<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
C-Cube Microsystems Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
[LOGO]
MARCH 22, 1999
Dear Stockholder:
This year's Annual Meeting of Stockholders ("Annual Meeting") of C-Cube
Microsystems Inc. (the "Company") will be held on Tuesday, April 27, 1999 at
1:30 p.m., local time, at the Holiday Inn -- North San Jose, located at 777
Bellew Drive, Milpitas CA 95035. You are cordially invited to attend.
The Notice of Annual Meeting and a Proxy Statement, which describe the
formal business to be conducted at the Annual Meeting, follow this letter.
After reading the Proxy Statement, please promptly mark, sign and return
the enclosed proxy in the prepaid envelope to assure that your shares will be
represented. Your shares cannot be voted unless you date, sign and return the
enclosed proxy or attend the Annual Meeting in person. Regardless of the number
of shares you own, your careful consideration of, and vote on, the matters
before our stockholders are important.
A copy of the Company's Annual Report for the fiscal year ended December
31, 1998 is also enclosed for your information.
We look forward to seeing you at the Annual Meeting.
Very truly yours,
/s/ Alexandre A. Balkanski
--------------------------
ALEXANDRE A. BALKANSKI
President and Chief Executive Officer
<PAGE> 3
C-CUBE MICROSYSTEMS INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 27, 1999
To the Stockholders:
The Annual Meeting of Stockholders ("Annual Meeting") of C-Cube
Microsystems Inc. (the "Company"), will be held on Tuesday, April 27, 1999, at
1:30 p.m., local time, at the Holiday Inn -- North San Jose, located at 777
Bellew Drive, Milpitas CA 95035, for the following purposes:
1. To elect three Class II Directors to hold office for three-year terms
and until their successors have been duly elected and qualified.
2. To consider and vote upon a proposal to ratify the appointment of
Deloitte & Touche LLP as the Company's independent public accountants
for the fiscal year ending December 31, 1999.
3. To transact such other business as may properly come before the meeting.
Stockholders of record at the close of business on March 1, 1999 are
entitled to notice of, and to vote at, the Annual Meeting and any adjournments
thereof. For ten days prior to the meeting, a complete list of the stockholders
entitled to vote at the meeting will be available for examination by any
stockholder for any purpose relating to the meeting during ordinary business
hours at the principal office of C-Cube Microsystems Inc., which is located at
1778 McCarthy Boulevard, Milpitas, California 95035.
By order of the Board of Directors
/s/ Alexandre A. Balkanski
--------------------------
ALEXANDRE A. BALKANSKI
President and Chief Executive Officer
Milpitas, California
March 22, 1999
IMPORTANT: PLEASE FILL IN, DATE, SIGN AND PROMPTLY MAIL THE ENCLOSED PROXY CARD
IN THE ACCOMPANYING PREPAID ENVELOPE TO ASSURE THAT YOUR SHARES ARE REPRESENTED
AT THE MEETING. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY CHOOSE TO VOTE IN
PERSON EVEN IF YOU HAVE PREVIOUSLY SENT IN YOUR PROXY CARD.
<PAGE> 4
C-CUBE MICROSYSTEMS INC.
------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
GENERAL
The accompanying proxy is solicited by the Board of Directors of C-Cube
Microsystems Inc., a Delaware corporation ("C-Cube" or the "Company"), for use
at the Annual Meeting of Stockholders ("Annual Meeting") to be held on Tuesday,
April 27, 1999, at 1:30 p.m., local time, or any adjournment thereof, for the
purposes set forth in the accompanying Notice of Annual Meeting of Stockholders.
The meeting will be held at the Holiday Inn -- North San Jose located at 777
Bellew Drive, Milpitas CA 95035. The date of this Proxy Statement is March 22,
1999, the approximate date on which this Proxy Statement and the accompanying
form of proxy were first sent or given to stockholders.
The Company's Annual Report for the fiscal year ended December 31, 1998 is
enclosed with this Proxy Statement.
