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EXHIBIT 16
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
DIRECTORS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Shares as of the Record Date by:
(i) each persons (or group of affiliated persons) known to the Company to be the
beneficial owner of more than 5% of the Company's Common Shares, (ii) each
director of the Company, (iii) each of the Company's executive officers named in
the Summary Compensation Table appearing herein, and (iv) all directors and
executive officers of the Company as a group:
SHARES BENEFICIALLY OWNED
--------------------------
BENEFICIAL OWNER NUMBER PERCENT(1)
- -------------------------------------------------------------- --------- ----------
Suhas Patil(2) 1,948,729 15.3%
c/o Cirrus Logic, Inc.
3100 West Warren Avenue
Fremont, CA 94538
Pilgrim Baxter & Associates, Ltd.,(3) 1,358,200 10.6%
825 Duportail Rd
Wayne, PA 19087
Unni S. Warrier(4) 831,964 6.2%
c/o Cybermedia, Inc.
3000 Ocean Park Blvd., Suite 2001
Santa Monica, CA 90405
Leonard L. Backus(5) 4,281 *
Jeffrey W. Beaumont(6) 78,167 *
Robert Davis -- *
Kanwal Rekhi(7) 291,375 2.3%
Ronald S. Posner(8) 264,200 2.1%
James R. Tolonen(9) 32,812 *
All Directors and Executive Officers as a group (8 persons) (10) 3,406,363 26.7%
- -------------------------------
* Less than 1%
(1) Percent Ownership is based on 12,773,348 Common Shares outstanding as
of April 20, 1998. Unless otherwise indicated below, the persons and
entities named in the table have sole voting and sole investment power
with respect to all shares beneficially owned, subject to community
property laws where applicable. Common Shares subject to options that
are currently exercisable or exercisable within 60 days of the Record
Date are deemed to be outstanding and to be beneficially owned by the
person holding such options or warrants for the purpose of computing
the percentage ownership of such person but are not treated as
outstanding for the purpose of computing the percentage ownership of
any other person.
(2) Includes 75,000 shares of Common Stock registered to Personal Urban
Transport Corporation of which Mr. Patil is one of two directors. Mr.
Patil disclaims beneficial ownership as to these shares. Mr. Patil is
the individual owner of 1,723,968 shares subject to the community
property laws of the State of California with respect to the Reporting
Persons's spouse, Jayshree Patil. Additionally, 149,761 shares of
Common Stock are held jointly with Mayashree Patil. Includes 28,125
shares subject to the Company's repurchase option which lapses over
time.
(3) This information was obtained from filings made with the Securities and
Exchange Commission pursuant to Section 13(g) of the Securities
Exchange Act of 1934 ("Exchange Act"). Of such 1,358,200, shares,
Pilgrim Baxter & Associates, Ltd. has sole voting power over 1,333,500
shares, shared voting power over 1,358,200 shares and sole dispositive
power over 1,358,200 shares.
(4) Includes 80,000 shares held by Unnikrishnan S. Warrier, Trustee of the
Anne Lam 1996 Children's Trust UTA dated August 26, 1996, of which Mr.
Warrier disclaims beneficial ownership. Includes 156,508 shares subject
to options that are currently exercisable or exercisable within 60 days
of the Record Date.
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(5) Includes 4,167 shares subject to options that are currently exercisable
or exercisable within 60 days of the Record Date.
(6) Includes 75,375 shares subject to options that are currently
exercisable or exercisable within 60 days of the Record Date.
(7) Represents 37,836 shares held by Kanwal Rekhi, Ann Holt Rekhi and
Navinder Jain, Trustees of the Benjamin Rekhi Trust dated 12/15/89,
37,837 shares held by Kanwal Rekhi, Ann Holt Rekhi and Navinder Jain,
Trustees of the Raj-Ann Kaur Rekhi Trust dated 12/15/89 and 208,559
shares held by Kanwal Rekhi as Trustee of the Rekhi Family Trust dated
12/15/89 and 7,143 shares held by Mr. Rekhi. Includes 28,125 shares
subject to the Company's repurchase option which lapses over time.
