date with the
secretary of the corporation.
A proxy is not revoked by the death or incapacity of the maker unless,
before the vote is counted, written notice of such death or incapacity is
received by the corporation.
2.14 INSPECTORS OF ELECTION. Before any meeting of stockholders, the board
of directors shall appoint an inspector or inspectors of election to act at the
meeting or its adjournment. The number of inspectors shall be either one (1) or
three (3). If any person appointed as inspector fails to appear or fails or
refuses to act, then the chairman of the meeting may, and upon the request of
any stockholder or a stockholder's proxy shall, appoint a person to fill that
vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting power of
each, the number of shares represented at the meeting, the existence
of a quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way arising in
connection with the right to vote;
(d) count and tabulate all votes or consents;
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(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the election or vote
with fairness to all stockholders.
The inspectors of election shall perform their duties impartially, in good
faith, to the best of their ability and as expeditiously as is practical. If
there are three (3) inspectors of election, the decision, act or certificate of
a majority is effective in all respects as the decision, act or certificate of
all. Any report or certificate made by the inspectors of election is prima facie
evidence of the facts stated therein.
ARTICLE III
DIRECTORS
3.1 POWERS. Subject to the provisions of the General Corporation Law of
Delaware and to any limitations in the Certificate of Incorporation or these
Bylaws relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
board of directors.
3.2 NUMBER. The authorized number of directors shall be no fewer than five
(5) and no more than seven (7) and may be changed from time to time by
resolution of the Board of Directors.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires. If for any
cause, the directors shall not have been elected at an annual meeting, they may
be elected as soon thereafter as convenient at a special meeting of the
stockholders called for that purpose in the manner provided in these Bylaws.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS. Except as provided in the
Certificate of Incorporation or Section 3.4 of these Bylaws, directors shall be
classified, with respect to the time for which they severally hold office, into
three classes, as nearly equal in number as possible, one class to be originally
elected for a term expiring at the annual meeting of stockholders to be held in
2000, another class to be originally elected for a term expiring at the annual
meeting of stockholders to be held in 2001, and another class to be originally
elected for a term expiring at the annual meeting of stockholders to be held in
2002, with each class to hold office until its successor is duly elected and
qualified. At each succeeding annual meeting of stockholders, directors elected
to succeed those directors whose terms then expire shall be elected for a term
of office to expire at the third succeeding annual meeting of stockholders after
their election, with each director to hold office until such person's successor
shall have been elected and qualified or until such person's earlier resignation
or removal. Each director, including a director elected or appointed to fill a
vacancy, shall hold office until his successor is elected and qualified or until
his earlier resignation or removal.
Directors need not be stockholders unless so required by the Certificate of
Incorporation or by these Bylaws; wherein other qualifications for directors may
be prescribed.
Election of directors need not be by written ballot unless so required by
the Certificate of Incorporation or by these Bylaws; wherein other
qualifications for directors may be prescribed.
3.4 RESIGNATION AND VACANCIES. Any director may resign effective on giving
written notice to the chairman of the board, the president, the secretary or the
board of directors, unless the notice specifies a later time for that
resignation to become effective. If the resignation of a director is effective
at a future time, the board of directors may elect a successor to take office
when the resignation becomes effective.
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Unless otherwise provided in the Certificate of Incorporation or these
Bylaws:
(i) Vacancies and newly created directorships resulting from any increase
in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class shall be
filled by a majority of the directors then in office, even if less
than a quorum, or by a sole remaining director. Each director so
elected shall hold office for the remainder of the full term of the
class of directors in which the new directorship was created or the
vacancy occurred and until a successor has been elected and qualified.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions
of the Certificate of Incorporation, vacancies and newly created
directorships of such class or classes or series may be filled by a
majority of the directors elected by such class or classes or series
thereof then in office, or by a sole remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders solely for the
purpose of electing directors in accordance with the provisions of the
Certificate of Incorporation or these Bylaws, or may apply to the Court of
Chancery for a decree summarily ordering an election as provided in Section 211
of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten percent (10%) of the total number of the then outstanding shares
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office as aforesaid, which
election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 REMOVAL. Unless otherwise restricted by statute, by the Certificate of
Incorporation or by these Bylaws, any director or the entire board of directors
may be removed from office only for cause by the holders of a majority of the
shares then entitled to vote at an election of directors.
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE. Regular meetings of the board
of directors may be held at any place within or outside the State of Delaware
that has been designated from time to time by resolution of the board of
directors. In the absence of such a designation, regular meetings shall be held
at the principal executive office of the corporation. Special meetings of the
board of directors may be held at any place within or outside the State of
Delaware that has been designated in the notice of the meeting or, if not stated
in the notice or if there is no notice, at the principal executive office of the
corporation.
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in the
meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
3.7 REGULAR MEETINGS. Regular meetings of the board of directors may be
held without notice if the times of such meetings are fixed by the board of
directors.
3.8 SPECIAL MEETINGS; NOTICE. Special meetings of the board of directors
for any purpose or purposes may be called at any time by the chairman of the
board, the vice chairman of the board, the president, the chairman of the
executive committee, any vice president or the secretary or by any two (2) or
more of the directors.
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Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by mail, telecopy, telegram
or other electronic or wireless means, charges prepaid, addressed to each
director at that director's address as it is shown on the records of the
corporation or if the address is not readily ascertainable, notice shall be
addressed to the director at the city or place in which the meetings of
directors are regularly held. If the notice is mailed, it shall be deposited in
the United States mail at least four (4) days before the time of the holding of
the meeting. If the notice is delivered personally or by telephone, telecopy,
telegram or other electronic or wireless means, it shall be delivered personally
or by telephone or other electronic or wireless means or to the telegraph
company at least twenty-four (24) hours before the time of the holding of the
meeting. Any oral notice given personally or by telephone may be communicated
either to the director or to a person at the office of the director who the
person giving the notice has reason to believe will promptly communicate it to
the director. If the meeting is to be held at the principal executive office of
the corporation, the notice need not specify the place of the meeting. Moreover,
a notice of special meeting need not state the purpose of such meeting, and,
unless indicated in the notice thereof, any and all business may be transacted
at a special meeting.
3.9 QUORUM. A majority of the authorized number of directors shall
constitute a quorum for the transaction of business, except to fill vacancies in
the board of directors as provided in Section 3.4 and to adjourn as provided in
Section 3.11 of these Bylaws. Every act or decision done or made by a majority
of the directors present at a duly held meeting at which a quorum is present
shall be regarded as the act of the board of directors, subject to the
provisions of the Certificate of Incorporation and applicable law.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
3.10 WAIVER OF NOTICE. Notice of a meeting need not be given to any
director (i) who signs a waiver of notice or a consent to holding the meeting or
an approval of the minutes thereof, whether before or after the meeting, or (ii)
who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to such directors. The transactions of any
meeting of the board, however called and noticed or wherever held, are as valid
as though had at a meeting duly held after regular call and notice if a quorum
is present and if, either before or after the meeting, each of the directors not
present signs a written waiver of notice. All such waivers shall be filed with
the corporate records or made part of the minutes of the meeting. A waiver of
notice need not specify the purpose of any regular or special meeting of the
board of directors.
3.11 ADJOURNMENT. A majority of the directors present, whether or not
constituting a quorum, may adjourn any meeting to another time and place.
3.12 NOTICE OF ADJOURNMENT. Notice of the time and place of holding an
adjourned meeting need not be given if announced unless the meeting is adjourned
for more than twenty-four (24) hours. If the meeting is adjourned for more than
twenty-four (24) hours, then notice of the time and place of the adjourned
meeting shall be given before the adjourned meeting takes place, in the manner
specified in Section 3.8 of these Bylaws, to the directors who were not present
at the time of the adjournment.
3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action required
or permitted to be taken by the board of directors may be taken without a
meeting, provided that all members of the board of directors individually or
collectively consent in writing to that action. Such action by written consent
shall have the same force and effect as a unanimous vote of the board of
directors. Such written consent and any counterparts thereof shall be filed with
the minutes of the proceedings of the board.
3.14 ORGANIZATION. Meetings of the board of directors shall be presided
over by the chairman of the board, if any, or in his or her absence by the vice
chairman of the board, if any, or in his or her absence by the chairman of the
executive committee, if any, or in his or her absence by the president, if any,
or in his or her absence by the executive vice president. In the absence of all
such directors, a president pro tem chosen by a majority of the directors
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present shall preside at the meeting. The secretary shall act as secretary of
the meeting, but in his or her absence the chairman of the meeting may appoint
any person to act as secretary of the meeting.
3.15 FEES AND COMPENSATION OF DIRECTORS. Directors and members of
committees may receive such compensation, if any, for their services and such
reimbursement of expenses as may be fixed or determined by resolution of the
board of directors. This Section 3.15 shall not be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee or otherwise and receiving compensation for those services.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS. The board of directors may designate one (1)
or more committees, each consisting of one or more directors, to serve at the
pleasure of the board of directors. The board of directors may designate one (1)
or more directors as alternate members of any committee, who may replace any
absent member at any meeting of the committee. Any committee, to the extent
provided in the resolution of the board, shall have all the authority of the
board, but no such committee shall have the power or authority to (i) approve or
adopt or recommend to the stockholders any action or matter that requires the
approval of the stockholders or (ii) adopt, amend or repeal any Bylaw of the
corporation.
4.2 MEETINGS AND ACTION OF COMMITTEES. Meetings and actions of committees
shall be governed by, and held and taken in accordance with, the provisions of
Article III of these Bylaws, Section 3.6 (place of meetings), Section 3.7
(regular meetings), Section 3.8 (special meetings and notice), Section 3.9
(quorum), Section 3.10 (waiver of notice), Section 3.11 (adjournment), Section
3.12 (notice of adjournment), and Section 3.13 (action without meeting), with
such changes in the context of those Bylaws as are necessary to substitute the
committee and its members for the board of directors and its members; provided,
however, that the time of regular meetings of committees may be determined
either by resolution of the board of directors or by resolution of the
committee, that special meetings of committees may also be called by resolution
of the board of directors, and that notice of special meetings of committees
shall also be given to all alternate members, who shall have the right to attend
all meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
Bylaws.
4.3 COMMITTEE MINUTES. Each committee shall keep regular minutes of its
meetings and report the same to the board of directors when required.
4.4 EXECUTIVE COMMITTEE. In the event that the board of directors appoints
an executive committee, such executive committee, in all cases in which specific
directions to the contrary shall not have been given by the board of directors,
shall have and may exercise, during the intervals between the meetings of the
board of directors, all the powers and authority of the board of directors in
the management of the business and affairs of the corporation (except as
provided in Section 4.1 hereof) in such manner as the executive committee may
deem in the best interests of the corporation.
ARTICLE V
OFFICERS
5.1 OFFICERS. The officers of this corporation shall consist of a
president, one or more vice presidents, a secretary and a chief financial
officer who shall be chosen by the Board of Directors and such other officers,
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including but not limited to a chairman of the board, a vice chairman of the
board, a chairman of the executive committee and a treasurer as the board of
directors shall deem expedient, who shall be chosen in such manner and hold
their offices for such terms as the board of directors may prescribe. Any two or
more of such offices may be held by the same person. The board of directors may
designate one or more vice presidents as executive vice presidents or senior
vice presidents. Either the chairman of the board, the vice chairman of the
board, the chairman of the executive committee, or the president, as the board
of directors may designate from time to time, shall be the chief executive
officer of the corporation. The board of directors may from time to time
designate the president or any executive vice president as the chief operating
officer of the corporation. Any vice president, treasurer or assistant
treasurer, or assistant secretary respectively may exercise any of the powers of
the president, the chief financial officer, or the secretary, respectively, as
directed by the board of directors and shall perform such other duties as are
imposed upon such officer by the Bylaws or the board of directors.
5.2 ELECTION OF OFFICERS. In addition to officers elected by the board of
directors in accordance with Sections 5.1 and 5.3, the corporation may have one
or more appointed vice presidents. Such vice presidents may be appointed by the
chairman of the board or the president and shall have such duties as may be
established by the chairman or president. Vice presidents appointed pursuant to
this Section 5.2 may be removed in accordance with Section 5.4.
5.3 TERMS OF OFFICE AND COMPENSATION. The term of office and salary of each
of said officers and the manner and time of the payment of such salaries shall
be fixed and determined by the board of directors and may be altered by said
board from time to time at its pleasure, subject to the rights, if any, of said
officers under any contract of employment.
5.4 REMOVAL; RESIGNATION OF OFFICERS AND VACANCIES. Any officer of the
corporation may be removed at the pleasure of the board of directors at any
meeting or, except in the case of an officer chosen by the board of directors,
at the pleasure of any officer who may be granted such power by a resolution of
the board of directors. Any officer may resign at any time upon written notice
to the corporation without prejudice to the rights, if any, of the corporation
under any contract to which the officer is a party. If any vacancy occurs in any
office of the corporation, the board of directors may elect a successor to fill
such vacancy for the remainder of the unexpired term and until a successor is
duly chosen and qualified.
5.5 CHAIRMAN OF THE BOARD. The chairman of the board, if such an officer be
elected, shall have general supervision, direction and control of the
corporation's business and its officers, and, if present, preside at meetings of
the stockholders and the board of directors and exercise and perform such other
powers and duties as may from time to time be assigned to him by the board of
directors or as may be prescribed by these Bylaws. The chairman of the board
shall report to the board of directors.
5.6 VICE CHAIRMAN OF THE BOARD. The vice chairman of the board of
directors, if there shall be one, shall, in the case of the absence, disability
or death of the chairman, exercise all the powers and perform all the duties of
the chairman of the board. The vice chairman shall have such other powers and
perform such other duties as may be granted or prescribed by the board of
directors.
5.7 CHAIRMAN OF EXECUTIVE COMMITTEE. The chairman of the executive
committee, if there be one, shall have the power to call meetings of the board
of directors to be held subject to the limitations prescribed by law or by these
Bylaws, at such times and at such places as the chairman of the executive
committee shall deem proper. The chairman of the executive committee shall have
such other powers and be subject to such other duties as the board of directors
may from time to time prescribe.
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5.8 PRESIDENT. The powers and duties of the president are:
(a) To call meetings of the board of directors to be held, subject to the
limitations prescribed by law or by these Bylaws, at such times and at
such places as the president shall deem proper.
(b) To affix the signature of the corporation to all deeds, conveyances,
mortgages, leases, obligations, bonds, certificates and other papers
and instruments in writing which have been authorized by the board of
directors or which, in the judgment of the president, should be
executed on behalf of the corporation, and to sign certificates for
shares of stock of the corporation.
(c) To have such other powers and be subject to such other duties as the
board of directors may from time to time prescribe.
5.9 VICE PRESIDENTS. In case of the absence, disability or death of the
president, the elected vice president, or one of the elected vice presidents,
shall exercise all the powers and perform all the duties of the president. If
there is more than one elected vice president, the order in which the elected
vice presidents shall succeed to the powers and duties of the president shall be
as fixed by the board of directors. The elected vice president or elected vice
presidents shall have such other powers and perform such other duties as may be
granted or prescribed by the board of directors.
Vice presidents appointed pursuant to Section 5.2 shall have such powers
and duties as may be fixed by the chairman or president, except that such
appointed vice presidents may not exercise the powers and duties of the
president.
5.10 SECRETARY. The powers and duties of the secretary are:
(a) To keep a book of minutes at the principal office of the corporation,
or such other place as the board of directors may order, of all
meetings of its directors and stockholders with the time and place of
holding, whether regular or special, and, if special, how authorized,
the notice thereof given, the names of those present at directors'
meetings, the number of shares present or represented at stockholders'
meetings and the proceedings thereof.
(b) To keep the seal of the corporation and affix the same to all
instruments which may require it.
(c) To keep or cause to be kept at the principal office of the
corporation, or at the office of the transfer agent or agents, a share
register, or duplicate share registers, showing the names of the
stockholders and their addresses, the number of and classes of shares,
and the number and date of cancellation of every certificate
surrendered for cancellation.
(d) To keep a supply of certificates for shares of the corporation, to
fill in all certificates issued, and to make a proper record of each
such issuance; provided, that so long as the corporation shall have
one or more duly appointed and acting transfer agents of the shares,
or any class or series of shares, of the corporation, such duties with
respect to such shares shall be performed by such transfer agent or
transfer agents.
(e) To transfer upon the share books of the corporation any and all shares
of the corporation; provided, that so long as the corporation shall
have one or more duly appointed and acting transfer agents of the
shares, or any class or series of shares, of the corporation, such
duties with respect to such shares shall be performed by such transfer
agent or transfer agents, and the method of transfer of each
certificate shall be subject to the reasonable regulations of the
transfer agent to which the certificate is presented for transfer, and
also, if the corporation then has one or more duly appointed and
acting registrars, to the reasonable regulations of the registrar to
which the new certificate is presented for
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registration; and provided, further that no certificate for shares of
stock shall be issued or delivered or, if issued or delivered, shall
have any validity whatsoever until and unless it has been signed or
authenticated in the manner provided in Section 8.5 hereof.
(f) To make service and publication of all notices that may be necessary
or proper, and without command or direction from anyone. In case of
the absence, disability, refusal, or neglect of the secretary to make
service or publication of any notices, then such notices may be served
and/or published by the president or a vice president, or by any
person thereunto authorized by either of them or by the board of
directors or by the holders of a majority of the outstanding shares of
the corporation.
(g) Generally to do and perform all such duties as pertain to the office
of secretary and as may be required by the board of directors.
5.11 CHIEF FINANCIAL OFFICER. The powers and duties of the chief financial
officer are:
(a) To supervise the corporate-wide treasury functions and financial
reporting to external bodies.
(b) To have the custody of all funds, securities, evidence of indebtedness
and other valuable documents of the corporation and, at the chief
financial officer's discretion, to cause any or all thereof to be
deposited for account of the corporation at such depositary as may be
designated from time to time by the board of directors.
(c) To receive or cause to be received, and to give or cause to be given,
receipts and acquittances for monies paid in for the account of the
corporation.
(d) To disburse, or cause to be disbursed, all funds of the corporation as
may be directed by the board of directors, taking proper vouchers for
such disbursements.
(e) To render to the president and to the board of directors, whenever
they may require, accounts of all transactions and of the financial
condition of the corporation.