SOLICITATION AND VOTING
The cost of soliciting proxies will be borne by the Company. The Company
has engaged Corporate Investor Communications Inc. ("CIC") to assist in the
solicitation of proxies for the Annual Meeting. The Company will pay
approximately $7,000 in fees for CIC's services and will reimburse CIC for
reasonable out-of-pocket costs.
In addition, the Company will request banks and brokers, and other
custodians, nominees and fiduciaries, to solicit their customers who have stock
of the Company registered in the names of such persons and will reimburse them
for their reasonable, out-of-pocket costs. The Company may use the services of
its officers, directors and regular employees to solicit proxies, personally or
by telephone, without additional compensation.
Only stockholders of record as of the close of business on March 1, 1999,
will be entitled to vote at the meeting and any adjournment thereof. As of that
date, there were 38,927,375 shares of common stock of the Company, par value
$.001 per share ("Common Stock"), issued and outstanding. Stockholders may vote
in person or by proxy. Each holder of shares of Common Stock is entitled to one
(1) vote for each share of stock held on the proposals presented in this Proxy
Statement.
QUORUM; VOTING OF PROXIES
The Company's By-Laws provide that a majority of all of the shares of the
stock entitled to vote, whether present in person or represented by proxy, shall
constitute a quorum for the transaction of business at the Annual Meeting.
Shares that are voted "FOR," "AGAINST" or "ABSTAIN" with respect to a matter are
treated as being present at the meeting for purposes of establishing a quorum
and are also treated as shares entitled to vote at the Annual Meeting (the
"Votes Cast") with respect to such matter.
While there is no definitive statutory or case law authority in Delaware as
to the proper treatment of abstentions, the Company believes that abstentions
should be counted for purposes of determining both (i) the presence or absence
of a quorum for the transaction of business and (ii) the total number of Votes
Cast with respect to a proposal (other than the election of directors and
ratification of appointment of the Company's independent public accountants). In
the absence of controlling precedent to the contrary, the Company intends to
treat abstentions in this manner. Accordingly, abstentions will have the same
effect as a vote against the proposal when considered as Votes Cast.
While broker non-votes are counted for purposes of determining the presence
or absence of a quorum for the transaction of business, broker non-votes are not
counted for purposes of determining the number of Votes
<PAGE> 5
Cast with respect to the particular proposal on which the broker has expressly
not voted. Thus, a broker non-vote will not affect the outcome of the voting on
a proposal.
All valid proxies received prior to the Annual Meeting will be voted. All
shares represented by a proxy will be voted, and where a stockholder specifies
by means of the proxy a choice ("FOR," "AGAINST," "ABSTAIN" or "WITHHELD") with
respect to any matter to be acted upon, the shares will be voted in accordance
with the specification so made. If no choice is indicated on the proxy, the
shares will be voted in favor of the proposal (other than instances of broker
non-votes).
REVOCABILITY OF PROXIES
A stockholder giving a proxy has the power to revoke his or her proxy, at
any time prior to the time it is voted, by delivering to the Secretary of the
Company a written instrument revoking the proxy or a duly executed proxy with a
later date, or by attending the Annual Meeting and voting in person.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company has a classified Board of Directors consisting of two Class I
Directors (Donald McKinney and one vacancy), three Class II Directors (Donald T.
Valentine, Alexandre A. Balkanski and Gregorio Reyes), and two Class III
Directors (T. J. Rodgers and Baryn S. Futa), who will serve until the annual
meetings of stockholders to be held in 2001, 1999 and 2000, respectively, and
until their respective successors are duly elected and qualified. At each annual
meeting of stockholders, directors are elected for a full term of three years to
succeed those directors whose terms expire on the annual meeting dates.
Vacancies on the Board of Directors resulting from death, resignation,
retirement, disqualification or other cause (other than removal from office by
vote of the stockholders) may be filled by a majority vote of the directors then
in office, and directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to which
they have been elected expires.
