NETGEAR, INC.
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PROXY STATEMENT FOR THE
2019 ANNUAL MEETING OF STOCKHOLDERS
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GENERAL INFORMATION
The enclosed Proxy is solicited on behalf of the Board of Directors of NETGEAR, Inc., a Delaware corporation, for use at the Annual Meeting of Stockholders. The Board of Directors has made these materials available to you on the Internet or in printed proxy materials in connection with the solicitation of proxies for use at its 20192022 Annual Meeting of Stockholders, which will take place at 10:00 a.m. Pacific Daylight Time on Thursday, May 30, 2019June 2, 2022. The Annual Meeting will be a completely virtual meeting of stockholders conducted via live audio webcast. You will be able to attend the Annual Meeting by visiting www.virtualshareholdermeeting.com/NTGR2022. To participate in the Annual Meeting, you will need the 16-digit control number included on your Notice, proxy card, or voting instruction form. If you encounter any difficulties accessing the virtual meeting during the check-in or meeting time, please call the technical support number that will be posted on the login page at its executive offices locatedwww.virtualshareholdermeeting.com/NTGR2022. Please be sure to check in by 9:45 a.m. Pacific Daylight Time on June 2, 2022, the day of the Annual Meeting, so we may address any technical difficulties before the Annual Meeting live audio webcast begins. You will not be able to attend the annual meeting in person. If you attend the annual meeting online, you will be able to vote and submit questions at 350 East Plumeria Drive, San Jose, California 95134.
www.virtualshareholdermeeting.com/NTGR2022.This proxy statement contains important information regarding our annual meeting. Specifically, it identifies the proposals on which you are being asked to vote, provides information you may find useful in determining how to vote and describes the voting procedures.
We use several abbreviations in this proxy statement. We may refer to our Company as “NETGEAR,” “we,” “us” or “our.” The term “proxy materials” includes this proxy statement and our Annual Report on Form 10-K for the year ended December 31, 2018,2021, as well as the proxy or voter instruction card if you received or requested printed proxy materials.
We are mailing the proxy materials on or about April 19, 201921, 2022 to all of our stockholders as of the record date, April 1, 2019.4, 2022. Stockholders who owned NETGEAR common stock at the close of business on April 1, 20194, 2022 are entitled to attend and vote at the annual meeting. A list of our record stockholders as of the close of business on the record date will be made available at our headquarters located at 350 E. Plumeria Drive, San Jose, California 95134, during normal business hours for 10 days prior to the meeting. To access the list of record stockholders beginning May 23, 2022 and until the meeting, stockholders should email stockadmin@netgear.com. A stockholder may examine the list for any legally valid purpose related to the meeting. On the record date, approximately 31,466,93029,160,755 shares of our common stock were issued and outstanding and no shares of our preferred stock were issued and outstanding. We had 1968 stockholders of record as of the record date and our common stock was held by approximately 21,33420,200 beneficial owners.
You may also view this proxy statement, as well as our Annual Report on Form 10-K for the year ended December 31, 2018,2021, online at the following address: http:https://materials.proxyvote.com/64111Q.
Notice Regarding theof Internet Availability of Proxy Materials
Pursuant to rules adopted by the Securities and Exchange Commission, we have elected to provide access to the proxy materials over the Internet. Accordingly, we are sending a Notice Regarding theof Internet Availability of Proxy Materials (the “Notice”) to some of our stockholders. All stockholders will have the ability to access the proxy materials on the website referred to in the proxy materials and on the website referred to in the Notice. Instructions on how to access the proxy materials over the Internet or to request a printed copy may be found in the Notice.
Questions for Management and the Board at the Annual Meeting
We plan to have a Q&A session at the annual meeting. Stockholders may submit questions that are relevant to our business live during the annual meeting. Questions may be submitted during the annual meeting through www.virtualshareholdermeeting.com/NTGR2022.
Voting Procedures
As a stockholder, you have the right to vote on certain business matters affecting us. The three (3)four (4) proposals that will be presented at the annual meeting, and upon which you are being asked to vote, are discussed in the sections entitled “Proposal One,”One” through “Proposal Two” and “Proposal Three.”Four” below. Each share of NETGEAR common stock you own entitles you to one vote.
On each matter to be voted upon, you have one vote for each share of common stock you own as of April 4, 2022.
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 | | 2022 PROXY STATEMENT | | | 1 | |
Votes Required for Each Proposal
The vote required, and method of calculation for the proposals to be considered at the annual meeting, are as follows:
Proposal One - Election of Directors.
You may vote “for,” “against” or “abstain” from voting for any or all of the seven (7) directorsnine (9) director nominees. Pursuant to our Bylaws and our Corporate Governance Guidelines, any nominee for director in an uncontested election who receives a greater number of votes “against” his or her election than votes “for” such election shall submit his or her offer of resignation for consideration by our Nominating and Corporate Governance Committee and our Board of Directors. The election of directors pursuant to this proposal is an uncontested election, and therefore, this majority voting standard applies.Proposal Two - Ratification of the Appointment of PricewaterhouseCoopers LLP as Our Independent Registered Public Accounting Firm for the Fiscal Year Ending December 31, 2019.
2022. Ratification of PricewaterhouseCoopers LLP as our independent registered public accounting firm will require the affirmative
vote of a majority of the shares present at the annual meeting and entitled to vote, in person or virtually or represented by proxy. You may vote “for,” “against,” or “abstain” from voting on this proposal.
Proposal Three - Approval of the Non-Binding Advisory Proposal Regarding Executive Compensation.
Approval of the non-binding advisory proposal regarding executive compensation will require the affirmative vote of a majority of the shares present at the annual meeting and entitled to vote, in person or virtually or represented by proxy. You may vote “for,” “against,” or “abstain” from voting on this proposal.
Proposal Four - Approval of an Amendment to the NETGEAR, Inc. 2003 Employee Stock Purchase Plan. Approval of an amendment to the NETGEAR, Inc. 2003 Employee Stock Purchase Plan will require the affirmative vote of a majority of the shares present at the annual meeting and entitled to vote, in person or virtually or represented by proxy. You may vote “for,” “against,” or “abstain” from voting on this proposal.
Abstentions
If you return a proxy or voter instruction card that indicates an abstention from voting on all matters, the shares represented will be counted as present for the purpose of determining a quorum, but they will not be voted on any matter at the annual meeting. Consequently, if you abstain from voting on Proposals Two, Three or Three,Four, your abstention will have the same effect as a vote against such Proposal(s).
Broker Non-Votes
A “broker non-vote” occurs when a broker holding shares for a beneficial owner does not vote on a particular proposal because the broker does not have discretionary voting power with respect to that item and has not received instructions from the beneficial owner as to how to vote on that proposal. Broker non-votes are counted for the purpose of determining the presence or absence of a quorum but are not counted for determining the number of votes cast for or against a proposal.
If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in “street name.” If you hold your shares in street name, it is critical that you cast your vote if you want it to count in the election of directors (Proposal One) and, the approval of the advisory vote regarding our executive compensation (Proposal Three), and the approval of an amendment to the NETGEAR, Inc. 2003 Employee Stock Purchase Plan (Proposal Four). If you hold your shares in street name and you do not instruct your bank, broker or other nominee how to vote for Proposal One, Proposal Three or Proposal Three,Four, no votes will be cast on your behalf for those Proposals.
Your bank, broker or other nominee will, however, continue to have discretion to vote any uninstructed shares on the ratification of the appointment of our independent registered public accounting firm (Proposal Two).
Proxy Solicitation Costs
We will bear the entire cost of proxy solicitation, including the preparation, assembly, printing and mailing of proxy materials. We expect our Corporate Secretary, Andrew W. Kim, to tabulate the proxies and act as inspector of the election. We may reimburse brokerage firms, custodians, nominees, fiduciaries and other persons representing beneficial owners of Common Stock for their reasonable expenses in forwarding solicitation material to such beneficial owners. Our directors, officers and employees may also solicit proxies in person or by other means of communication. Such directors, officers and employees will not be additionally compensated but may be reimbursed for reasonable out-of-pocket expenses in connection with such solicitation.
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| | 2022 PROXY STATEMENT | | | 3 | |
Deadline for Receipt of Stockholder Proposals or Director Nominations for 20202023 Annual Meeting
As a stockholder, you may be entitled to present proposals for action at a forthcoming meeting if you comply with the requirements of the proxy rules established by the Securities and Exchange Commission. Proposals by our stockholders intended to be presented for consideration at our 20202023 Annual Meeting must be received by us no later than December 21, 201922, 2022 (120 calendar days prior to the anniversary of the mailing date of this proxy statement), in order that they may be included in the proxy statement and form of proxy related to that meeting. The submission of the stockholder proposal does not guarantee that it will be included in our 20202023 proxy statement.
The Securities and Exchange Commission rules establish a different deadline with respect to discretionary voting for stockholder proposals that are not intended to be included in a company'scompany’s proxy statement. The proxy card grants the proxy holders discretionary authority to vote on any matter raised at the annual meeting. The discretionary vote deadline for our 20202023 Annual Meeting is March 5, 2020,7, 2023, which is 45 calendar days prior to the anniversary of the mailing date of this proxy statement. If a stockholder gives notice of a proposal after the discretionary vote deadline, our proxy holders will be allowed to use their discretionary voting authority to vote against the stockholder proposal when and if the proposal is raised at our 20202023 Annual Meeting.
In addition, our amended and restated bylaws establish an advance notice procedure with regard to specified matters, including stockholder proposals and director nominations, which are proposed to be properly brought before an annual meeting of stockholders. To be timely, a stockholder'sstockholder’s notice shall be delivered no less than 120 days prior to the date of the annual meeting specified in the proxy statement provided to stockholders in connection with the preceding year'syear’s annual meeting, which is January 31, 2020February 2, 2023 in connection with our 20202023 Annual Meeting. In the event that no annual meeting was held in the previous year or the date of the annual meeting is changed by more than 30 days from the date contemplated at the time of the previous year'syear’s proxy statement, notice by the stockholder must be received not later than the 10th10th business day following the day notice of the date of the meeting was mailed or public disclosure was made, whichever occurs first.
In 2016, we amended our amended and restated bylaws to permit a stockholder, or group of up to 50 stockholders, owning continuously for at least three years shares of our common stock representing an aggregate of at least 3% of our outstanding shares, to nominate and include in our proxy statement director nominees constituting up to the greater of two directors or 20% of the total number of directors then serving on our Board of Directors, provided that the stockholder(s) and nominee(s) satisfy the requirements specified in our amended and restated bylaws. Notice of such “proxy access” director nominees for our 20202023 Annual Meeting must be received no earlier than November 21, 201922, 2022 (150 calendar days prior to the anniversary of the filing date of this definitive proxy statement) and no later than December 21, 201922, 2022 (120 calendar days prior to the anniversary of the filing date of this definitive proxy statement).
A stockholder'sstockholder’s notice shall include the information required by our amended and restated bylaws. A copy of the full text of our amended and restated bylaws is available in the investor relations section of our website at www.netgear.com. Proposals or nominations should be sent to our Corporate Secretary, c/o NETGEAR, Inc., 350 East Plumeria Drive, San Jose, California 95134.
Voting Results
Preliminary voting results will be announced at the annual meeting. In addition, final voting results will be published in a current report on Form 8-K that we expect to file within four business days after the annual meeting. If final voting results are not available to us in time to file a Form 8-K within four business days after the meeting, we intend to file a Form 8-K to publish preliminary results and, within four business days after the final results are known to us, file an additional Form 8-K to publish the final results.
Stockholder Communications to Directors
Stockholders may communicate directly with any of our directors by writing to them c/o NETGEAR, Inc., 350 East Plumeria Drive, San Jose, California 95134. Unless the communication is marked “confidential,” our Corporate Secretary will monitor these communications and provide appropriate summaries of all received messages to the Chairperson of our Nominating and Corporate Governance Committee. Any stockholder communication marked “confidential” will be logged as “received” but will not be reviewed by the Corporate Secretary. Such confidential correspondence will be immediately forwarded to the Chairperson of the Nominating and Corporate Governance Committee for appropriate action. Where the nature of a communication concerns questionable accounting or auditing matters, such communication will be directed to the Audit Committee and our Corporate Secretary will log the date of receipt of the communication as well as (for non-confidential communications) the identity of the correspondent in the Company'sCompany’s records.
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| 4 | | 2022 PROXY STATEMENT | | |
Patrick C.S. Lo is our co-founder and has served as our Chairman and Chief Executive Officer since March 2002. Mr. Lo founded NETGEAR with Mark G. Merrill with the singular vision of providing the appliances to enable everyone in the world to connect to the high speed internet for information, communication, business transactions, education, and entertainment. From 1983 until 1995, Mr. Lo worked at Hewlett-Packard Company, where he served in various management positions in sales, technical support, product management, and marketing in the U.S. and Asia. Mr. Lo was named the Ernst & Young National Technology Entrepreneur of the Year in 2006. Mr. Lo received a B.S. degree in electrical engineering from Brown University. Mr. Lo's experience as a founder and Chief Executive Officer of the Company gives him unique insights into the Company's challenges, opportunities and operations.
Jef T. Grahamhas served as one of our directors since July 2005. Mr. Graham currently is a private investor. From September 2016 to November 2017, Mr. Graham served as Chairman and Chief Executive Officer of Console Connect Inc., a provider of global direct connect solutions. From February 2015 to August 2016, Mr. Graham was a private investor. From January 2006 to January 2015, Mr. Graham served as the Chairman and Chief Executive Officer of RGB Networks, Inc., a provider of video and bandwidth management products. From July 2005 until January 2006, Mr. Graham served as the Executive Vice President, Application Products Group, of Juniper Networks, Inc., a provider of IP networking and security products. From October 2001 to July 2005, Mr. Graham served as the President and Chief Executive Officer of Peribit Networks Inc., a provider of wide area network optimization appliances, which was acquired by Juniper Networks. Before Peribit, Mr. Graham served as the Senior Vice President of the commercial and consumer business units for 3Com Corporation, where he managed networking and connectivity product offerings. From 1993 to 1995, he served as the Chief Executive Officer of Trident Systems, a document management systems integrator. Mr. Graham also worked for Hewlett-Packard Company for 15 years, including ten years in sales and marketing around the world and as general manager of both a hardware and a software division. Mr. Graham holds a
B.A. with Honors in Business Studies from Sheffield Hallam University in the United Kingdom. Mr. Graham has in-depth understanding of networking technology products as well as our markets and channels. He also has rich contacts and relationships in the Silicon Valley technology community, which assists the Company in cultivating business relationships and recruiting.
Bradley L. Maiorino has served as one of our directors since July 2018. Since April 2017, Mr. Maiorino has served as an Executive Vice President at Booz Allen Hamilton Inc., a management and technology consulting firm. From June 2014 to April 2017, he served as Senior Vice President and Chief Information Security Officer at Target Corporation, the second largest general merchandise retailer in the United States. From July 2012 to June 2014, Mr. Maiorino was the Chief Information Security and Technology Risk Officer at General Motors Company, an automotive manufacturing and financing services company. Prior to that, from April 2001 to July 2012, he held various leadership roles in the technology organization of General Electric Company, a global digital industrial company, ultimately serving as Chief Information Security Officer for the company. Mr. Maiorino holds a B.S. degree in professional computer studies from Pace University. Mr. Maiorino brings more than 25 years of experience, with diverse business experience and a track record of building and leading global teams within Fortune 50 firms. He has a deep understanding of technology, security and risk management, and also has significant contacts and relationships in the technology and security community.
