EXECUTIVE COMPENSATION
The following table presents compensation information for the fiscal years
ending September 30, 2000, 2001 and 2002 paid or accrued to our Chief Executive
Officer and our four other most highly compensated executive officers who were
serving as executive officers as of September 30, 2002.
Summary Compensation Table
Long Term
Compensation
------------
Annual Compensation Awards
---------------------------------------- ------------
Securities
Fiscal Other Annual Underlying
Name and Principal Position Year Salary Bonus Compensation Options
------------------------------------ ------ --------- --------- -------------- ------------
Umang Gupta 2002 $ 244,072 $ 100,000 $ - 1,300,000
Chief Executive Officer 2001 200,645 - - -
2000 200,860 150,000 - 300,000
John Flavio 2002 198,426 19,262 - 70,000
Senior Vice President of Finance and 2001 185,148 13,933 - 75,000
Chief Financial Officer 2000 173,713 36,500 - 30,000
Lloyd Taylor 2002 186,251 25,608 - 60,000
Vice President of Operations 2001 179,588 - - 76,000
2000 164,984 14,630 - 30,000
Donald Aoki 2002 185,794 22,302 - 50,000
Vice President of Engineering 2001 179,154 14,875 - 120,000
2000 168,842 8,500 - 30,000
Richard Rudolph 2002 153,125 - 25,216 (1) 150,000
Vice President of Worldwide Sales 2001 - - - -
2000 - - - -
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(1) Represents an allowance for certain travel expenses.
Option Grants in Fiscal 2002
The following table presents the grants of stock options under our 1999 Equity
Incentive Plan during the fiscal year ended September 30, 2002 to our Chief
Executive Officer and our four other most highly compensated executive officers
who were serving as executive officers as of September 30, 2002.
Individual Grants Potential Realizable Value
------------------------------------------------------------ at
Assumed Annual Rates of
Number of Percent of Stock Price Appreciation
Securities Total Options for
Underlying Granted to Exercise Option Term
Options Employees in Price Expiration ---------------------------
Name Granted Fiscal 2002 Per Share Date 5% 10%
------------------------ ---------- ------------- ----------- ---------- ----------- ------------
Umang Gupta 1,300,000 28.9 % $ 7.52 11-11-11 $ 6,148,074 $ 15,580,426
John Flavio 30,000 0.7 7.52 11-11-11 141,879 359,548
40,000 0.9 7.27 06-30-12 182,883 463,460
Lloyd Taylor 60,000 1.3 7.27 06-30-12 274,324 695,190
Donald Aoki 50,000 1.1 7.27 06-30-12 228,603 579,325
Richard Rudolph 150,000 3.3 8.65 12-16-11 815,991 2,067,881
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All options granted under our 1999 Equity Incentive Plan are either incentive
stock options or nonstatutory stock options. Options granted under our 1999
Equity Incentive Plan generally vest and become exercisable over a four-year
period as to 25% of the shares subject to the option one year from the date of
grant and as to 2.083% of the shares each succeeding month. Options expire 10
years from the date of grant. Options were granted at an exercise price equal to
the fair market value of our common stock. In the year ending September 30,
2002, we granted to our employees options to purchase a total of 4,498,853
shares of our common stock.
Potential realizable values are computed by:
• multiplying the number of shares of common stock subject to a
given option by the market price per share of our common stock
on the date of grant;
• assuming that the aggregate option exercise price derived from
that calculation compounds at the annual 5% or 10% rates shown
in the table for the entire 10 year term of the option; and
• subtracting from that result the aggregate option exercise price.
The 5% and 10% assumed annual rates of stock price appreciation are required by
the rules of the Securities and Exchange Commission and do not represent our
estimate or projection of future common stock prices. The closing price per
share of our common stock as reported on the NASDAQ National Market on September
30, 2002, was $6.57.
Aggregated Option Exercises in Fiscal 2002 and Option Values at September 30,
2002
The following table presents the number of shares of common stock subject to
vested and unvested stock options held as of September 30, 2002 by our Chief
Executive Officer and our four other most highly compensated executive officers
who were serving as executive officers as of September 30, 2002. None of these
individuals exercised stock options during the fiscal year ended September 30,
2002 or held in-the-money options as of September 30, 2002, based on $6.57, the
closing price per share of our common stock on September 30, 2002, as reported
on the NASDAQ National Market.