The term of the Class II Directors will expire on the date of the upcoming
Annual Meeting. Three people are to be elected to serve as Class II Directors of
the Board of Directors at that meeting. Management's nominees for election by
the stockholders to these positions are Donald T. Valentine, Alexandre A.
Balkanski and Gregorio Reyes, the three current Class II Directors of the Board
of Directors. If elected, the nominees will serve as directors until the
Company's annual meeting of stockholders held in 2002, and until their
successors are elected and qualified. The proxies will be voted, unless the
authorization to do so is withheld, for the election of the nominees. If any of
the nominees decline to serve, the proxies may be voted for such substitute
nominees as the Company may designate. It is not presently expected that any of
the nominees will decline to serve as a director.
The directors of the Company, including the Class II Director nominees to
be elected at the Annual Meeting, and their ages as of March 1, 1999, are as
follows:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITIONS WITH THE COMPANY SINCE
---- --- -------------------------- --------
<S> <C> <C> <C>
CLASS I DIRECTOR WHOSE TERM EXPIRES AT THE 2001 ANNUAL MEETING OF STOCKHOLDERS:
Donald McKinney...................... 49 Director 1997
CLASS II DIRECTORS NOMINATED FOR ELECTION AT THE 1999 ANNUAL MEETING OF STOCKHOLDERS:
Donald T. Valentine.................. 66 Director 1992
Alexandre A. Balkanski, Ph.D. ....... 38 President, Chief Executive Officer and Director 1993
Gregorio Reyes....................... 58 Director 1992
CLASS III DIRECTORS WHOSE TERM EXPIRES AT THE 2000 ANNUAL MEETING OF STOCKHOLDERS:
T.J. Rodgers......................... 51 Director 1994
Baryn S. Futa........................ 44 Director 1994
</TABLE>
2
<PAGE> 6
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 the Company's 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' 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. 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.
Dr. Alexandre Balkanski co-founded the Company in July 1988 and has served
as President and Chief Executive Officer since July 1995. He had previously
served as the Company's Executive Vice President and Chief Operating Officer.
Prior to joining C-Cube, 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 the
Company 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. 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 director.
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.
There is currently one Class I Director vacancy which will remain open
while the Board of Directors considers candidates to fill such vacancy.
See also "STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." A
description of the business experience of the other executive officers of the
Company is contained in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998, filed with the Securities and Exchange Commission
and enclosed herewith. There are no family relationships between any of the
Company's directors or executive officers.
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended December 31, 1998, the Board of Directors held
five (5) meetings. No director attended fewer than 75% of the total number of
meetings of the Board of Directors and of the
3
<PAGE> 7
committees of the Board of Directors on which such director served during the
fiscal year ended December 31, 1998.
The Company has an Audit Committee and a Compensation Committee but does
not have a standing nominating committee.
The Audit Committee's function is to review, with the Company's independent
public accountants, management and the Board of Directors, the Company's
financial reporting processes and internal financial controls. The Audit
Committee reviews the results of the examination of the Company's financial
statements by the independent public accountants and the independent public
accountants' opinion. The Audit Committee also approves all professional
services performed by the independent public accountants, recommends the
retention of the independent public accountants to the Board of Directors,
subject to ratification by the stockholders, and periodically reviews the
Company's accounting policies and internal accounting and financial controls.
During 1998, the members of the Audit Committee were Donald T. Valentine and
Baryn S. Futa. The Audit Committee held one (1) meeting during the fiscal year
ended December 31, 1998.
The Compensation Committee's primary function is to review and approve the
compensation of C-Cube's executive officers. The Compensation Committee also
administers the Company's stock option and purchase plans and is responsible for
determining the grants of stock options under such plans. The members of the
Compensation Committee are Donald T. Valentine and Gregorio Reyes. The
Compensation Committee met four (4) times and conducted numerous telephonic
consultations during the fiscal year ended December 31, 1998.