Janice M. Roberts has served as one of our directors since February 2019. Ms. Roberts is an experienced global technology executive and venture capitalist based in Silicon Valley, where her board experience spans public, private, and nonprofit organizations. Since April 2014, she has been a partner at Benhamou Global Ventures, where she invests in early stage “cross-border” companies including SaaS, AI-powered platforms, collaboration and IoT solutions. Ms. Roberts currently serves on the boards of RealNetworks, Inc., Zebra Technologies, Inc. and Zynga Inc., and was most recently a director of ARM Holdings Plc until its acquisition by the SoftBank Group in 2016. From 2000 to 2013, Ms. Roberts served as Managing Director of Mayfield Fund, where she continued as a venture advisor until 2014, investing in wireless, mobile, enterprise and consumer technology companies. From 1992 to 2000, Ms. Roberts was employed by 3Com Corporation (later acquired by Hewlett Packard), where she held various executive positions, including Senior Vice President of Global Marketing and Business Development, President of 3Com Ventures and President of the Palm Computing Business Unit. She also serves on the advisory board of Illuminate Ventures and is Co-Chair of GBx Global.org, a curated network of British entrepreneurs and senior technology executives in the San Francisco Bay Area. Ms. Roberts holds a Bachelor of Commerce degree (honors) from the University of Birmingham in the U.K. Ms. Roberts provides our Board with a valuable perspective based on her extensive executive and board-level experience with technology companies in multiple product areas and sectors, including networking and communications products, software, microprocessor technology, gaming and applications, spanning consumer, business and service provider markets.
Gregory J. Rossmannhas served as one of our directors since February 2002. Since April 2016, Mr. Rossmann has served as a General Partner at Oak Investment Management, a late stage growth and private equity investor. From February 2009 to March 2016, Mr. Rossmann was a private investor. From November 2007 to January 2009, Mr. Rossmann served as a Managing Director of The Carlyle Group, a private equity firm. From April 2000 to November 2007, Mr. Rossmann served as a Managing Director of Pequot Capital Management, Inc., a private equity firm. From April 1994 to April 2000, Mr. Rossmann served as Managing Director and partner at Broadview International, an investment banking firm. From June 1991 to April 1994, he worked at Dynatech Corporation, a technology holding company, where he served as manager of new business development. Prior to that, he held various Product Management and Engineering positions at Advanced Micro Devices. Mr. Rossmann is a director of several private companies. Mr. Rossmann received a B.S. degree in Electrical and Computer Engineering from the University of Cincinnati and an M.B.A. from Santa Clara University. Mr. Rossmann's extensive technology, private equity, and investment banking experience allows him to provide the Company with unique perspectives and advice on global markets, corporate development, and acquisition initiatives.
Barbara V. Schererhas served as one of our directors since August 2011. Ms. Scherer is the former Senior Vice President, finance and administration and chief financial officer of Plantronics, Inc. (now known as Poly), a global leader in audio communication devices for businesses and consumers. She served in this position from 1998 to 2012 and was responsible for all aspects of the company's financial management, as well as information technology, legal and investor relations. She was Vice President, finance and administration and chief financial officer of Plantronics from 1997 to 1998. Prior to Plantronics, Ms. Scherer held various executive management positions spanning eleven years in the disk drive industry, was an associate with The Boston Consulting Group, and was a member of the corporate finance team at ARCO in Los Angeles. Ms. Scherer currently serves on the Board of Directors of ANSYS, Inc., a publicly traded engineering simulation software and services company, as well as the Board of Directors of Ultra Clean Holdings, Inc., a publicly traded developer and supplier of systems for the semiconductor capital equipment, flat panel, medical, energy and research industries. From 2004 through 2010, she served as a director of Keithley Instruments, Inc., a publicly traded test and measurement company, until its acquisition by Danaher Corporation. Ms. Scherer received B.A. degrees from the University of California at Santa Barbara and her M.B.A. from the School of Management at Yale University. With extensive hands-on experience in senior management roles with technology
growth companies as well as public company board, committee and Audit Chair service, Ms. Scherer provides the Company with practical and strategic insight into complex financial reporting and management issues as well as significant operational expertise.
Thomas H. Waechter has served as one of our directors since December 2014. Mr. Waechter currently is a private investor. From January 2009 to August 2015, Mr. Waechter served as President, Chief Executive Officer and a member of the board of directors of JDS Uniphase Corporation (now Viavi Solutions Inc.), a leading provider of communications test and measurement solutions and optical products. He previously served as Executive Vice President and President of the Communications Test & Measurement Group of JDS Uniphase Corp. from 2007 until becoming Chief Executive Officer. Prior to that, Mr. Waechter held a wide variety of executive positions, including Chief Operating Officer at Harris Stratex Networks (now Aviat Networks, Inc.), President and Chief Executive Officer at Stratex Networks, President and Chief Executive Officer at REMEC Corporation and President and Chief Executive Officer of Spectrian Corporation. Additionally, he held a number of global executive-level positions during his 14-year career with Schlumberger Ltd. Mr. Waechter also serves as an Executive Advisor to Tensility Venture Partners and is a National Association of Corporate Directors (NACD) Board Leadership Fellow. He holds a Bachelor of Business Administration from The College of William and Mary. As a recent chief executive officer of a public company and as a prior senior executive in a variety of highly relevant technology companies and international industries, Mr. Waechter provides the Company with extensive operational, strategic and executive management experience.
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Committees: • Nominating and Corporate Governance (Chair) • Cybersecurity | | Thomas H. Waechter | | |
| Director Director since: 2014 Age: 69 | | |
| Biography Thomas H. Waechter has served as one of our directors since December 2014. Mr. Waechter currently is a private investor. From January 2009 to August 2015, Mr. Waechter served as President, Chief Executive Officer and a member of the board of directors of JDS Uniphase Corporation (now Viavi Solutions Inc.), a leading provider of communications test and measurement solutions and optical products. He previously served as Executive Vice President and President of the Communications Test & Measurement Group of JDS Uniphase Corp. from 2007 until becoming Chief Executive Officer. Prior to that, Mr. Waechter held a wide variety of executive positions, including Chief Operating Officer at Harris Stratex Networks (now Aviat Networks, Inc.), President and Chief Executive Officer at Stratex Networks, President and Chief Executive Officer at REMEC Corporation and President and Chief Executive Officer of Spectrian Corporation. Additionally, he held a number of global executive-level positions during his 14-year career with Schlumberger Ltd. | | Mr. Waechter also serves as an Executive Advisor to Tensility Venture Partners and is a National Association of Corporate Directors (NACD) Board Leadership Fellow. He holds a Bachelor of Business Administration from The College of William and Mary. Relevant Expertise As a recent chief executive officer of a public company and as a prior senior executive in a variety of highly relevant technology companies and international industries, Mr. Waechter provides the Company with extensive operational, strategic and executive management experience. Other Public Company Boards None |
Vote Required and Board of Directors'Directors’ Recommendation
A nominee receiving a greater number of votes “for” his or her election than votes “against” such election will be elected as a director. Pursuant to our Bylaws and our Corporate Governance Guidelines, any nominee for director in an uncontested election who receives a greater number of votes “against” his or her election than votes “for” such election shall submit his or her offer of resignation for consideration by our Nominating and Corporate Governance Committee and our Board of Directors. The election of directors pursuant to this proposal is an uncontested election, and therefore, this majority voting standard applies.
Our Board of Directors has unanimously approved each of the director nominees listed above and recommends that stockholders vote “FOR” the election of these nominees.
Board and Committee Meetings
Our Board of Directors held a total of twelveseven meetings during 2018.2021. In addition, we strongly encourage the attendance of members of our Board of Directors at the annual meeting. At the 2018 Annual Meeting of Stockholders, allAll of our directors attended in person.
the 2021 Annual Meeting of Stockholders.There are no family relationships between any director or executive officer. Our Board of Directors has standing Audit, Compensation, Cybersecurity, and Nominating and Corporate Governance, and Software and Subscription Committees. Other than Mr. Lo and Mr. Henry, each member of our Board of Directors meets the applicable independence standards and rules of both the Nasdaq Stock Market and the Securities and Exchange Commission.
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| 10 | | 2022 PROXY STATEMENT | | |
In 2018,2021, all of our directors attended 100%at least 96% of the meetings of our Board of Directors and any applicable committee on which they served while they were members of our Board of Directors or the applicable committee.
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Committee | | Year of Inception | | Members at the End of 2021 | | Key Committee Functions | | Meetings Held in 2021 |
Audit | | 2000 | | Laura J. Durr (Chair) Bradley L. Maiorino Janice M. Roberts Barbara V. Scherer | | • Evaluates the adequacy and effectiveness of internal controls over financial reporting, including our disclosure controls and procedures • Appoints independent registered public accounting firm • Reviews annual audit plan of the independent auditor, the results of the independent audit, and the report and recommendations of the independent auditor • Reviews quarterly financial results, earnings releases, and financial statements in connection with filing the Company’s reports on forms 10-K and 10-Q with the Securities Exchange Commission • Reviews and determines the scope, roles and responsibilities of the internal audit function • Determines investment policy and oversees its implementation • Reviews code of business ethics and conflict of interest policy and related certifications • Oversees related party transactions policy | | 9 |
Compensation | | 2000 | | Barbara V. Scherer (Chair) Sarah S. Butterfass Janice M. Roberts | | • Administers our equity plans • Reviews and approves compensation of directors and officers, and makes recommendations to the Board with respect thereto • Reviews and recommends general policies relating to compensation and benefits | | 7 |
Nominating and Corporate Governance | | 2004 | | Thomas H. Waechter (Chair) Shravan K. Goli(1) Jef T. Graham | | • Recommends nomination of Board members • Assists with succession planning for executive management positions • Oversees and evaluates Board performance • Evaluates composition, organization and governance of the Board and its committees | | 6 |
Cybersecurity Committee | | 2017 | | Bradley L. Maiorino (Chair) Laura J. Durr Jef T. Graham Thomas H. Waechter | | • Oversees IT systems policies and procedures, including enterprise cybersecurity and privacy • Oversees incident response policies and procedures • Reviews disaster recovery capabilities • Oversees IT budgetary priorities | | 5 |
Software and Subscription Committee | | 2020 | | Sarah S. Butterfass (Chair) Shravan K. Goli(2) Jef T. Graham Janice M. Roberts | | • Reviews Company’s progress in software infrastructure, service offerings, and subscription models and results • Assists Company’s management in assessing relevant strategic investments and opportunities • Keeps up to date on industry and market trends • Facilitates connections with subject matter experts | | 5 |
| (1) | Shravan K. Goli was a member of the Nominating and Corporate Governance Committee from October 24, 2021. |
| (2) | Shravan K. Goli was a member of the Software and Subscription Committee from October 24, 2021. |
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| | 2022 PROXY STATEMENT | | | 11 | |
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| Committee | | Year of Inception | | Members at the End of 2018 | | Committee Functions | | Meetings Held in 2018 |
| Audit | | 2000 | | Barbara V. Scherer (Chair) Bradley L. Maiorino Julie A. Shimer
| | l | Reviews internal accounting procedures | | 12 |
| l | Appoints independent registered public accounting firm |
| l | Reviews annual audit plan of the independent auditor, the results of the independent audit, and the report and recommendations of the independent auditor |
| l | Evaluates the adequacy of our internal financial and accounting processes and controls |
| l | Determines investment policy and oversees its implementation |
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| Compensation | | 2000 | | Thomas H. Waechter (Chair) Jef T. Graham Barbara V. Scherer
| | l | Administers our equity plans | | 7 |
| l | Reviews and approves compensation of directors and officers, and makes recommendations to the Board with respect thereto |
| l | Reviews and recommends general policies relating to compensation and benefits |
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| Nominating and Corporate Governance | | 2004 | | Julie A. Shimer (Chair) Gregory J. Rossmann Thomas H. Waechter
| | l | Recommends nomination of Board members | | 5 |
| l | Assists with succession planning for executive management positions |
| l | Oversees and evaluates Board performance |
| l | Evaluates composition, organization and governance of the Board and its committees |
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| Cybersecurity Committee | | 2017 | | Bradley L. Maiorino (Chair) Jef T. Graham Gregory J. Rossmann
| | l | Oversees IT systems policies and procedures, including enterprise cybersecurity and privacy | | 4 |
| l | Oversees incident response policies and procedures |
| l | Reviews disaster recovery capabilities
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| l | Oversees IT budgetary priorities |
Audit Committee
Our Board of Directors first adopted a written charter for the Audit Committee in August 2000. A copy of our current amended and restated Audit Committee charter is available in the investor relations section of our website at www.netgear.com. Our Board of Directors has determined that at least one membereach of the Audit CommitteeMs. Scherer and Ms. Durr is an “audit committee financial expert,” as defined in the rules of the Securities and Exchange Commission. None of the membersNo member of the Audit Committee is an employee of NETGEAR. Ms. SchererDurr currently serves as Chair of our Audit Committee.
Compensation Committee
Our Board of Directors first adopted a written charter for the Compensation Committee in August 2000. A copy of our current amended and restated Compensation Committee charter is available in the investor relations section of our website at www.netgear.com. Our Board of Directors has determined that all members of the Compensation Committee meet the non-employee director definition of Rule 16b-3 promulgated under Section 16 of the 1934 Act and the independence standards of the applicable Nasdaq Marketplace Rules. The Compensation Committee may form and delegate authority to subcommittees (consisting solely of Compensation Committee members) when appropriate. Mr. WaechterMs. Scherer currently serves as Chair of our Compensation Committee.
Nominating and Corporate Governance Committee
Our Board of Directors formed a Nominating and Corporate Governance Committee and adopted its written charter in April 2004. A copy of our current amended and restated Nominating and Corporate Governance Committee charter is available in the investor relations section of our website at www.netgear.com. None of the membersNo member of the Nominating and Corporate Governance Committee is an employee of NETGEAR. Dr. ShimerMr. Waechter currently serves as Chair of our Nominating and Corporate Governance Committee.
Our Board of Directors formed a Cybersecurity Committee in June 2017 and adopted its written charter in August 2017. A copy of our current Cybersecurity Committee charter is available in the investor relations section of our website at www.netgear.com. None of the membersNo member of the Cybersecurity Committee is an employee of NETGEAR. Mr. Maiorino currently serves as Chair of our Cybersecurity Committee.
Software and Subscription Committee
Our Board of Directors formed a Software and Subscription Committee in January 2020 and adopted its written charter in April 2020. A copy of our current Software and Subscription committee charter is available in the investor relations section of our website at www.netgear.com. No member of the Software and Subscription Committee is an employee of NETGEAR. Ms. Butterfass currently serves as Chair of our Software and Subscription Committee.
Policy for Director Recommendations and Nominations
The Nominating and Corporate Governance Committee considers candidates for Board membership suggested by members of our Board of Directors, management and stockholders. It is the policy of the Nominating and Corporate Governance Committee to consider recommendations for candidates to our Board of Directors from stockholders who have provided the following written information: the candidate'scandidate’s name; home and business contact information; detailed biographical data and qualifications; information regarding any relationships between the candidate and NETGEAR within the last three years; and evidence of the nominating person'sperson’s ownership or beneficial ownership of NETGEAR stock and amount of stock holdings. The Nominating and Corporate Governance Committee will consider persons recommended by our stockholders in the same manner as a nominee recommended by our Board of Directors, individual Board members or management.
In addition, a stockholder may nominate a person directly for election to our Board of Directors at an annual meeting of our stockholders provided they meet the requirements set forth in our amended and restated bylaws and the rules and regulations of the Securities and Exchange Commission related to stockholder proposals. The process for properly submitting a stockholder proposal, including a proposal to nominate a person for election to our Board of Directors at an annual meeting (either for inclusion in our proxy statement via “proxy access” or not for inclusion in our proxy statement), is described above in the section entitled “General Information - Information—Deadline for Receipt of Stockholder Proposals or Director Nominations for 20202023 Annual Meeting.”
Where the Nominating and Corporate Governance Committee has either identified a prospective nominee or determines that an additional or replacement director is required, the Nominating and Corporate Governance Committee may take such measures that it
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| 12 | | 2022 PROXY STATEMENT | | |
considers appropriate in connection with its evaluation of a director candidate, including candidate interviews, inquiry of the person or persons making the recommendation or nomination, engagement of an outside search firm to gather additional information, or reliance on the knowledge of the members of the committee, the Board or management. In its evaluation of director candidates, including the members of our Board of Directors eligible for re-election, the Nominating and Corporate Governance Committee considers, among other factors:
the current size and composition of the Board of Directors and the needs of the Board of Directors and the respective committees of the Board; and
such factors as judgment, independence, character and integrity, area of expertise, diversity of experience, length of service, and actual or potential conflicts of interest.