Number of
Securities Underlying Value of Unexercised
Number of Unexercised Options In-the-Money Options at
Shares at September 30, 2002 September 30, 2002
Acquired Value ----------------------- -------------------------
Name on Exercise Realized Vested Unvested Vested Unvested
-------------------------------- ----------- ---------- --------- --------- --------- ---------
Umang Gupta - $ - 487,500 1,112,500 $ - $ -
John Flavio - - 125,831 191,669 - -
Lloyd Taylor - - 47,353 147,815 - -
Donald Aoki - - 71,249 172,501 - -
Richard Rudolph - - - 150,000 - -
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Each of the options granted to the optionees listed in the table above generally
vests and becomes exercisable over a four-year period as to 25% of the shares
subject to the option one year from the date of grant and as to 2.083% of the
shares each succeeding month. In the case of options as to which we have a right
to repurchase any unvested shares, this right generally lapses over a four-year
period as to 25% of the shares subject to the option one year from the date of
grant and as to 2.083% of the shares each succeeding month. As of September 30,
2002, Mr. Taylor held 12,500 shares subject to our right of repurchase.
Employment Agreement with Chief Executive Officer
We entered into an employment agreement with Umang Gupta, our Chief Executive
Officer, in December 1997 and amended this agreement in November 2001. This
agreement, as amended, establishes Mr. Gupta's
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annual base salary and eligibility for benefits and bonuses. This agreement
continues until it is terminated upon written notice by Mr. Gupta or us. We must
pay Mr. Gupta his salary and other benefits through the date of any termination
of his employment. If his employment is terminated by us without cause or
through his constructive termination due to a material reduction in his salary
or benefits, a material change in his responsibilities or a sale of us if he is
not the Chief Executive Officer of the resulting combined company, we must also
pay his salary for six additional months after that date.
In connection with the November 2001 amendment of this agreement, Mr. Gupta was
granted an option to purchase 1,300,000 shares of common stock at an exercise
price of $7.52 per share. This option is immediately exercisable, subject to our
right to repurchase the shares of common stock upon termination of his
employment. This option vested as to 20,833 shares on January 7, 2002, vests as
to 33,333 shares each month thereafter for 24 months and then vests as to 20,833
shares each month thereafter.
Under the agreement, as amended, all shares subject to Mr. Gupta's options will
vest in full 90 days following a sale of us if Mr. Gupta is not the Chief
Executive Officer of the resulting combined company. If his employment is
terminated by us without cause or through his voluntary termination, and if he
assists in the transition to a successor Chief Executive Officer, vesting of the
shares subject to his options will continue for an additional 12 months. If his
employment is terminated by us without cause or due to his death or through his
constructive termination due to a material reduction in his salary or benefits
or a material change in his responsibilities, the shares subject to his options
will vest in an amount equal to the number that would vest during the six months
following this termination. If his employment is terminated by us for cause or
due to his disability or through his voluntarily termination, the vesting of any
shares subject to his options will cease on the date of termination.
Other Change-of-Control Arrangements
The options that we grant to our executive officers, other than our Chief
Executive Officer, as described above, under our 1999 Equity Incentive Plan
generally provide for acceleration of the vesting of such options upon the
occurrence of specified events. If the executive officer is terminated without
cause following a sale of our company that occurs 12 or more months after the
date of grant of the option, that option vests immediately with respect to all
of the shares subject to that option. For the purposes of this provision, a sale
of our company includes any sale of all or substantially all of our assets, or
any merger or consolidation of us with or into any other corporation,
corporations, or other entity in which more than 50% of our voting power is
transferred. For purposes of this provision, cause means (i) willfully engaging
in gross misconduct that is materially and demonstrably injurious to us; (ii)
willful and continued failure to substantially perform the executive officer's
duties (other than incapacity due to physical or mental illness), provided that
this failure continues after our Board of Directors has provided the executive
officer with a written demand for substantial performance, setting forth in
detail the specific respects in which it believes the executive officer has
willfully and not substantially performed his or her duties and a reasonable
opportunity (to be not less than 30 days) to cure the failure. A termination
without cause includes a termination of employment by an executive officer
within 30 days following any one of the following events: (x) a 10% or more
reduction in the executive officer's salary that is not part of a general salary
reduction plan applicable to all officers of the successor company; (y) a change
in the executive officer's position or status to a position that is not at the
level of Vice President or above with the successor; or (z) relocating the
executive officer's principal place of business, in excess of fifty (50) miles
from the current location of such principal place of business.
The options that we grant to our non-employee directors under the automatic
option grant provision of our 1999 Equity Incentive Plan provide that any
unvested shares subject to these options will become immediately exercisable
upon a transaction that results in a change of control.
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