(f) Generally to do and perform all such duties as pertain to the office
of chief financial officer and as may be required by the board of
directors.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS. The corporation shall, to
the maximum extent and in the manner permitted by the General Corporation Law of
Delaware, indemnify each of its directors and officers against expenses
(including attorneys' fees), judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation;
provided, however, that the corporation may modify the extent of such
indemnification by individual contracts with its directors and executive
officers and, provided, further, that the corporation shall not be required to
indemnify any director or officer in connection with any proceeding (or part
thereof) initiated by such person unless (i) such indemnification is expressly
required to be made by law, (ii) the proceeding was authorized in advance by the
board of directors of the corporation, (iii) such indemnification is provided by
the corporation, in its sole discretion, pursuant to the powers vested in the
corporation under the General Corporation Law of Delaware or (iv) such
indemnification is required to be made pursuant to an individual contract. For
purposes of this Section 6.1, a "director" or "officer"
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of the corporation includes any person (i) who is or was a director or officer
of the corporation, (ii) who is or was serving at the request of the corporation
as a director or officer of another corporation, partnership, joint venture,
trust or other enterprise, or (iii) who was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS. The corporation shall have the power, to the
maximum extent and in the manner permitted by the General Corporation Law of
Delaware, to indemnify each of its employees and agents (other than directors
and officers) against expenses (including attorneys' fees), judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of the corporation. For purposes of this Section 6.2, an "employee" or
"agent" of the corporation (other than a director or officer) includes any
person (i) who is or was an employee or agent of the corporation, (ii) who is or
was serving at the request of the corporation as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, or (iii) who
was an employee or agent of a corporation which was a predecessor corporation of
the corporation or of another enterprise at the request of such predecessor
corporation.
6.3 INSURANCE. The corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
her and incurred by him or her in any such capacity, or arising out of his or
her status as such, whether or not the corporation would have the power to
indemnify him or her against such liability under the provisions of the General
Corporation Law of Delaware.
6.4 EXPENSES. The corporation shall advance to any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she is or was a director or
officer of the corporation, or is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, prior to the final disposition of the
proceeding, promptly following request therefor, all expenses incurred by any
director or officer in connection with such proceeding, upon receipt of an
undertaking by or on behalf of such person to repay said amounts if it should be
determined ultimately that such person is not entitled to be indemnified under
this Bylaw or otherwise; provided, however, that the corporation shall not be
required to advance expenses to any director or officer in connection with any
proceeding (or part thereof) initiated by such person unless the proceeding was
authorized in advance by the board of directors of the corporation.
Notwithstanding the foregoing, unless otherwise determined pursuant to
Section 6.5, no advance shall be made by the corporation to an officer of the
corporation (except by reason of the fact that such officer is or was a director
of the corporation in which event this paragraph shall not apply) in any action,
suit or proceeding, whether civil, criminal, administrative or investigative, if
a determination is reasonably and promptly made (i) by the board of directors by
a majority vote of a quorum consisting of directors who were not parties to the
proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, that the facts known to the decision-making party at the time
such determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed to the best interests of the corporation.
6.5 NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by this
Bylaw shall not be exclusive of any other right which such person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the General Corporation Law of Delaware.
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<PAGE> 17
6.6 SURVIVAL OF RIGHTS. The rights conferred on any person by this Bylaw
shall continue as to a person who has ceased to be a director, officer, employee
or other agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
6.7 AMENDMENTS. Any repeal or modification of this Bylaw shall only be
prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS. The corporation shall, either at
its principal executive office or at such place or places as designated by the
board of directors, keep a record of its stockholders listing their names and
addresses and the number and class of shares held by each stockholder, a copy of
these Bylaws as amended to date, accounting books and other records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
7.2 INSPECTION BY DIRECTOR. Any director shall have the right to examine
the corporation's stock ledger, a list of its stockholders and its other books
and records for a purpose reasonably related to his or her position as a
director. The Court of Chancery is hereby vested with the exclusive jurisdiction
to determine whether a director is entitled to the inspection sought. The Court
may summarily order the corporation to permit the director to inspect any and
all books and records, the stock ledger, and the stock list and to make copies
or extracts therefrom. The Court may, in its discretion, prescribe any
limitations or conditions with reference to the inspection, or award such other
and further relief as the Court may deem just and proper.
7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The president or any
other officer of this corporation authorized by the board of directors is
authorized to vote, represent, and exercise on behalf of this corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of this corporation. The authority herein granted may be
exercised either by such person directly or by any other person authorized to do
so by proxy or power of attorney duly executed by such person having the
authority.
ARTICLE VIII
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. For purposes of
determining the stockholders entitled to receive payment of any dividend or
other distribution or allotment of any rights or the stockholders entitled to
exercise any rights in respect of any other lawful action, the board of
directors may fix, in
14
<PAGE> 18
advance, a record date, which shall not be more than sixty (60) days before any
such action. In that case, only stockholders of record at the close of business
on the date so fixed are entitled to receive the dividend, distribution or
allotment of rights, or to exercise such rights, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation after
the record date so fixed, except as otherwise provided in the Certificate of
Incorporation, by these Bylaws, by agreement or by law.
If the board of directors does not so fix a record date, then the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution or the
sixtieth (60th) day before the date of that action, whichever is later.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS. From time to time, the board
of directors shall determine by resolution which person or persons may sign or
endorse all checks, drafts, other orders for payment of money, notes or other
evidences of indebtedness that are issued in the name of or payable to the
corporation, and only the persons so authorized shall sign or endorse those
instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The board of
directors, except as otherwise provided in these Bylaws, may authorize any
officer or officers, or agent or agents, to enter into any contract or execute
any instrument in the name of and on behalf of the corporation; such authority
may be general or confined to specific instances. Unless so authorized or
ratified by the board of directors or within the agency power of an officer, no
officer, agent or employee shall have any power or authority to bind the
corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or for any amount.
8.4 FISCAL YEAR. The fiscal year of this corporation shall begin on the
first day of January of each year and end on the last day of December of the
following year.
8.5 STOCK CERTIFICATES. There shall be issued to each holder of fully paid
shares of the capital stock of the corporation a certificate or certificates for
such shares. Every holder of shares of the corporation shall be entitled to have
a certificate signed by, or in the name of the corporation by, the chairman or
vice chairman of the board of directors, or the president or a vice president,
and by the treasurer or an assistant treasurer, or the secretary or an assistant
secretary of such corporation representing the number of shares registered in
certificate form. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the date of issue.
8.6 SPECIAL DESIGNATION ON CERTIFICATES. If the corporation is authorized
to issue more than one class of stock or more than one series of any class, then
the powers, the designations, the preferences, and the relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights shall be set forth in full or summarized on the face or back of the
certificate that the corporation shall issue to represent such class or series
of stock; provided, however, that, except as otherwise provided in Section 202
of the General Corporation Law of Delaware, in lieu of the foregoing
requirements there may be set forth on the face or back of the certificate that
the corporation shall issue to represent such class or series of stock a
statement that the corporation will furnish without charge to each stockholder
who so requests the powers, the designations, the preferences, and the relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
8.7 LOST CERTIFICATES. The corporation may issue a new share certificate or
new certificate for any other security in the place of any certificate
theretofore issued by it, alleged to have been lost, stolen or destroyed, and
the corporation may require the owner of the lost, stolen or destroyed
certificate or the owner's legal representative to give the corporation a bond
(or other adequate security) sufficient to indemnify it against any claim that
may be made
15
<PAGE> 19
against it (including any expense or liability) on account of the alleged loss,
theft or destruction of any such certificate or the issuance of such new
certificate. The board of directors may adopt such other provisions and
restrictions with reference to lost certificates, not inconsistent with
applicable law, as it shall in its discretion deem appropriate.
8.8 CONSTRUCTION; DEFINITIONS. Unless the context requires otherwise, the
general provisions, rules of construction, and definitions in the General
Corporation Law of Delaware shall govern the construction of these Bylaws.
Without limiting the generality of this provision, the singular number includes
the plural, the plural number includes the singular, and the term "person"
includes both a corporation and a natural person.
8.9 PROVISIONS ADDITIONAL TO PROVISIONS OF LAW. All restrictions,
limitations, requirements and other provisions of these Bylaws shall be
construed, insofar as possible, as supplemental and additional to all provisions
of law applicable to the subject matter thereof and shall be fully complied with
in addition to the said provisions of law unless such compliance shall be
illegal.
8.10 PROVISIONS CONTRARY TO PROVISIONS OF LAW. Any article, section,
subsection, subdivision, sentence, clause or phrase of these Bylaws which upon
being construed in the manner provided in Section 8.9 hereof, shall be contrary
to or inconsistent with any applicable provisions of law, shall not apply so
long as said provisions of law shall remain in effect, but such result shall not
affect the validity or applicability of any other portions of these Bylaws, it
being hereby declared that these Bylaws would have been adopted and each
article, section, subsection, subdivision, sentence, clause or phrase thereof,
irrespective of the fact that any one or more articles, sections, subsections,
subdivisions, sentences, clauses or phrases is or are illegal.
8.11 NOTICES. Any reference in these Bylaws to the time a notice is given
or sent means, unless otherwise expressly provided, the time a written notice by
mail is deposited in the United States mails, postage prepaid; or the time any
other written notice is personally delivered to the recipient or is delivered to
a common carrier for transmission, or actually transmitted by the person giving
the notice by electronic means, to the recipient; or the time any oral notice is
communicated, in person or by telephone or wireless, to the recipient or to a
person at the office of the recipient who the person giving the notice has
reason to believe will promptly communicate it to the recipient.
ARTICLE IX
AMENDMENTS
Subject to Section 6.7 hereof, the original or other bylaws of the
corporation may be adopted, amended or repealed (1) at any annual or special
meeting of stockholders, by the affirmative vote of the holders of a majority of
the voting power of the stock issued and outstanding and entitled to vote
thereat, provided, however, that any proposed alteration or repeal of, or the
adoption of any By-Law inconsistent with, Section 2.2, 2.3, 2.5 or 2.11 of
Article II of the By-Laws or with Section 3.2, 3.3, 3.4 or 3.5 of Article III of
the By-Laws or this sentence, by the stockholders shall require the affirmative
vote of the holders of at least 80% of the voting power of all Voting Stock then
outstanding, voting together as a single class; and, provided, further, however,
that in the case of any such stockholder action at a special meeting of
stockholders, notice of the proposed alteration, repeal or adoption of the new
By-Law or By-Laws must be contained in the notice of such special meeting, or
(2) by the affirmative vote of a majority of the Board of Directors. The fact
that the power to amend these By-Laws has been so conferred upon the directors
shall not divest the stockholders of the power, nor limit their power to adopt,
amend or repeal bylaws.
Whenever an amendment or new bylaw is adopted, it shall be copied in the
book of bylaws with the original bylaws, in the appropriate place. If any bylaw
is repealed, the fact of repeal with the date of the meeting at which the repeal
was enacted or the filing of the operative written consent(s) shall be stated in
said book.
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<PAGE> 20
CERTIFICATE OF ADOPTION OF BYLAWS
OF
C-CUBE SEMICONDUCTOR INC.
Adoption by Incorporator
The undersigned person appointed in the Certificate of Incorporation to act
as the Incorporator of C-Cube Semiconductor Inc. (the "Company") hereby adopts
the attached Bylaws, comprising 17 pages, plus a cover page and table of
contents, as the Bylaws of the Company.
Executed on November 11, 1999.
/s/ deAnna Toney
----------------------------------------
deAnna Toney, Incorporator
Certificate by Secretary of Adoption by Incorporator
The undersigned hereby certifies that the undersigned is the duly elected,
qualified and acting Secretary of C-Cube Semiconductor Inc. and that the
foregoing Bylaws, comprising 17 pages, plus a cover page and table of contents,
were adopted as the Bylaws of the corporation on November 11, 1999 by the person
appointed in the Certificate of Incorporation to act as the Incorporator of the
corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand
on November 11, 1999.
/s/ Larry W. Sonsini
----------------------------------------
Larry W. Sonsini
17
<PAGE> 1
EXHIBIT 10.1
DRAFT
MASTER SEPARATION AND DISTRIBUTION AGREEMENT
BETWEEN
C-CUBE MICROSYSTEMS INC.
AND
C-CUBE SEMICONDUCTOR INC.
EFFECTIVE AS OF
__________ ____, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I SEPARATION...............................................................2
Section 1.1 Separation Date.........................................2
Section 1.2 Closing of Transactions.................................2
Section 1.3 Exchange of Secretary's Certificates....................2
ARTICLE II DOCUMENTS AND ITEMS TO BE DELIVERED ON THE SEPARATION DATE..............2
Section 2.1 Documents to Be Delivered By C-Cube.....................2
Section 2.2 Retention of Cash Reserves..............................3
Section 2.3 Documents to Be Delivered by Semiconductor..............3
ARTICLE III THE DISTRIBUTION.......................................................4
Section 3.1 The Distribution........................................4
Section 3.2 Actions Prior To The Distribution.......................4
Section 3.3 Sole Discretion of C-Cube...............................5
Section 3.4 Conditions To Distribution..............................5
Section 3.5 Fractional Shares.......................................6
ARTICLE IV COVENANTS AND OTHER MATTERS.............................................6
Section 4.1 Other Agreements........................................6
Section 4.2 Further Instruments.....................................6
Section 4.3 Transitional Agreement..................................7
Section 4.4 Agreement For Exchange of Information...................7
Section 4.5 Payment of Expenses.....................................8
Section 4.6 Dispute Resolution......................................8
Section 4.7 Governmental Approvals..................................9
Section 4.8 Cooperation in Obtaining New Agreements................10
Section 4.9 Property Damage to Semiconductor Assets Prior to
the Separation Date....................................10
ARTICLE V MISCELLANEOUS...........................................................10
Section 5.1 Limitation of Liability................................10
Section 5.2 Entire Agreement.......................................10
Section 5.3 Governing Law..........................................11
Section 5.4 Termination............................................11
Section 5.5 Notices................................................11
Section 5.6 Counterparts...........................................11
Section 5.7 Binding Effect; Assignment.............................11
Section 5.8 Severability...........................................11
Section 5.9 Failure or Indulgence Not Waiver; Remedies Cumulative..11
Section 5.10 Amendment..............................................12
Section 5.11 Authority..............................................12
</TABLE>
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<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 5.12 Interpretation.........................................12
Section 5.13 Conflicting Agreements.................................12
ARTICLE VI DEFINITIONS............................................................12
Section 6.1 Affiliated Company.....................................12
Section 6.2 Ancillary Agreements...................................12
Section 6.3 Assignment Agreement...................................12
Section 6.4 Business Day...........................................13
Section 6.5 C-Cube Group...........................................13
Section 6.6 Code...................................................13
Section 6.7 Commission.............................................13
Section 6.8 Disputes...............................................13
Section 6.9 Distribution...........................................13
Section 6.10 Distribution Agent.....................................13
Section 6.11 Distribution Date......................................13
Section 6.12 Exchange Act...........................................13
Section 6.13 Governmental Approvals.................................13
Section 6.14 Governmental Authority.................................13
Section 6.15 Information............................................13
Section 6.16 Nasdaq.................................................13
Section 6.17 NYSE...................................................14
Section 6.18 Person.................................................14
Section 6.19 Prime Rate.............................................14
Section 6.20 Record Date............................................14
Section 6.21 Semi Sale Taxes........................................14
Section 6.22 Semi Spin Taxes........................................14
Section 6.23 Semiconductor Assets...................................14
Section 6.24 Semiconductor Business.................................14
Section 6.25 Semiconductor Group....................................14
Section 6.26 Semiconductor Pro Forma Balance Sheet..................14
Section 6.27 Separation.............................................14
Section 6.28 Separation Date........................................14
Section 6.29 Subsidiary.............................................14
Section 6.30 WSGR...................................................15
</TABLE>
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<PAGE> 4
EXHIBITS
Exhibit A Certificate of Secretary of C-Cube
Exhibit B Certificate of Secretary of Semiconductor
Exhibit C General Assignment and Assumption Agreement
Exhibit D Transitional Services Agreement
Exhibit E Employee Matters Agreement
Exhibit F Tax Sharing Agreement
Exhibit G Master Confidential Disclosure Agreement
Exhibit H Indemnification and Insurance Matters Agreement
Exhibit I Real Estate Matters Agreement
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<PAGE> 5
SCHEDULES
Schedule 2.1(b) Subsidiaries of C-Cube to be Transferred to Semiconductor
Schedule 6.1(a) Affiliated Companies of C-Cube to be Included in the C-Cube
Group
Schedule 6.1(b) Affiliated Companies of Semiconductor to be Included in the
Semiconductor Group
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<PAGE> 6
MASTER SEPARATION AND DISTRIBUTION AGREEMENT
This Master Separation and Distribution Agreement (this "AGREEMENT") is
entered into as of _______ ___, 2000, between C-Cube Microsystems Inc., a
Delaware corporation ("C-CUBE"), and C-Cube Semiconductor Inc., a Delaware
corporation ("SEMICONDUCTOR"). Capitalized terms used herein and not otherwise
defined shall have the meanings ascribed to such terms in ARTICLE VI hereof.
RECITALS
WHEREAS, C-Cube has entered into the Agreement and Plan of Merger and
Reorganization, dated as of October 27, 1999 (the "MERGER AGREEMENT"), with
Harmonic Inc. ("HARMONIC") pursuant to which C-Cube will merge with and into
Harmonic (the "MERGER"), contingent on the sale or distribution by C-Cube of the
Semiconductor Business;
WHEREAS, C-Cube and Harmonic entered into an Amended and Restated Agreement
and Plan of Merger and Reorganization dated as of December 9, 1999 (the
"Restated Merger Agreement");
WHEREAS, the Boards of Directors of C-Cube and Semiconductor have each
determined that, if the Merger receives all required approvals, it would be
appropriate and desirable for C-Cube to contribute and transfer to
Semiconductor, and for Semiconductor to receive and assume, directly or
indirectly, substantially all of the assets and liabilities currently associated
with the Semiconductor Business and the stock, investments or similar interests
currently held by C-Cube in subsidiaries and other entities that conduct such
business (the "SEPARATION");
WHEREAS, C-Cube has caused Semiconductor to be incorporated in order to
effect the Separation and C-Cube currently owns all of the issued and
outstanding common stock of Semiconductor;
WHEREAS, C-Cube currently contemplates that, following the contribution and
assumption of such assets and liabilities to the Semiconductor Business and
immediately prior to and in connection with the Merger, C-Cube will distribute
to the holders of its common stock, $0.01 par value, by means of a pro rata
distribution, all of the shares of Semiconductor common stock owned by C-Cube
(the "DISTRIBUTION");
WHEREAS, C-Cube and the Semiconductor Business intend the Distribution to
qualify as a distribution tax-free to stockholders under Section 355(a) of the
Code, although C-Cube and the Semiconductor Business anticipate that C-Cube will
incur corporate tax in connection with the Distribution; and
WHEREAS, the parties intend in this Agreement, including the Exhibits and
Schedules hereto, to set forth the principal arrangements between them regarding
the separation of the Semiconductor Business.