With respect to diversity, the Nominating and Corporate Governance Committee also focuses closely on various factors such as diversity of gender, race and national origin, education, professional experience and differences in viewpoints and skills. TheWhile the Nominating and Corporate Governance Committee does not have a formal policy with respect to diversity; however,diversity, the Board and the Nominating and Corporate Governance Committee believe that it is essential that the Board members represent diverse viewpoints.
viewpoints and have deliberately sought out diverse candidates for election to the Board. As a direct result of these efforts, currently four Board members, out of seven independent Board members, are women, and three Board members are considered underrepresented minorities. | | | | | | | | |
| |
| Board Diversity Matrix (As of April 4, 2022)(1) |
| | |
| Total Number of Directors | | 9 |
| | | | | |
| | | Female | | Male | | Non-Binary | | Did not Disclose Gender |
| | | | | |
| Directors | | 4 | | 5 | | — | | — |
| |
| Number of Directors who identify in Any of the Categories Below: |
| | | | | |
| African American or Black | | — | | 1 | | — | | — |
| | | | | |
| Alaskan Native or Native American | | — | | — | | — | | — |
| | | | | |
| Asian | | — | | 2 | | — | | — |
| | | | | |
| Hispanic or Latinx | | — | | — | | — | | — |
| | | | | |
| Native Hawaiian or Pacific Islander | | — | | — | | — | | — |
| | | | | |
| White | | 4 | | 3 | | — | | — |
| | | | | |
| Two or More Races or Ethnicities | | — | | 1 | | — | | — |
| | |
| LGBTQ+ | | — |
| | |
| Did not Disclose Demographic Background | | — |
| (1) | Jef T. Graham is not standing for re-election this year and is excluded from this matrix. |
In connection with its evaluation, the Nominating and Corporate Governance Committee determines whether it will interview potential nominees. After completing the evaluation and review, the Nominating and Corporate Governance Committee may nominate the nominee(s) for election to our Board of Directors.
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| | 2022 PROXY STATEMENT | | | 13 | |
Corporate Governance Policies and Practices
We maintain a corporate governance page in the investor relations section of our website at www.netgear.com. This website includes, among other items, profiles of all of our directors and officers, charters of each committee of the Board, our corporate governance guidelines, our code of ethics, the information regarding our whistleblower policy, and our director and officer stock ownership guidelines.
Our policies and practices reflect corporate governance initiatives that are compliant with the listing requirements of the Nasdaq Stock Market and the corporate governance requirements of the Sarbanes-Oxley Act of 2002, including:
A majority of the members of the Board are independent directors, as defined by the Nasdaq Marketplace rules. Independent directors do not receive consulting, legal or other fees from us other than standard Board and Committee compensation.
Mr. Waechter serves as the lead independent outside director.
The independent directors of the Board meet regularly without the presence of management.
The Board has adopted a code of ethics that is applicable to all of our employees, officers and directors. This code is intended to deter wrongdoing and promote ethical conduct. Directors, officers and employees are required to complete annual surveys relating to their knowledge of any violation of legal requirements or the code of ethics, including any violations of our anti-corruption compliance policy. We will post any amendments to, or waivers from, our code of ethics on our website.website at www.netgear.com.
Directors stand for re-election every year. Pursuant to our Bylaws and our Corporate Governance Guidelines, any nominee for director in an uncontested election who receives a greater number of votes “against” his or her election than votes “for” such election shall submit his or her offer of resignation for consideration by our Nominating and Corporate Governance Committee and our Board of Directors.
The Audit, Compensation, Software and Subscription, Cybersecurity and Nominating and Corporate Governance Committees each consist entirely of independent directors.
The charters of the Board committees clearly establish their respective roles and responsibilities.
At least annually, the Board reviews our business initiatives, capital projects and budget matters.
The Audit Committee reviews and approves all related party transactions.
The Board has implemented a process of periodic self-evaluation of the Board and its Committees.
As part of our Whistleblower Policy, we have made a “whistleblower” hotline available to anyone, including all employees, for anonymous reporting of financial or other concerns. The Audit Committee receives directly, without management participation, all hotline activity reports, including complaints on accounting, internal controls or auditing matters.
Directors are encouraged to attend our annual meeting. While their attendance was not required, all of our directors attended the 20182021 Annual Meeting of Stockholders in person.Stockholders.
Directors and officers are encouraged to hold and own common stock of the Company to further align their interests and actions with the interest of our stockholders, pursuant to our director and officer stock ownership guidelines.
Under our insider trading policy, directors and employees, including our executive officers, are prohibited from hedging or pledging of the Company'sCompany’s securities and from investing in derivatives of the Company'sCompany’s securities.
Environmental, Social and Governance (ESG)
NETGEAR is committed to providing our customers with high-quality products that are environmentally sound and to conducting our operations in a responsible manner. We are committed to complying with local laws and regulations across global locations and care deeply about our social impacts. As stewards of the environment, we consider and plan for the recycling, reuse, or reclamation of our products and packaging. NETGEAR continues to work proactively to reduce or eliminate hazardous materials in our products, helping to protect the health and safety of our employees, our customers, our manufacturing partners, the environment, and our communities. These commitments continue to be a driving force at NETGEAR and reflect principles deeply ingrained in our values.
We maintain sections of our website on these topics at www.netgear.com. These sections include information about our practices in regulatory and environmental compliance, corporate responsibility, diversity and inclusion, privacy, product security and ethics
We are committed to developing transparent and credible reporting on our ESG performance. In March 2022, the SEC announced proposed rules to enhance and standardize climate-related disclosures. We previously published annual sustainability reports, and we plan to publish ESG reports informed by the Sustainability Accounting Standards Board framework and any final rules adopted by the SEC in the future.
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| 14 | | 2022 PROXY STATEMENT | | |
Professional Integrity
Our culture of integrity is one of our most important core values, codified in our Code of Business Ethics and our Anti-Corruption Compliance Policy. We also hold our manufacturing partners and other suppliers to similarly high standards, reflected in our Supplier Code of Conduct. These values are fundamental to how we conduct our business globally.
Diversity and Inclusion
We believe that our employee population should reflect the communities where we live and serve. We are committed to promoting and cultivating an inclusive and diverse culture that welcomes and celebrates everyone without bias. NETGEAR seeks to foster a diverse working environment with gender pay equity, representing a broad spectrum of backgrounds and cultures that promotes innovative ideas and products. We recognize that it takes true diversity and inclusion to unleash the power of each of our employees’ fullest potential. We work every day to go beyond accepting diversity—we celebrate it, support it, and cultivate it by offering employee trainings and ongoing development programs, including CEO Action for Diversity & Inclusion and Employee Resource Groups for Black employees and women.
We demonstrate diversity, equity, and inclusion at the highest levels of our company. As of April 4, 2022, 44% of the members of our Board of Directors are female, and approximately 55% of our executive management team self-identify as diverse in race, ethnicity, or gender. In addition, women represented approximately 23% in technical positions worldwide and approximately 35% in leadership roles worldwide.
Supply Chain
We promote equitable, humane treatment within our business and that of our partners. We work with our employees and suppliers closely to resolve any concerns regarding recruitment, working hours, compensation, discrimination, and freedom of association, ensuring a respectful working environment internally and externally. Additionally, NETGEAR maintains a zero-tolerance policy for forced labor and human trafficking. We believe that the best way to manage our supply chain is to work with the cooperation of suppliers through the establishment of clear expectations and protocols. We engage third-party auditors to conduct onsite supplier audits with corrective action plans should any exceptions be found. We review all audit findings with the factory’s senior management team. We verify that any specific violations found are remedied within a reasonable period of time. Each year, we audit more suppliers across our supply base.
We adhere to conflict minerals regulations in line with our annual conflict minerals statement.
Data Privacy and Product Security
NETGEAR’s mission is to be the innovative leader connecting the world to the internet. To achieve this mission, we strive to earn and maintain the trust of our customers by delivering products that will better protect the privacy and security of our customers’ data.
We appreciate having security concerns brought to our attention and are constantly monitoring our products to get in front of the latest threats. Being proactive rather than re-active to emerging security issues is a fundamental belief at NETGEAR. NETGEAR strives to keep up to date on the latest security developments by working with security researchers and companies.
Climate Change
We recognize the environmental impact of our operations and continue to seek ways to better understand, measure, and reduce our environmental footprint. Since 2014, we have participated in the Carbon Disclosure Project. In 2022, we began the process of aligning our greenhouse gas (GHG) reporting with the GHG Protocol to more accurately capture the emissions associated with our operations and complete value chain. We are also in the process of aligning our reporting with the Taskforce on Climate-Related Financial Disclosures and will continue to monitor and align with any final climate-related disclosure rules adopted by the SEC in the future.
Related Party Transactions
Review, approval or ratification of transactions with related parties
We, or one of our subsidiaries, may occasionally enter into transactions with certain “related parties.” Related parties include our executive officers, directors, nominees for directors, or 5% or more beneficial owners of our common stock and immediate family members of these persons. We refer to transactions in which the related party has a direct or indirect material interest as “related party transactions.” Each related party transaction must be reviewed and approved by the Audit Committee of the Board of Directors prior to the entering into of such transaction.
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| | 2022 PROXY STATEMENT | | | 15 | |
The Audit Committee considers all relevant factors when determining whether to approve a related party transaction including, without limitation, the following:
the extent of the related party'sparty’s interest in the related party transaction;
the aggregate value of the related party transaction;
the benefit to the Company; and
whether the transaction involves the provision of goods or services to the Company that are available from unaffiliated third parties and whether the transaction is on terms and made under circumstances that are at least as favorable to the Company as would be available in comparable transactions with or involving unaffiliated third parties.
20182021 Related Party Transactions
We have determined that there were no related party transactions to disclose in 2018.
2021.Indemnification
We have entered into indemnity agreements with our executive officers and directors which provide, among other things, that we will indemnify such executive officer or director, under the circumstances and to the extent provided for therein, for expenses, damages, judgments, fines and settlements he or she may be required to pay in actions or proceedings which he or she is or may be made a party by reason of his or her position as a director, executive officer or other agent of the Company, and otherwise to the fullest extent permitted under Delaware law and our Bylaws. We intend to execute similar agreements with our future executive officers and directors.
Stockholder Engagement
We believe that effective corporate governance should include regular, constructive conversations with our stockholders. We value our stockholders'stockholders’ continued interest and feedback, and we are committed to maintaining an active dialogue to ensure that we understand our stockholders'stockholders’ priorities and concerns, particularly with respect to our executive compensation practices and corporate governance policies. We endeavor to be accessible to our stockholders to address questions and concerns as they arise, as well as to pro-actively conduct outreach efforts.
In 2018, we were particularly active in our stockholder outreach efforts in connection with our Board's decision, announced in February 2018, to pursue a separation of the Arlo business from NETGEAR. The separation was effected through the contribution of the business, assets and liabilities constituting our Arlo business to a newly formed subsidiary, Arlo Technologies, Inc. ("Arlo"). An initial public offering of newly issued shares of the common stock of Arlo followed in August 2018 (the "Arlo IPO"), and on December 31, 2018, NETGEAR completed a distribution of the shares of Arlo common stock then held by NETGEAR to NETGEAR’s stockholders in a manner generally intended to qualify as tax-free to NETGEAR’s stockholders for U.S. federal income tax purposes (the "Arlo Spin-Off"). At key stages in this process, the Company engagedregularly engages in substantial communications and numerous meetings with many of its significant stockholders to discuss the rationale for this transaction.
Company’s business strategy, its corporate governance and related efforts, and to listen to feedback from these stockholders.Additional examples of recent outcomes from these stockholder engagement efforts include:
our Board'sBoard’s decision to introduce performance stock units into our executive compensation program in 2020, in direct response to stockholder engagement and in furtherance of the Company’s goal of enhancing the link between compensation and performance;
our Board’s decision to pro-actively adopt amendments to our Bylaws and our corporate governance guidelines in 2018 to implement a more robust majority voting policy for uncontested director elections;
our Board'sBoard’s decision to pro-actively propose amendments to our Certificate of Incorporation and Bylaws at our 2017 Annual Meeting to allow stockholders to request special stockholder meetings in certain circumstances;
the final design of our 2016 Equity Incentive Plan, on which we sought specific input from many of our largest institutional stockholders in advance of our 2016 Annual Meeting, where stockholders approved this new equity plan by a significant margin;
our Board'sBoard’s decision to pro-actively adopt amendments to our Bylaws in 2016 to implement proxy access, following input from a number of our large institutional stockholders; and
our Board'sBoard’s decision to pro-actively propose amendments to our Certificate of Incorporation and Bylaws at our 2015 Annual Meeting to eliminate supermajority stockholder vote requirements and replace them with majority vote requirements.
In addition, as described further under Compensation Discussion and Analysis below, the results of our annual say-on-pay advisory votes have demonstrated consistent and significant support for our approach to executive compensation. We also consistently receive positive feedback from institutional stockholders regarding our corporate governance policies and practices.
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| 16 | | 2022 PROXY STATEMENT | | |
Board Leadership Structure
The Board believes that the Company'sCompany’s Chief Executive Officer is best situated to serve as Chairman because he is the director most familiar with the Company'sCompany’s business and industry, and most capable of effectively identifying strategic priorities and leading any discussion about the Company'sCompany’s business. Given Mr. Lo'sLo’s history as a co-founder of the Company, the Board believes this rationale is particularly strong. The Board and management have different perspectives and roles in strategy development. The Company'sCompany’s independent directors bring experience, oversight and expertise from outside the Company and from industry, while the Chief Executive Officer brings company-specific experience and expertise. The Board believes that the combined role of Chairman and Chief Executive Officer promotes strategy development and execution, and facilitates information flow between management and the Board, which are essential to effective governance.
One of the key responsibilities of the Board is to develop strategic direction and hold management accountable for the execution of strategy once it is developed. The Board believes the combined role of Chairman and Chief Executive Officer, together with a lead independent director having the duties described below, is in the best interest of stockholders because it provides the appropriate balance between strategy development and independent oversight of management.
Lead Independent Director
Mr. Waechter has served as the lead independent director since January 2019. As the lead independent director, Mr. Waechter has the responsibility of presiding at all executive sessions of the Board, consulting with the Chairman and Chief Executive Officer on Board and committee meeting agendas, presiding over any portions of Board meetings at which the evaluation or compensation of the Chief Executive Officer is presented or discussed, presiding over any portions of Board meetings at which the performance of the Board is presented or discussed, acting as a liaison between management and the non-management directors, including maintaining frequent contact with the Chairman and Chief Executive Officer and advising him or her on the efficiency of the Board meetings, and facilitating teamwork and communication between the non-management directors and management.
Risk Management
The Board has an active role, as a whole and also at the committee level, in overseeing management of the Company'sCompany’s risks. The Board regularly reviews information regarding the Company'sCompany’s credit, liquidity and operations, as well as the risks related thereto. The Company'sCompany’s Compensation Committee is generally responsible for overseeing the management of risks relating to the Company'sCompany’s executive compensation plans and arrangements. The Audit Committee oversees management of financial risks. The Nominating and Corporate Governance Committee manages risks associated with the independence of the Board of Directors and potential conflicts of interest. The Cybersecurity Committee oversees the Company'sCompany’s management of risks associated with enterprise cybersecurity and related matters. The Software and Subscription Committee manages risks related to software development and subscription services. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board of Directors is regularly informed through committee reports about such risks. In addition, the Company has a Risk Committee that reports to the Board at least annually regarding its findings on enterprise risk and the Company'sCompany’s management of this risk. The Risk Committee is led by the Company'sCompany’s internal audit team and is composed of department heads and leaders across the Company. The Risk Committee meets on a regular basis and reviews enterprise risk across the Company'sCompany’s various functional groups.
Succession Planning
The Board plans for succession to the position of CEO and other senior management positions to help ensure continuity of leadership. To assist the Board in this effort, the CEO provides the Board with an assessment of other executives and their potential as a suitable successor. The CEO and senior management also provide the Board with an assessment of individuals considered to be potential successors to certain other senior management positions. The Board discusses and evaluates these assessments, including in private sessions, and provides feedback to the CEO. Management is responsible for developing retention and development plans for potential successors, and periodic progress reports and reviews are provided to the Board.