COMPENSATION OF DIRECTORS
In May 1995, the Board of Directors established a standard compensation for
members of the Board of Directors, whereby each director who is not an employee
of the Company (an "Outside Director") receives an annual retainer of $12,000
plus $1,000 and reimbursement of reasonable travel expenses for each meeting of
the Board of Directors attended. The Company does not pay additional amounts to
directors for committee participation or special assignments of the Board of
Directors.
Directors who are not employees are also automatically granted nonqualified
options to purchase C-Cube's Common Stock under the Company's 1994 Outside
Directors Stock Option Plan (the "Directors Plan"). A total of 450,000 shares of
Common Stock have been reserved for issuance under the Directors Plan. Each
Outside Director holding office on the effective date of the Directors Plan who
did not then hold an option to acquire shares of C-Cube's Common Stock received
an option to purchase 40,000 shares of Common Stock on the effective date of the
Directors Plan. Each person who is newly elected or appointed as an Outside
Director after the effective date of the Directors Plan receives an option to
purchase 40,000 shares of Common Stock on the day immediately following such
initial election or appointment. Thereafter, each Outside Director generally
receives an option to purchase 10,000 shares of Common Stock on each anniversary
date. Options granted under the Directors Plan vest over four years and
generally must be exercised within ten years. Shares of Common Stock underlying
options granted under the Directors Plan vest at the rate of one-fourth ( 1/4)
of the total number of shares of Common Stock underlying the option one year
after the date of grant and one forty-eighth ( 1/48) of such shares on the last
date of each full month thereafter until all of the shares of Common Stock
underlying the option have vested. The exercise price of the options in all
cases will be equal to the fair market value per share of the Common Stock on
the date of grant.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The three nominees for Class II Director receiving the highest number of
votes will be elected as the Class II Directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF
MESSRS. DONALD T. VALENTINE, ALEXANDRE A. BALKANSKI AND GREGORIO REYES AS CLASS
II DIRECTORS.
4
<PAGE> 8
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company has selected Deloitte & Touche LLP as
independent public accountants to audit the financial statements of the Company
for the fiscal year ending December 31, 1999. Deloitte & Touche LLP has acted in
such capacity since its appointment in 1991. Notwithstanding this selection, the
Board, in its sole discretion, may direct the appointment of new independent
accountants at any time during the year, if the Board concludes that such change
is in the best interest of the Company and its stockholders. A representative of
Deloitte & Touche LLP is expected to be present at the annual meeting, will have
the opportunity to make a statement if the representative desires to do so, and
is expected to be available to respond to appropriate questions.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the Votes Cast is required for
approval of this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION
OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of March 1, 1999,
with respect to the beneficial ownership of the Company's Common Stock by (i)
all persons known by the Company to be the beneficial owners of more than 5% of
the outstanding Common Stock of the Company, (ii) each director of the Company,
(iii) the Chief Executive Officer and the four other most highly compensated
executive officers of the Company as of December 31, 1998, whose salary and
incentive compensation for the fiscal year ended December 31, 1998 exceeded
$100,000, and (iv) all executive officers and directors of the Company as a
group:
<TABLE>
<CAPTION>
SHARES OWNED
----------------------
NUMBER OF PERCENTAGE
FIVE-PERCENT STOCKHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS(1) SHARES OF CLASS
- -------------------------------------------------------------- --------- ----------
<S> <C> <C>
FIVE-PERCENT STOCKHOLDERS:
Entities affiliated with J. & W. Seligman & Co.
Incorporated(2)............................................ 3,007,000 7.6%
100 Park Avenue -- 8th Floor
New York, New York 10017
DIRECTORS AND EXECUTIVE OFFICERS:
Donald T. Valentine(3)....................................... 1,119,915 2.8%
Alexandre A. Balkanski(4).................................... 1,099,786 2.8%
Tom Lookabaugh(5)............................................ 191,126 *
Richard Foreman(6)........................................... 132,150 *
Frederick Brown IV(7)........................................ 126,073 *
Baryn S. Futa(8)............................................. 61,253 *
Walter Walczykowski(9)....................................... 45,790 *
T. J. Rodgers(10)............................................ 30,733 *
Gregorio Reyes(11)........................................... 29,659 *
Donald McKinney(12).......................................... 25,598 *
All executive officers and directors as a group (11
persons)(13)............................................... 2,862,583 7.2%
</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
5
<PAGE> 9
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
February 9, 1999, reporting beneficial ownership as of December 31, 1998.