<PAGE> 7
NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements set forth below, the parties hereto agree as follows:
ARTICLE I
SEPARATION
SECTION 1.1 SEPARATION DATE. Unless otherwise provided in this Agreement,
or in any agreement to be executed in connection with this Agreement, the
effective time and date of each transfer of property, assumption of liability,
license, undertaking, or agreement in connection with the Separation shall be
12:01 a.m., Pacific Time, _______ ___, 2000 or such other date as may be fixed
by the Board of Directors of C-Cube (the "SEPARATION DATE").
SECTION 1.2 CLOSING OF TRANSACTIONS. Unless otherwise provided herein, the
closing of the transactions contemplated in ARTICLE II shall occur by the
lodging of each of the executed instruments of transfer, assumptions of
liability, undertakings, agreements, instruments or other documents executed or
to be executed with Wilson Sonsini Goodrich & Rosati, Professional Corporation
("WSGR"), 650 Page Mill Road, Palo Alto, California 94304, to be held in escrow
for delivery as provided in SECTION 1.3 of this Agreement.
SECTION 1.3 EXCHANGE OF SECRETARY'S CERTIFICATES. Upon receipt of a
certificate of the Secretary or an Assistant Secretary of C-Cube in the form
attached to this Agreement as EXHIBIT A, WSGR shall deliver to Semiconductor on
behalf of C-Cube all of the items required to be delivered by C-Cube hereunder
pursuant to SECTION 2.1 of this Agreement and each such item shall be deemed to
be delivered to Semiconductor as of the Separation Date upon delivery of such
certificate. Upon receipt of a certificate of the Secretary or an Assistant
Secretary of Semiconductor in the form attached to this Agreement as EXHIBIT B,
WSGR shall deliver to C-Cube on behalf of Semiconductor all of the items
required to be delivered by Semiconductor hereunder and each such item shall be
deemed to be delivered to C-Cube as of the Separation Date upon receipt of such
certificate.
ARTICLE II
DOCUMENTS AND ITEMS TO BE DELIVERED ON THE SEPARATION DATE
SECTION 2.1 DOCUMENTS TO BE DELIVERED BY C-CUBE. On the Separation Date,
C-Cube will deliver, or will cause its appropriate Subsidiaries to deliver, to
Semiconductor all of the following items and agreements (collectively, together
with all agreements and documents contemplated by such agreements, the
"ANCILLARY AGREEMENTS"):
(a) A duly executed General Assignment and Assumption Agreement (the
"ASSIGNMENT AGREEMENT") substantially in the form attached hereto as EXHIBIT C;
(b) Certificates representing the stock and/or investments in the
Subsidiaries and other holdings of C-Cube set forth on SCHEDULE 2.1(B) with duly
executed stock powers in the form proper for transfer;
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<PAGE> 8
(c) A duly executed Transitional Services Agreement substantially in
the form attached hereto as EXHIBIT D;
(d) A duly executed Employee Matters Agreement substantially in the
form attached hereto as EXHIBIT E;
(e) A duly executed Tax Sharing Agreement substantially in the form
attached hereto as EXHIBIT F;
(f) A duly executed Master Confidential Disclosure Agreement
substantially in the form attached hereto as EXHIBIT G;
(g) A duly executed Indemnification and Insurance Matters Agreement
substantially in the form attached hereto as EXHIBIT H;
(h) A duly executed Real Estate Matters Agreement substantially in the
form attached hereto as EXHIBIT I;
(i) Resignations of each person who is an officer or director of any
member of C-Cube or its Subsidiaries, immediately prior to the Separation Date,
and who will be employees of Semiconductor from and after the Separation Date;
and
(j) Such other agreements, documents or instruments as the parties may
agree are necessary or desirable in order to achieve the purposes hereof,
including, without limitation, all service level agreements entered into in
accordance with SECTION 4.3 and those documents referred to in SECTION 4.4.
SECTION 2.2 RETENTION OF CASH RESERVES. On or around the Separation
Date, C-Cube will provide to Semiconductor all cash of C-Cube and its
Subsidiaries (other than Semiconductor) other than the following amounts
(collectively, the "Retained Cash"), the sum of (i) sixty million dollars
($60,000,000), (ii) cash in an amount reasonably estimated to be sufficient to
pay all Taxes of C-Cube and its Subsidiaries accrued through the Separation Date
but not including Semi Sale Taxes or Semi Spin Taxes (the "Pre-Semi Disposition
Taxes"), (iii) cash in an amount sufficient to pay the fees and expenses
associated with the transactions contemplated by the Merger Agreement,
including, but not limited to, the fees and expenses of C-Cube's investment
bankers, attorneys, accountants and other professional advisors, (iv) cash in an
amount reasonably estimated to be sufficient to pay the Semi Spin Taxes or the
Semi Sale Taxes, as the case may be, and (v) cash in an amount sufficient to
make all severance payments to any employee of C-Cube who is not a Continuing
Employee nor an employee of the Semiconductor Business, it being understood that
any cash retained under this paragraph in excess of the actual amounts required
to be paid will be included in C-Cube's basis in Semiconductor for purposes of
calculating the Semi Spin Taxes or the Semi Sale Taxes.
SECTION 2.3 DOCUMENTS TO BE DELIVERED BY SEMICONDUCTOR. As of the
Separation Date, Semiconductor will or will cause its appropriate Subsidiaries
to deliver to C-Cube all of the following:
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<PAGE> 9
(a) In each case where Semiconductor is a party to any agreement or
instrument referred to in SECTION 2.1, a duly executed counterpart of such
agreement or instrument; and
(b) Resignations of each person who is an officer or director of any
member of C-Cube or its Subsidiaries, immediately prior to the Separation Date,
and who will be employees of Semiconductor from and after the Separation Date.
ARTICLE III
THE DISTRIBUTION
SECTION 3.1 THE DISTRIBUTION.
(a) Delivery of Shares for Distribution. Subject to SECTION 3.4
hereof, on or prior to the date the Distribution is effective (the "DISTRIBUTION
DATE"), C-Cube will deliver to the distribution agent (the "DISTRIBUTION AGENT")
to be appointed by C-Cube to distribute to the stockholders of C-Cube the shares
of common stock of Semiconductor held by C-Cube pursuant to the Distribution for
the benefit of holders of record of common stock of C-Cube on the Record Date, a
single stock certificate, endorsed by C-Cube in blank, representing all of the
outstanding shares of common stock of Semiconductor then owned by C-Cube, and
shall cause the transfer agent for the shares of common stock of C-Cube to
instruct the Distribution Agent to distribute on the Distribution Date the
appropriate number of such shares of common stock of Semiconductor to each such
holder or designated transferee or transferees of such holder.
(b) Shares Received. Subject to SECTIONS 3.4 and 3.5, each holder of
common stock of C-Cube on the Record Date (or such holder's designated
transferee or transferees) will be entitled to receive in the Distribution a
number of shares of common stock of Semiconductor equal to the number of shares
of common stock of C-Cube held by such holder on the Record Date multiplied by a
fraction the numerator of which is the number of shares of common stock of
Semiconductor beneficially owned by C-Cube on the Record Date and the
denominator of which is the number of shares of common stock of C-Cube
outstanding on the Record Date.
(c) Obligation to Provide Information. Semiconductor and C-Cube, as
the case may be, will provide to the Distribution Agent all share certificates
and any information required in order to complete the Distribution on the basis
specified above.
SECTION 3.2 ACTIONS PRIOR TO THE DISTRIBUTION.
(a) Information Statement. C-Cube and Semiconductor shall prepare and
mail, prior to the Distribution Date, to the holders of common stock of C-Cube,
such information concerning Semiconductor and the Distribution and such other
matters as C-Cube shall reasonably determine are necessary and as may be
required by law. C-Cube and Semiconductor will prepare, and Semiconductor will,
to the extent required under applicable law, file with the Securities and
Exchange Commission (the "COMMISSION") any such documentation which C-Cube and
Semiconductor determines is necessary or desirable to effectuate the
Distribution, and C-Cube and
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<PAGE> 10
Semiconductor shall each use its reasonable commercial efforts to obtain all
necessary approvals from the Commission with respect thereto as soon as
practicable.
(b) Blue Sky. C-Cube and Semiconductor shall take all such actions as
may be necessary or appropriate under the securities or blue sky laws of the
United States (and any comparable laws under any foreign jurisdiction) in
connection with the Distribution.
(f) NYSE or Nasdaq Listing. Semiconductor shall prepare and file, and
shall use its reasonable commercial efforts to have approved, an application for
the listing of the common stock of Semiconductor to be distributed in the
Distribution on the New York Stock Exchange (the "NYSE") or the Nasdaq National
Market (the "NASDAQ"), subject to official notice of distribution.
(g) Conditions. C-Cube and Semiconductor shall take all reasonable
steps necessary and appropriate to cause the conditions set forth in SECTION 3.4
to be satisfied and to effect the Distribution on the Distribution Date.
SECTION 3.3 SOLE DISCRETION OF C-CUBE. C-Cube shall, in its sole and
absolute discretion, determine the date of the consummation of the Distribution
and all terms of the Distribution, including, without limitation, the form,
structure and terms of any transaction(s) and/or offering(s) to effect the
Distribution and the timing of and conditions to the consummation of the
Distribution. In addition, C-Cube may at any time and from time to time until
the completion of the Distribution modify or change the terms of the
Distribution, including, without limitation, by accelerating or delaying the
timing of the consummation of all or part of the Distribution. Semiconductor
shall cooperate with C-Cube in all respects to accomplish the Distribution and
shall, at C-Cube's direction, promptly take any and all actions necessary or
desirable to effect the Distribution, including, without limitation, the
registration under the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT") of the common stock of Semiconductor on an appropriate
registration form or forms to be designated by C-Cube. C-Cube shall select any
financial printer, solicitation and/or exchange agent and outside counsel for
C-Cube; provided, however, that nothing herein shall prohibit Semiconductor from
engaging (at its own expense) its own financial, legal, accounting and other
advisors in connection with the Distribution.
SECTION 3.4 CONDITIONS TO DISTRIBUTION. The following are conditions to
the consummation of the Distribution. The conditions are for the sole benefit of
C-Cube and shall not give rise to or create any duty on the part of C-Cube or
the C-Cube Board of Directors to waive or not waive any such condition.
(a) Government Approvals. Any material governmental approvals and
consents necessary to consummate the Distribution shall have been obtained and
be in full force and effect; and
(b) No Legal Restraints. No order, injunction or decree issued by any
court or agency of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Distribution shall be in effect
and no other event outside the control of C-Cube shall have occurred or failed
to occur that prevents the consummation of the Distribution.
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SECTION 3.5 FRACTIONAL SHARES. As soon as practicable after the
Distribution Date, C-Cube shall direct the Distribution Agent to determine the
number of whole shares and fractional shares of common stock of Semiconductor
allocable to each holder of record or beneficial owner of common stock of C-Cube
as of the Record Date, to aggregate all such fractional shares and sell the
whole shares obtained thereby at the direction of C-Cube, in open market
transactions, at then prevailing trading prices, and to cause to be distributed
to each such holder or for the benefit of each such beneficial owner to which a
fractional share shall be allocable such holder's or owner's ratable share of
the proceeds of such sale, after making appropriate deductions of the amount
required to be withheld for federal income tax purposes and after deducting an
amount equal to all brokerage charges, commissions and transfer taxes attributed
to such sale. C-Cube and the Distribution Agent shall use their reasonable
commercial efforts to aggregate the shares of common stock of C-Cube that may be
held by any beneficial owner thereof through more than one account in
determining the fractional share allocable to such beneficial owner.
ARTICLE IV
COVENANTS AND OTHER MATTERS
SECTION 4.1 OTHER AGREEMENTS. In addition to the specific agreements,
documents and instruments annexed to this Agreement, C-Cube and Semiconductor
agree to execute or cause to be executed by the appropriate parties and deliver,
as appropriate, such other agreements, instruments and other documents as may be
necessary or desirable in order to effect the purposes of this Agreement and the
Ancillary Agreements.
SECTION 4.2 FURTHER INSTRUMENTS. At the request of Semiconductor and
without further consideration, C-Cube will execute and deliver, and will cause
its applicable Subsidiaries to execute and deliver, to Semiconductor and its
Subsidiaries such other instruments of transfer, conveyance, assignment,
substitution and confirmation and take such action as Semiconductor may
reasonably deem necessary or desirable in order to more effectively transfer,
convey and assign to Semiconductor and its Subsidiaries and confirm
Semiconductor's and its Subsidiaries' title to all of the assets, rights and
other things of value contemplated to be transferred to Semiconductor and its
Subsidiaries pursuant to this Agreement, the Ancillary Agreements, and any
documents referred to therein, to put Semiconductor and its Subsidiaries in
actual possession and operating control thereof and to permit Semiconductor and
its Subsidiaries to exercise all rights with respect thereto (including, without
limitation, rights under contracts and other arrangements as to which the
consent of any third party to the transfer thereof shall not have previously
been obtained). At the request of C-Cube and without further consideration,
Semiconductor will execute and deliver, and will cause its applicable
Subsidiaries to execute and deliver, to C-Cube and its Subsidiaries all
instruments, assumptions, novations, undertakings, substitutions or other
documents and take such other action as C-Cube may reasonably deem necessary or
desirable in order to have Semiconductor fully and unconditionally assume and
discharge the liabilities contemplated to be assumed by Semiconductor under this
Agreement or any document in connection herewith and to relieve the C-Cube Group
of any liability or obligation with respect thereto and evidence the same to
third parties. Neither C-Cube nor Semiconductor shall be obligated, in
connection with the foregoing, to expend money other than reasonable
out-of-pocket expenses, attorneys' fees and recording or similar fees. If any
additional
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<PAGE> 12
fees arise for any reason, such fees shall be the responsibility of
Semiconductor. Furthermore, each party, at the request of another party hereto,
shall execute and deliver such other instruments and do and perform such other
acts and things as may be necessary or desirable for effecting completely the
consummation of the transactions contemplated hereby.
SECTION 4.3 TRANSITIONAL SERVICES AGREEMENT. C-Cube and its Subsidiaries
and Semiconductor and its Subsidiaries will enter into a Transitional Services
Agreement covering the provision of various transitional services, including
telecommunications, networks, enterprise applications and other services by
Semiconductor (and its Subsidiaries) to C-Cube (and its Subsidiaries) or, in
certain circumstances, vice versa. The Transitional Services Agreement will
generally provide for a term of two (2) years.
SECTION 4.4 AGREEMENT FOR EXCHANGE OF INFORMATION. Each of C-Cube and
Semiconductor agrees to provide, or cause to be provided, to each other, at any
time before or after the Distribution Date, as soon as reasonably practicable
after written request therefor, any Information in the possession or under the
control of such party that the requesting party reasonably needs (i) to comply
with reporting, disclosure, filing or other requirements imposed on the
requesting party (including under applicable securities laws) by a Governmental
Authority having jurisdiction over the requesting party, (ii) for use in any
other judicial, regulatory, administrative or other proceeding or in order to
satisfy audit, accounting, claims, regulatory, litigation or other similar
requirements, (iii) to comply with its obligations under this Agreement or any
Ancillary Agreement or (iv) in connection with the ongoing businesses of C-Cube
or Semiconductor, as the case may be; provided, however, that in the event that
any party determines that any such provision of Information could be
commercially detrimental, violate any law or agreement, or waive any
attorney-client privilege, the parties shall take all reasonable measures to
permit the compliance with such obligations in a manner that avoids any such
harm or consequence.
(a) Internal Accounting Controls; Financial Information. After the
Separation Date, (i) each party shall maintain in effect at its own cost and
expense adequate systems and controls for its business to the extent necessary
to enable the other party to satisfy its reporting, accounting, audit and other
obligations, and (ii) each party shall provide, or cause to be provided, to the
other party and its Subsidiaries in such form as such requesting party shall
request, at no charge to the requesting party, all financial and other data and
information as the requesting party determines necessary or advisable in order
to prepare its financial statements and reports or filings with any Governmental
Authority.
(b) Ownership of Information. Any Information owned by a party that is
provided to a requesting party pursuant to this SECTION 4.4 shall be deemed to
remain the property of the providing party. Unless specifically set forth
herein, nothing contained in this Agreement shall be construed as granting or
conferring rights of license or otherwise in any such Information.
(c) Record Retention. (i) To facilitate the possible exchange of
Information pursuant to this SECTION 4.4 and other provisions of this Agreement
after the Distribution Date, each party agrees to use its reasonable commercial
efforts to retain all Information in their respective possession or control on
the Distribution Date substantially in accordance with the policies of C-Cube as
in effect on the Separation Date. However, except as set forth in the Tax
Sharing
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Agreement, at any time after the Distribution Date, each party may amend their
respective record retention policies at such party's discretion; provided,
however, that if a party desires to effect the amendment within three (3) years
after the Distribution Date, the amending party must give thirty (30) days prior
written notice of such change in the policy to the other party to this
Agreement.
(ii) No party will destroy, or permit any of its Subsidiaries to
destroy, any Information that exists on the Separation Date (other than
Information that is permitted to be destroyed under the current record retention
policy of such party) without first using its reasonable commercial efforts to
notify the other party of the proposed destruction and giving the other party
the opportunity to take possession of such Information prior to such
destruction.
(d) Limitation of Liability. No party shall have any liability to any
other party in the event that any Information exchanged or provided pursuant to
this Section is found to be inaccurate, in the absence of willful misconduct by
the party providing such Information. No party shall have any liability to any
other party if any Information is destroyed or lost after reasonable commercial
efforts by such party to comply with the provisions of SECTION 4.4(c).
(e) Other Agreements Providing For Exchange of Information. The rights
and obligations granted under this SECTION 4.4 are subject to any specific
limitations, qualifications or additional provisions on the sharing, exchange or
confidential treatment of Information set forth in this Agreement and any
Ancillary Agreement.
(f) Production of Witnesses; Records; Cooperation. After the
Distribution Date, except in the case of a legal or other proceeding by one
party against another party (which shall be governed by such discovery rules as
may be applicable under SECTION 4.8 or otherwise), each party hereto shall use
its reasonable commercial efforts to make available to each other party, upon
written request, the former, current and future directors, officers, employees,
other personnel and agents of such party as witnesses and any books, records or
other documents within its control or which it otherwise has the ability to make
available, to the extent that any such person (giving consideration to business
demands of such directors, officers, employees, other personnel and agents) or
books, records or other documents may reasonably be required in connection with
any legal, administrative or other proceeding in which the requesting party may
from time to time be involved, regardless of whether such legal, administrative
or other proceeding is a matter with respect to which indemnification may be
sought hereunder. The requesting party shall bear all costs and expenses in
connection therewith.
SECTION 4.5 PAYMENT OF EXPENSES. Except as otherwise provided in this
Agreement, the Ancillary Agreements or any other agreement between the parties
relating to the Separation or the Distribution, all costs and expenses of the
parties hereto in connection with the Distribution and certain costs and
expenses of the parties hereto in connection with the Separation shall be paid
by Semiconductor.