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| | 2022 PROXY STATEMENT | | | 17 | |
Director Compensation
The Compensation Committee determines and approves non-employee director compensation. In May 2021, the Compensation Committee engaged Frederic W. Cook & Co., Inc., an independent third-party compensation consulting firm, to conduct a review of non-employee director compensation in comparison to the Peer Group. Based on this review, and guidance from Frederic W. Cook & Co., Inc., the Compensation Committee approved the following increases:
Annual Cash Retainers
Each Effective beginning July 1, 2021, each non-employee member of the Board receives a $35,000$50,000 annual retainer.retainer, increased from $35,000. The lead independent director of the Board and members and chairpersons of each Board committee receive the additional annual retainers described below:
Lead Independent Director. The lead independent director receives an additional annual retainer of $25,000.
Audit Committee. Each member (including the chairperson) of the Audit Committee receives an annual retainer of $12,500, and the chairperson receives an additional annual retainer of $20,000.
Compensation Committee. Each member (including the chairperson) of the Compensation Committee receives an annual retainer of $7,500, and the chairperson receives an additional annual retainer of $10,000.
Cybersecurity Committee. Each member (including the chairperson) of the Cybersecurity Committee receives an annual retainer of $10,000, and the chairperson receives an additional annual retainer of $15,000.
Nominating and Corporate Governance Committee. Each member (including the chairperson) of the Nominating and Corporate Governance Committee receives an annual retainer of $5,000, and the chairperson receives an additional annual retainer of $6,000.
below, with such increases effective beginning July 1, 2021:| • | | Lead Independent Director. The lead independent director receives an additional annual retainer of $30,000, increased from $25,000. |
| • | | Audit Committee. Each member (including the chairperson) of the Audit Committee receives an annual retainer of $15,000, increased from $12,500, and the chairperson receives an additional annual retainer of $20,000. |
| • | | Compensation Committee. Each member (including the chairperson) of the Compensation Committee receives an annual retainer of $10,000, increased from $7,500, and the chairperson receives an additional annual retainer of $10,000. |
| • | | Cybersecurity Committee. Each member (including the chairperson) of the Cybersecurity Committee receives an annual retainer of $10,000, and the chairperson receives an additional annual retainer of $15,000. |
| • | | Nominating and Corporate Governance Committee. Each member (including the chairperson) of the Nominating and Corporate Governance Committee receives an annual retainer of $10,000, increased from $5,000, and the chairperson receives an additional annual retainer of $7,000, increased from $6,000. |
| • | | Software and Subscription Committee. Each member (including the chairperson) of the Software and Subscription Committee receives an annual retainer of $10,000, increased from $7,500, and the chairperson receives an additional annual retainer of $10,000. |
All retainers are paid on a quarterly basis following the end of each quarter and are pro-rated, as needed, for partial service during such period.
Annual RSU Grant. On an annual basis, each non-employee director is eligible to receive an annual grant of a number of restricted common stock units equal to $200,000 divided by the Nasdaq Stock Market closing price of the Company’s common stock on the date of the annual stockholder meeting (rounded down to the nearest whole share), which will become fully vested on the date of the following year’s annual stockholder meeting.
Initial RSU Grant.
Upon joining the Board, each non-employee director is eligible to receive an initial grant of restricted common stock units, in an amount equal to the value of the annual $200,000 grant pro-rated based on the length of services provided from appointment/election to the Board until the following annual stockholder meeting. The restricted stock units, or RSUs, will become fully vested on the date of the following year’s annual stockholder meeting.In order to encourage continuing director education, the Company also has established a budget for external director education of $7,000 over a two-year period for each director. Directors serving on multiple boards are encouraged to obtain pro-rata reimbursement of their director education expenses from each corporation that they serve. Biennially, the Company arranges a specific continuing education session for the Board, as a whole, to attend in connection with one of its regularly scheduled meetings.
The Company’s non-employee directors are entitled to reimbursement for travel (first-class domestic and business-class international airfare) and other related expenses incurred in connection with their attendance at meetings of the Board and Board committees.
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| 18 | | 2022 PROXY STATEMENT | | |
Fiscal Year 20182021 Director Compensation
The following Director Compensation Table sets forth certain information regarding the compensation of our non-employee directors for the 20182021 fiscal year.
|
| | | | | | | | | | | | |
| Name | | Fees Earned In Cash ($) | | Stock Awards ($) (1) | | Option Awards ($) (2) | | Total ($) |
| Jocelyn E. Carter-Miller (3)(4) | | 32,083 |
| | 199,969 |
| | — |
| | 232,052 |
|
| Ralph E. Faison (3)(4) | | 29,167 |
| | 199,969 |
| | — |
| | 229,136 |
|
| Jef T. Graham (3) | | 52,500 |
| | 199,969 |
| | — |
| | 252,469 |
|
| Bradley L. Maiorino (5) | | 28,750 |
| | 183,307 |
| | — |
| | 212,057 |
|
| Janice M. Roberts (6) | | — |
| | — |
| | — |
| | — |
|
| Gregory J. Rossmann (3) | | 50,000 |
| | 199,969 |
| | — |
| | 249,969 |
|
| Barbara V. Scherer (3) | | 75,000 |
| | 199,969 |
| | — |
| | 274,969 |
|
| Julie A. Shimer (3) | | 74,125 |
| | 199,969 |
| | — |
| | 274,094 |
|
| Grady K. Summers (3)(4) | | 42,292 |
| | 199,969 |
| | — |
| | 242,261 |
|
| Thomas H. Waechter (3) | | 57,500 |
| | 199,969 |
| | — |
| | 257,469 |
|
| | | | | | | | |
| | | | |
Name | | Fees Earned
In Cash
($) | | Stock Awards
($)(1) | | Option
Awards
($)(2) | | Total
($) |
| | | | |
Sarah S. Butterfass(3) | | 70,000 | | 199,982 | | — | | 269,982 |
| | | | |
Laura J. Durr(3) | | 66,250 | | 199,982 | | — | | 266,232 |
| | | | |
Shravan K. Goli(4) | | 23,750 | | 154,711 | | — | | 178,461 |
| | | | |
Jef T. Graham(3) | | 68,750 | | 199,982 | | — | | 268,732 |
| | | | |
Bradley L. Maiorino(3) | | 81,250 | | 199,982 | | — | | 281,232 |
| | | | |
Janice M. Roberts(3) | | 73,750 | | 199,982 | | — | | 273,732 |
| | | | |
Gregory J. Rossmann(3) | | 77,500 | | 199,982 | | — | | 277,482 |
| | | | |
Barbara V. Scherer(3) | | 85,000 | | 199,982 | | — | | 284,982 |
| | | | |
Thomas H. Waechter(3) | | 94,000 | | 199,982 | | — | | 293,982 |
| |
| (1) | The amounts included in the “Stock Awards” column represent the full grant date value of non-option stock awards (restricted stock units) granted in 20182021 calculated utilizing the provisions of the authoritative guidance for stock compensation without regard to vesting. For a discussion of the valuation assumptions, see Note 1210 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018.2021. As of December 31, 2018,2021, each Director had the following number of NETGEAR restricted stock units outstanding: Ms. Carter-Miller, 0 NETGEAR and 25,148 ArloButterfass, 5,086 units; Ms. Durr, 5,086 units; Mr. Faison, 0 NETGEAR and 25,148 ArloGoli, 4,447 units; Mr. Graham, 3,308 NETGEAR and 6,551 Arlo5,086 units; Mr. Maiorino, 2,831 NETGEAR and 5,606 Arlo5,086 units; Ms. Roberts, 0 NETGEAR and 0 Arlo5,086 units; Mr. Rossmann, 3,308 NETGEAR and 6,551 Arlo0 units; Ms. Scherer, 3,308 NETGEAR and 6,551 Arlo units; Dr. Shimer, 3,308 NETGEAR and 6,551 Arlo units; Mr. Summers, 2,667 NETGEAR and 30,429 Arlo5,086 units; and Mr. Waechter, 3,308 NETGEAR and 6,551 Arlo5,086 units. |
| |
| (2) | As of December 31, 2018, each Director2021, none of the Directors had the following number of options outstanding: Ms. Carter-Miller, 0 NETGEAR and 0 Arlo options; Mr. Faison, 0 NETGEAR and 0 Arlo options; Mr. Graham, 0 NETGEAR and 0 Arlo options; Mr. Maiorino, 0 NETGEAR and 0 Arlo options; Ms. Roberts, 0 NETGEAR and 0 Arlo options; Mr. Rossmann, 1,787 NETGEAR and 3,599 Arlo options; Ms. Scherer, 0 NETGEAR and 0 Arlo options; Dr. Shimer, 0 NETGEAR and 0 Arlo options; Mr. Summers, 0 NETGEAR and 0 Arlo options; and Mr. Waechter, 0 NETGEAR and 0 Arlo options.outstanding. |
| |
| (3) | On May 31, 2018,27, 2021, each of the then-serving directors was issued 3,3085,086 restricted stock units, which vest entirely on the date of the 20192022 Annual Meeting of Stockholders. Each grant of these restricted stock units had a grant date fair value of $199,969. There were no stock option awards made to the directorsDirectors in 2018.2021. |
| |
| (4) | Ms. Carter-Miller and Messrs. Faison and Summers subsequently forfeited the NETGEAR award for 3,308 restricted stock units onOn August 7, 2018, in connection with their resignation from the NETGEAR Board in order to transition to the Arlo Board of Directors. Arlo subsequently issued each of these individuals 25,148 Arlo restricted stock units with a grant date value of $359,997. |
| |
(5) | On July 2, 2018,19, 2021, Mr. MaiorinoGoli was issued 2,8314,447 restricted stock units in connection with his appointment to the Board, which vest entirely on the date of the 20192022 Annual Meeting of Stockholders. The grant of these restricted stock units had a grant date fair value of $183,307. |
| |
(6) | Ms. Roberts joined our Board in February 2019. |
Director Stock Ownership Guidelines
Our Board of Directors has adopted stock ownership guidelines for our directors and executive officers. In May 2021, our Compensation Committee approved revised stock ownership guidelines for our directors. The revised guidelines require our non-employeedirectors to own a minimum of 5,000 shares of NETGEAR common stock, including restricted stock, restricted stock units and similar instruments.instruments, equal in value to a minimum of 5 times the directors’ annual cash retainer, currently $250,000 (5 times $50,000). New directors have a five-year period in which to achieve the required compliance level. Shares owned directly by a director and all unvested restricted stock units are counted toward the guidelines. All of our directors were in compliance with the guidelines as of December 31, 2018.
Compensation Committee Interlocks and Insider Participation
As noted above, the Company’s Compensation Committee consists of Ms. Butterfass, Ms. Roberts and Ms. Scherer. Our Compensation Committee is responsible for recommending to our Board of Directors salaries, incentives and other forms of compensation for officers and other employees. None of the members of the Compensation Committee is currently or has been at any time an officer or employee of NETGEAR or a subsidiary of NETGEAR. There were no interlocks or insider participation between any member of the Board of Directors or Compensation Committee and any member of the Board of Directors or Compensation Committee of another company.
| | | | | | |
| | 2022 PROXY STATEMENT | | | 19 | |
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
In accordance with its charter, the Audit Committee has selected PricewaterhouseCoopers LLP, independent registered public accounting firm, to audit our financial statements for the fiscal year ending December 31, 20192022 and, with the endorsement of our Board of Directors, recommends to stockholders that they ratify that appointment. PricewaterhouseCoopers LLP served in this capacity for the year ended December 31, 2018.2021. A representative of PricewaterhouseCoopers LLP will be present at the annual meeting and will have the opportunity to make a statement if he or she desires to do so and be available to answer any appropriate questions.
Audit and Related Fees
The following table is a summary of the fees billed to us by PricewaterhouseCoopers LLP for professional services for the years ended December 31, 20182021 and December 31, 2017:
|
| | | | | | | | |
| Fee Category | | 2018 Fees | | 2017 Fees |
| Audit Fees | | $ | 3,099,344 |
| | $ | 2,339,739 |
|
| Audit-Related Fees | | 4,317,000 |
| | — |
|
| Tax Fees | | 2,160,801 |
| | 678,593 |
|
| All Other Fees | | 4,500 |
| | 3,600 |
|
| Total Fees | | $ | 9,581,645 |
| | $ | 3,021,932 |
|
2020: | | | | | | | | |
| | |
Fee Category | | 2021 Fees | | | 2020 Fees | |
| | |
Audit Fees | | | $2,435,124 | | | | $2,228,239 | |
| | |
Audit-Related Fees | | | — | | | | — | |
| | |
Tax Fees | | | 649,658 | | | | 621,650 | |
| | |
All Other Fees | | | 4,150 | | | | 4,500 | |
| | |
Total Fees | | | $3,088,932 | | | | $2,854,389 | |
Audit Fees.
Consists of fees billed for professional services rendered for the audit of our consolidated financial statements and internal control over financial reporting and review of our quarterly interim consolidated financial statements, as well as services that are normally provided by PricewaterhouseCoopers LLP in connection with statutory and regulatory filings or engagements. In 2018, these fees also included services relating to the audit of our discontinued operations associated with the Arlo Spin-Off, implementation of ASC 606 revenue recognition, and pre-implementation review of ASC 842 Leases adoption. Audit-Related Fees.
Consists Consists of fees billed for services that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported above under the caption “Audit Fees.” In 2018, these fees included services relating to the review of Arlo's registration statement on Form S-1 and amendments thereto, comfort letter procedures and other matters in connection with the Arlo IPO, audit of historical carve-out financial statements of Arlo, interim reviews of certain historical financial statements, fees related to carve-out accounting matters and presentation matters, and additional consultations concerning financial accounting and reporting standards.Tax Fees.
Consists of fees billed for professional services including assistance regarding federal, state and international tax compliance and related services, as well as professional services for tax advice and tax planning. In 2018, these fees also included tax services and advice relating to the Arlo IPO, Arlo Spin-Off and related matters, as well as advice on recent federal tax law changes.All Other Fees.
Consists of fees billed for use of an online accounting research tool and disclosure checklist tool provided by PricewaterhouseCoopers LLP.Before selecting and prior to determining to continue its engagement for 20192022 with PricewaterhouseCoopers LLP, the Audit Committee carefully considered PricewaterhouseCoopers LLP'sLLP’s qualifications as an independent registered public accounting firm. This included a review of the qualifications of the engagement team, the quality control procedures the firm has established, as well as its reputation for integrity and competence in the fields of accounting and auditing. The Audit Committee'sCommittee’s review also included matters required to be considered under the Securities and Exchange Commission'sCommission’s rules on auditor independence, including the nature and extent of non-audit services, to ensure that the auditors'auditors’ independence will not be impaired. The Audit Committee pre-approves all audit and non-audit services provided by PricewaterhouseCoopers LLP, or subsequently approves non-audit services in those circumstances where a subsequent approval is necessary and permissible. All of the services provided by PricewaterhouseCoopers LLP described under “Audit-Related Fees,” “Tax Fees,” and “All Other Fees” were pre-approved by the Audit Committee. The Audit Committee of our Board of Directors has determined that the provision of non-audit related services by PricewaterhouseCoopers LLP is compatible with maintaining the independence of PricewaterhouseCoopers LLP as our independent registered public accounting firm.
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| 20 | | 2022 PROXY STATEMENT | | |
Vote Required and Board of Directors'Directors’ Recommendation
Stockholder ratification of the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm is not required by our amended and restated bylaws or other applicable legal requirement. However, our Board of Directors is submitting the selection of PricewaterhouseCoopers LLP to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, our Audit Committee and Board of Directors will reconsider whether or not to retain that firm. Even if the selection is ratified, the Audit Committee at its discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in our best interests and in the best interests of our stockholders.
The affirmative vote by a majority of shares present in person or virtually or represented by proxy at the annual meeting and entitled to vote is required to approve this proposal.
Our Board of Directors has unanimously approved this proposal and recommends that stockholders vote “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019.2022.