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 3,007,000 shares held by JWS
are deemed to be beneficially owned by Mr. Morris.
(3) Includes 35,000 shares subject to options that are presently exercisable or
will become exercisable within 60 days of March 1, 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.
(4) Includes 813,752 shares subject to options that are presently exercisable
or will become exercisable within 60 days of March 1, 1999.
(5) Includes 131,137 shares subject to options that are presently exercisable
or will become exercisable within 60 days of March 1, 1999. Includes 1,029
shares held by Mr. Lookabaugh's spouse, a former employee of the Company,
deemed to be beneficially held by Mr. Lookabaugh.
(6) Includes 125,515 shares subject to options that are presently exercisable
or will become exercisable within 60 days of March 1, 1999.
(7) Includes 123,573 shares subject to options that are presently exercisable
or will become exercisable within 60 days of March 1, 1999.
(8) Includes 61,251 shares subject to options that are presently exercisable or
will become exercisable within 60 days of March 1, 1999.
(9) Includes 44,929 shares subject to options that are presently exercisable or
will become exercisable within 60 days of March 1, 1999.
(10) Includes 26,875 shares subject to options that are presently exercisable or
will become exercisable within 60 days of March 1, 1999.
(11) Includes 25,000 shares subject to options that are presently exercisable or
will become exercisable within 60 days of March 1, 1999.
(12) Includes 24,584 shares subject to options that are presently exercisable or
will become exercisable within 60 days of March 1, 1999.
(13) Includes an aggregate of 1,411,616 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 March 1, 1999, including those
shares listed in footnotes 3-12.
6
<PAGE> 10
EXECUTIVE COMPENSATION AND OTHER MATTERS
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation of
the Chief Executive Officer of the Company and the four other most highly
compensated executive officers of the Company 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 and 1996 146,250 168,105 0 100,000 0
Corporate Secretary
Walter Walczykowski.......... 1998 151,016(9) 62,130 0 100,284 0
Vice President, Finance and 1997 122,382(9) 20,606 0 13,327 0
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 $200,000 granted on August 28, 1996, in connection with
the Company's acquisition of DiviCom Inc. Mr. Lookabaugh was not a
director, officer or employee of the Company prior to this date.
(8) Includes options granted to Mr. Lookabaugh's spouse, a former employee of
the Company, deemed to be beneficially owned by Mr. Lookabaugh.
7
<PAGE> 11
(9) Mr. Walczykowski has served as Vice President, Finance and Chief Financial
Officer since July 1998. Mr. Walczykowski's compensation for the period
prior to his appointment to Vice President of Finance and Chief Financial
Officer includes compensation he received while serving as Senior Director
of Finance from April 1998 to July 1998, and while serving as Corporate
Controller for the period prior.
The Company does not have employment contracts with any of the persons
named in the Summary Compensation Table, or any defined benefit or actuarial
plan under which benefits are determined primarily by final compensation or
average final compensation and years of service.
STOCK OPTION GRANTS
The following table provides the specified information concerning grants of
options to purchase the Company's Common Stock made during the fiscal year ended
December 31, 1998 to the persons named in the Summary Compensation Table:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS IN FISCAL 1998 POTENTIAL REALIZABLE
------------------------------------------------ VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES
OPTIONS OF STOCK PRICE
GRANTED TO EXERCISE APPRECIATION FOR
OPTIONS EMPLOYEES OR BASE OPTION TERM(2)
GRANTED IN FISCAL PRICE EXPIRATION ----------------------
NAME (#) YEAR ($/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.