SECTION 4.6 DISPUTE RESOLUTION. Except as otherwise set forth in the
Ancillary Agreements, resolution of any and all disputes arising from or in
connection with this Agreement, whether based on contract, tort, or otherwise
(collectively, "DISPUTES"), shall be exclusively governed by and settled in
accordance with the provisions of this SECTION 4.7.
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(a) Negotiation. The parties shall make a good faith attempt to
resolve any Dispute arising out of or relating to this Agreement through
negotiation. Within thirty (30) days after notice of a Dispute is given by
either party to the other party, each party shall select a negotiating team
comprised of vice president level employees of such party and shall meet within
thirty (30) days after the end of the first thirty (30) day negotiating period
to attempt to resolve the matter. During the course of negotiations under this
SECTION 4.7(a), all reasonable requests made by one party to the other for
information, including requests for copies of relevant documents, will be
honored. The specific format for such negotiations will be left to the
discretion of the designated negotiating teams but may include the preparation
of agreed upon statements of fact or written statements of position furnished to
the other party.
(b) Non-Binding Mediation. In the event that any Dispute arising out
of or related to this Agreement is not settled by the parties within fifteen
(15) days after the first meeting of the negotiating teams under SECTION 4.7(a),
the parties will attempt in good faith to resolve such Dispute by non-binding
mediation in accordance with the American Arbitration Association Commercial
Mediation Rules. The mediation shall be held within thirty (30) days of the end
of such fifteen (15) day negotiation period of the negotiating teams. Except as
provided below in SECTION 4.7(c), no litigation for the resolution of such
dispute may be commenced until the parties try in good faith to settle the
dispute by such mediation in accordance with such rules and either party has
concluded in good faith that amicable resolution through continued mediation of
the matter does not appear likely. The costs of mediation shall be shared
equally by the parties to the mediation. Any settlement reached by mediation
shall be recorded in writing, signed by the parties, and shall be binding on
them.
(c) Proceedings. Nothing herein, however, shall prohibit either party
from initiating litigation or other judicial or administrative proceedings if
such party would be substantially harmed by a failure to act during the time
that such good faith efforts are being made to resolve the Dispute through
negotiation or mediation. In the event that litigation is commenced under this
SECTION 4.7(c), the parties agree to continue to attempt to resolve any Dispute
according to the terms of SECTIONS 4.7(a) and 4.7(b) during the course of such
litigation proceedings under this SECTION 4.7(c).
(d) Pay and Dispute. Except as provided herein or in any Ancillary
Agreement, in the event of any dispute regarding payment of a third-party
invoice (subject to standard verification of receipt of products or services),
the party named in a third party's invoice must make timely payment to such
third party, even if the party named in the invoice desires to pursue the
dispute resolution procedures outlined in this SECTION 4.7. If the party that
paid the invoice is found pursuant to this SECTION 4.7 to not be responsible for
such payment, such paying party shall be entitled to reimbursement, with
interest accrued at a compound annual rate of the Prime Rate plus 2%, from the
party found responsible for such payment.
SECTION 4.7 GOVERNMENTAL APPROVALS. To the extent that the Separation
requires any Governmental Approvals, the parties will use their reasonable
commercial efforts to obtain any such Governmental Approvals.
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SECTION 4.8 COOPERATION IN OBTAINING NEW AGREEMENTS. C-Cube and
Semiconductor understand that, prior to the Separation Date, both parties have
derived benefits under certain agreements between themselves and third parties,
which agreements are not being assigned to C-Cube or Semiconductor in connection
with the Separation. Upon the request of C-Cube or Semiconductor, the other
party agrees to make introductions to appropriate personnel at such third
parties, and agrees to provide reasonable assistance to the other party at its
own expense, so that the other party may obtain agreements from such third
parties under substantially equivalent terms and conditions, including financial
terms and conditions, that apply to it. Such assistance may include, but is not
limited to, (i) requesting and encouraging such third parties to enter into such
agreements, (ii) attending meetings and negotiating sessions with such third
parties, and (iii) participating in buying consortiums. Both parties also
understand that there are certain agreements between themselves and third
parties, which agreements are being assigned to the other party in connection
with the Separation but which may require the consent of the applicable third
party. Upon request, one party agrees to assist the other party in seeking and
obtaining the consent of such third parties to such assignment. The parties
expect that the activities contemplated by this Section will be substantially
completed by the Distribution Date, but in no event will either party have any
obligations hereunder after the first anniversary of the Distribution Date.
SECTION 4.9 PROPERTY DAMAGE TO SEMICONDUCTOR ASSETS PRIOR TO THE
SEPARATION DATE. In the event of any property damage to any Semiconductor Assets
prior to the Separation Date, C-Cube shall repair or otherwise address such
damage in the ordinary course of business consistent with past practices;
provided, however, that nothing in this clause shall restrict C-Cube from
disposing of any Assets in the ordinary course of business consistent with past
practices.
ARTICLE V
MISCELLANEOUS
SECTION 5.1 LIMITATION OF LIABILITY. IN NO EVENT SHALL ANY MEMBER OF THE
C-CUBE GROUP OR SEMICONDUCTOR GROUP BE LIABLE TO ANY OTHER MEMBER OF THE C-CUBE
GROUP OR SEMICONDUCTOR GROUP FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT,
INCIDENTAL OR PUNITIVE DAMAGES OR LOST PROFITS, HOWEVER CAUSED AND ON ANY THEORY
OF LIABILITY (INCLUDING NEGLIGENCE) ARISING IN ANY WAY OUT OF THIS AGREEMENT,
WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES;
PROVIDED, HOWEVER, THAT THE FOREGOING LIMITATIONS SHALL NOT LIMIT EACH PARTY'S
INDEMNIFICATION OBLIGATIONS FOR LIABILITIES TO THIRD PARTIES AS SET FORTH IN THE
INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT.
SECTION 5.2 ENTIRE AGREEMENT. This Agreement, the Restated Merger
Agreement, the other Ancillary Agreements and the Exhibits and Schedules
referenced or attached hereto and thereto, constitutes the entire agreement
between the parties with respect to the subject matter hereof and shall
supersede all prior written and oral and all contemporaneous oral agreements and
understandings with respect to the subject matter hereof. In the event any
provision of any
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agreement conflicts with a provision of the Restated Merger Agreement, the
Restated Merger Agreement will govern.
SECTION 5.2 GOVERNING LAW. This Agreement shall be governed and construed
and enforced in accordance with the laws of the State of Delaware as to all
matters regardless of the laws that might otherwise govern under the principles
of conflicts of laws applicable thereto.
SECTION 5.3 TERMINATION. This Agreement may be terminated at any time
before the Distribution Date by mutual consent of C-Cube and Semiconductor and
in any event, shall terminate three years after the date first referenced above.
In the event of termination pursuant to this Section, no party shall have any
liability of any kind to the other party.
SECTION 5.4 NOTICES. Any notice, demand, offer, request or other
communication required or permitted to be given by either party pursuant to the
terms of this Agreement shall be in writing and shall be deemed effectively
given the earlier of (i) when received, (ii) when delivered personally, (iii)
one (1) business day after being delivered by facsimile (with receipt of
appropriate confirmation), (iv) one (1) business day after being deposited with
an overnight courier service or (v) four (4) days after being deposited in the
U.S. mail, First Class with postage prepaid, and addressed to the attention of
the party's General Counsel at the address of its principal executive office or
such other address as a party may request by notifying the other in writing.
SECTION 5.6 COUNTERPARTS. This Agreement, including the Schedules and
Exhibits hereto and the other documents referred to herein, may be executed in
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.
SECTION 5.7 BINDING EFFECT; ASSIGNMENT. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective legal
representatives and successors, and nothing in this Agreement, express or
implied, is intended to confer upon any other Person any rights or remedies of
any nature whatsoever under or by reason of this Agreement. This Agreement may
not be assigned by any party hereto. This Agreement may be enforced separately
by each member of the C-Cube Group and each member of the Semiconductor Group.
SECTION 5.8 SEVERABILITY. If any term or other provision of this Agreement
or the Schedules or Exhibits attached hereto is determined by a nonappealable
decision by a court, administrative agency or arbitrator to be invalid, illegal
or incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to either
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the fullest extent possible.
SECTION 5.9 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
failure or delay on the part of either party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or
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agreement herein, nor shall any single or partial exercise of any such right
preclude other or further exercise thereof or of any other right. All rights and
remedies existing under this Agreement or the Schedules or Exhibits attached
hereto are cumulative to, and not exclusive of, any rights or remedies otherwise
available.
SECTION 5.10 AMENDMENT. No change or amendment will be made to this
Agreement except by an instrument in writing signed on behalf of each of the
parties to such agreement.
SECTION 5.11 AUTHORITY. Each of the parties hereto represents to the other
that (a) it has the corporate or other requisite power and authority to execute,
deliver and perform this Agreement, (b) the execution, delivery and performance
of this Agreement by it have been duly authorized by all necessary corporate or
other actions, (c) it has duly and validly executed and delivered this
Agreement, and (d) this Agreement is a legal, valid and binding obligation,
enforceable against it in accordance with its terms subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and general equity principles.
SECTION 5.12 INTERPRETATION. The headings contained in this Agreement, in
any Exhibit or Schedule hereto and in the table of contents to this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Any capitalized term used in any Schedule or
Exhibit but not otherwise defined therein, shall have the meaning assigned to
such term in this Agreement. When a reference is made in this Agreement to an
Article or a Section, Exhibit or Schedule, such reference shall be to an Article
or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated.
SECTION 5.13 CONFLICTING AGREEMENTS. In the event of conflict between this
Agreement and any Ancillary Agreement or other agreement executed in connection
herewith, the provisions of such other agreement shall prevail.
ARTICLE VI
DEFINITIONS
SECTION 6.1 AFFILIATED COMPANY. "AFFILIATED COMPANY" means, with respect
to C-Cube, any entity in which C-Cube holds a 50% or less ownership interest and
that is listed on SCHEDULE 6.1(a) hereto and, with respect to Semiconductor, any
entity in which Semiconductor holds a 50% or less ownership interest and that is
listed on SCHEDULE 6.1(b) hereto. SCHEDULES 6.1(a) and 6.1(b) may be amended
from time to time after the date hereof upon mutual written consent of the
parties.
SECTION 6.2 ANCILLARY AGREEMENTS. "ANCILLARY AGREEMENTS" has the meaning
set forth in SECTION 2.1 hereof.
SECTION 6.3 ASSIGNMENT AGREEMENT. "ASSIGNMENT AGREEMENT" has the meaning
set forth in SECTION 2.1(a) hereof.
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SECTION 6.4 BUSINESS DAY. "BUSINESS DAY" means a day other than a
Saturday, a Sunday or a day on which banking institutions located in the State
of California are authorized or obligated by law or executive order to close.
SECTION 6.5 C-CUBE GROUP. "C-CUBE GROUP" means C-Cube, each Subsidiary and
Affiliated Company of C-Cube (other than any member of the Semiconductor Group)
immediately after the Separation Date, and each Person that becomes a Subsidiary
or Affiliate Company of C-Cube after the Separation Date.
SECTION 6.6 CODE. "CODE" means the Internal Revenue Code of 1986, as
amended from time to time.
SECTION 6.7 COMMISSION. "COMMISSION" means the Securities and Exchange
Commission.
SECTION 6.8 DISPUTES. "Disputes" has the meaning set forth in Section 5.9
hereof.
SECTION 6.9 DISTRIBUTION. "Distribution" has the meaning set forth in the
Recitals hereof.
SECTION 6.10 DISTRIBUTION AGENT. "Distribution Agent" has the meaning set
forth in Section 3.1 hereof.
SECTION 6.11 DISTRIBUTION DATE. "Distribution Date" has the meaning set
forth in Section 3.1 hereof.
SECTION 6.12 EXCHANGE ACT. "EXCHANGE ACT" means the Securities and
Exchange Act of 1934, as amended.
SECTION 6.13 GOVERNMENTAL APPROVALS. "GOVERNMENTAL APPROVALS" means any
notices, reports or other filings to be made, or any consents, registrations,
approvals, permits or authorizations to be obtained from, any Governmental
Authority.
SECTION 6.14 GOVERNMENTAL AUTHORITY. "GOVERNMENTAL AUTHORITY" shall mean
any federal, state, local, foreign or international court, government,
department, commission, board, bureau, agency, official or other regulatory,
administrative or governmental authority.
SECTION 6.15 INFORMATION. "Information" means information, whether or not
patentable or copyrightable, in written, oral, electronic or other tangible or
intangible forms, stored in any medium, including studies, reports, records,
books, contracts, instruments, surveys, discoveries, ideas, concepts, know-how,
techniques, designs, specifications, drawings, blueprints, diagrams, models,
prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes,
computer programs or other software, marketing plans, customer names,
communications by or to attorneys (including attorney-client privileged
communications), memos and other materials prepared by attorneys or under their
direction (including attorney work product), and other technical, financial,
employee or business information or data.
SECTION 6.16 NASDAQ. "Nasdaq" means the Nasdaq National Market.
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SECTION 6.17 NYSE. "NYSE" means the New York Stock Exchange.
SECTION 6.18 PERSON. "PERSON" means an individual, a partnership, a
corporation, a limited liability company, an association, a joint stock company,
a trust, a joint venture, an unincorporated organization and a governmental
entity or any department, agency or political subdivision thereof.
SECTION 6.19 PRIME RATE. "PRIME RATE" means the prime rate as published
in the Wall Street Journal on the date of determination.
SECTION 6.20 RECORD DATE. "RECORD DATE" means the close of business on
the date to be determined by the Board of Directors of C-Cube as the record date
for determining the stockholders of C-Cube entitled to receive shares of common
stock of Semiconductor in the Distribution.
SECTION 6.21 SEMI SALE TAXES. "Semi Sale Taxes" HAS THE MEANING SET FORTH
IN SECTION 1.5(b) OF THE MERGER AGREEMENT.
SECTION 6.22 SEMI SPIN TAXES. "Semi Spin Taxes" HAS THE MEANING SET FORTH
IN SCHEDULE 1.5(a) OF THE MERGER AGREEMENT.
SECTION 6.23 SEMICONDUCTOR ASSETS. "SEMICONDUCTOR ASSETS" has the meaning
set forth in SECTION 1.2 of the Assignment Agreement.
SECTION 6.24 SEMICONDUCTOR BUSINESS. "SEMICONDUCTOR BUSINESS" means (a)
the business and operations of C-Cube currently known as C-Cube Semiconductor,
as described in C-Cube's periodic reports to the Commission pursuant to the
Exchange Act and as such business and operations will continue following the
Separation Date, and (b) except as otherwise expressly provided herein, any
terminated, divested or discontinued businesses or operations that at the time
of termination, divestiture or discontinuation primarily related to the
Semiconductor Business as then conducted.
SECTION 6.25 SEMICONDUCTOR GROUP. "SEMICONDUCTOR GROUP" means
Semiconductor, each Subsidiary and Affiliated Company of Semiconductor
immediately after the Separation Date and each Person that becomes a Subsidiary
or Affiliate Company of Semiconductor after the Separation Date.
SECTION 6.26 SEMICONDUCTOR PRO FORMA BALANCE SHEET. "SEMICONDUCTOR PRO
FORMA BALANCE SHEET" means the unaudited pro forma condensed consolidated
balance sheet appearing ____________.
SECTION 6.27 SEPARATION. "Separation" has the meaning set forth in the
Recitals hereof.
SECTION 6.28 SEPARATION DATE. "Separation Date" has the meaning set forth
in Section 1.1 hereof.
SECTION 6.29 SUBSIDIARY. "SUBSIDIARY" means with respect to any specified
Person, any corporation, any limited liability company, any partnership or other
legal entity of which such
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Person or its Subsidiaries owns, directly or indirectly, more than 50% of the
stock or other equity interest entitled to vote on the election of the members
of the board of directors or similar governing body. Unless context otherwise
requires, reference to C-Cube and its Subsidiaries shall not include the
subsidiaries of C-Cube that will be transferred to Semiconductor after giving
effect to the Separation.
SECTION 6.30 WSGR. "WSGR" means Wilson Sonsini Goodrich & Rosati,
Professional Corporation.
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WHEREFORE, the parties have signed this Master Separation and Distribution
Agreement effective as of the date first set forth above.
C-CUBE MICROSYSTEMS INC. C-CUBE SEMICONDUCTOR INC.
By: By:
---------------------------------- -----------------------------------
Name: Name:
-------------------------------- ---------------------------------
Title: Title:
------------------------------- --------------------------------
<PAGE> 22
SCHEDULE 2.1(b)
SUBSIDIARIES AND OTHER HOLDINGS OF C-CUBE TO BE TRANSFERRED TO SEMICONDUCTOR
SUBSIDIARIES
OTHER HOLDINGS
<PAGE> 23
SCHEDULE 6.1 (a)
AFFILIATED COMPANIES OF C-CUBE TO BE INCLUDED IN THE C-CUBE GROUP
<PAGE> 24
SCHEDULE 6.1(b)
AFFILIATED COMPANIES OF SEMICONDUCTOR TO BE INCLUDED IN THE SEMICONDUCTOR GROUP
<PAGE> 1
EXHIBIT 10.3
DRAFT
GENERAL ASSIGNMENT AND ASSUMPTION AGREEMENT
BETWEEN
C-CUBE MICROSYSTEMS INC.
AND
C-CUBE SEMICONDUCTOR INC.