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| | 2022 PROXY STATEMENT | | | 21 | |
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
Notwithstanding any statement to the contraryThe material in any of our previous or future filings with the Securities and Exchange Commission, this reportReport of the Audit Committee of ourthe Board of Directors shallis not be“soliciting material,” is not deemed “filed” with the SecuritiesSEC and Exchange Commission or “soliciting material” under the 1934 Act, and shallis not to be incorporated by reference intoin any filing of the Company under the Securities Act or the Exchange Act, other than in NETGEAR’s Annual Report on Form 10-K where it shall be deemed to be furnished, whether made before or after the date hereof and irrespective of any general incorporation language in any such filings.
filing.The Audit Committee, which currently consists of Barbara V. SchererLaura J. Durr (Chair), Bradley L. Maiorino, Janice M. Roberts and Julie A. Shimer,Barbara V. Scherer, evaluates audit performance, manages relations with our independent registered public accounting firm and evaluates policies and procedures relating to internal accounting functions and controls. Our Board of Directors first adopted a written charter for the Audit Committee in September 2000 and most recently amended it in April 2017,2020, which details the responsibilities of the Audit Committee. This report relates to the activities undertaken by the Audit Committee in fulfilling such responsibilities.
The Audit Committee members are not professional auditors, and their functions are not intended to duplicate or to certify the activities of management and the independent registered public accounting firm. The Audit Committee oversees NETGEAR'sNETGEAR’s financial reporting process on behalf of our Board of Directors. NETGEAR'sNETGEAR’s management has the primary responsibility for the financial statements and reporting process, including NETGEAR's systemsNETGEAR’s system of internal controls over financial reporting. In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed with management the audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2018.2021. This review included a discussion of the quality and the acceptability of NETGEAR'sNETGEAR’s financial reporting and internal control over financial reporting, including the clarity of disclosures in the financial statements.
The Audit Committee also reviewed with NETGEAR'sNETGEAR’s independent registered public accounting firm, who are responsible for expressing an opinion on the conformity of NETGEAR'sNETGEAR’s audited financial statements with U.S. generally accepted accounting principles ("GAAP"(“GAAP”), their judgments as to the quality and the acceptability of NETGEAR'sNETGEAR’s financial reporting and such other matters required to be discussed with the Audit Committee under generally accepted auditing standards in the United States, including those described in Auditing Standard No. 1301, "Communications“Communications with Audit Committees,"” as adopted and as may be amended from time to time by the Public Company Accounting Oversight Board (the “PCAOB”). The Audit Committee has received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the PCAOB regarding the independent accountant'saccountant’s communications with the Audit Committee concerning independence. The Audit Committee discussed with the independent registered public accounting firm such auditors'auditors’ independence from management and NETGEAR, including the matters in such written disclosures required by applicable requirements of the PCAOB regarding the independent accountant'saccountant’s communications with the Audit Committee concerning independence.
The Audit Committee further discussed with NETGEAR'sNETGEAR’s independent registered public accounting firm the overall scope and plans for their audits. The Audit Committee meets periodically with the independent registered public accounting firm, with and without management present, to discuss any significant matters regarding internal control over financial reporting that have come to their attention during the audit, and to discuss the overall quality of NETGEAR'sNETGEAR’s financial reporting.
In reliance on the reviews and discussions referred to above, the Audit Committee recommended to our Board of Directors and our Board of Directors approved that the audited financial statements and disclosures under “Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations” be included in the Annual Report on Form 10-K for the year ended December 31, 2018,2021, as filed with the Securities and Exchange Commission on February 22, 2019.
18, 2022.Respectfully submitted by:
LAURA J. DURR (CHAIR)
BRADLEY L. MAIORINO
JANICE M. ROBERTS
BARBARA V. SCHERER (CHAIR)
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| 22 | | 2022 PROXY STATEMENT | | |
BRADLEY L. MAIORINO
JULIE A. SHIMER
APPROVAL OF NON-BINDING ADVISORY VOTE ON EXECUTIVE COMPENSATION
Executive compensation is an important matter for NETGEAR and our stockholders. At the 2017 Annual Meeting of Stockholders, stockholders indicated their preference that the Company solicit a non-binding advisory vote on compensation of the Named Executive Officers, commonly referred to as a “say-on-pay vote,” every year. The Board has adopted a policy that is consistent with that preference. This proposal gives our stockholders the opportunity to cast an advisory vote to approve compensation to our Named Executive Officers set forth in the Summary Compensation Table.
This vote is not intended to address any specific item of compensation, but rather the overall compensation of the Company’s Named Executive Officers and the philosophy, policies and practices described in this proxy statement. Our executive compensation programs aim to address a number of objectives, such as attracting and retaining highly qualified executive officers, rewarding individual contribution, loyalty, teamwork and integrity, and motivating our Named Executive Officers to achieve returns for our stockholders. We believe our compensation program is strongly aligned with the long-term interests of our stockholders. Furthermore, we believe that the various elements of our executive compensation program combine to promote our goal of ensuring that total compensation should be related to both NETGEAR'sNETGEAR’s performance and individual performance.
We urge you to carefully read the Compensation Discussion and Analysis (“CD&A”) section of this proxy statement for additional information regarding our executive compensation, including our compensation philosophy and objectives, and the 20182021 compensation of the Named Executive Officers. The following highlights important aspects of executive compensation with respect to our Named Executive Officers in fiscal year 2018:
Approximately 86%79% of total target compensation for our Named Executive Officers is variable and tied to achievement of internal performance targets or Company performance;
We granted long-term equity awards that link the interests of our Named Executive Officers with those of our stockholders, including stock options that generally vest over four years and only increase in value with an increase in the market price of our common stock, restrictedperformance stock units that generally vest over fourthree years and in certain cases, performance-based restricted stock units that only start to vest upon the achievement of specific corporate goals;the Company attaining a certain number of paid subscriptions, and RSUs that generally vest over four years;
Named Executive Officers are not entitled to any tax gross-up treatment on any severance, change-of-control benefits or other benefits; and
We have clawback provisions for the executive bonus plan for Named Executive Officers and stock option and restricted stock unitRSU award agreements for Named Executive Officers.
We request stockholder approval of the compensation of our Named Executive Officers as disclosed pursuant to the requirements of Section 14A of the 1934 Act and the Securities and Exchange Commission'sCommission’s compensation disclosure rules (which disclosure includes the CD&A, the compensation tables and the narrative disclosures that accompany the compensation tables). Accordingly, we ask our stockholders to vote “FOR” the following resolution at the Annual Meeting:
“RESOLVED, that the Company'sCompany’s stockholders approve, on an advisory basis, the compensation of the Named Executive Officers, as disclosed in the Company'sCompany’s Proxy Statement for the 20192022 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the compensation tables and the other related disclosure.”
Vote Required and Board of Directors'Directors’ Recommendation
As an advisory vote, this proposal is not binding upon the Company. However, the Compensation Committee, which is responsible for designing and administering our executive compensation program, values the opinions expressed by stockholders in their vote on this proposal and will consider the outcome of the vote when making future compensation decisions for Named Executive Officers. The Company intends to conduct an advisory vote to approve the Company'sCompany’s executive compensation annually. The next such vote would be conducted at our 20202023 Annual Meeting of Stockholders.
The affirmative vote by a majority of shares present in person or virtually or represented by proxy at the annual meeting and entitled to vote is required to approve this proposal.
Our Board of Directors has unanimously approved this proposal and recommends that stockholders vote “FOR” the approval of the compensation of our Named Executive Officers.
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| | 2022 PROXY STATEMENT | | | 23 | |
Executive Officers
| | |
| |
 | | Patrick C.S. Lo |
| Chairman and Chief Executive Officer Patrick C.S. Lo is our co-founder and has served as our Chairman and Chief Executive Officer since March 2002. Patrick founded NETGEAR with Mark G. Merrill with the singular vision of providing the appliances to enable everyone in the world to connect to the high-speed Internet for information, communication, business transactions, education, and entertainment. From 1983 until 1995, Mr. Lo worked at Hewlett-Packard Company, where he served in various management positions in sales, technical support, product management, and marketing in the U.S. and Asia. Mr. Lo was named the Ernst & Young National Technology Entrepreneur of the Year in 2006. Mr. Lo received a B.S. degree in electrical engineering from Brown University. |
| | |
| |
 | | David J. Henry |
| President and General Manager of Connected Home Products and Services and Director David J. Henry has served as our President and General Manager of Connected Home Products and Services and as a member of the Board of Directors since July 2021. He has been with NETGEAR since July 2004, most recently serving as our Senior Vice President of Connected Home Products and Services from January 2016 to July 2017, Vice President of Product Management of our retail business unit from March 2011 to January 2016 and as our Senior Director of Product Marketing from October 2010 to March 2011. Prior to NETGEAR, Mr. Henry was a senior product manager for the high technology vertical application at Siebel Systems (acquired by Oracle Corporation). His professional experience also includes business process and information technology consulting with Deloitte Consulting. Mr. Henry received a B.S. degree in Electrical Engineering, with an emphasis on Signal Processing, from the University of Washington and an M.B.A. from the Stanford Graduate School of Business. |
| | |
| |
 | | Bryan D. Murray |
| Chief Financial Officer Bryan D. Murray has served as our Chief Financial Officer since August 2018. He has been with NETGEAR since November 2001, serving in various management roles within the finance organization. Prior to assuming the role of CFO, he served as NETGEAR’s Vice President of Finance and Corporate Controller since June 2011. Before joining NETGEAR in 2001, he worked in public accounting at Deloitte and Touche LLP. He holds a B.A. from the University of California, Santa Barbara, and is licensed as a Certified Public Accountant (inactive). |
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| 24 | | 2022 PROXY STATEMENT | | |
| | |
| |
 | | Heidi B. Cormack |
| Chief Marketing Officer Heidi B. Cormack has served as our Chief Marketing Officer since July 2021 and Senior Vice President of Global Marketing from November 2017 to July 2021. She has been with NETGEAR since July 2009, serving in various management roles within the marketing organization. Prior to assuming the role of Senior Vice President of Global Marketing, Ms. Cormack served as NETGEAR’s Vice President of Corporate Marketing, and Director of Regional Marketing prior to that. Before joining NETGEAR, Ms. Cormack held positions at Virgin Mobile (Australia) PTY Limited, Red Bull Gmbh and Sony Computer Entertainment, Inc. in various marketing roles and completed business studies at the Sunshine Coast Business Academy in Australia. |
| | |
| |
 | | Michael F. Falcon |
| Chief Operations Officer Michael F. Falcon has served as our Chief Operations Officer since November 2017, Senior Vice President of Worldwide Operations and Support from January 2009 to November 2017, Senior Vice President of Operations from March 2006 to January 2009, and Vice President of Operations from November 2002 to March 2006. Prior to joining us, Mr. Falcon was at Quantum Corporation, where he served as Vice President of Operations and Supply Chain Management from September 1999 to November 2002, Meridian Data (acquired by Quantum Corporation), where he served as Vice President of Operations from April 1999 to September 1999, and Silicon Valley Group, where he served as Director of Operations, Strategic Planning and Supply Chain Management from February 1989 to April 1999. Prior to February 1989, Mr. Falcon served in management positions at SCI Systems, an electronics manufacturer, Xerox Imaging Systems, a provider of scanning and text recognition solutions, and Plantronics, Inc., a provider of lightweight communication headsets. Mr. Falcon received a B.A. degree in Economics with honors from the University of California, Santa Cruz and has completed coursework in the M.B.A. program at Santa Clara University. |
| | |
| |
 | | Andrew W. Kim |
| Chief Legal Officer, Senior Vice President of Corporate Development, and Corporate Secretary Andrew W. Kim has served as our Chief Legal Officer, Senior Vice President of Corporate Development and Corporate Secretary since July 2021, Senior Vice President of Corporate Development, General Counsel and Corporate Secretary from July 2013 to July 2021, Vice President, Legal and Corporate Development and Corporate Secretary from October 2008 to July 2013, and as our Associate General Counsel from March 2008 to October 2008. Prior to joining NETGEAR, Mr. Kim served as Special Counsel in the Corporate and Securities Department of Wilson Sonsini Goodrich & Rosati, a private law firm, where he represented public and private technology companies in a wide range of matters, including mergers and acquisitions, debt and equity financing arrangements, securities law compliance and corporate governance from 2000 to 2003 and 2006 to 2008. In between his two terms at Wilson Sonsini Goodrich & Rosati, Mr. Kim served as Partner in the Business and Finance Department of the law firm Schwartz Cooper Chartered in Chicago, Illinois, and was an Adjunct Professor of Entrepreneurship at the Illinois Institute of Technology. Mr. Kim holds a J.D. from Cornell Law School, and received a B.A. degree in history from Yale University. |
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| | 2022 PROXY STATEMENT | | | 25 | |
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| |
 | | Vikram Mehta |
| Senior Vice President, SMB Products and Services Vikram Mehta has served as our Senior Vice President of SMB Products and Services since January 2020 and previously served as our consultant from July 2019 to December 2019. From May 2015 to January 2020, Mr. Mehta served as Managing Director of Pacific Venture Advisors, a technology and management consulting company. Prior to that, from October 2013 to April 2015, he served as President and Chief Executive Officer at Kaazing Corporation, a venture funded IoT software company. Prior to Kaazing and subsequent to IBM’s acquisition of BLADE Network Technologies, Inc. (“BLADE”), Mr. Mehta served as Vice President of System Networking, STG, at IBM, from January 2011 to April 2013. Mr. Mehta served as Founder, President and Chief Executive Officer of BLADE, a networking company, from its inception in February 2006 to its acquisition by IBM in December 2010. Prior to that, Mr. Mehta worked at a number of technology companies, including Hewlett-Packard Company, where he served in various management positions in sales, marketing, and General Management in the U.S., Asia, and Australia, Nortel Networks, Alteon WebSystems (acquired by Nortel Networks) and Ensim Corporation (acquired by Ingram Micro). Mr. Mehta received a B.S. degree in Electrical Engineering from Birla Institute of Technology. |
| | |
| |
 | | Mark G. Merrill |
| Chief Technology Officer Mark G. Merrill is our co-founder and has served as our Chief Technology Officer since March 2015. Previously, Mr. Merrill served as our Senior Vice President of Advanced Engineering from February 2013 to February 2015 and as our Chief Technology Officer from January 2003 to April 2013. From September 1999 to January 2003, he served as Vice President of Engineering and served as Director of Engineering from September 1995 to September 1999. Mr. Merrill received both a B.S. degree and an M.S. degree in Electrical Engineering from Stanford University. |
| | |
| |
 | | Tamesa T. Rogers |
| Chief People Officer Tamesa T. Rogers has served as our Chief People Officer since July 2021, Senior Vice President, Human Resources from July 2013 to July 2021, Vice President, Human Resources from January 2009 to July 2013, Director, Worldwide Human Resources from September 2006 to January 2009 and as our Senior Human Resources Manager from December 2003 to September 2006. From March 2000 to December 2003, Ms. Rogers worked at TriNet Employer Group, a professional employer organization, as a Human Resources Manager, providing HR consulting to technology companies throughout Silicon Valley. Prior to TriNet, Ms. Rogers served in various human resources functions in several Northern California companies. Ms. Rogers received a B.A. in Communication Studies from the University of California, Santa Barbara and an M.S. in Counseling from California State University, Hayward. |
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| 26 | | 2022 PROXY STATEMENT | | |
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| |
 | | Michael A. Werdann |
| Chief Revenue Officer Michael A. Werdann has served as our Chief Revenue Officer since July 2021, Senior Vice President of Worldwide Sales from October 2015 to July 2021, Worldwide Senior Vice President of Sales for Consumer Products from March 2015 to October 2015 and Vice President of Americas Sales from December 2003 to March 2015. Since joining us in 1998, Mr. Werdann has served as our United States Director of Sales, E-Commerce and DMR from December 2002 to December 2003 and as our Eastern Regional Sales Director from October 1998 to December 2002. Prior to joining us, Mr. Werdann worked for three years at Iomega Corporation, a computer hardware company, as a Sales Director for the value-added reseller sector. Mr. Werdann holds a B.S. Degree in Communications from Seton Hall University. |
| | |
| |
 | | Dr. Martin D. Westhead |
| Chief Technology Officer of Software Martin D. Westhead, Ph.D. has served as our Chief Technology Officer of Software since December 2019. Prior to joining NETGEAR, Dr. Westhead was with Groupon from March 2014, where he became VP Engineering for Consumer Engineering team, responsible for the company’s end-to-end customer experience on mobile and web. Prior to Groupon, Dr. Westhead led several software organizations, including at Ning, a social network startup, and Avaya, a telephony company, and founded two companies in network management tools. He lectured for Stanford’s Continuing Studies Business Department. Dr. Westhead received his B.S. and Ph.D. degrees from the Department of AI and Computer Science in the University of Edinburgh, U.K. |
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| | 2022 PROXY STATEMENT | | | 27 | |
PROPOSAL FOUR
APPROVAL OF AMENDMENT TO THE NETGEAR, INC. 2003 EMPLOYEE STOCK PURCHASE PLAN
We are asking our stockholders to approve an amendment to the NETGEAR, Inc. 2003 Employee Stock Purchase Plan, as amended (the “Purchase Plan”). Currently, a total of 2,000,000 shares of our common stock are authorized for sale under the Purchase Plan, of which 120,712 shares remained available for sale as of April 4, 2022. The Purchase Plan is a significant part of our overall equity compensation strategy, especially with respect to our non-executive employees and is one of the primary programs through which our employees may achieve ownership in the Company and thereby share in the success of our Company. Therefore, the Board has approved an amendment to the Purchase Plan to increase the number of shares of NETGEAR, Inc. common stock authorized for sale under the Purchase Plan by 1,000,000 shares to a total of 3,000,000 shares, subject to stockholder approval at the Annual Meeting. As of April 4, 2022, without giving effect to the proposed amendment, a total of 120,712 shares were available for sale under the Purchase Plan. The Purchase Plan is not being amended in any other material respect.