(8) Includes 28,125 shares subject to the Company's repurchase option which
lapses over time.
(9) Includes 32,812 shares subject to options that are currently
exercisable or exercisable within 60 days of the Record Date.
(10) Includes 268,862 shares subject to outstanding options which are
currently exercisable or exercisable within \60 days of the Record Date
as referenced in footnotes (2) through (9).
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows, as to the Chief Executive Officer and each
of the other most highly compensated executive officers who earned in excess of
$100,000 in annual salary or bonus (the "Named Officers"), information
concerning compensation awarded to, earned by or paid for services to the
Company in all capacities during 1997, 1996 and 1995.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION SECURITIES
------------------------- UNDERLYING ALL OTHER
YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
---- ------- --------- ----------- --------------
Unni S. Warrier 1997 150,000 169,228 229,000 --
President and Chief 1996 203,461 150,050 2,053
Executive Officer 1995 123,461 500 1,623
Leonard L. Backus 1997 120,000 44,944 -- --
Vice-President, International 1996 76,154 33,120 50,000 2,851
Sales and Marketing 1995 -- -- -- --
Jeffrey W. Beaumont 1997 120,000 5,373 16,000 --
Chief Financial Officer 1996 100,000 -- -- --
1995 4,046 -- 75,000 --
Robert Davis 1997 76,033 34,447 100,000 --
Vice-President, Marketing 1996 -- -- -- --
1995 -- -- -- --
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STOCK OPTION GRANTS AND EXERCISES
The following table sets forth the number and terms of options granted
to the persons named in the Summary Compensation Table during the fiscal year
ended December 31, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL RATES OF STOCK
SECURITIES GRANTED PRICE APPRECIATION FOR OPTION
UNDERLYING TO EMPLOYEES EXERCISE TERM(1)
OPTIONS IN PRICE EXPIRATION ------------------------------
GRANTED FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
----------- ----------- ----------- ----------- ----------- -----------
Unni S. Warrier 20,000 1.5% 9.00 03/13/07 113,201 286,874
209,000 15.5% 14.75 07/30/07 1,938,725 4,913,110
Leonard L. Backus -- -- -- -- -- --
Jeffrey W. Beaumont 16,000 1.2% 9.00 03/13/07 90,561 229,499
Robert Davis 100,000 7.4% 14.75 07/30/97 927,620 2,350,770
- ------------------------------
(1) Under rules promulgated by the Securities and Exchange Commission, the
amounts in these two columns represent the hypothetical gain or "option
spread" that would exist for the options in this table based on assumed
stock price appreciation from the date of grant until the end of such
options' ten-year term at assumed annual rates of 5% and 10%. The 5% and
10% rates of appreciation are specified by the rules of the Securities and
Exchange Commission and do not represent the Company's estimate or
projection of future Common Stock prices. The Company does not necessarily
agree that this method properly values an option. Actual gains, if any, on
option exercises are dependent on the future performance of the Company's
Common Stock and overall market conditions and the timing of option
exercises, if any.
The following table provides information concerning option exercises by
the persons named in the Summary Compensation Table during the fiscal year ended
December 31, 1997 and the value of unexercised options at such date.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS FISCAL
SHARES VALUE YEAR-END(#)(2) YEAR-END($)(3)
ACQUIRED ON REALIZED ------------------------------- ------------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------- ----------- -------- ----------- ------------- ----------- --------------
Unni S. Warrier -- -- 116,975 262,125 1,126,181 1,140,639
Leonard L. Backus -- -- 20,833 29,167 240,892 337,258
Jeffrey W. Beaumont -- -- 53,500 37,500 656,621 551,613
Robert Davis -- -- -- 100,000 -- 31,300
- -----------------------
(1) Calculated by determining the difference between the estimated fair market
value of the security underlying the options on the date of exercise and
the exercise price of the options.