__________ ____, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE I CONTRIBUTION AND ASSUMPTION.............................................1
Section 1.1 Contribution of Assets and Assumption of Liabilities....1
Section 1.2 Semiconductor Assets....................................2
Section 1.3 Semiconductor Liabilities...............................4
Section 1.4 Methods of Transfer and Assumption......................6
Section 1.5 Governmental Approvals and Consents.....................8
Section 1.6 Nonrecurring Costs and Expenses.........................8
Section 1.7 Novation of Assumed Semiconductor Liabilities...........9
ARTICLE II [INTELLECTUAL PROPERTY LICENSES........................................9
Section 2.1 License to C-Cube.......................................9
Section 2.2 License to Semiconductor...............................10
Section 2.3 Transfers and Sublicense...............................10
ARTICLE III LITIGATION...........................................................10
Section 3.1 Allocation.............................................10
Section 3.2 Cooperation............................................11
ARTICLE IV MISCELLANEOUS.........................................................11
Section 4.1 Entire Agreement.......................................11
Section 4.2 Governing Law..........................................12
Section 4.3 Notices................................................12
Section 4.4 Parties in Interest....................................12
Section 4.5 Counterparts...........................................12
Section 4.6 Assignment.............................................12
Section 4.7 Severability...........................................12
Section 4.8 Failure or Indulgence Not Waiver; Remedies Cumulative..12
Section 4.9 Amendment..............................................13
Section 4.10 Authority..............................................13
Section 4.11 Interpretation.........................................13
Section 4.12 Conflicting Agreements.................................13
ARTICLE V DEFINITIONS............................................................13
Section 5.1 Action.................................................13
Section 5.2 Affiliated Company.....................................13
Section 5.3 Ancillary Agreement....................................13
Section 5.4 Assets.................................................13
Section 5.5 C-Cube Group...........................................15
Section 5.6 Consents...............................................15
Section 5.7 Contracts..............................................15
Section 5.8 Distribution...........................................15
Section 5.9 DiviCom Business.......................................15
Section 5.10 Distribution Date......................................15
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
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<S> <C>
Section 5.11 Environmental Actions..................................15
Section 5.12 Excluded Assets........................................15
Section 5.13 Excluded Liabilities...................................15
Section 5.14 Governmental Approvals.................................16
Section 5.15 Governmental Authority.................................16
Section 5.16 Indemnification and Insurance Matters Agreement........16
Section 5.17 Insurance Policies.....................................16
Section 5.18 Insured Semiconductor Liability........................16
Section 5.19 Intellectual Property..................................16
Section 5.20 Liabilities............................................16
Section 5.21 Litigation Disclosure Letter...........................16
Section 5.22 Person.................................................16
Section 5.23 Retained Cash..........................................17
Section 5.24 Retained Payables......................................17
Section 5.25 Retained Receivables...................................17
Section 5.26 Security Interest......................................17
Section 5.27 Semiconductor Assets...................................17
Section 5.28 Semiconductor Balance Sheet............................17
Section 5.29 Semiconductor Business.................................17
Section 5.30 Semiconductor Contingent Gain..........................17
Section 5.31 Semiconductor Contingent Liability.....................17
Section 5.32 Semiconductor Contracts................................18
Section 5.33 Semiconductor Group....................................18
Section 5.34 Semiconductor Intellectual Property....................18
Section 5.35 Semiconductor Liabilities..............................18
Section 5.36 Semiconductor Pro Forma Balance Sheet..................18
Section 5.37 Separation.............................................18
Section 5.38 Separation Agreement...................................19
Section 5.39 Separation Date........................................19
Section 5.40 Subsidiary.............................................19
Section 5.41 Taxes..................................................19
</TABLE>
ii
<PAGE> 4
SCHEDULES
[Schedule 1.2(a)(xi) Certain Semiconductor Intellectual Property
Schedule 1.2(a)(xii) Specific Semiconductor Assets to be Transferred
Schedule 1.2(b)(i) Excluded Assets
Schedule 1.3(a)(vi) Divested Businesses Which Contain Liabilities to be
Transferred to Semiconductor
Schedule 1.3(a)(vii) Specific Semiconductor Liabilities
Schedule 1.3(b)(i) Excluded Liabilities]
<PAGE> 5
GENERAL ASSIGNMENT AND ASSUMPTION AGREEMENT
This General Assignment and Assumption Agreement (this "AGREEMENT") is
entered into on _______ ___, 2000 between C-Cube Microsystems Inc., a Delaware
corporation ("C-CUBE"), and C-Cube Semiconductor Inc., a Delaware corporation
("SEMICONDUCTOR"). Capitalized terms used herein and not otherwise defined
herein shall have the meanings ascribed to such terms in ARTICLE IV hereof.
RECITALS
WHEREAS, C-Cube hereby and by certain other instruments of even date
herewith transfers or will transfer to Semiconductor effective as of the
Separation Date, substantially all of the business and assets of the
Semiconductor Business owned by C-Cube in accordance with the Master Separation
and Distribution Agreement dated as of _______ ___, 2000 between the parties
(the "SEPARATION AGREEMENT"). It is the intent of the parties hereto, by this
Agreement and the other agreements and instruments provided for in the
Separation Agreement, that C-Cube and its Subsidiaries convey to Semiconductor
and its Subsidiaries substantially all of the business and assets of the
Semiconductor Business;
WHEREAS, it is further intended between the parties that Semiconductor
assume certain of the liabilities related to the Semiconductor Business, as
provided in this Agreement, the Separation Agreement or the other agreements and
instruments provided for in the Separation Agreement;
WHEREAS, C-Cube has entered into the Agreement and Plan of Merger and
Reorganization, dated as of October 27, 1999 (the "MERGER AGREEMENT"), with
Harmonic Inc. ("HARMONIC") pursuant to which, subsequent to the sale or
distribution of C-Cube of Semiconductor, C-Cube will merge with and into
Harmonic (the "MERGER");
WHEREAS, C-Cube and Harmonic entered into an Amended and Restated Agreement
and Plan of Merger and Reorganization dated as of December 9, 1999 (the
"Restated Merger Agreement");
NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements set forth below, the parties hereto agree as follows:
ARTICLE I
CONTRIBUTION AND ASSUMPTION
SECTION 1.1 CONTRIBUTION OF ASSETS AND ASSUMPTION OF LIABILITIES.
(a) Transfer of Assets. Effective on the Separation Date, C-Cube hereby
assigns, transfers, conveys and delivers to Semiconductor, and agrees to cause
its applicable Subsidiaries to assign, transfer, convey and deliver to
Semiconductor's applicable Subsidiaries, and Semiconductor hereby accepts from
C-Cube, and agrees to cause its applicable Subsidiaries to accept from C-Cube's
applicable Subsidiaries, all of C-Cube's and its applicable Subsidiaries'
respective right, title and interest in all Semiconductor Assets; provided,
however, that any Semiconductor Assets that are
<PAGE> 6
specifically assigned or transferred pursuant to another Ancillary Agreement
shall not be assigned or transferred pursuant to this SECTION 1.1(a).
(b) Assumption of Liabilities. Effective on the Separation Date,
Semiconductor hereby assumes and agrees faithfully to perform and fulfill, all
the Semiconductor Liabilities held by C-Cube in accordance with their respective
terms, and agrees to cause its applicable Subsidiaries to assume, perform and
fulfill all the Semiconductor Liabilities held by its Subsidiaries, in
accordance with their respective terms.
(c) Misallocated Assets and Liabilities. In the event that at any time or
from time to time (whether prior to, on or after the Separation Date), any party
hereto (or any member of such party's respective Group), shall receive or
otherwise possess any Asset or Liability that is allocated to any other Person
pursuant to this Agreement or any Ancillary Agreement, such party shall promptly
transfer, or cause to be transferred, such Asset or Liability to the Person so
entitled thereto. Prior to any such transfer, the Person receiving or possessing
such Asset shall hold such Asset or Liability in trust for any such other
Person.
SECTION 1.2 SEMICONDUCTOR ASSETS.
(a) Included Assets. For purposes of this Agreement, "SEMICONDUCTOR ASSETS"
shall mean (without duplication) the following Assets, except as otherwise
provided for in any Ancillary Agreement or other express agreement of the
parties:
(i) all assets reflected in the unaudited consolidated balance sheet
(including notes thereto) of the Semiconductor Business as of September 30, 1999
attached hereto as Annex 1.2(a) (the "BALANCE SHEET"), subject to any
dispositions of such Assets subsequent to the date of such Balance Sheet;
(ii) all assets that have been written off, expensed or fully
depreciated that, had they not been written off, expensed or fully depreciated,
would have been reflected in the Balance Sheet in accordance with the principles
and accounting policies under which the Balance Sheet was prepared;
(iii) all assets acquired by C-Cube or its Subsidiaries after the date
of the Balance Sheet that would be reflected in the consolidated balance sheet
of the Semiconductor Business as of the Separation Date if such consolidated
balance sheet was prepared at the time of the Semi Disposition using the same
principles and accounting policies under which the Balance Sheet was prepared;
(iv) all assets that are used primarily by the Semiconductor Business
at the Separation Date but are not reflected in the Balance Sheet due to mistake
or unintentional omission;
(v) all claims or other rights of C-Cube or the Semiconductor Business
that primarily relate to the Semiconductor Business, whenever arising, against
any person or entity other than an officer, employee, director or consultant of
the Semiconductor Business, if and to the extent that (i) such claim or right
arises out of the events, acts or omissions occurring on or before the
Separation Date (based on then existing law) and (ii) the existence or scope of
the obligation of such other person or entity as of the Separation Date was not
acknowledged, fixed or determined in any
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<PAGE> 7
material respect, due to a dispute or other uncertainty as of the Separation
Date or as a result of the failure of such claim or other right to have been
discovered or asserted as of the Separation Date. A claim or right meeting the
foregoing definition shall be considered an "SEMICONDUCTOR CONTINGENT GAIN"
regardless of whether there was any action pending, threatened or contemplated
as of the Separation Date with respect thereto. In the case of any claim or
right, a portion of which arises out of events, acts or omissions occurring
prior to the Separation Date and a portion of which arises out of events, acts
or omissions occurring on or after the Separation Date, only that portion that
arises out of events, acts or omissions occurring prior to the Separation Date,
shall be considered a Semiconductor Contingent Gain. For purposes of the
foregoing a claim or right shall be deemed to have accrued as of the Separation
Date if all the elements of the claim necessary for its assertion shall have
occurred on or prior to the Separation Date, would not be dismissed by a court
on ripeness or similar grounds. Notwithstanding the foregoing, none of (i) any
insurance proceeds, (ii) any Excluded Assets (as defined below), (iii) any
reversal of any litigation or other reserve, or (iv) any matters relating to
Taxes which are governed by the Tax Sharing Agreement shall be deemed to be a
Semiconductor Contingent Gain;
(vi) all contracts in which C-Cube is a party or by which it or any of
its assets is bound whether or not in writing, except for any such contract or
agreement that is contemplated to be retained by C-Cube because it relates
primarily to the DiviCom Business including:
(1) all prepaid expenses, trade accounts and other accounts and
notes receivables;
(2) all rights under contracts or agreement, all claims or rights
against any person or entity arising from the ownership of any Asset, all rights
in connection with any bids or offers and all claims, choices in action or
similar rights, whether accrued or contingent;
(3) all rights under insurance policies and rights in the nature
of insurance, indemnification or contribution;
(4) all licenses, permits, approvals and authorization which have
been issued by any governmental authority; and
(5) interest rate, currency, commodity or other swap, collar, cap
or other hedging or similar agreements or arrangements.
(vii) all computers, desks, equipment (including equipment used for
research and development) and other Assets used primarily by employees of C-Cube
that will become employees of the Semiconductor Business;
(viii) to the extent permitted by law and subject to any agreement
regarding indemnification and/or insurance matters, all rights of the
Semiconductor Business under any of C-Cube's insurance policies;
(ix) all (a) accounts receivable and other rights to payment for goods
or services sold, leased or otherwise provided in the conduct of the
Semiconductor Business that, as of the Separation Date, are payable by a third
party to C-Cube or any of C-Cube's subsidiaries, whether past due, due or to
become due, including any interest, sales or use taxes, finance charges, late or
-3-
<PAGE> 8
returned check charges and other obligations of the accounts debtor with respect
thereto, and any proceeds of any of the foregoing and (b) other miscellaneous
Assets for which an adjustment is made in the Balance Sheet;
(x) C-Cube's rights in the trade and service marks and domain names
incorporating or based on the name C-CUBE and any goodwill associated therewith;
(xi) All Intellectual Property owned or transferable by C-Cube or the
Semiconductor Business that arises out of the activities of, or that is
primarily related to, the Semiconductor Business, including all Intellectual
Property listed on Schedule 1.2(a)(xi) (all of the foregoing, "SEMICONDUCTOR
INTELLECTUAL PROPERTY"), and all rights to sue for, recover and retain any
damages from any third party's infringement of any such Intellectual Property
rights; and
(xii) cash or cash equivalents, bank accounts, lock boxes and other
deposit arrangements (other than the Retained Cash).
(xiii) all outstanding shares in subsidiaries conducting Semiconductor
Business owned directly by C-Cube Microsystems Inc. including shares in:
(1) C-Cube Microsystems International Ltd., a company organized
in Bermuda;
(2) C-Cube U.S. Inc., a company organized in Delaware; and
(3) C-Cube Japan Inc., a company organized in Japan and assets
owned by these subsidiaries;
(xiv) all assets in operations in Canada conducting Semiconductor
Business through C-Cube Microsystem's registered Canadian branch.
(e) Excluded Assets. For the purposes of this Agreement, "EXCLUDED ASSETS"
shall mean:
(i) [the assets listed or described on Annex 1.2(b)]; and
(ii) C-Cube Registered Intellectual Property listed on the Company
Disclosure Schedule (as defined in the Merger Agreement.)
SECTION 1.3 SEMICONDUCTOR LIABILITIES.
(f) Included Liabilities. For the purposes of this Agreement,
"SEMICONDUCTOR LIABILITIES" shall mean (without duplication) the following
Liabilities, except as otherwise provided for in any Ancillary Agreement or
other express agreement of the parties:
(i) all Liabilities reflected in the Balance Sheet, subject to any
discharge of such Liabilities subsequent to the date of the Balance Sheet;
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<PAGE> 9
(ii) all Liabilities of C-Cube or its Subsidiaries that arise after
the date of the Balance Sheet that would be reflected in the consolidated
balance sheet of the Semiconductor Business as of the Separation Date if such
consolidated balance sheet was prepared using the same principles and accounting
policies under which the Balance Sheet was prepared;
(iii) all Liabilities that are related primarily to the Semiconductor
Business at the Separation Date but are not reflected in the Balance Sheet due
to mistake or unintentional omission;
(iv) any Liability of C-Cube or the Semiconductor Business that
primarily related to the Semiconductor Business, whenever arising, to any person
or entity other than an officer, director, employee or consultant of the
Semiconductor Business, if and to the extent that (i) such Liability arises out
of the events, acts or omissions occurring on or before the Separation Date and
(ii) the existence or scope of the obligation to such person or entity as of the
Separation Date with respect to such Liability was not acknowledged, fixed or
determined in any material respect, due to a dispute or other uncertainty as of
the Separation Date or as a result of the failure of such Liability to have been
discovered or asserted as of the Separation Date (it being understood that the
existence of a litigation or other reserve with respect to any Liability shall
not be sufficient for such Liability to be considered acknowledged, fixed or
determined) (each, a "SEMICONDUCTOR CONTINGENT LIABILITY"). In the case of any
Liability, a portion of which arises out of events, acts or omissions occurring
prior to the Separation Date and a portion of which arises out of events, acts
or omissions occurring on or after the Separation Date, only that portion that
arises out of events, acts or omissions occurring prior to the Separation Date
shall be considered a Semiconductor Contingent Liability. For purposes of the
foregoing, a Liability shall be deemed to have arisen out of events, acts or
omissions occurring prior to the Separation Date if all the elements necessary
for the assertion of a claim with respect to such Liability shall have occurred
on or prior to the Separation Date, such that the claim, were it asserted in an
action on or prior to the Separation Date, would not be dismissed by a court on
ripeness or similar grounds. For purposes of clarification of the foregoing, the
parties agree that no Liability relating to, arising out of or resulting from
any obligation of any person or entity to satisfy any obligation accrued under
any employee stock option plan, stock purchase plan or the like as of the
Separation Date, shall be deemed to be a Semiconductor Contingent Liability. For
purposes of determining whether a claim relating to the Year 2000 problem is a
Semiconductor Contingent Liability, claims relating to products shipped prior to
the Separation Date shall be deemed to have arisen prior to the Separation Date.
(v) all Liabilities (other than Liabilities for Taxes), whether
arising before on or after the Separation Date, primarily relating to, arising
out of or resulting from:
(1) the operation of the Semiconductor Business, as conducted at
any time prior to, on or after the Separation Date (including any Liability
relating to, arising out of or resulting from any act or failure to act by any
director, officer, employee, agent or representative (whether or not such act or
failure to act is or was within such person or entity's authority));
(2) the operation of any business conducted by the Semiconductor
Business at any time after the Separation Date (including any Liability relating
to, arising out of or resulting from any act or failure to act by any director,
officer, employee, agent or representative (whether or not such act or failure
to act is or was within such person or entity's authority)); or
-5-
<PAGE> 10
(3) any Semiconductor Assets;
(vi) all Liabilities relating to, arising out of or resulting from any
of the terminated, divested or discontinued businesses and operations listed or
described on Annex 1.3(a);
(vii) all fees and expenses of C-Cube incurred in connection with the
Merger and the spin-off transaction;
(viii) all accounts payable and other obligations of payment for goods
or services purchased, leased or otherwise received in the conduct of the
Semiconductor Business that as of the Separation Date are payable to a third
party by C-Cube or any of C-Cube's subsidiaries, whether past due, due or to
become due, including any interest, sales or use taxes, finance charges, late or
returned check charges and other obligations of C-Cube or any of C-Cube's
Subsidiaries with respect thereto, and any obligations related to any of the
foregoing;
(ix) all employee compensation Liabilities relating to employees of
the Semiconductor Business other than Continuing Employees; and
(x) all severance payments and related Liabilities arising out of any
termination of non-Continuing Employees (as defined in the Merger Agreement).
Notwithstanding anything in this Agreement, the Merger Agreement or the
Ancillary Agreements to the contrary, to the extent that the amount provided by
C-Cube to the Semiconductor Business has been reduced on account of certain
liabilities set forth in clauses (i) through (v) of the definition of "Retained
Cash," such liabilities shall not constitute Semiconductor Liabilities.
Notwithstanding the foregoing, the Semiconductor Liabilities shall not include
the Excluded Liabilities referred to in SECTION 1.3(b) below.
(b) Excluded Liabilities. For the purposes of this Agreement, "EXCLUDED
LIABILITIES" shall mean:
(i) [all Liabilities listed or described in Annex 1.3(b)];
(ii) all Liabilities to the extent that (i) it is covered under the
terms of C-Cube's insurance policies in effect prior to the Separation Date and
(ii) the Semiconductor Business is not a named, insured under, or otherwise
entitled to the benefits of, such insurance policies;
(iii) all Liabilities for Pre-Semi Disposition Taxes not attributable
to the Semiconductor Business; and
(iv) all agreements and obligations of C-Cube under the agreements
governing the Distribution.
SECTION 1.4 METHODS OF TRANSFER AND ASSUMPTION.
(a) Terms of Other Ancillary Agreements Govern. The parties shall enter
into the other Ancillary Agreements, on or about the date of this Agreement. To
the extent that the transfer of any
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<PAGE> 11
Semiconductor Asset or the assumption of any Semiconductor Liability is
expressly provided for by the terms of any other Ancillary Agreement, the terms
of such other Ancillary Agreement shall effect, and determine the manner of, the
transfer or assumption. It is the intent of the parties that pursuant to
SECTIONS 1.1, 1.2 and 1.3, the transfer and assumption of all other
Semiconductor Assets and Semiconductor Liabilities shall be made effective as of
the Separation Date.
