Starting Salary

Signing Bonus
Annual Bonus
Options awarded when joining

Exhibit 1A
Summary of Compensation Offers
Clear Lake
145000
Included in Base
40% of base + profit sharing of 10000
PY + portion of deal carry
Options on 3840 shares

Exhibit 1B
Sara's 1996 Tax S
If income is over
0
25750
62450
130250
283150

But not over

25750
62450
130250
283150

Exhibit 1A
y of Compensation Offers
WebScale
82500
35000

Davis & Rockefeller

125000
50000 to 75000

20% of base salary

100% to 300% of base salary

107500 in option value

None

Exhibit 1B
Sara's 1996 Tax Schedule
Then taxes are
0
3862.5
14138.5
35156.5
90200.5

Plus
15%
28%
31%
36%
39.60%

Of the pay over

0
25750
62450
130250
283150

Starting Salary
Signing Bonus
Annual Bonus
Options awarded when joining
No of shares
Contribution of option in CTC
CTC

Summary of Compensation Offers

Clear Lake
WebScale
145000
82500
0
35000.00
68000
16500
62.07
107500
3840.00
47667.71
260667.71
120500.00

Black-Scholes Directly in a Excel Sheet

Original spreadsheet by Espen Gaarder Haug

Stock price

137.0 S

Strike price

137.0 X

Years to maturity

5.00 T

Risk-free rate

3.00% r

Volatility

48.0% v

European call value

62.07 call value

European put value

42.98 put value

0.6764
-0.3969

Davis & Rockefeller

125000
50000 to 75000
250000
0

375000.00

d1
d2

Category

1
1

Year

2
2

3
3

4
4

9.86%
Base
Annual Bonus
Option Value

145000 159295.3232
175000 192252.9763
68000 73718.12929
80000 86901.19052
35750.77934 71501.55867 119169.2645 178753.8967

3 years
NPV of Base+Bonus
Taxable Amt
Tax
NPV of returns

679588.6098 480586.268
798757.8742
294381.2182
504376.656

5 years
NPV of Base+Bonus
Taxable Amt
Tax
NPV of returns

1206655.516 1023465.182 814165.2814 575940.2398

1444994.045
550290.742
894703.303

8 years
NPV of Base+Bonus
Taxable Amt
Tax
NPV of returns

2129640.951 1974140.18 1793360.529 1584511.345

2367979.48
915792.9742
1452186.51

255000

5
5

6
6

7
7

8
8
3840

211206.8966 232029.4542 254904.8751 280035.5481

94482.75862 102811.7817 111961.9501 122014.2192
238338.5289

305689.6552

1344517.894 1069993.086 757206.4052 402049.7674

Year
15%
30%
50%
75%
100%

1
2
3
4
5

Vesting
Cumulative Vesting
Vested Shares
15%
15%
576
15%
30%
1152
20%
50%
1920
25%
75%
2880
25%
100%
3840

Black-Scholes Directly in a Excel Sheet

Original spreadsheet by Espen Gaarder Haug

Stock price

137.0 S

Strike price

137.0 X

Years to matur

5.00 T

Risk-free rate

3.00% r

Volatility

48.0% v

European call

62.07 call value

European put

42.98 put value

0.6764
-0.3969

Value of options
35750.779335453
71501.558670905
119169.26445151
178753.89667726
238338.52890302

d1
d2

Exhibit 3
Examples of WebScale's option payoff structure
Information regarding WebScale's options
WebScale stock price at grant date
100
Value of one option at grant date
45
Option-related compensation grant
90000
Number of options received
2000
S&P Index at grant date
1400
S&P return over 2 years
0.2
Adjusted Exercise Price
120
Example: 3 payoff outcomes after 2 years
WebScale's stock price after 2 years
% increase over 2 years
Outperform %
Multiplier
Dollar outperformance
Payoff per option
Total payoff

(1)
120
20%
0%
0.00
0
0
0

(2)
125
25%
5%
4.00
5
20
40000

(3)
130
30%
10%
8.00
10
80
160000

Sara's estimates of
Base salary in 3 years
Annual Bonuses
Annual Option Awards
Probability of employment in the
firm after 3 (5) years

Exhibit 4
Estimates of future compensation and changing
Clear Lake
175000
40% of base + profit sharing of 10000
PY + portion of deal carry
Options on 3840 shares
70% (40%)

Exhibit 4
e compensation and changing jobs
WebScale
125000

Davis & Rockefeller

175000

20% of base salary

100% to 300% of base salary

25000 in option value

None

80% (20%)

90% (60%)

Price
Historical volatility (annualized)
Implied volatility
Dividend payout rate
Correlation with S&P
Beta
Senior Unsecured Debt Rating

Exhibit 5A
Equity Market Data (7th Apr, 2000)
S&P
Clear Lake
1516
137
21%
50%
22%
48%
1.10%
0%
1.00
0.25
1
1.06
NA
A1

WebScale
90
68%
68%
0%
0.20
1.24
B3