(2) The Company has not granted any stock appreciation rights and its stock
plans do not provide for the granting of such rights.
(3) Calculated by determining the difference between the fair market value of
the securities underlying the options at year end ($15.063 per share as of
December 31, 1997) and the exercise price of the options.
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EMPLOYMENT AGREEMENTS
In April, 1998, the Company entered into employment agreements with
each of Mr. Rekhi and Mr. Tolonen in connection with their appointments as Chief
Executive Officer, and President and Chief Operating Officer, respectively.
The agreements provide, among other things, for annual base salaries of
$275,000 and $250,000 for Messrs. Rekhi and Tolonen, respectively, with bonus
targets of 100% of base salary based upon achievement of performance objectives
and additional sign-on and two subsequent annual bonuses of $356,000, $300,000
and $300,000 for Mr. Rekhi, and $227,500, $200,000 and $200,000 for Mr. Tolonen,
based upon continued employment.
The agreements also provide for the fair market value purchase of
150,000 and 100,000 restricted shares of the Company's common stock by Messrs.
Rekhi and Tolonen respectively, in exchange for full-recourse, interest-bearing
notes. Such shares are subject to a thirty-six month declining repurchase right
by the Company that lapses in the event of certain share price attainment or
certain revenue and profitability achievement.
The agreements also provide for the grant to Mr. Rekhi of an option to
acquire 528,000 shares of the Company's common stock at a $10 per share price,
(a 57% premium over the fair market value on the date of grant); and for the
grant to Mr. Tolonen of an option to acquire 100,000 shares of the Company's
common stock at fair market value on the date of grant, and an option to acquire
306,000 shares at a $10 per share price, (a 57% premium over the fair market
value on the date of grant), all such options vesting over four years.
Certain elements of the salary, bonus, notes, stock option vesting and
lapsing of the Company's repurchase rights, accelerate in the event of
termination either following a change of control or not for cause.
The options and restricted shares granted in connection with these
agreements are not shown in the table of Security Ownership of Certain
Beneficial Owners, Directors, and Management on Page 6 because they were granted
after the record date.
1993 STOCK OPTION PLAN, AS AMENDED
On April 22, 1998 the Board of Directors approved the one-for-one
repricing of stock options granted to optionees who were employees, but not
executive officers ("eligible optionees"), on April 22, 1998. The repricing will
be offered to eligible optionees in exchange for their giving up vesting of 1)
six months, or 2) their length of service as employees of the Company, whichever
is less. The new exercise price of $6.375 per share was the closing sales price
and fair market value of the Company's common stock on the Nasdaq National
Market System on April 21, 1998. The number of stock options potentially
affected is 946,627.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In October 1995, the Company granted options to purchase 75,000 shares
(after the two-for-one reverse stock split which occurred in 1996) of Common
Stock each to Mr. Patil, Mr. Posner and Mr. Rekhi. Such options had a four-year
vesting term but were exercisable immediately, subject to the Company's right to
repurchase which lapsed as the shares vested. These options were exercised by
Mr. Patil, Mr. Posner and Mr. Rekhi, and are included in the table of Security
Ownership of Certain Beneficial Owners, Directors, and Management on page 6.
The Company has entered into indemnification agreements with each of
its directors and officers. These agreements require the Company to indemnify
such individuals to the fullest extent allowed by Delaware law for certain
liabilities to which they may be subject as a result of their affiliation with
the Company.
The Company has a policy whereby all transactions between the Company
and its officers, directors and affiliates will be on terms no less favorable to
the Company than could be obtained from unrelated third parties and will be
approved by a majority of the disinterested members of the Company's Board of
Directors. The Company believes that all transactions set forth above were made
on terms no less favorable to the Company than would have been obtained from
unaffiliated third parties.
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Exchange Act of 1933, as
amended, or the Securities Act of 1934, as amended, that might incorporate
future filings, including this Proxy Statement, in whole or in part, the
following report and the Performance Graph shall not be incorporated by
reference into any such filings.