(b) Mistaken Assignments and Assumptions. In addition to those transfers
and assumptions accurately identified and designated by the parties to take
place but which the parties are not able to effect prior to the Separation Date,
there may exist (i) Assets that the parties discover were, contrary to the
agreements between the parties, by mistake or omission, transferred to
Semiconductor or retained by C-Cube or (ii) Liabilities that the parties
discover were, contrary to the agreements between the parties, by mistake or
omission, assumed by Semiconductor or not assumed by Semiconductor. The parties
shall cooperate in good faith to effect the transfer or re-transfer of such
Assets, and/or the assumption or re-assumption of such Liabilities, to or by the
appropriate party and shall not use the determination that remedial actions need
to be taken to alter the original intent of the parties hereto with respect to
the Assets to be transferred to or Liabilities to be assumed by Semiconductor.
Each party shall reimburse the other or make other financial adjustments (e.g.,
without limitation, cash reserves) or other adjustments to remedy any mistakes
or omissions relating to any of the Assets transferred hereby or any of the
Liabilities assumed hereby.
(c) Transfer of Assets and Liabilities Not Included in Semiconductor Assets
and Semiconductor Liabilities. In the event the parties discover Assets and
Liabilities that relate primarily to the Semiconductor Business but do not
constitute Semiconductor Assets under SECTION 1.2 or Semiconductor Liabilities
under SECTION 1.3, the parties shall cooperate in good faith to effect the
transfer of such Assets at book value, or the assumption of such Liabilities, to
Semiconductor or its Subsidiaries and shall not use the determination of
remedial actions contemplated in the Separation Agreement to alter the original
intent of the parties hereto with respect to the Assets to be transferred to or
Liabilities to be assumed by Semiconductor. Each party shall reimburse the other
or make other financial adjustments (e.g., without limitation, cash reserves) or
other adjustments to remedy any mistakes or omissions relating to any of the
Assets transferred hereby or any of the Liabilities assumed hereby.
(d) Documents Relating to Other Transfers of Assets and Assumption of
Liabilities. In furtherance of the assignment, transfer and conveyance of
Semiconductor Assets and the assumption of Semiconductor Liabilities set forth
in SECTIONS 1.4(a), (b) and (c) and certain Ancillary Agreements, simultaneously
with the execution and delivery hereof or as promptly as practicable thereafter,
(i) C-Cube shall execute and deliver such bills of sale, stock powers,
certificates of title, assignments of contracts and other instruments of
transfer, conveyance and assignment as and to the extent necessary to evidence
the transfer, conveyance and assignment of all of C-Cube's and its Subsidiaries'
right, title and interest in and to the Semiconductor Assets to Semiconductor
and (ii) Semiconductor shall execute and deliver, to C-Cube and its Subsidiaries
such bills of sale, stock powers, certificates of title, assumptions of
contracts and other instruments of assumption as and to the extent necessary to
evidence the valid and effective assumption of the Semiconductor Liabilities by
Semiconductor.
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<PAGE> 12
SECTION 1.5 GOVERNMENTAL APPROVALS AND CONSENTS.
(a) Transfer In Violation of Laws. If and to the extent that the valid,
complete and perfected transfer assignment or novation to the Semiconductor
Group of any Semiconductor Assets and Semiconductor Liabilities (or from the
Semiconductor Group of any Non-Semiconductor Assets) would be a violation of
applicable laws or require any Consent or Governmental Approval in connection
with the Separation or the Distribution, then, unless C-Cube shall otherwise
determine, the transfer, assignment or novation to or from the Semiconductor
Group, as the case may be, of such Semiconductor Assets or Non-Semiconductor
Assets, respectively, shall be automatically deemed deferred and any such
purported transfer, assignment or novation shall be null and void until such
time as all legal impediments are removed and/or such Consents or Governmental
Approvals have been obtained. Notwithstanding the foregoing, such Asset shall
still be considered an Semiconductor Asset for purposes of determining whether
any Liability is an Semiconductor Liability; provided, however, that if such
covenants or Governmental Approvals have not been obtained within six months of
the Distribution Date, the parties will use their reasonable commercial efforts
to achieve an alternative solution in accordance with the parties' intentions.
(b Transfers Not Consummated Prior to Separation Date. If the transfer,
assignment or novation of any Assets intended to be transferred or assigned
hereunder is not consummated prior to or on the Separation Date, whether as a
result of the provisions of SECTION 1.5(a) or for any other reason, then the
Person retaining such Asset shall thereafter hold such Asset for the use and
benefit, insofar as reasonably possible, of the Person entitled thereto (at the
expense of the Person entitled thereto). In addition, the Person retaining such
Asset shall take such other actions as may be reasonably requested by the Person
to whom such Asset is to be transferred in order to place such Person, insofar
as reasonably possible, in the same position as if such Asset had been
transferred as contemplated hereby and so that all the benefits and burdens
relating to such Semiconductor Assets (or such Non-Semiconductor Assets, as the
case may be), including possession, use, risk of loss, potential for gain, and
dominion, control and command over such Assets, are to inure from and after the
Separation Date to the Semiconductor Group (or the C-Cube Group, as the case may
be). If and when the Consents and/or Governmental Approvals, the absence of
which caused the deferral of transfer of any Asset pursuant to SECTION 1.5(a),
are obtained, the transfer of the applicable Asset shall be effected in
accordance with the terms of this Agreement and/or the applicable Ancillary
Agreement.
(c) Expenses. The Person retaining an Asset due to the deferral of the
transfer of such Asset shall not be obligated, in connection with the foregoing,
to expend any money unless the necessary funds are advanced by the Person
entitled to the Asset, other than reasonable out-of-pocket expenses, attorneys'
fees and recording or similar fees, all of which shall be promptly reimbursed by
the Person entitled to such Asset.
SECTION 1.6 NONRECURRING COSTS AND EXPENSES. Notwithstanding anything
herein to the contrary, any nonrecurring costs and expenses incurred by the
parties hereto to effect the transactions contemplated hereby which are not
allocated pursuant to the terms of the Separation Agreement, this Agreement or
any other Ancillary Agreement shall be the responsibility of the party which
incurs such costs and expenses.
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<PAGE> 13
SECTION 1.7 NOVATION OF ASSUMED SEMICONDUCTOR LIABILITIES.
(a) Reasonable Commercial Efforts. Each of C-Cube and Semiconductor, at the
request of the other, shall use their reasonable commercial efforts to obtain,
or to cause to be obtained, any consent, substitution, approval or amendment
required to novate (including with respect to any federal government contract)
or assign all rights and obligations under agreements, leases, licenses and
other obligations or Liabilities of any nature whatsoever that constitute
Semiconductor Liabilities or to obtain in writing the unconditional release of
all parties to such arrangements other than any member of the Semiconductor
Group, so that, in any such case, Semiconductor and its Subsidiaries will be
solely responsible for such Liabilities; provided, however, that neither C-Cube,
Semiconductor nor their Subsidiaries shall be obligated to pay any consideration
therefor to any third party from whom such consents, approvals, substitutions
and amendments are requested.
(b) Inability to Obtain Novation. If C-Cube or Semiconductor is unable to
obtain, or to cause to be obtained, any such required consent, approval,
release, substitution or amendment, the applicable member of the C-Cube Group
shall continue to be bound by such agreements, leases, licenses and other
obligations and, unless not permitted by law or the terms thereof (except to the
extent expressly set forth in this Agreement, the Separation Agreement or any
other Ancillary Agreement), Semiconductor shall, as agent or subcontractor for
C-Cube or such other Person, as the case may be, pay, perform and discharge
fully, or cause to be paid, transferred or discharged all the obligations or
other Liabilities of C-Cube or such other Person, as the case may be, thereunder
from and after the date hereof. C-Cube shall, without further consideration, pay
and remit, or cause to be paid or remitted, to Semiconductor or its appropriate
Subsidiary promptly all money, rights and other consideration received by it or
any member of its respective Group in respect of such performance (unless any
such consideration is an Excluded Asset). If and when any such consent,
approval, release, substitution or amendment shall be obtained or such
agreement, lease, license or other rights or obligations shall otherwise become
assignable or able to be novated, C-Cube shall thereafter assign, or cause to be
assigned, all its rights, obligations and other Liabilities thereunder or any
rights or obligations of any member of its respective Group to Semiconductor
without payment of further consideration and Semiconductor shall, without the
payment of any further consideration, assume such rights and obligations.
ARTICLE II
[INTELLECTUAL PROPERTY LICENSES(1)]
SECTION 2.1 LICENSE TO C-CUBE.
(a) Grant. To the extent any of the Semiconductor Intellectual Property is
necessary for, or would be infringed by, the operation of the C-Cube business as
such business is operated as of or prior to the Separation Date, subject to all
limitations set forth herein Semiconductor hereby grants to C-Cube, to the
extent of Semiconductor's rights in such Semiconductor Intellectual Property and
without any representation or warranty of any kind, a worldwide, perpetual,
irrevocable, non-
- ----------
(1) This Article is subject to further review by Company.
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<PAGE> 14
exclusive, license to continue to operate the business of C-Cube in
substantially the same manner such business was conducted as of or prior to the
Separation Date.
(b) Limitations. All rights and licenses to the Semiconductor Intellectual
Property not expressly granted to C-Cube in Section 2.1(a) or in a written
agreement between the parties are reserved to Semiconductor. Without limiting
the foregoing, C-Cube shall not have any right or license under the foregoing
and is not granted any license hereunder to (i) make or have made any
semiconductor device, and (ii) [_________].
(c) No Technology Transfer. Nothing set forth in Section 2.1(a) shall
obligate Semiconductor to transfer or disclose to C-Cube any Intellectual
Property including any know how, software, or other materials.
SECTION 2.2 LICENSE TO SEMICONDUCTOR.
(a) Grant. To the extent any of the Excluded Assets or any other assets
retained by C-Cube include any Intellectual Property that is necessary for or
would be infringed by the operation of Semiconductor's business as such business
was conducted as of or prior to the Separation Date, subject to all limitations
set forth herein C-Cube hereby grants to Semiconductor, to the extent of
C-Cube's rights in such Intellectual Property and without any representation or
warranty of any kind, a worldwide, perpetual, irrevocable, non-exclusive license
to continue to operate the business of Semiconductor in substantially the same
manner such business was conducted as of or prior to the Separation Date.
(b) Limitations. All rights and licenses to the Intellectual Property of
C-Cube not expressly granted to Semiconductor in Section 2.2(a) or in a written
agreement between the parties are reserved to C-Cube.
(c) No Technology Transfer. Nothing set forth in Section 2.2(a) shall
obligate C-Cube transfer to or disclose to Semiconductor any Intellectual
Property including any know how, software, or other materials.
SECTION 2.3 TRANSFERS AND SUBLICENSE. The licenses granted to each party
in this ARTICLE II may neither: (i) be assigned or transferred by the licensed
party except in connection with the sale or merger of such party or the sale of
substantially all of the assets of such party, nor (ii) licensed by such
licensed party except in connection with the granting by such party of a license
of substantial other Intellectual Property of such party.]
ARTICLE III
LITIGATION
SECTION 3.1 ALLOCATION.
(a) Litigation to Be Transferred to Semiconductor. Notwithstanding any
contrary provisions in the provisions of the Indemnification and Insurance
Matters Agreement, on the Separation Date, the responsibilities for management
of the litigation identified in SECTION 3.1(a) of a litigation disclosure letter
(the "LITIGATION DISCLOSURE Letter"), which will be delivered by C-Cube to
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<PAGE> 15
Semiconductor on the Separation Date, shall be transferred in their entirety
from C-Cube and its Subsidiaries to Semiconductor and its Subsidiaries. As of
the Separation Date and thereafter, Semiconductor shall manage the defense of
this litigation and shall cause its applicable Subsidiaries to do the same.
C-Cube and its Subsidiaries must first obtain the prior consent of Semiconductor
or its applicable Subsidiary for any action taken subsequent to the Separation
Date in connection with the litigation identified in the Litigation Disclosure
Letter, which consent cannot be unreasonably withheld or delayed. All other
matters relating to such litigation, including but not limited to
indemnification for such claims, shall be governed by the provisions of the
Indemnification and Insurance Matters Agreement.
(b) Litigation to be Defended by C-Cube at Semiconductor's Expense.
Notwithstanding any contrary provisions in the Indemnification and Insurance
Matters Agreement, C-Cube shall defend, and shall cause its applicable
Subsidiaries to defend, the litigation identified in SECTION 3.1(b) of the
Litigation Disclosure Letter. All other matters relating to such litigation,
including but not limited to indemnification for such claims, shall be governed
by the provisions of the Indemnification and Insurance Matters Agreement.
(c) All Other Litigation. All other litigation outstanding at the
Separation Date not included in the Litigation Disclosure Letter shall remain
with C-Cube, and Semiconductor shall have no liability in connection with, or
responsibility for defending, such litigation.
SECTION 3.2 COOPERATION. C-Cube and Semiconductor and their respective
Subsidiaries shall cooperate with each other in the defense of any litigation
covered under this ARTICLE III and afford to each other reasonable access upon
reasonable advance notice to witnesses and information (other than information
protected from disclosure by applicable privileges) that is reasonably required
to defend this litigation as set forth in SECTION 4.4 of the Separation
Agreement. The foregoing agreement to cooperate includes, but is not limited to,
an obligation to provide access to qualified assistance to provide information,
witnesses and documents to respond to discovery requests in specific lawsuits.
In such cases, cooperation shall be timely so that the party responding to
discovery may meet all court-imposed deadlines. The party requesting information
shall reimburse the party providing information consistent with the terms of
SECTION 4.4 of the Separation Agreement. The obligations set forth in this
paragraph are more clearly defined in SECTION 4.4 of the Separation Agreement,
to which reference is hereby made.
ARTICLE IV
MISCELLANEOUS
SECTION 4.1 ENTIRE AGREEMENT. This Agreement, the Restated Merger
Agreement, the Master Separation Agreement, the other Ancillary Agreements and
the Exhibits and Schedules referenced or attached hereto and thereto,
constitutes the entire agreement between the parties with respect to the subject
matter hereof and shall supersede all prior written and oral and all
contemporaneous oral agreements and understandings with respect to the subject
matter hereof. In the event any provision of any agreement conflicts with a
provision of the Restated Merger Agreement, the Restated Merger Agreement will
govern.
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<PAGE> 16
SECTION 4.2 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware as to all matters
regardless of the laws that might otherwise govern under principles of conflicts
of laws applicable thereto.
SECTION 4.3 NOTICES. Any notice, demand, offer, request or other
communication required or permitted to be given by either party pursuant to the
terms of this Agreement shall be in writing and shall be deemed effectively
given the earlier of (i) when received, (ii) when delivered personally, (iii)
one (1) business day after being delivered by facsimile (with receipt of
appropriate confirmation), (iv) one (1) business day after being deposited with
an overnight courier service or (v) four (4) days after being deposited in the
US mail, First Class with postage prepaid, and addressed to the attention of the
party's General Counsel at the address of its principal executive office or such
other address as a party may request by notifying the other in writing.
SECTION 4.4 PARTIES IN INTEREST. This Agreement, including the Schedules
and Exhibits hereto, and the other documents referred to herein, shall be
binding upon and inure solely to the benefit of each party hereto and their
legal representatives and successors, and nothing in this Agreement, express or
implied, is intended to confer upon any other Person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.
SECTION 4.5 COUNTERPARTS. This Agreement, including the Schedules and
Exhibits hereto, and the other documents referred to herein, may be executed in
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.
SECTION 4.6 ASSIGNMENT. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective legal representatives
and successors. This Agreement may not be assigned by any party hereto.
Notwithstanding the foregoing, each party (or its permitted successive assignees
or transferees hereunder) may assign or transfer this Agreement as a whole
without consent to a Person that succeeds to all or substantially all of the
business or assets of such party. Without limiting the foregoing, this Agreement
will be binding upon and inure to the benefit of the parties and their permitted
successors and assigns.
SECTION 4.7 SEVERABILITY. If any term or other provision of this
Agreement or the Schedules or Exhibits attached hereto is determined by a
nonappealable decision by a court, administrative agency or arbitrator to be
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the fullest extent
possible.
SECTION 4.8 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement or the
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<PAGE> 17
Schedules or Exhibits attached hereto are cumulative to, and not exclusive of,
any rights or remedies otherwise available.
SECTION 4.9 AMENDMENT. No change or amendment will be made to this
Agreement except by an instrument in writing signed on behalf of each of the
parties to such agreement.
SECTION 4.10 AUTHORITY. Each of the parties hereto represents to the
other that (a) it has the corporate or other requisite power and authority to
execute, deliver and perform this Agreement, (b) the execution, delivery and
performance of this Agreement by it have been duly authorized by all necessary
corporate or other action, (c) it has duly and validly executed and delivered
this Agreement, and (d) this Agreement is a legal, valid and binding obligation,
enforceable against it in accordance with its terms subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and general equity principles.
SECTION 4.11 INTERPRETATION. The headings contained in this Agreement, in
any Exhibit or Schedule hereto and in the table of contents to this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Any capitalized term used in any Schedule or
Exhibit but not otherwise defined therein, shall have the meaning assigned to
such term in this Agreement. When a reference is made in this Agreement to an
Article or a Section, Exhibit or Schedule, such reference shall be to an Article
or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated.
SECTION 4.12 CONFLICTING AGREEMENTS. In the event of conflict between
this Agreement and any other Ancillary Agreement or other agreement executed in
connection herewith, the provisions of Ancillary Agreement and such other
agreement shall prevail.
ARTICLE V
DEFINITIONS
SECTION 5.1 ACTION. "ACTION" means any demand, action, suit, countersuit,
arbitration, inquiry, proceeding or investigation by or before any federal,
state, local, foreign or international governmental authority or any arbitration
or mediation tribunal.
SECTION 5.2 AFFILIATED COMPANY. "AFFILIATED COMPANY" means, with respect
to C-Cube, any entity in which C-Cube holds a 50% or less ownership interest and
that is listed on SCHEDULE 6.1(a) to the Separation Agreement and, with respect
to Semiconductor, any entity in which Semiconductor holds a 50% or less
ownership interest and that is listed on SCHEDULE 6.1(b) to the Separation
Agreement. SCHEDULES 6.1(a) and 6.1(b) may be amended from time to time after
the date hereof upon mutual written consent of the parties.
SECTION 5.3 ANCILLARY AGREEMENT. "ANCILLARY AGREEMENT" has the meaning
set forth in SECTION 2.1 of the Separation Agreement.