8
<PAGE> 12
STOCK OPTION EXERCISES
The following table provides the specified information concerning exercises
of options to purchase the Company's 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee reviews and approves the compensation of
C-Cube's executive officers and administers the Company's stock option and
purchase plans. Donald T. Valentine and Gregorio Reyes served during the fiscal
year ended December 31, 1998 as members of the Compensation Committee of the
Board of Directors. No member of the Compensation Committee has a relationship
that would constitute an interlocking relationship with executive officers or
directors of another entity.
CHANGE-IN-CONTROL ARRANGEMENTS
The Company's stock option plans generally provide that in the event of a
transfer of control of the Company, the Board of Directors will arrange with the
surviving, continuing, successor or purchasing corporation, as the case may be
(the "Acquiring Corporation"), to either assume the Company's rights and
obligations under outstanding awards or substitute awards for the Acquiring
Corporation's stock for such outstanding awards. Any awards which are neither
exercised as of the date of the transfer of control nor assumed nor substituted
by the Acquiring Corporation shall terminate effective as of the date of the
transfer of control.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company granted a nonqualified stock option to Donald T. Valentine in
February 1993 but through an oversight, failed to deliver the option to Mr.
Valentine in a timely manner. As a result, Mr. Valentine incurred less favorable
tax consequences when he exercised the option than he would have incurred had
the option been timely issued by the Company and exercised immediately
thereafter by Mr. Valentine. The Company, however, gained from this oversight by
receiving a tax benefit. To rectify this matter, in June 1994, the Company
entered into a tax agreement with Mr. Valentine pursuant to which the Company
(i) made payments to Mr. Valentine of $192,267, the amount necessary to
compensate him for the adverse tax
9
<PAGE> 13
consequences, (ii) guaranteed a loan from a bank to Mr. Valentine in the amount
of $279,647 and (iii) made payments to Mr. Valentine in an amount sufficient to
compensate Mr. Valentine for the interest thereon (approximately $24,000 in
1998). The results of this arrangement have not adversely affected the Company's
cash flow, and the Company believes that overall consequences of this
arrangement to the Company's financial performance in any period were not
significant.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and persons who beneficially own more than 10% of
the Company's Common Stock during fiscal year 1998 to file initial reports of
ownership and reports of changes in ownership with the Securities and Exchange
Commission. Such persons are required by the Commission's regulations to furnish
the Company with copies of all Section 16(a) forms filed by such persons.
Based solely on the Company's review of such forms furnished to the Company
for fiscal year 1998 and written representations from certain reporting persons,
the Company believes that all Section 16(a) filing requirements applicable to
the Company's executive officers, directors and more than 10% stockholders were
complied with.
REPORT OF THE BOARD OF DIRECTORS AND COMPENSATION
COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Company's Board of Directors (the
"Committee") has the exclusive authority to establish the cash compensation for
all executive officers of the Company, including the Chief Executive Officer.
The Committee also administers the Company's stock option and purchase plans and
makes grants to executive officers under such plans. The Committee makes general
recommendations regarding the plans to the Board and reviews grants to executive
officers. The Committee and the Board consult with management and approve the
compensation offered to newly hired executives at the time offers are made to
them. Thereafter, on an annual basis at the time of each executive officer's
performance review, the Committee and the Board meets to review and approve the
compensation of each individual executive officer.
The goals of the Committee and the Board are to:
- attract, retain and motivate highly qualified employees and executive
officers who contribute to the long-term success of the Company
- align the compensation of executives with business objectives and
performance
- align incentives for executive officers with the interests of
stockholders in maximizing stock value
Through 1994, it had been the Committee's objective to provide compensation
exclusively through fixed salaries and long-term stock-based incentive awards
which serve to align the interests of the executive officers and stockholders.
The Committee had set salaries at levels which, in the Committee members'
experience, were at or below the median level for technology companies that are
comparable to the Company in age, number of employees and revenue. Commencing
with fiscal year 1995, the Committee and the Board adopted the Management and
Key Employee Performance Bonus Plan which provides for an annual variable
performance award payable in cash tied to specific measures of the Company's
financial performance as well as individual performance based upon individual
performance objectives. The Committee and the Board adopted this change in order
to provide strong performance-based incentives.