GENERAL
The Compensation Committee (the "Committee") of the Board of Directors
establishes the overall executive compensation strategies of the Company and
approves compensation elements for the chief executive officer and other
executive officers. The Committee currently is comprised of two independent,
non-employee members of the Board of Directors, none of whom have interlocking
relationships as defined by the Securities and Exchange Commission. The
Committee has available to it such external compensation advice and data as the
Committee deems appropriate to obtain.
Compensation Philosophy and Relationship of Performance. This report
reflects the Compensation Committee's executive officer compensation philosophy
for the year ended December 31, 1997 as endorsed by the Board of Directors. The
resulting actions taken by the Company are shown in the compensation tables
supporting this report. The Compensation Committee either approves or recommends
to the Board of Directors compensation levels and compensation components for
the executive officers. With regard to compensation actions affecting the Chief
Executive Officer, all of the non-employee members of the Board of Directors are
required to approve all elements of the Chief Executive Officer's compensation.
The Compensation Committee's executive compensation policies are
designed to enhance the financial performance of the Company, and thus
stockholder value, by aligning the financial interests of the key executives
with those of stockholders.
The executive compensation program is viewed in total considering all
of the component parts: base salary, annual performance bonus, benefits and
long-term incentive opportunity in the form of stock options and stock
ownership. The annual compensation components consist generally of equal or
lower base salaries than those of companies within the industry combined with
incentive plans based on the Company's financial performance that can result in
total compensation generally in line with those at comparable companies.
Long-term incentives are tied to stock performance through the use of stock
options. Overall, the intent is to have more significant emphasis on variable
compensation components and less on fixed cost components. The Committee
believes this philosophy and structure are in the best interests of the
stockholders.
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Executive compensation for fiscal 1997 primarily consisted of base
salary and performance incentives awarded in the form of stock options for such
period.
Annual Incentive Arrangements. The Company has adopted a program which
provides annual incentive compensation in the form of cash bonuses to key
employees, including the Named Officers, who by the nature of their positions
are deemed sufficiently accountable to impact directly the financial results of
the Company. The program is approved by the Compensation Committee, whose
members are not eligible to participate in the program.
The Committee believes that key executives should have a significant
proportion of total cash compensation subject to specific strategic and
financial measurements. At the beginning of each fiscal year, or upon an
individual being appointed an executive officer, the Committee sets a target
bonus range for each executive officer expressed as a percentage of the
executive's base salary. Performance goals for purposes of determining annual
incentive compensation are established, which include sales, profitability and
other strategic and financial measurements. Senior management, including the
Named Officers, have the potential to earn significantly higher levels of
incentive compensation if the Company exceeds its targets.
The performance goals established at the beginning of 1997 were based
on several strategic and financial measurements including a target level of
profitability and sales and attainment of certain other objectives.
Stock Options. The Compensation Committee of the Board of Directors
generally determines stock option grants to eligible employees including the
Named Officers. The Committee believes that options granted to management
reinforce the Committee's philosophy that management compensation should be
closely linked with stockholder value. Stock options have been granted to all of
the Company's management and key employees.
Other Compensation Plans. The Company has adopted certain broad-based
employee benefit plans in which all employees, including the Named Officers, are
permitted to participate on the same terms and conditions relating to
eligibility and generally subject to the same limitations on the amounts that
may be contributed or the benefits payable under those plans. Under the
Company's 401(k) Plan, which is a defined contribution plan qualified under
Sections 401(a) and 401(k) of the Code, participants, including the Named
Officers, can contribute a percentage of their annual compensation. Although the
401(k) Plan allows for the Company to make matching contributions, the Company
did not make a matching contribution for participants in 1997.
Mr. Warrier's 1997 Compensation. Compensation for the Chief Executive
Officer aligns with the philosophies and practices discussed above for executive
officers in general. All compensation determinations and stock option grants to
the Chief Executive Officer are required to be reviewed and approved by the
Compensation Committee and then ratified by the Board of Directors.
COMPENSATION COMMITTEE
Suhas Patil
Ronald Posner