SECTION 5.4 ASSETS. "ASSETS" means assets, properties and rights
(including goodwill), wherever located (including in the possession of vendors
or other third parties or elsewhere), whether real, personal or mixed, tangible,
intangible or contingent, in each case whether or not
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<PAGE> 18
recorded or reflected or required to be recorded or reflected on the books and
records or financial statements of any Person, including the following:
(i) all accounting and other books, records and files whether in
paper, microfilm, microfiche, computer tape or disc, magnetic tape or any other
form;
(ii) all apparatus, computers and other electronic data processing
equipment, fixtures, machinery, equipment, furniture, office equipment,
automobiles, trucks, aircraft, rolling stock, vessels, motor vehicles and other
transportation equipment, special and general tools, test devices, prototypes
and models and other tangible personal property;
(iii) all inventories of materials, parts, raw materials, supplies,
work-in-process and finished goods and products;
(iv) all interests in real property of whatever nature, including
easements, whether as owner, mortgagee or holder of a Security Interest, lessor,
sublessor, lessee, sublessee or otherwise;
(v) all interests in any capital stock or other equity interests of
any Subsidiary or any other Person; all bonds, notes, debentures or other
securities issued by any Subsidiary or any other Person; all loans, advances or
other extensions of credit or capital contributions to any Subsidiary or any
other Person; and all other investments in securities of any Person;
(vi) all license agreements, leases of personal property, open
purchase orders for raw materials, supplies, parts or services, unfilled orders
for the manufacture and sale of products and other contracts, agreements or
commitments;
(vii) all deposits, letters of credit and performance and surety
bonds;
(viii) all written technical information, data, specifications,
research and development information, engineering drawings, operating and
maintenance manuals, and materials and analyses prepared by consultants and
other third parties;
(ix) all Intellectual Property and licenses from third Persons
granting the right to use any Intellectual Property;
(x) all computer applications, programs and other software, including
operating software, network software, firmware, middleware, design software,
design tools, systems documentation and instructions;
(xi) all cost information, sales and pricing data, customer prospect
lists, supplier records, customer and supplier lists, customer and vendor data,
correspondence and lists, product literature, artwork, design, development and
manufacturing files, vendor and customer drawings, formulations and
specifications, quality records and reports and other books, records, studies,
surveys, reports, plans and documents;
(xii) all prepaid expenses, trade accounts and other accounts and
notes receivables;
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<PAGE> 19
(xiii) all rights under contracts or agreements, all claims or rights
against any Person arising from the ownership of any Asset, all rights in
connection with any bids or offers and all claims, choses in action or similar
rights, whether accrued or contingent;
(xiv) all rights under insurance policies and all rights in the nature
of insurance, indemnification or contribution;
(xv) all licenses (including radio and similar licenses), permits,
approvals and authorizations which have been issued by any Governmental
Authority;
(xvi) cash or cash equivalents, bank accounts, lock boxes and other
deposit arrangements; and
(xvii) interest rate, currency, commodity or other swap, collar, cap
or other hedging or similar agreements or arrangements.
SECTION 5.5 C-CUBE GROUP. "C-CUBE GROUP" means C-Cube, each Subsidiary and
Affiliated Company of C-Cube (other than any member of the Semiconductor Group)
immediately after the Separation Date and each Person that becomes a Subsidiary
or Affiliate Company of C-Cube after the Separation Date.
SECTION 5.6 CONSENTS. "CONSENTS" means any consents, waivers or approvals
from, or notification requirements to, any third parties.
SECTION 5.7 CONTRACTS. "CONTRACTS" means any contract, agreement, lease,
license, sales order, purchase order, instrument or other commitment that is
binding on any Person or any part of its property under applicable law.
SECTION 5.8 DISTRIBUTION. "DISTRIBUTION" means C-Cube's pro rata
distribution to the holders of its common stock, $0.001 par value of all of the
shares of Semiconductor common stock owned by C-Cube.
SECTION 5.9 DIVICOM BUSINESS. "DIVICOM BUSINESS" means any business of
C-Cube other than the Semiconductor Business.
SECTION 5.10 DISTRIBUTION DATE. "DISTRIBUTION DATE" has the meaning set
forth in SECTION 3.1 of the Separation Agreement.
SECTION 5.11 ENVIRONMENTAL ACTIONS. "ENVIRONMENTAL ACTIONS" has the
meaning set forth in SECTION 4.11 of the Indemnification and Insurance Matters
Agreement.
SECTION 5.12 EXCLUDED ASSETS. "EXCLUDED ASSETS" has the meaning set forth
in SECTION 1.2(b) of this Agreement.
SECTION 5.13 EXCLUDED LIABILITIES. "EXCLUDED LIABILITIES" has the meaning
set forth in SECTION 1.3(b) of this Agreement.
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<PAGE> 20
SECTION 5.14 GOVERNMENTAL APPROVALS. "GOVERNMENTAL APPROVALS" means any
notices, reports or other filings to be made, or any consents, registrations,
approvals, permits or authorizations to be obtained from, any Governmental
Authority.
SECTION 5.15 GOVERNMENTAL AUTHORITY. "GOVERNMENTAL AUTHORITY" means any
federal, state, local, foreign or international court, government, department,
commission, board, bureau, agency, official or other regulatory, administrative
or governmental authority.
SECTION 5.16 INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT.
"INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT" means the Indemnification and
Insurance Matters Agreement attached as Exhibit I to the Separation Agreement.
SECTION 5.17 INSURANCE POLICIES. "INSURANCE POLICIES" means insurance
policies pursuant to which a Person makes a true risk transfer to an insurer.
SECTION 5.18 INSURED SEMICONDUCTOR LIABILITY. "INSURED SEMICONDUCTOR
LIABILITY" means any Semiconductor Liability to the extent that (i) it is
covered under the terms of C-Cube's Insurance Policies in effect prior to the
Distribution Date and (ii) Semiconductor is not a named insured under, or
otherwise entitled to the benefits of, such Insurance Policies.
SECTION 5.19 INTELLECTUAL PROPERTY. "INTELLECTUAL PROPERTY" means all
domestic and foreign patents and patent applications, together with any
continuations, continuations-in-part or divisional applications thereof, and all
patents issuing thereon (including reissues, renewals and re-examinations of the
foregoing); design patents, invention disclosures; mask works; copyrights, and
copyright applications and registrations; Web addresses, trademarks, service
marks, trade names, and trade dress, in each case together with any applications
and registrations therefor and all appurtenant goodwill relating thereto; trade
secrets, commercial and technical information, know-how, proprietary or
confidential information, including engineering, production and other designs,
notebooks, processes, drawings, specifications, formulae, and technology;
computer and electronic data processing programs and software (object and source
code), data bases and documentation thereof; inventions (whether patented or
not); utility models; registered designs, certificates of invention and all
other intellectual property under the laws of any country throughout the world.
SECTION 5.20 LIABILITIES. "LIABILITIES" means all debts, liabilities,
guarantees, assurances, commitments and obligations, whether fixed, contingent
or absolute, asserted or unasserted, matured or unmatured, liquidated or
unliquidated, accrued or not accrued, known or unknown, due or to become due,
whenever or however arising (including, without limitation, whether arising out
of any Contract or tort based on negligence or strict liability) and whether or
not the same would be required by generally accepted principles and accounting
policies to be reflected in financial statements or disclosed in the notes
thereto.
SECTION 5.21 LITIGATION DISCLOSURE LETTER. "LITIGATION DISCLOSURE LETTER"
has the meaning set forth in SECTION 3.1(a) of this Agreement.
SECTION 5.22 PERSON. "PERSON" means an individual, a partnership, a
corporation, a limited liability company, an association, a joint stock company,
a trust, a joint venture, an unincorporated organization and a governmental
entity or any department, agency or political subdivision thereof.
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<PAGE> 21
SECTION 5.23 RETAINED CASH. "RETAINED CASH" has the meaning set forth in
the Separation Agreement.
SECTION 5.24 RETAINED PAYABLES. "RETAINED PAYABLES" means (i) all
accounts payable and other obligations of payment for goods or services
purchased, leased or otherwise received in the conduct of the Semiconductor
Business that as of the Separation Date are payable to a third Person by C-Cube
or any of C-Cube's Subsidiaries, whether past due, due or to become due,
including any interest, sales or use taxes, finance charges, late or returned
check charges and other obligations of C-Cube or any of C-Cube's Subsidiaries
with respect thereto, and any obligations related to any of the foregoing and
(ii) all employee compensation Liabilities and other miscellaneous Liabilities
for which an adjustment is made in the Semiconductor Pro Forma Balance Sheet.
SECTION 5.25 RETAINED RECEIVABLES. "RETAINED RECEIVABLES" means (i) all
accounts receivable and other rights to payment for goods or services sold,
leased or otherwise provided in the conduct of the Semiconductor Business that
as of the Separation Date are payable by a third Person to C-Cube or any of
C-Cube's Subsidiaries, whether past due, due or to become due, including any
interest, sales or use taxes, finance charges, late or returned check charges
and other obligations of the account debtor with respect thereto, and any
proceeds of any of the foregoing and (ii) all other miscellaneous Assets for
which an adjustment is made in the Semiconductor Pro Forma Balance Sheet.
SECTION 5.26 SECURITY INTEREST. "Security Interest" means any mortgage,
security interest, pledge, lien, charge, claim, option, right to acquire, voting
or other restriction, right-of-way, covenant, condition, easement, encroachment,
restriction on transfer, or other encumbrance of any nature whatsoever
SECTION 5.27 SEMICONDUCTOR ASSETS. "SEMICONDUCTOR ASSETS" has the meaning
set forth in SECTION 1.2 of this Agreement.
SECTION 5.28 SEMICONDUCTOR BALANCE SHEET. "SEMICONDUCTOR BALANCE SHEET"
means the audited consolidated balance sheet (including the notes thereto) of
the Semiconductor Business as of _______ ___, ____ that is included in
____________.
SECTION 5.29 SEMICONDUCTOR BUSINESS. "SEMICONDUCTOR BUSINESS" means the
business and operations of C-Cube currently known as C-Cube Semiconductor, as
described in C-Cube's periodic reports to the Commission pursuant to the
Exchange Act and as such business and operations will continue following the
Separation Date, and (b) except as otherwise expressly provided herein, any
terminated, divested or discontinued businesses or operations that at the time
of termination, divestiture or discontinuation primarily related to the
Semiconductor Business as then conducted.
SECTION 5.30 SEMICONDUCTOR CONTINGENT GAIN. "SEMICONDUCTOR CONTINGENT
GAIN" has the meaning set forth in SECTION 1.2 of this Agreement.
SECTION 5.31 SEMICONDUCTOR CONTINGENT LIABILITY. "SEMICONDUCTOR CONTINGENT
LIABILITY" has the meaning set forth in SECTION 1.3 of this Agreement.
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<PAGE> 22
SECTION 5.32 SEMICONDUCTOR CONTRACTS. "SEMICONDUCTOR CONTRACTS" means
[the following contracts and agreements to which C-Cube is a party or by which
it or any of its Assets is bound, whether or not in writing, except for any such
contract or agreement that is contemplated to be retained by C-Cube or any
member of the C-Cube Group pursuant to any provision of this Agreement or any
other Ancillary Agreement:
(i) any contract or agreement entered into in the name of, or
expressly on behalf of, any division or business unit of Semiconductor;
(ii) any contract or agreement that relates primarily to the
Semiconductor Business;
(iii) any contracts or agreements related to the computers, desks,
equipment and other Assets used or managed primarily by employees of C-Cube that
will become employees of Semiconductor in connection with the Separation;
(iv) any contract or agreement that is otherwise expressly
contemplated pursuant to this Agreement, the Separation Agreement or any of the
other Ancillary Agreements to be assigned to Semiconductor; and
(v) any guarantee, indemnity, representation, warranty or other
Liability of any member of the Semiconductor Group or the C-Cube Group in
respect of any other Semiconductor Contract, any Semiconductor Liability or the
Semiconductor Business (including guarantees of financing incurred by customers
or other third parties in connection with purchases of products or services from
the Semiconductor Business)].
SECTION 5.33 SEMICONDUCTOR GROUP. "SEMICONDUCTOR GROUP" means
Semiconductor, each Subsidiary and Affiliated Company of Semiconductor
immediately after the Separation Date and each Person that becomes a Subsidiary
or Affiliate Company of Semiconductor after the Separation Date.
SECTION 5.34 SEMICONDUCTOR INTELLECTUAL PROPERTY. "SEMICONDUCTOR
INTELLECTUAL PROPERTY" has the meaning set forth in SECTION 1.2 of this
Agreement.
SECTION 5.35 SEMICONDUCTOR LIABILITIES. "SEMICONDUCTOR LIABILITIES" has
the meaning set forth in SECTION 1.3 of this Agreement.
SECTION 5.36 SEMICONDUCTOR PRO FORMA BALANCE SHEET. "SEMICONDUCTOR PRO
FORMA BALANCE SHEET" means the unaudited pro forma condensed consolidated
balance sheet appearing in __________.
SECTION 5.37 SEPARATION. "SEPARATION" means the transfer and contribution
from C-Cube to Semiconductor, and Semiconductor's receipt and assumption of,
directly or indirectly, substantially all of the Assets and Liabilities
currently associated with the Semiconductor Business and the stock, investments
or similar interests currently held by C-Cube in subsidiaries and other entities
that conduct such business.
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<PAGE> 23
SECTION 5.38 SEPARATION AGREEMENT. "SEPARATION AGREEMENT" means the Master
Separation and Distribution Agreement dated as of _______ ___, 1999, of which
this is an Exhibit thereto.
SECTION 5.39 SEPARATION DATE. "SEPARATION DATE" means the effective date
and time of each transfer of property, assumption of liability, license,
undertaking, or agreement in connection with the Separation, which shall be
12:01 a.m., Pacific Time, _______ ___, 2000, or such date as may be fixed by the
Board of Directors of C-Cube.
SECTION 5.40 SUBSIDIARY. "SUBSIDIARY" means with respect to any specified
Person, any corporation, any limited liability company, any partnership or other
legal entity of which such Person or its Subsidiaries owns, directly or
indirectly, more than 50% of the stock or other equity interest entitled to vote
on the election of the members of the board of directors or similar governing
body. Unless context otherwise requires, reference to C-Cube and its
Subsidiaries shall not include the subsidiaries of C-Cube that will be
transferred to Semiconductor after giving effect to the Separation.
SECTION 5.41 TAXES. "TAXES" has the meaning set forth in the Tax Sharing
Agreement.
[SIGNATURES ON FOLLOWING PAGE]
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<PAGE> 24
IN WITNESS WHEREOF, each of the parties has caused the General Assignment
and Assumption Agreement to be executed on its behalf by its officers thereunto
duly authorized on the day and year first above written.
C-CUBE MICROSYSTEMS INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
C-CUBE SEMICONDUCTOR INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
[SIGNATURE PAGE TO GENERAL ASSIGNMENT AND ASSUMPTION AGREEMENT]
<PAGE> 25
[SCHEDULE 1.2(a)(xii)
SPECIFIC SEMICONDUCTOR ASSETS TO BE TRANSFERRED]
<PAGE> 26
[SCHEDULE 1.2(b)(i)
EXCLUDED ASSETS]
<PAGE> 27
[SCHEDULE 1.3(a)(vi)
[DIVESTED BUSINESSES WHICH CONTAIN LIABILITIES
TO BE TRANSFERRED TO SEMICONDUCTOR]
<PAGE> 28
[SCHEDULE 1.3(a)(vii)
SPECIFIC SEMICONDUCTOR LIABILITIES]
<PAGE> 29
[SCHEDULE 1.3(b)(i)
EXCLUDED LIABILITIES]
<PAGE> 1
EXHIBIT 10.6
C-CUBE SEMICONDUCTOR INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("AGREEMENT") is effective as of
________________, 2000, by and between C-Cube Semiconductor Inc., a Delaware
corporation (the "COMPANY"), and ________________ ("INDEMNITEE").
WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and its related
entities;
WHEREAS, in order to induce Indemnitee to continue to provide services to
the Company, the Company wishes to provide for the indemnification of, and the
advancement of expenses to, Indemnitee to the maximum extent permitted by law;
WHEREAS, the Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for the Company's directors, officers, employees,
agents and fiduciaries, the significant increases in the cost of such insurance
and the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited; and
WHEREAS, in view of the considerations set forth above, the Company desires
that Indemnitee shall be indemnified and advanced expenses by the Company as set
forth herein;
NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth below.
1. Certain Definitions.
(a) "CHANGE IN CONTROL" shall mean, and shall be deemed to have occurred
if, on or after the date of this Agreement, (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended), other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company acting in such capacity or a corporation
owned directly or indirectly by the stockholders of the Company in substantially
the same proportions as their ownership of stock of the Company, becomes the
"beneficial owner" (as defined
<PAGE> 2
in Rule 13d-3 under said Act), directly or indirectly, of securities of the
Company representing more than 50% of the total voting power represented by the
Company's then outstanding Voting Securities (as defined below), (ii) during any
period of two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Company and any new director whose
election by the Board of Directors or nomination for election by the Company's
stockholders was approved by a vote of at least two thirds (2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof, or (iii) the stockholders
of the Company approve a merger or consolidation of the Company with any other
corporation other than a merger or consolidation which would result in the
Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least 80% of the total voting
power represented by the Voting Securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of (in one
transaction or a series of related transactions) all or substantially all of the
Company's assets.
(b) "CLAIM" shall mean with respect to a Covered Event (as defined below):
any threatened, pending or completed action, suit, proceeding or alternative
dispute resolution mechanism, or any hearing, inquiry or investigation that
Indemnitee in good faith believes might lead to the institution of any such
action, suit, proceeding or alternative dispute resolution mechanism, whether
civil, criminal, administrative, investigative or other.
(c) References to the "COMPANY" shall include, in addition to C-Cube
Semiconductor Inc., any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger to which C-Cube Semiconductor
Inc. (or any of its wholly owned subsidiaries) is a party which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees, agents or fiduciaries, so that if Indemnitee is
or was a director, officer, employee, agent or fiduciary of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise,
Indemnitee shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation as Indemnitee
would have with respect to such constituent corporation if its separate
existence had continued.
(d) "COVERED EVENT" shall mean any event or occurrence related to the fact
that Indemnitee is or was a director, officer, employee, agent or fiduciary of
the Company, or any subsidiary of the Company, or is or was serving at the
request of the Company as a director, officer, employee, agent or fiduciary of
another corporation, partnership, joint venture, trust or other enterprise, or
by reason of any action or inaction on the part of Indemnitee while serving in
such capacity.
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<PAGE> 3
(e) "EXPENSES" shall mean any and all expenses (including attorneys' fees
and all other costs, expenses and obligations incurred in connection with
investigating, defending, being a witness in or participating in (including on
appeal), or preparing to defend, to be a witness in or to participate in, any
action, suit, proceeding, alternative dispute resolution mechanism, hearing,
inquiry or investigation), judgments, fines, penalties and amounts paid in
settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld), actually and reasonably incurred,
of any Claim and any federal, state, local or foreign taxes imposed on the
Indemnitee as a result of the actual or deemed receipt of any payments under
this Agreement.