Summary of the Purchase Plan
The following is a summary of the principal features of the Purchase Plan and its operation. The summary is qualified in its entirety by reference to the Purchase Plan as set forth in Appendix A to this proxy statement.
General
The Purchase Plan was originally adopted by the Board in April 2003 and approved by our stockholders in July 2003. The Board approved an amendment to increase the number of shares of NETGEAR, Inc. common stock authorized for sale under the Purchase Plan by 500,000 shares and stockholders approved this amendment at the 2009 Annual Meeting. In 2016, the Board approved another amendment to increase the number of shares of NETGEAR, Inc. common stock authorized for sale under the Purchase Plan by 1,000,000 shares and stockholders approved this amendment at the 2016 Annual Meeting. The purpose of the Purchase Plan is to provide eligible employees with an opportunity to purchase shares of the Company’s common stock through payroll deductions.
Shares Available for Issuance
If our stockholders approve this proposal, an additional 1,000,000 shares of our common stock (for a total of 3,000,000 shares) will be authorized for sale under the Purchase Plan.
Administration
The Board or a committee appointed by the Board (referred to herein as the “Administrator”) administers the Purchase Plan. All questions of interpretation or application of the Purchase Plan are determined by the Administrator and its decisions are final and binding upon all participants.
Eligibility
Generally, each of the Company’s (or the Company’s designated subsidiaries) common law employees whose customary employment with the Company (or one of the Company’s designated subsidiaries) is at least twenty hours per week and more than five months in a calendar year is eligible to participate in the Purchase Plan; except that no employee will be granted an option under the Purchase Plan (i) to the extent that, immediately after the grant, such employee would own or have the right to purchase 5% or more of the total combined voting power or value of all classes of the capital stock of the Company or any parent or subsidiary of the Company, or (ii) to the extent that his or her rights to purchase stock under all of the Company’s or any parent or subsidiary of the Company’s employee stock purchase plans accrues at a rate which exceeds $25,000 worth of stock (determined at the fair market value of the shares at the time such option is granted) for each calendar year in which such option is outstanding at any time. As of April 4, 2022, approximately 704 employees, including all of our executive officers, were eligible to participate in the Purchase Plan.
Offering Period
Unless the Administrator determines otherwise, each offering period under the Purchase Plan will have a duration of approximately six (6) months, commencing on the first trading day on or after February 16 and August 16 of each year and terminating on the following August 15 and February 15, or the immediately preceding trading day if August 15 or February 15 is not a trading day.
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| 28 | | 2022 PROXY STATEMENT | | |
To participate in the Purchase Plan, an eligible employee must authorize payroll deductions pursuant to the Purchase Plan, which may not exceed 10% of a participant’s eligible compensation (which generally includes base straight time gross earnings, commissions, bonuses, overtime and shift premiums, but exclusive of payments for any other compensation) during the offering period, unless the Administrator provides otherwise. During an offering period, a participant may increase or decrease the rate of payroll deductions in an offering period within limits set by the Plan and the Administrator.
Once an employee becomes a participant in the Purchase Plan, the employee continues to participate in each successive offering period until the employee withdraws from the Purchase Plan or the employee’s employment with the Company or one of the Company’s designated subsidiaries terminates. On the first trading day of each offering period, each participant is granted an option to purchase shares of the Company’s common stock. The option expires at the end of the offering period, or potentially earlier in connection with an employee’s termination (described below), but is exercised on the last trading day of the offering period to the extent of the payroll deductions accumulated during such offering period.
Purchase Price
Unless and until the Administrator determines otherwise, the per share purchase price is 85% of the fair market value of a share of common stock on the first trading day or the last trading day of the offering period, whichever is lower. The fair market value of common stock on any relevant date generally will be the closing sales price per share as reported on any established stock exchange or a national market system, as quoted on such exchange or system, as reported in The Wall Street Journal or such other source the Board deems reliable.
Payment of Purchase Price; Payroll Deductions
The number of whole shares of common stock that a participant may purchase in each offering period is determined by dividing the total amount of payroll deductions withheld from the participant’s eligible compensation during that offering period by the purchase price; provided, however, that a participant may not purchase more than 10,000 shares each offering period.
Non-Transferability
Neither payroll deductions credited to a participant’s account nor any rights with regard to the exercise of an option or to receive shares under the Purchase Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or by designation of a beneficiary) by the participant.
Withdrawal
Generally, a participant may withdraw all but not less than all the payroll deductions credited to his or her account and not yet used to exercise his or her option under the Purchase Plan for an offering period at any time prior to the last trading day of the offering period without affecting his or her eligibility to participate in future offering periods. Once a participant withdraws from an offering period, however, that participant may not participate again in the same offering period. To participate in a subsequent offering period, the participant must deliver a new subscription agreement to the Company.
Termination of Employment
Upon termination of a participant’s employment for any reason, including death or disability, he or she will be deemed to have elected to withdraw from the Purchase Plan and any payroll deductions credited to the participant’s account (to the extent not yet used to make a purchase of the Company’s common stock) will be returned to him or her or, in the case of death, to the person or persons entitled thereto as provided in the Purchase Plan, and such participant’s option will automatically be terminated.
Adjustments upon Changes in Capitalization, Dissolution or Liquidation, or Change of Control
Changes in Capitalization. Subject to any required action by our stockholders, in the event of any stock split, reverse stock split, stock dividend, combination or reclassification of our common stock, or any other change in the number of shares of our common stock effected without receipt of consideration by the Company (provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration”), proportionate adjustments will be made to the purchase price per share and the number of shares of common stock covered by each option under the Purchase Plan (which has not yet been exercised), as well as to the number of the shares available for purchase under the Purchase Plan and the per-person numerical limits on the number of shares that may be purchased under the Purchase Plan.
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| | 2022 PROXY STATEMENT | | | 29 | |
Dissolution or Liquidation. In the event of the Company’s proposed dissolution or liquidation, the offering period then in progress will be shortened by setting a new exercise date on which such offering period will end, unless provided otherwise by the Administrator. The new exercise date will be prior to the dissolution or liquidation. If the Administrator shortens any offering period then in progress, the Administrator will notify each participant in writing, at least ten business days prior to the new exercise date, that the exercise date has been changed to the new exercise date and that the participant’s option will be exercised automatically on the new exercise date, unless the participant has already withdrawn from the offering period.
Change of Control. In the event of a “change of control,” as defined in the Purchase Plan, each option under the Purchase Plan will be assumed or an equivalent option will be substituted by the successor corporation or a parent or subsidiary of such successor corporation. In the event the successor corporation refuses to assume or substitute for the options, any offering periods then in progress will be shortened by setting a new exercise date on which such offering period will end. The new exercise date will be prior to the change of control. Further, the Administrator will notify each participant in writing, at least ten business days prior to the new exercise date, that the exercise date has been changed to the new exercise date and that the participant’s option will be exercised automatically on the new exercise date, unless the participant has already withdrawn from the offering period.
Amendment and Termination of the Purchase Plan.
The Purchase Plan will continue in effect until terminated in accordance with the terms of the Purchase Plan. The Administrator may at any time terminate or amend the Purchase Plan. Except as otherwise provided in the Purchase Plan, the termination of the Purchase Plan cannot affect purchase rights previously granted under the plan except as provided by the Purchase Plan, provided that an offering period may be terminated by the Administrator on any exercise date if the Administrator determines that the termination of the Purchase Plan is in the best interests of the Company and its stockholders. To the extent necessary to comply with Section 423 of the Internal Revenue Code or other applicable law or stock exchange rule, the Company will obtain stockholder approval of an amendment or termination in a manner and to the degree required. Without stockholder approval, and without regard to whether any participant rights may be considered to have been adversely affected, the Administrator is entitled to change the offering periods, limit the frequency and/or number of changes in the amount withheld during an offering period, establish the exchange ratio applicable to the amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in the Company’s processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of shares for each participant properly correspond with amounts withheld from the participant’s compensation, and establish such other limitations or procedures as the Administrator determines in its sole discretion advisable which are consistent with the Purchase Plan. In addition, in the event the Administrator determines the ongoing operation of the Purchase Plan may result in unfavorable financial accounting consequences, the Board may, in its discretion, modify or amend the Purchase Plan to reduce or eliminate such accounting consequences.
Participation in Purchase Plan Benefits
Participation in the Purchase Plan is voluntary and is dependent on each eligible employee’s election to participate and his or her determination as to the level of payroll deductions. Accordingly, future purchases under the Purchase Plan are not determinable. Non-employee directors are not eligible to participate in the Purchase Plan. No purchases have been made under the amended Purchase Plan since its adoption by the Board. For illustrative purposes, the following table sets forth (i) the number of shares of our common stock that were purchased during the last fiscal year under the Purchase Plan, (ii) the average price per share paid for such shares, and (iii) the fair market value at the date of purchase. As of April 4, 2022, the closing price of one share of NETGEAR, Inc. common stock was $24.27.
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| 30 | | 2022 PROXY STATEMENT | | |
| | | | | | | | | | | | | | | |
| | | |
Name of Individual or Group | | Number of
Shares
Purchased | | Average
Per Share
Purchase
Price | | Fair Market
Value at
Date of
Purchase |
| | | |
Patrick C.S. Lo Chairman and Chief Executive Officer | | | | 759 | | | | $ | 27.98 | | | | $ | 43.65 | |
| | | |
Bryan D. Murray Chief Financial Officer | | | | 742 | | | | $ | 28.12 | | | | $ | 43.04 | |
| | | |
David J. Henry President, General Manager of Connected Home Product and Services | | | | 758 | | | | $ | 27.99 | | | | $ | 43.62 | |
| | | |
Andrew W. Kim Chief Legal Officer, Senior Vice President of Corporate Development and Corporate Secretary | | | | 693 | | | | $ | 28.57 | | | | $ | 40.99 | |
| | | |
Michael A. Werdann Chief Revenue Officer | | | | 759 | | | | $ | 27.98 | | | | $ | 43.65 | |
| | | |
All current executive officers, as a group | | | | 4,490 | | | | $ | 28.40 | | | | $ | 41.77 | |
| | | |
All directors who are not executive officers, as a group | | | | — | | | | | — | | | | | — | |
| | | |
All employees who are not executive officers, as a group | | | | 166,666 | | | | $ | 28.73 | | | | $ | 40.26 | |
Certain Federal Income Tax Information
The following brief summary of the effect of federal income taxation upon the participant and the Company with respect to the shares purchased under the Purchase Plan does not purport to be complete, and does not discuss the tax consequences of a participant’s death or the income tax laws of any state or foreign country in which the participant may reside.
The Purchase Plan, and the right of participants to make purchases thereunder, is intended to qualify under the provisions of Sections 421 and 423 of the Internal Revenue Code of 1986, as amended. Under these provisions, no income will be taxable to a participant until the shares purchased under the Purchase Plan are sold or otherwise disposed of. Upon sale or other disposition of the shares, the participant will generally be subject to tax in an amount that depends upon the holding period. If the shares are sold or otherwise disposed of more than two years from the first day of the applicable offering period and more than one year from the applicable date of purchase, the participant will recognize ordinary income equal to the lesser of (a) the excess of the fair market value of the shares at the time of such sale or disposition over the purchase price, or (b) an amount equal to 15% of the fair market value of the shares as of the first day of the applicable offering period. The amount of such ordinary income will be added to the participant’s basis in the shares and any additional gain or loss will be treated as long-term capital gain or loss. If the shares are sold or otherwise disposed of before the expiration of these holding periods, the participant will recognize ordinary income generally measured as the excess of the fair market value of the shares on the date the shares are purchased over the purchase price. The amount of such ordinary income will be added to the participant’s basis in the shares and any additional gain or loss on such sale or disposition will be long-term or short-term capital gain or loss, depending on how long the shares have been held from the date of purchase. The Company generally is not entitled to a deduction for amounts taxed as ordinary income or capital gain to a participant except to the extent of ordinary income recognized by participants upon a sale or disposition of shares prior to the expiration of the holding periods described above.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION UPON PARTICIPANTS AND THE COMPANY UNDER THE PURCHASE PLAN. IT DOES NOT PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS THE TAX CONSEQUENCES OF A PARTICIPANT’S DEATH OR THE PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE PARTICIPANT MAY RESIDE.
Vote Required and Board of Directors’ Recommendation
The affirmative vote by a majority of shares present in person or virtually or represented by proxy at the annual meeting and entitled to vote is required to approve this proposal.
Our Board of Directors has unanimously approved this proposal and recommends that stockholders vote “FOR” the approval of the NETGEAR, Inc. 2003 Employee Stock Purchase Plan to increase the number of shares of NETGEAR, Inc. common stock authorized for sale thereunder by 1,000,000 shares to a total of 3,000,000 shares.
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| | 2022 PROXY STATEMENT | | | 31 | |
COMPENSATION DISCUSSION AND ANALYSIS
Contents
Executive Summary
This Compensation Discussion and Analysis provides information about our executive compensation philosophy, the principles that govern our executive compensation program, the key elements of the 20182021 executive compensation program for our Named Executive Officers, or NEOs, and how and why our independent Compensation Committee determined the compensation elements that comprised our 20182021 executive compensation program. Our NEOs for 2018, which2021 include our principal executive officer, each individual who served as our principal financial officer, during the year, and our three other most highly compensated executive officers, were:
officers: | | | | | | | | |
Patrick C.S. Lo Chairman and Chief Executive Officer | | 
Bryan D. Murray Chief Financial Officer | | 
David J. Henry President & General Manager of Connected Home Products and Services and Member of Board of Directors (since July 2021) | | 
Andrew W. Kim Chief Legal Officer, Senior Vice President of Corporate Development and Corporate Secretary (since July 2021) | | 
Michael A. Werdann Chief Revenue Officer (since July 2021) |
•2021 Financial and Operational Highlights
We are a global company that delivers innovative, advanced networking technologies and Internet connected products to consumers, businesses and service providers. Our products are designed to simplify and improve people’s lives. Our goal is to enable people to collaborate and connect to a world of information and entertainment. We remain committed to building value through pursuing profitable growth opportunities in each of our Connected Home and Small and Medium Business segments, while simultaneously maintaining financial discipline and driving innovation through continual investment in research and development. We also have maintained a strong balance sheet and continue to closely manage our expenses, inventory and cash.