As a result of federal tax law, the Company is not allowed a federal income
tax deduction for compensation paid to certain executive officers to the extent
that compensation exceeds $1 million per officer in any fiscal year. No officer
of the Company has received compensation in excess of $1 million to date. The
Committee and the Board will continue to monitor this issue and will formulate a
policy with respect to this limitation on deductibility if and when appropriate.
10
<PAGE> 14
BASE SALARY AND BONUS
For fiscal year 1998, the base salary of each executive officer was set
based upon the results of the executive's performance review. Each executive is
reviewed annually by the Chief Executive Officer and other members of management
and given specific objectives, with the objectives varying based upon the
executive's position and responsibilities and the specific objectives for that
position for the coming year. At the next annual review, the management of the
Company reviews the performance of the executive versus the objectives. The
results of this review are then reported to the Compensation Committee along
with management's compensation recommendation and the Committee then determines
whether base salary should be adjusted for the coming year.
The annual management bonus for each executive officer is a function of a
target bonus multiplied by (i) a factor for the officer's performance, and (ii)
a factor for the Company's financial performance. Performance is measured on an
annual basis. The target bonus for each officer is based upon his or her job
responsibilities within the organization.
LONG-TERM INCENTIVE COMPENSATION
Grants of stock options are designed to align the interests of executive
officers with those of stockholders. The size of these grants is generally set
at a level which the Committee feels is in proportion with the role and
responsibility of the executive, as well as his or her opportunity to affect the
Company's performance, while also being sufficient to attract the executive to
accept employment with the Company. The Committee makes additional awards based
upon changes in job responsibility and annual performance reviews of each
executive officer and will continue to grant future additional options on a
case-by-case basis.
CHIEF EXECUTIVE OFFICER COMPENSATION
The salary for the Company's President and Chief Executive Officer,
Alexandre A. Balkanski, was $216,329 for fiscal year 1998. Dr. Balkanski was
also given a bonus of $294,250 and granted options to purchase 200,000 shares.
In making its decision, the Committee reviewed, in addition to the factors
considered for each executive officer as described above, Dr. Balkanski's
experience and significant contributions to the Company's performance during
1998, which include the Company's product expansion in the digital video
marketplace and the continued growth of DiviCom's broadcast systems business.
The Committee members also rely upon their experience with the compensation
levels of similarly situated chief executive officers in determining Dr.
Balkanski's total compensation and endeavor to keep his total compensation
competitive within the Company's industry.
BOARD OF DIRECTORS COMPENSATION COMMITTEE
<TABLE>
<S> <C> <C>
Donald T. Valentine T. J. Rodgers Donald T. Valentine
Alexandre A. Balkanski Baryn S. Futa Gregorio Reyes
Gregorio Reyes Donald McKinney
</TABLE>
11
<PAGE> 15
COMPARISON OF STOCKHOLDER RETURN
Set forth below is a line graph comparing the annual percentage change in
the cumulative total return on the Company's Common Stock with the cumulative
total return of the Nasdaq Composite Index and the Nasdaq Electronic Components
Index for the period commencing on April 20, 1994(1) and ending on December 31,
1998(2).
COMPARISON OF CUMULATIVE TOTAL RETURN
FROM APRIL 20, 1994 THROUGH DECEMBER 31, 1998:(3)
C-CUBE MICROSYSTEMS INC., THE NASDAQ ELECTRONIC COMPONENTS STOCKS INDEX
AND THE NASDAQ STOCK MARKET INDEX
LOGO
<TABLE>
<CAPTION>
APRIL DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
1994 1994 1995 1996 1997 1998
----- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Nasdaq Stock Market (US).............. 100 103 146 180 221 310
Nasdaq Electronics Components
Stocks.............................. 100 109 181 313 328 507
C-Cube Microsystems Inc............... 100(4) 127(4) 833 493 218 362
</TABLE>
- ---------------
(1) The Company's initial public offering commenced on April 21, 1994. For
purposes of this presentation, the Company has assumed that its initial
offering price of $7.50 would have been the closing sale price on April 20,
1994, the day prior to commencement of trading.