(f) "EXPENSE ADVANCE" shall mean a payment to Indemnitee pursuant to
Section 3 of Expenses in advance of the settlement of or final judgement in any
action, suit, proceeding or alternative dispute resolution mechanism, hearing,
inquiry or investigation which constitutes a Claim.
(g) "INDEPENDENT LEGAL COUNSEL" shall mean an attorney or firm of
attorneys, selected in accordance with the provisions of Section 2(d) hereof,
who shall not have otherwise performed services for the Company or Indemnitee
within the last three years (other than with respect to matters concerning the
rights of Indemnitee under this Agreement, or of other indemnitees under similar
indemnity agreements).
(h) References to "OTHER ENTERPRISES" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on Indemnitee with
respect to an employee benefit plan; and references to "SERVING AT THE REQUEST
OF THE COMPANY" shall include any service as a director, officer, employee,
agent or fiduciary of the Company which imposes duties on, or involves services
by, such director, officer, employee, agent or fiduciary with respect to an
employee benefit plan, its participants or its beneficiaries; and if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan,
Indemnitee shall be deemed to have acted in a manner "NOT OPPOSED TO THE BEST
INTERESTS OF THE COMPANY" as referred to in this Agreement.
(i) "REVIEWING PARTY" shall mean, subject to the provisions of Section
2(d), any person or body appointed by the Board of Directors in accordance with
applicable law to review the Company's obligations hereunder and under
applicable law, which may include a member or members of the Company's Board of
Directors, Independent Legal Counsel or any other person or body not a party to
the particular Claim for which Indemnitee is seeking indemnification.
(j) "SECTION" refers to a section of this Agreement unless otherwise
indicated.
(k) "VOTING SECURITIES" shall mean any securities of the Company that vote
generally in the election of directors.
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<PAGE> 4
2. Indemnification.
(a) Indemnification of Expenses. Subject to the provisions of Section
2(b) below, the Company shall indemnify Indemnitee for Expenses to the fullest
extent permitted by law if Indemnitee was or is or becomes a party to or witness
or other participant in, or is threatened to be made a party to or witness or
other participant in, any Claim (whether by reason of or arising in part out of
a Covered Event), including all interest, assessments and other charges paid or
payable in connection with or in respect of such Expenses.
(b) Review of Indemnification Obligations. Notwithstanding anything
else to the contrary in this Section 2, in the event any Reviewing Party shall
have determined (in a written opinion, in any case in which Independent Legal
Counsel is the Reviewing Party) that Indemnitee is not entitled to be
indemnified hereunder under applicable law, (i) the Company shall have no
further obligation under Section 2(a) or contribution obligations under Section
2(f) to make any payments to Indemnitee not made prior to such determination by
such Reviewing Party, and (ii) the Company shall be entitled to be reimbursed by
Indemnitee (who hereby agrees to reimburse the Company) for all Expenses
theretofore paid in indemnifying Indemnitee; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee is entitled to
be indemnified hereunder under applicable law, any determination made by any
Reviewing Party that Indemnitee is not entitled to be indemnified hereunder
under applicable law shall not be binding and Indemnitee shall not be required
to reimburse the Company for any Expenses theretofore paid in indemnifying
Indemnitee until a final judicial determination is made with respect thereto (as
to which all rights of appeal therefrom have been exhausted or lapsed).
Indemnitee's obligation to reimburse the Company for any Expenses shall be
unsecured and no interest shall be charged thereon.
(c) Indemnitee Rights on Unfavorable Determination; Binding Effect. If
any Reviewing Party determines that Indemnitee substantively is not entitled to
be indemnified hereunder in whole or in part under applicable law, Indemnitee
shall have the right to commence litigation seeking an initial determination by
the court or challenging any such determination by such Reviewing Party or any
aspect thereof, including the legal or factual bases therefor, and, subject to
the provisions of Section 15, the Company hereby consents to service of process
and to appear in any such proceeding. Absent such litigation, any determination
by any Reviewing Party shall be conclusive and binding on the Company and
Indemnitee.
(d) Selection of Reviewing Party; Change in Control. If there has not
been a Change in Control, any Reviewing Party shall be selected by the Board of
Directors, and if there has been such a Change in Control (other than a Change
in Control which has been approved by a majority of the Company's Board of
Directors who were directors immediately prior to such Change in Control), any
Reviewing Party with respect to all matters thereafter arising concerning the
rights of Indemnitee to indemnification of Expenses under this Agreement or any
other agreement or under
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<PAGE> 5
the Company's certificate of incorporation or bylaws as now or hereafter in
effect, or under any other applicable law, if desired by Indemnitee, shall be
Independent Legal Counsel selected by Indemnitee and approved by the Company
(which approval shall not be unreasonably withheld). Such counsel, among other
things, shall render its written opinion to the Company and Indemnitee as to
whether and to what extent Indemnitee would be entitled to be indemnified
hereunder under applicable law and the Company agrees to abide by such opinion.
The Company agrees to pay the reasonable fees of the Independent Legal Counsel
referred to above and to indemnify fully such counsel against any and all
expenses (including attorneys' fees), claims, liabilities and damages arising
out of or relating to this Agreement or its engagement pursuant hereto.
Notwithstanding any other provision of this Agreement, the Company shall not be
required to pay Expenses of more than one Independent Legal Counsel in
connection with all matters concerning a single Indemnitee, and such Independent
Legal Counsel shall be the Independent Legal Counsel for any or all other
Indemnitees unless (i) the Company otherwise determines or (ii) any Indemnitee
shall provide a written statement setting forth in detail a reasonable objection
to such Independent Legal Counsel representing other Indemnitees.
(e) Mandatory Payment of Expenses. Notwithstanding any other provision
of this Agreement other than Section 10 hereof, to the extent that Indemnitee
has been successful on the merits or otherwise, including, without limitation,
the dismissal of an action without prejudice, in defense of any Claim,
Indemnitee shall be indemnified against all Expenses incurred by Indemnitee in
connection therewith.
(f) Contribution. If the indemnification provided for in Section 2(a)
above for any reason is held by a court of competent jurisdiction to be
unavailable to an Indemnitee in respect of any losses, claims, damages, expenses
or liabilities referred to therein, then the Company, in lieu of indemnifying
Indemnitee thereunder, shall contribute to the amount paid or payable by
Indemnitee as a result of such losses, claims, damages, expenses or liabilities
(i) in such proportion as is appropriate to reflect the relative benefits
received by the Company and Indemnitee, or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and Indemnitee in connection
with the action or inaction which resulted in such losses, claims, damages,
expenses or liabilities, as well as any other relevant equitable considerations.
In connection with the registration of the Company's securities, the relative
benefits received by the Company and Indemnitee shall be deemed to be in the
same respective proportions that the net proceeds from the offering (before
deducting expenses) received by the Company and the Indemnitee, in each case as
set forth in the table on the cover page of the applicable prospectus, bear to
the aggregate public offering price of the securities so offered. The relative
fault of the Company and Indemnitee shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company or Indemnitee and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
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<PAGE> 6
The Company and Indemnitee agree that it would not be just and equitable if
contribution pursuant to this Section 2(f) were determined by pro rata or per
capita allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraph. In connection with the registration of the Company's securities, in
no event shall an Indemnitee be required to contribute any amount under this
Section 2(f) in excess of the lesser of (i) that proportion of the total of such
losses, claims, damages or liabilities indemnified against equal to the
proportion of the total securities sold under such registration statement which
is being sold by Indemnitee or (ii) the proceeds received by Indemnitee from its
sale of securities under such registration statement. No person found guilty of
fraudulent misrepresentation (within the meaning of Section 10(f) of the
Securities Act) shall be entitled to contribution from any person who was not
found guilty of such fraudulent misrepresentation.
3. Expense Advances.
(a) Obligation to Make Expense Advances. The Company shall make
Expense Advances to Indemnitee upon receipt of a written undertaking by or on
behalf of the Indemnitee to repay such amounts if it shall ultimately be
determined that the Indemnitee is not entitled to be indemnified therefor by the
Company.
(b) Form of Undertaking. Any written undertaking by the Indemnitee to
repay any Expense Advances hereunder shall be unsecured and no interest shall be
charged thereon.
(c) Determination of Reasonable Expense Advances. The parties agree
that for the purposes of any Expense Advance for which Indemnitee has made
written demand to the Company in accordance with this Agreement, all Expenses
included in such Expense Advance that are certified by affidavit of Indemnitee's
counsel as being reasonable shall be presumed conclusively to be reasonable.
4. Procedures for Indemnification and Expense Advances.
(a) Timing of Payments. All payments of Expenses (including without
limitation Expense Advances) by the Company to the Indemnitee pursuant to this
Agreement shall be made to the fullest extent permitted by law as soon as
practicable after written demand by Indemnitee therefor is presented to the
Company, but in no event later than forty-five (45) business days after such
written demand by Indemnitee is presented to the Company, except in the case of
Expense Advances, which shall be made no later than twenty (20) business days
after such written demand by Indemnitee is presented to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition
precedent to Indemnitee's right to be indemnified or Indemnitee's right to
receive Expense Advances under this Agreement, give the Company notice in
writing as soon as practicable of any Claim made against Indemnitee for which
indemnification will or could be sought under this Agreement. Notice to the
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<PAGE> 7
Company shall be directed to the Chief Executive Officer of the Company at the
address shown on the signature page of this Agreement (or such other address as
the Company shall designate in writing to Indemnitee). In addition, Indemnitee
shall give the Company such information and cooperation as it may reasonably
require and as shall be within Indemnitee's power.
(c) No Presumptions; Burden of Proof. For purposes of this Agreement,
the termination of any Claim by judgment, order, settlement (whether with or
without court approval) or conviction, or upon a plea of nolo contendere, or its
equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by this Agreement or applicable
law. In addition, neither the failure of any Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by any
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
this Agreement or applicable law, shall be a defense to Indemnitee's claim or
create a presumption that Indemnitee has not met any particular standard of
conduct or did not have any particular belief. In connection with any
determination by any Reviewing Party or otherwise as to whether the Indemnitee
is entitled to be indemnified hereunder, the burden of proof shall be on the
Company to establish that Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the Company
of a notice of a Claim pursuant to Section 4(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such Claim in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be obligated
hereunder to provide indemnification for or make any Expense Advances with
respect to the Expenses of any Claim, the Company, if appropriate, shall be
entitled to assume the defense of such Claim with counsel approved by Indemnitee
(which approval shall not be unreasonably withheld) upon the delivery to
Indemnitee of written notice of the Company's election to do so. After delivery
of such notice, approval of such counsel by Indemnitee and the retention of such
counsel by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees or expenses of separate counsel subsequently employed by
or on behalf of Indemnitee with respect to the same Claim; provided, however,
that (i) Indemnitee shall have the right to employ Indemnitee's separate counsel
in any such Claim at Indemnitee's expense and (ii) if (A) the employment of
separate counsel by Indemnitee has been previously authorized by the Company,
(B) Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such defense,
or (C) the Company shall not continue to retain such counsel to
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<PAGE> 8
defend such Claim, then the fees and expenses of Indemnitee's separate counsel
shall be Expenses for which Indemnitee may receive indemnification or Expense
Advances hereunder.
5. Additional Indemnification Rights; Nonexclusivity.
(a) Scope. The Company hereby agrees to indemnify the Indemnitee to
the fullest extent permitted by law, notwithstanding that such indemnification
is not specifically authorized by the other provisions of this Agreement, the
Company's certificate of incorporation, the Company's bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to indemnify a
member of its board of directors or an officer, employee, agent or fiduciary, it
is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its board of directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 10(a) hereof.
(b) Nonexclusivity. The indemnification and the payment of Expense
Advances provided by this Agreement shall be in addition to any rights to which
Indemnitee may be entitled under the Company's certificate of incorporation, its
bylaws, any other agreement, any vote of stockholders or disinterested
directors, the General Corporation Law of the State of Delaware, or otherwise.
The indemnification and the payment of Expense Advances provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though subsequent thereto
Indemnitee may have ceased to serve in such capacity.
6. No Duplication of Payments. The Company shall not be liable under this
Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, provision of the Company's certificate of
incorporation, bylaws or otherwise) of the amounts otherwise payable hereunder.
7. Partial Indemnification. If Indemnitee is entitled under any provision
of this Agreement to indemnification by the Company for some or a portion of
Expenses incurred in connection with any Claim, but not, however, for all of the
total amount thereof, the Company shall nevertheless indemnify Indemnitee for
the portion of such Expenses to which Indemnitee is entitled.
8. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge that
in certain instances, federal law or applicable public policy may prohibit the
Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in
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<PAGE> 9
the future to undertake with the Securities and Exchange Commission to submit
the question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
9. Liability Insurance. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are provided to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
10. Exceptions. Notwithstanding any other provision of this Agreement, the
Company shall not be obligated pursuant to the terms of this Agreement:
(a) Excluded Action or Omissions. To indemnify Indemnitee for Expenses
resulting from acts, omissions or transactions for which Indemnitee is
prohibited from receiving indemnification under this Agreement or applicable
law; provided, however, that notwithstanding any limitation set forth in this
Section 10(a) regarding the Company's obligation to provide indemnification,
Indemnitee shall be entitled under Section 3 to receive Expense Advances
hereunder with respect to any such Claim unless and until a court having
jurisdiction over the Claim shall have made a final judicial determination (as
to which all rights of appeal therefrom have been exhausted or lapsed) that
Indemnitee has engaged in acts, omissions or transactions for which Indemnitee
is prohibited from receiving indemnification under this Agreement or applicable
law.
(b) Claims Initiated by Indemnitee. To indemnify or make Expense
Advances to Indemnitee with respect to Claims initiated or brought voluntarily
by Indemnitee and not by way of defense, counterclaim or cross claim, except (i)
with respect to actions or proceedings brought to establish or enforce a right
to indemnification under this Agreement or any other agreement or insurance
policy or under the Company's certificate of incorporation or bylaws now or
hereafter in effect relating to Claims for Covered Events, (ii) in specific
cases if the Board of Directors has approved the initiation or bringing of such
Claim, or (iii) as otherwise required under Section 145 of the Delaware General
Corporation Law (relating to indemnification of officers, directors, employees
and agents; and insurance), regardless of whether Indemnitee ultimately is
determined to be entitled to such indemnification or insurance recovery, as the
case may be.
(c) Lack of Good Faith. To indemnify Indemnitee for any Expenses
incurred by the Indemnitee with respect to any action instituted (i) by
Indemnitee to enforce or interpret this Agreement, if a court having
jurisdiction over such action determines as provided in Section 13 that each of
the material assertions made by the Indemnitee as a basis for such action was
not made in good faith or was frivolous, or (ii) by or in the name of the
Company to enforce or interpret this Agreement, if a court having jurisdiction
over such action determines as provided in Section 13 that
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<PAGE> 10
each of the material defenses asserted by Indemnitee in such action was made in
bad faith or was frivolous.
(d) Claims Under Section 16(b). To indemnify Indemnitee for expenses
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute; provided, however, that
notwithstanding any limitation set forth in this Section 10(d) regarding the
Company's obligation to provide indemnification, Indemnitee shall be entitled
under Section 3 to receive Expense Advances hereunder with respect to any such
Claim unless and until a court having jurisdiction over the Claim shall have
made a final judicial determination (as to which all rights of appeal therefrom
have been exhausted or lapsed) that Indemnitee has violated said statute.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of and be enforceable by the parties hereto and
their respective successors, assigns (including any direct or indirect successor
by purchase, merger, consolidation or otherwise to all or substantially all of
the business or assets of the Company), spouses, heirs and personal and legal
representatives. The Company shall require and cause any successor (whether
direct or indirect, and whether by purchase, merger, consolidation or otherwise)
to all, substantially all, or a substantial part, of the business or assets of
the Company, by written agreement in form and substance satisfactory to
Indemnitee, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform if
no such succession had taken place. This Agreement shall continue in effect
regardless of whether Indemnitee continues to serve as a director, officer,
employee, agent or fiduciary (as applicable) of the Company or of any other
enterprise at the Company's request.
13. Expenses Incurred in Action Relating to Enforcement or Interpretation.
In the event that any action is instituted by Indemnitee under this Agreement or
under any liability insurance policies maintained by the Company to enforce or
interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be
indemnified for all Expenses incurred by Indemnitee with respect to such action
(including without limitation attorneys' fees), regardless of whether Indemnitee
is ultimately successful in such action, unless as a part of such action a court
having jurisdiction over such action makes a final judicial determination (as to
which all rights of appeal therefrom have been exhausted or lapsed) that each of
the material assertions made by Indemnitee as a basis for such action was not
made in good faith or was frivolous; provided, however, that until such final
judicial determination is made, Indemnitee shall be entitled under Section 3 to
receive payment of Expense Advances hereunder with respect to such action. In
the event of an action instituted by or in the name of the Company under this
Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee
shall be entitled to be indemnified for all Expenses incurred by Indemnitee in
defense of such action (including without limitation costs and expenses incurred
with respect to
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<PAGE> 11
Indemnitee's counterclaims and cross-claims made in such action), unless as a
part of such action a court having jurisdiction over such action makes a final
judicial determination (as to which all rights of appeal therefrom have been
exhausted or lapsed) that each of the material defenses asserted by Indemnitee
in such action was made in bad faith or was frivolous; provided, however, that
until such final judicial determination is made, Indemnitee shall be entitled
under Section 3 to receive payment of Expense Advances hereunder with respect to
such action.
14. Notice. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and signed for by the party addressed, on the date of such
delivery, or (ii) if mailed by domestic certified or registered mail with
postage prepaid, on the third business day after the date postmarked. Addresses
for notice to either party are as shown on the signature page of this Agreement
or as subsequently modified by written notice.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including without limitation each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. Choice of Law. This Agreement, and all rights, remedies, liabilities,
powers and duties of the parties to this Agreement, shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
principles of conflicts of laws.
18. Subrogation. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless it is in writing signed
by both the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed to be or shall constitute a waiver of any other provisions
hereof (whether or not similar), nor shall such waiver
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<PAGE> 12
constitute a continuing waiver.
20. Integration and Entire Agreement. This Agreement sets forth the entire
understanding between the parties hereto and supersedes and merges all previous
written and oral negotiations, commitments, understandings and agreements
relating to the subject matter hereof between the parties hereto.
21. No Construction as Employment Agreement. Nothing contained in this
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries or affiliated entities.
[The remainder of this page was intentionally left blank.]
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<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification
Agreement as of the date first above written.
C-Cube Semiconductor Inc.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Address:
C-Cube Semiconductor Inc.
1778 McCarthy Boulevard
Milpitas, California 95035
AGREED TO AND ACCEPTED BY:
INDEMNITEE
----------------------------------------
(Signature)
----------------------------------------
(Name)
----------------------------------------
----------------------------------------
[Fill in Address Above]
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