We are led by our co-founder/CEO,Patrick C.S. Lo, Chairman and Chief Executive Officer;
•Bryan D. Murray, Chief Financial Officer (since August 2018);
•Michael F. Falcon, Chief Operations Officer;
Andrew W. Kim, Senior Vice Presidentan accomplished team of Corporate Development, General Counsel and Corporate Secretary;
Michael A. Werdann, Senior Vice President of Worldwide Sales; and
Christine M. Gorjanc, Former Chief Financial Officer (until August 2018).
In February 2018, our Board announced its decision to pursue a separation ofexecutives who have extensive experience in the Arlo business from NETGEAR.advanced networking industry. The separation was effected through the contribution of the business, assets and liabilities constituting our Arlo business to a newly formed subsidiary, Arlo Technologies, Inc. ("Arlo"). An initial public offering of newly issued shares of the common stock of Arlo followed in August 2018 (the "Arlo IPO"), and on December 31, 2018, NETGEAR completed a distribution of the shares of Arlo common stock then held byteam has grown NETGEAR to NETGEAR’s stockholders in a manner generally intended to qualify as tax-free to NETGEAR’s stockholders for U.S. federal income tax purposes (the "Arlo Spin-Off").
Effective August 2, 2018, Ms. Gorjanc transitioned to becomebe the Chief Financial Officer of Arlo, and Mr. Murray, NETGEAR's former Vice President of Finance and an employee of NETGEAR since 2001, became the Chief Financial Officer of NETGEAR. Compensation decisions regarding Ms. Gorjanc from August 2018 through the end of the year were made solely by Arlo's Compensation Committee, independent of NETGEAR.
From the time of the Arlo IPO until the Arlo Spin-Off, NETGEAR owned approximately 84.2% of Arlo's outstanding common stock. In addition, as discussed in more detail below, employee holders of NETGEAR stock options and restricted stock units granted before the Arlo IPO, including our NEOs, generally received additional Arlo stock options and Arlo restricted stock units at the time of the Arlo Spin-Off based on a formula agreed upon between NETGEAR and Arlo. As such, certain information in this Compensation Discussion and Analysis andleader in the
Executive Compensation Tables that follow includes Arlo-related compensationU.S. retail WiFi and
Arlo equity awards. The importance of the Arlo separation, IPOSMB switch markets we serve, continually releasing next-generation products and
Spin-Off processservices to fortify our competitive position, improve our customers’ connectivity and experience, and create value for our stockholders. Our team is focused on executing our strategy for growth, including anticipating and driving technology inflections, creating new product categories, and increasing our service subscriber base to provide recurring service revenue. | | | | |
| 32 | | 2022 PROXY STATEMENT | | |
Fiscal 2021 was a challenging year in many respects due to the Companyongoing COVID-19 pandemic and its stockholders, as well assupply challenges, yet we were able to successfully navigate most of these challenges, demonstrating the substantial associated effortstrength of our strategy. Key financial metrics and expense undertaken by the Company, was reflected in a number of key compensation decisions and incentives made by the Company in 2018.
selected operational highlights include: |
✓ Fiscal 2021 net revenue of $1.17 billion; |
✓ Fiscal 2021 GAAP operating income of $66.6 million; |
✓ Fiscal 2021 GAAP net income per diluted share of $1.59; |
✓ Finished the year with 584,000 paid subscribers; |
✓ 27% year over year growth in SMB, led by strong growth in Pro-AV and wireless lan products |
✓ Maintained market leading position in consumer WiFi products and switches sold through U.S. retail and finished the year as the category leader in premium retail WiFi products. |
Compensation Overview
Our independent Compensation Committee makes compensation decisions for our executive officers. The Compensation Committee recognizes our need to retain our NEOs and other executive officers and to motivate them to meet or exceed short-term goals and long-term objectives, while also creating sustainable long-term value for our stockholders. Accordingly, we designed an executive compensation program for 20182021 that tied a substantial portion of the NEOs’ compensation directly to achievement of rigorous performance objectives over a sustained period. We believe the compensation program for our NEOs is instrumental in driving our focus on this long-term growth and strong financial performance, particularly because our approach placed a significant percentage of their compensation at-risk and correspondingly rewarded them when they achieved objectives and delivered stockholder value.
In 2021, our Compensation Committee continued to include performance stock units, or PSUs, as a meaningful portion of long-term incentive compensation for executive officers. The PSUs granted in 2021 have a 3-year performance period and will vest based on the achievement of the Company attaining a certain number of paid subscriptions.
The compensation of our NEOs consists of three main elements:
•base salary and benefits;
•annual cash incentive compensation; and
•long-term incentive compensation, in the form of restricted stock units, or RSUs, and stock options.
Compensation is based on overall company performance as well as individual performance. We seek to position total compensation for Named Executive Officers at or near the median for our Peer Group, as identified below.below, which reflects the highly competitive market in which we operate. We believe that all of these factors help us achieve total compensation for our Named Executive Officers that is fair, reasonable and competitive.
For 2018,2021, our NEOs received payments under our annual cash incentive plan based on the Company’s 20182021 financial results, and certain NEOs also received discretionary retention bonuses in recognition of their efforts to timely complete the Arlo IPO and the Arlo Spin-Off.results. We also granted both optionto our NEOs the PSUs described above and awards andof restricted stock unit awards to our NEOs. units, or RSUs.
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| | 2022 PROXY STATEMENT | | | 33 | |
The charts below depict the total target direct compensation for our Chief Executive Officer and for our other NEOs as a group, based on their 20182021 base salaries, target annual cash incentive opportunities and grant date fair value of equity awards, (not value actually received), as reported in the applicable Executive Compensation Tables following this Compensation Discussion and Analysis:
2018 Financial and Operational Highlights
We are a global networking company that delivers innovative products to consumers, businesses and service providers. We remain committed to pursuing profitable growth opportunitiesExecutive Compensation Practices
NETGEAR’s Compensation Committee emphasizes the following best practices in each of our Connected Home and Small and Medium Business segments, while simultaneously maintaining financial discipline and driving innovation through continual investment in research and development. We also have maintained a strong balance sheet and continue to closely manage our expenses, inventory and cash. In 2018, we achieved several notable financial and operational results (financial results are shown on a continuing operations basis, excluding Arlo):
Net revenue grew to $1.06 billion, an increase of 1.9% compared to 2017;
GAAP operating margin of 3.7% for 2018, compared to 4.1% for 2017;
GAAP net income per diluted share from continuing operations of $0.52, compared to net loss per diluted share from continuing operations of $0.35 in 2017;
Completion of the Arlo IPO and the Arlo Spin-Off;
Several successful product introductions in multiple growth categories across our product portfolio;
Share gain in key markets we serve by providing truly innovative solutions that set us apart from our competition; and
Significant return of capital to stockholders through continuation of the Company's stock repurchase program.
compensation-related governance: | | | | |
What We Do | | | | What We Don’t Do |
✓ Employ a pay-for-performance philosophy reflected in program design and target pay levels ✓ Set challenging targets for executive officers to earn cash incentives ✓ Rely on an independent Compensation Committee and engage an independent compensation consultant ✓ Maintain stock ownership guidelines for executive officers and directors ✓ Maintain a clawback policy ✓ Engage regularly with stockholders | | | | × No guaranteed bonuses × No compensation plans that encourage excessive risk taking × No executive benefits or perquisites outside of participation in broad-based plans × No strict benchmarking of compensation to a specific percentile of our peer group × No tax gross-ups × No short sales, hedging or pledging of stock ownership positions and transactions involving derivatives of our common stock |
General Compensation Philosophy
We compete in an aggressive and dynamic industry and, as a result, we believe that hiring, motivating and retaining quality employees, particularly senior managers, sales personnel and technical personnel, are critical factors to our future success.
Our compensation programs aim to address a number of objectives, including attracting and retaining highly qualified executive officers, rewarding individual contribution, loyalty, teamwork and integrity, supporting employee engagement and motivating management to achieve returns for our stockholders. TheOur Compensation Committee also oversees the Company’s efforts to promote diversity and inclusion in its workforce, as it relates to compensation matters, and oversees management’s efforts to foster a desired corporate culture that aligns with the Company’s values and strategy. For example, the Compensation Committee analyzes pay equity on a regular basis to ensure that employees are compensated equitably across the workforce. Our Compensation Committee, as well as our Board of Directors, does not believe that our compensation policies encourage excessive risk taking by our executives or employees. Our programs are geared for short and long-term performance with the goal of increasing stockholder value over the long term. Our executive compensation program impacts all of our employees by setting general levels of compensation and helping to create an environment of goals, rewards
and expectations. Because we believe the performance of every employee is important to our success, we are mindful of the effect executive compensation and incentive programs have on all of our employees.
We believe that the compensation of our executives should reflect their success as a management team in attaining key short-term and long-term operating objectives, such as growth of sales, operating margins and earnings per share, paid subscribers, market share, long-term
| | | | |
| 34 | | 2022 PROXY STATEMENT | | |
competitive advantage and, ultimately, in attaining and sustaining an increased market price for our common stock. We believe that the performance of our executives in managing the Company, considered in light of general economic conditions, our company and industry, and competitive conditions, should be the basis for determining their overall compensation. We also believe that their compensation should not be based on the short-term performance of our stock, whether favorable or unfavorable, as we expect the price of our stock will reflect our operating performance over the long-term, and ultimately, the management of the Company by our executives.
We annually hold a stockholder advisory vote to approve the compensation of our Named Executive Officers, commonly referred to as a say-on-pay vote. Our stockholders overwhelmingly approved the compensation of our NEOs at our 2021 Annual Meeting, where approximately 93% of stockholder votes cast were in favor of our say-on-pay resolution. As we evaluated our compensation practices and talent needs throughout 2021, we also were mindful of the strong support our stockholders expressed at (1) our 2020 Annual Meeting, where approximately 88% of stockholder votes cast were in favor of our say-on-pay resolution, (2) our 2019 Annual Meeting, where approximately 93% of stockholder votes cast were in favor of our say-on-pay resolution, (3) our 2018 Annual Meeting, where approximately 87% of stockholder votes cast were in favor of our say-on-pay resolution. As we evaluated our compensation practices resolution, and talent needs throughout 2018, we also were mindful of the strong support our stockholders expressed at(4) our 2017 Annual Meeting, where approximately 92% of stockholder votes cast also were in favor of our say-on-pay resolution. As discussed above under “Proposal One - One—Stockholder Engagement,” we greatly value regular input from our stockholders, particularly with respect to our executive compensation practices. Consistent with this commitment to engagement, communication and transparency, the Compensation Committee continues to regularly review our executive compensation program to ensure alignment between the interests of our executives and our stockholders. The Compensation Committee considered the results of these recent say-on-pay votes, investor input and current market practices. As a result, our Compensation Committee retained our philosophy of linking compensation to our operating objectives and the enhancement of stockholder value, and continued our general approach to executive compensation, with an emphasis on short and long-term incentive compensation that rewards our most senior executives when they help deliver on our objectives.
| | |
Compensation Objectives and Philosophy |
| Objectives | | The executive compensation program is designed to attract and retain highly qualified executive officers, reward individual contribution, loyalty, teamwork and integrity, and motivate management to achieve returns for stockholders. Programs are geared for short-and long-term performance with the goal of increasing stockholder value over the long term. |
| Philosophy | | The Compensation Committee’s approach emphasizes setting total compensation for executives, which consists of base salary and benefits, annual cash incentive awards, and long-term incentive awards, at or near the market median. Performance of executives is considered in light of general economic conditions, the Company and industry, and competitive conditions when determining overall compensation. |
Designing a Competitive Compensation Package
Recruitment and retention of our Named Executive Officers and other executive management require a competitive compensation package. Our Compensation Committee has the responsibility for evaluating the executive compensation plans, policies, and programs and making such recommendations or changes as it deems appropriate. Our Compensation Committee'sCommittee’s approach emphasizes fixingsetting total compensation for executives, which consists of base salary and benefits, annual cash incentive and long-term incentive awards, at or near the median of our peer group (the “Peer Group”). For 20182021 compensation comparison purposes, the Peer Group was reviewed and updated in the first half of 20182021 by Frederic W. Cook & Co., Inc., the Compensation Committee'sCommittee’s independent compensation consultant, with input from our Chief Executive Officer and our Compensation Committee and final approval by the Compensation Committee. The 20182021 updates to our Peer Group relative to 20172020 included removing ARRIS International plc (substantially more revenue than the Company)Fortinet, Inc., Brocade Communications Systems, Inc. (acquired) and Quantum Corp. (substantially less revenue than the Company).based on its higher market capitalization. The 20182021 updates also included adding three new companies, EchoStar Corporation, Lumentum Holdings Inc. and Oclaro,GoPro, Inc., allRibbon Communications Inc., and Sonos, Inc., each of which met the objective size and industry criteria as well as other factors that the compensationCompensation Committee deemed relevant. The Peer Group for 20182021 consists of 1619 U.S. publicly traded companies from the computer peripheral, and communications equipment, and consumer electronics industries of relatively similar annual revenue and market capitalization as compared to us:
|
| | |
| COMPENSATION PEER GROUP |
ADTRAN, Inc. CalAmp Calix Ciena Corporation Comtech Telecommunications EchoStar Corporation Extreme Networks, Inc. F5 Networks, Inc. GoPro, Inc. Infinera Corp. | | Infinera Corp. |
Ciena Corporation | | Logitech International S.A. |
Cray Inc. | | Lumentum Holdings Inc. |
EchoStar Corporation | | Oclaro,NetScout Systems, Inc. |
Extreme Networks, Inc. | | Plantronics, Inc. |
F5 Networks,Ribbon Communications Inc. | | Sonos, Inc. Super Micro Computer, Inc. |
Finisar Corp. | | ViaSat, Inc. |
Fortinet, Inc. | | Viavi Solutions Inc. |
For companies within the Peer Group, the median annual revenue at the time of the last review in January 2021 was approximately $1.2$1.38 billion, the median operating income was approximately $98 million, and the median market capitalization (twelve-month average) was approximately $2.1
| | | | | | |
| | 2022 PROXY STATEMENT | | | 35 | |
$2.13 billion. Relative to the Peer Group at the time of review, the Company ranked at approximately the 45th47th percentile by revenue (trailing four quarters), the 50th percentile by operating income (trailing four quarters), and at the 40th13th percentile by market capitalization.
capitalization (twelve-month average).Each element of compensation as well as total compensation are quantified and reviewed to determine the Company'sCompany’s competitiveness compared to the Peer Group. Precise comparisons of some forms of compensation are not possible due to lack
of data or different valuation approaches for compensation that is contingent, of uncertain duration or not dollar or share-based. Therefore, certain comparisons are based on observations generally rather than comparison survey data.
In determining the appropriate individual compensation levels for Named Executive Officers, the Compensation Committee considers the Peer Group compensation data as well as the individual'sindividual’s tenure, experience, skills, and individual and Company performance. Compensation levels for all Named Executive Officers, except our CEO, are developed by the Compensation Committee in consultation with our CEO and anour independent third-party compensation consultant. The Compensation Committee engages in an active dialogue with our CEO concerning the Company'sCompany’s strategic objectives and performance targets. The Compensation Committee reviews the appropriateness of the financial measures used in the incentive plans and the degree of difficulty in achieving specific performance targets. The Compensation Committee also reviews with our CEO the individual responsibilities, abilities and objectives achieved in the prior year for each of the Named Executive Officers. In the case of the CEO, the Compensation Committee develops its own recommendation with the assistance of its independent compensation consultant in executive session without the CEO, or any other member of management, present. The Compensation Committee also consults with the other independent members of the Board regarding CEO compensation, without the CEO or other management present. The Compensation Committee then independently reviews and approves the compensation for Named Executive Officers and other executive officers.
| | | | | | |
| | | Component | | Primary Purpose |
| | |
| | | | Base Salary | | Target base salaries for Named Executive Officers at or near the median of the Peer Group to provide a fixed pay element and facilitate a competitive recruitment and retention strategy. |
| | |
| Performance-Based | | | Annual Incentive Compensation | | Our Named Executive Officers, other than Mr. Werdann, participate in our executive bonus plan and are eligible to earn a cash bonus primarily based upon the level of annual non-GAAP operating income achieved by the Company relative to a target established at the beginning of the calendar year. Mr. Werdann participates in a sales commission plan and is eligible to receive a cash commission based upon a modified measure of net revenue and profit contribution achieved by the Company relative to target objectives derived from the Company’s annual operating plan and established at the beginning of the calendar year. |
| Long-Term Incentive Compensation | | We provide equity-based long-term incentives to link compensation with shareholder value, drive long-term performance, and support retention. In 2021, we continued to include PSUs in our executive compensation program, in furtherance of the Compensation Committee’s goal of enhancing the link between compensation and performance against long-term performance goals. |
Compensation Committee Consultant
The Compensation Committee engaged Frederic W. Cook & Co., Inc., an independent third-party compensation consulting firm, to assist in updating the Peer Group in 20182021 and in gathering general industry compensation data. The consultant reports directly to the Compensation Committee but was authorized by the Compensation Committee to work with certain executive officers and employees of the Company. In order to determine and confirm independence, the consultant completes an independence questionnaire provided by the Company. In addition, each director and executive officer of the Company completes an annual questionnaire which includes questions which ask aboutaddress any actual or potential conflicts or relationshiprelationships between such individual and the consultant. The consultant conducts regular reviews of total compensation of the Named Executive Officers and members of the Board. The consultant also provides advice with respect to other executive and Board compensation issues that might arise during the year, but otherwise provides no other servicesservice to the Company.