(2) Assumes $100 invested on April 20, 1994 in each investment.
(3) Total return assumes reinvestment of dividends. Past results are not an
indication of future investment returns.
(4) These results are adjusted for the Company's 2 to 1 stock split, effective
December 19, 1995.
12
<PAGE> 16
STOCKHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING
Proposals of stockholders intended to be presented at the next annual
meeting of the stockholders of the Company must be received by the Company at
its offices at 1778 McCarthy Boulevard, Milpitas, California 95035, no later
than November 30, 1999, and satisfy the conditions established by the Securities
and Exchange Commission for stockholder proposals to be included in the
Company's proxy statement for that meeting.
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the only business that the Board of
Directors intends to present or knows that others will present at the meeting is
as set forth above. If any other matter or matters are properly brought before
the meeting, or any adjournment thereof, it is the intention of the persons
named in the accompanying form of proxy to vote the proxy on such matters in
accordance with their best judgment.
By Order of the Board of Directors
/s/ Alexandre A. Balkanski
--------------------------
ALEXANDRE A. BALKANSKI
President and Chief Executive Officer
March 22, 1999
13
<PAGE> 17
1297-PS-99
<PAGE> 18
APPENDIX B
PROXY C-CUBE MICROSYSTEMS INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Alexandre A. Balkanski and Richard
Foreman, and each of them, with full power of substitution, to represent the
undersigned and to vote all of the shares of stock in C-Cube Microsystems Inc.
(the "Company") which the undersigned is entitled to vote at the Annual Meeting
of the Stockholders of the Company to be held at the Holiday Inn - North San
Jose, located at 777 Bellew Drive, Milpitas, California 95035 on April 27, 1999
at 1:30 p.m. Pacific Time and at any adjournment thereof (1) as hereinafter
specified upon the proposals listed on the reverse side and as more particularly
described in the Proxy Statement of the Company dated March 22, 1999 (the "Proxy
Statement"), receipt of which is hereby acknowledged, and (2) in their
discretion, upon such other matters as may properly come before the meeting. The
undersigned hereby acknowledges receipt of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1998.
THE SHARES REPRESENTED HEREBY SHALL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, SUCH SHARES SHALL BE VOTED FOR PROPOSALS 1 AND 2.
---
CONTINUED AND TO BE SIGNED ON REVERSE SIDE.
SEE REVERSE
SIDE
PLEASE MARK
VOTES AS IN
[X] THIS EXAMPLE
A VOTE FOR THE FOLLOWING PROPOSALS IS RECOMMENDED BY THE BOARD OF DIRECTORS.
1. ELECTION OF CLASS II 2. PROPOSAL TO FOR AGAINST ABSTAIN
DIRECTORS. RATIFY THE [_] [_] [_]
APPOINTMENT OF
NOMINEES: DONALD T. VALENTINE, DELOITTE & TOUCHE LLP
ALEXANDRE A. BALKANSKI, PH.D., AS THE COMPANY'S
GREGORIO REYES INDEPENDENT
PUBLIC ACCOUNTANTS
FOR WITHHELD FOR THE FISCAL
[_] [_] YEAR ENDING
DECEMBER 31, 1999.
[-]
---------------------------
FOR ALL NOMINEES EXCEPT AS MARK HERE FOR ADDRESS
NOTED ABOVE CHANGE AND NOTE AT LEFT [_]
MARK HERE IF YOU PLAN TO
ATTEND THE MEETING [_]
WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING IN PERSON, YOU ARE URGED TO SIGN
AND PROMPTLY MAIL THIS PROXY IN THE
RETURN ENVELOPE SO THAT YOUR STOCK MAY
BE REPRESENTED AT THE MEETING.
Signature: ______________ Date _______ Signature: ______________ Date _______