The Compensation Committee emphasizes performance-based compensation, which includes elements dependent directly on results, for our executive team. Target total direct compensation (i.e., base salary, annual cash incentive and long-term incentive) is generally targeted at or near the median total direct compensation of the Peer Group for Named Executive Officers. By targeting this median, our Compensation Committee intends to set an overall compensation package that is competitive and also within reasonable market parameters, with the goal of motivating and retaining our executives for the long-term success of the Company. Comparing the
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| 36 | | 2022 PROXY STATEMENT | | |
elements of total target direct compensation for 2018,2021, base salary comprises approximately 14%,21% of the pay mix, target annual incentive compensation comprises approximately 11%,18% of the pay mix, and long-term incentive compensation comprises approximately 75%61% of the pay mix. However, we do not have a formal policy allocating between cash and non-cash compensation or between each element of compensation.
We generally target base salaries for Named Executive Officers at or near the median of the Peer Group to facilitate a competitive recruitment and retention strategy, with individual variations based on job scope, tenure, retention risk and other factors relevant to the Compensation Committee. Our Compensation Committee uses its judgment and experience to set individual target compensation higher or lower than the Peer Group median based on performance, scope/strategic impact of role, retention and internal equity. Increases in base salary reflect assessed performance, providing a performance link to this fixed compensation.compensation element. Base salaries are generally reviewed and approved by the Compensation Committee during the second quarter of theeach year.
Accordingly, the Compensation Committee reviewed and determined base salaries for applicable Named Executive Officers in July 2021 to be effective as of July 2, 2018, except for Mr. Lo, whose salary increase was effective as of January 1, 2019 (consistent with our prior practice). As a result of Ms. Gorjanc's planned transition to become CFO of Arlo in mid-2018, the Compensation Committee did not review, nor consider an increase in, her salary in 2018. Arlo continued to pay her approximately the same salary for the remainder of 2018 following her transition.2021. The following lists the Named Executive Officer base salary increases approved in 2018:
|
| | | | | | |
| NEO | | Updated Base Salary | | Percentage Increase | | Effective Date |
| Patrick C.S. Lo | | $921,850 | | 3.00% | | January 1, 2019 |
| Bryan D. Murray | | $366,116 | | 10.00% | | July 2, 2018 |
| Michael F. Falcon | | $431,983 | | 3.50% | | July 2, 2018 |
| Andrew W. Kim | | $446,985 | | 5.00% | | July 2, 2018 |
| Michael A. Werdann | | $485,622 | | 3.50% | | July 2, 2018 |
| Christine M. Gorjanc | | $556,500 | | —% | | N/A |
2021: | | | | | | | | | | | | | | | |
NEO | | Updated Base Salary | | Percentage Increase | | Effective Date |
Patrick C.S. Lo | | | $ | 949,505 | | | | | 3 | % | | | | July 1, 2021 | |
Bryan D. Murray | | | $ | 499,845 | | | | | 20 | % | | | | July 1, 2021 | |
David J. Henry | | | $ | 522,268 | | | | | 15 | % | | | | July 1, 2021 | |
Andrew W. Kim | | | $ | 507,539 | | | | | 6 | % | | | | July 1, 2021 | |
Michael A. Werdann | | | $ | 551,410 | | | | | 6 | % | | | | July 1, 2021 | |
Each reviewed NEO received a base salary increase in the range of 3% to 5%6%, other than Mr.Messrs. Murray and Henry, who received an increaseincreases of 10%.20% and 15%, respectively. Mr. Murray'sMurray’s larger percentage increase was due to his anticipated promotion toexperience and performance as CFO of NETGEAR in mid-2018 and an effort to better align his base salary withbeing substantially lower than the Peer Group medians for comparable executive positions.
median. Mr. Henry’s larger percentage increase was due to his promotion to President & General Manager of Connected Home Products and Services of NETGEAR and addition to the Board.Annual Incentive Compensation
20182021 Target Cash Bonus. Our Named Executive Officers, other than Mr. Werdann, participate underin our executive bonus plan and are eligible to receive a cash bonus primarily based upon the level of annual non-GAAP operating income achieved by the Company relative to a target established at the beginning of the period. In 2018, due to the anticipated timing of the Arlo IPO at approximately the mid-point of the year, the Compensation Committee approved splitting the executive bonus plan targets and payments into the first half of 2018 and the second half of 2018. Although the Company has historically only used an annual plan for executives, the Compensation Committee felt that the unusual corporate circumstances in 2018 justified a temporary departure from this practice as a means to better align incentives for NETGEAR and Arlo as a combined company during the first half of the year and for NETGEAR as a functionally separate stand-alone entity during the second half of thecalendar year.
We believe that non-GAAP operating income is an appropriate measure, as this indicates profitable revenue growth and generally reflects achievement of some of our shorter termshorter-term objectives for growth in sales, operating margins and earnings per share, and market share. Non-GAAPFor purposes of our 2021 executive bonus plan, non-GAAP operating income is equal to our GAAP operating income after excluding bonus expense, amortization of intangible assets, stock-based compensation expense, restructuring and other charges, acquisition-related expense, impact to cost of sales from acquisition accounting adjustments to inventory, litigation reserves, goodwill impairment charges and intangibles impairment charges.
Under the 20182021 executive bonus plan, the target bonus amounts for our CEO, CFO, Mr. Henry, and other participating executive officers were 115%120%, 75%, 75%, and 60% of their respective average base salaries for each halfsalaries. Our CEO’s target bonus amount was increased from 115% of his average base salary to align with the median of the year.Peer Group, and Mr. Henry’s target bonus amount was increased from 60% of his average base salary due to his promotion to President & General Manager of Connected Home Products and Services of NETGEAR and his appointment to the Board of Directors in mid-2021. Bonus amounts for these executive officers would become eligible to be paid based upon the Company achieving a minimum threshold amount of approximately $39.5$108.9 million in non-GAAP operating income for the first half of 2018, and $38.0 million in non-GAAP operating income for the second half of 2018, in each case as measured before bonus expense.2021. If non-GAAP operating income exceeded these thresholds in the applicable period,this threshold, then a bonus of 30% of an individual'sindividual’s target bonus would become eligible to be earned, subject to other bonus plan conditions. If the Company exceeded a secondary target of approximately $49.5$131.1 million in non-GAAP operating income for the first half of 2018 and $49.5 million in non-GAAP operating income for the second half of 2018, in each case as measured before bonus expense,2021, then in each applicable period 50% of amounts in excess of this target would be contributed to an additional bonus pool until the bonus pool reached a sufficient level to fund the target bonus amounts for participants in the plan. The first half of 2018 targets included the combined financial performance of NETGEAR's and Arlo's businesses, while the second half of 2018 targets only included NETGEAR's stand-alone financial performance. If there was additional non-GAAP operating income beyond the amount required to fully fund the target bonus amounts in each period, then 50% of such excess amount also would be contributed to the bonus pool, subject to reaching a level sufficient to pay maximum bonus amounts. The maximum bonus amount payable under the bonus plan was 150% of an individual’s target bonus amount, or 172.5%180%, 112.5%, 112.5% and 90% of the respective average base salaries for each half of the year of our CEO, CFO, Mr. Henry and other participating executive officers.
| | | | | | |
| | 2022 PROXY STATEMENT | | | 37 | |
The tablestable below shows the 20182021 target bonus amounts for each participating NEO as a percentage of base salary and as a corresponding cash amount, divided into the first and second halves of 2018:
|
| | | | |
| NEO | | Target 1H Bonus as a % of IH Salary | | Target 1H 2018 Bonus as a Cash Amount |
| Patrick C.S. Lo | | 115% | | $514,625 |
| Bryan D. Murray (*) | | 50% | | $83,208 |
| Michael F. Falcon | | 60% | | $125,213 |
| Andrew W. Kim | | 60% | | $127,710 |
| Christine M. Gorjanc | | 75% | | $208,688 |
(*) For the first half of 2018, Mr. Murray served as Vice President, Finance, and participated in the Company's non-executive bonus plan with a target bonus equal to 50% of his first-half salary.
|
| | | | |
| NEO | | Target 2H Bonus as a % of 2H Salary | | Target 2H 2018 Bonus as a Cash Amount |
| Patrick C.S. Lo | | 115% | | $514,625 |
| Bryan D. Murray | | 75% | | $137,294 |
| Michael F. Falcon | | 60% | | $129,595 |
| Andrew W. Kim | | 60% | | $134,096 |
| Christine M. Gorjanc (+) | | 75% | | $208,688 |
(+) For the second half of 2018, Ms. Gorjanc served as CFO of Arlo and participated in Arlo's bonus plan. Arlo's bonus plan was independently managed by Arlo's Board of Directors, without input by NETGEAR.
amount: | | | | | | | | | | |
NEO | | Target Bonus as a % of Salary | | Target 2021 Bonus as a Cash Amount |
Patrick C.S. Lo | | | | 120% | | | | $ | 1,122,949 | |
Bryan D. Murray | | | | 75% | | | | $ | 343,258 | |
David J. Henry | | | | 75% | | | | $ | 366,365 | |
Andrew W. Kim | | | | 60% | | | | $ | 295,976 | |
Michael A. Werdann | | | | N/A | | | | | N/A | |
We believe that these non-GAAP operating income targets were set at appropriate levels based on market and industry expectations at that time and our applicable 20182021 operating plan reviewed and approved by our Board of Directors, and that while challenging, each was achievable and not unrealistic. In addition, once the eligible bonus is determined based upon the level of annual non-GAAP operating income achieved, the Compensation Committee also has discretion to reduce such bonus based upon the executive'sexecutive’s achievement of his or her individual annual objectives (taking into account input by the Chief Executive Officer regarding each officer’s individual performance factors over the year, other than himself) or other factors that the Compensation Committee deems relevant. Consistent with our approach, the Peer Group market data generally results in target annual incentive cash bonus amounts being separated into three tiers, namely one for the Chief Executive Officer, one for the Chief Financial Officer and one for the other Named Executive Officers.
20182021 Cash Incentive Plan Bonus Payments
.The Company achieved annual non-GAAP operating income (as calculated under the 2021 executive bonus plan) of $66.1$109.1 million for the first half of 2018 and non-GAAP operating income of $65.9 million for the second half of 2018, measured before bonus expense and excluding identifiable headcount, transition services and outside costs associated with the Arlo IPO and Arlo Spin-Off process. The Company's first half of 2018 results included the combined financial performance of NETGEAR's and Arlo's businesses, while the second half of 2018 results only included NETGEAR's stand-alone financial performance. Based on these amounts exceeding the executive bonus2021, which resulted in plan targets, an executive bonus pool was preliminarily calculated in an amount that would permit the Compensation Committee to pay our participating NEOs bonusesfunding equal to approximately 88%30% of their target bonuses with respect toand the first half of 2018 and approximately 109% of their target bonuses with respect to the second half of 2018, subject to otherfollowing bonus plan conditions. The Compensation Committee reviewed these amounts and confirmed that they believed them to be appropriate, without any adjustment.
As a result, pursuant to the terms of the 2018 executive bonus plan andwere approved by our Compensation
Committee’s determination of final bonus amounts, our Named Executive Officers, other than Mr. Werdann, received bonus payments equal to approximately 88% of their target bonuses for the first half of 2018, and our Named Executive Officers, other than Mr. Werdann and Ms. Gorjanc, received bonus payments equal to approximately 109% of their target bonuses for the second half of 2018. As noted above, Ms. Gorjanc participated in Arlo's bonus plan for the second half of 2018. Arlo's bonus plan was independently managed by Arlo's Board of Directors, without input by NETGEAR and without relation to NETGEAR's non-Arlo financial results. Committee: | | | | | | | | | | |
NEO | | Target 2021 Incentive Compensation | | Total 2021 Cash
Incentive Compensation Paid
(at 30% of target) |
Patrick C.S. Lo | | | $ | 1,122,949 | | | | $ | 336,885 | |
Bryan D. Murray | | | $ | 343,258 | | | | $ | 102,977 | |
David J. Henry | | | $ | 366,365 | | | | $ | 109,910 | |
Andrew W. Kim | | | $ | 295,976 | | | | $ | 88,793 | |
Michael A. Werdann | | | | N/A | | | | | N/A | |
The tableschart below summarizeillustrates the target and total cash bonuses paid to our participating NEOs for each halfactual achievement of 2018:
|
| | | | |
| NEO | | Target 1H 2018 Cash Incentive Compensation | | Total 1H 2018 Cash Incentive Compensation Paid |
| Patrick C.S. Lo | | $514,625 | | $457,157 |
| Bryan D. Murray | | $83,208 | | $74,120 |
| Michael F. Falcon | | $125,213 | | $111,230 |
| Andrew W. Kim | | $127,710 | | $113,449 |
| Christine M. Gorjanc | | $208,688 | | $185,384 |
|
| | | | |
| NEO | | Target 2H 2018 Cash Incentive Compensation | | Total 2H 2018 Cash Incentive Compensation Paid |
| Patrick C.S. Lo | | $514,625 | | $562,447 |
| Bryan D. Murray | | $137,294 | | $150,052 |
| Michael F. Falcon | | $129,595 | | $141,638 |
| Andrew W. Kim | | $134,096 | | $146,556 |
| Christine M. Gorjanc | | $208,688 | | $62,823 |
2018 Retention Bonus Payments. In 2018, the Compensation Committee also approved discretionary cash retention bonuses for a significant number of employees in recognition of their efforts to timely complete the Arlo IPO and the Arlo Spin-Off. Three of our NEOs earned this category of2021 executive bonus in 2018 as a result of their extensive involvement with these transactions:
|
| | |
NEO | | 2018 Cash Retention Bonus Paid |
Bryan D. Murray | | $99,850 |
Andrew W. Kim | | $127,710 |
Michael A. Werdann
| | $95,000 |
Mr. Werdann's discretionary retention bonus listed above was partially in recognition of his 20 years of service to NETGEAR, in addition to his role in facilitating the Arlo IPO and the Arlo Spin-Off.
2018plan:
2021 Sales Commission Plan for Mr. Werdann.
As our Senior Vice President of Worldwide Sales,Chief Revenue Officer, Mr. Werdann received payments under a sales commission plan instead of our executive bonus plan for 2018.2021. Mr. Werdann'sWerdann’s overall cash compensation package is structured to provide him with a targeted 60%/40% split between base salary and sales commissions. As a result, Mr. Werdann'sWerdann’s annual aggregate | | | | |
| 38 | | 2022 PROXY STATEMENT | | |
sales commissions are targeted as an amount equal to approximately 67% of his fiscal year base salary. The 20182021 sales commission plan for Mr. Werdann was based upon a modified measure of net revenue and profit contribution achieved by the Company, measured on a quarterly basis, with a target objectiveobjectives derived from the Company’s 20182021 annual operating plan approved by our Board of Directors at the beginning of 2018.2021. Net revenue is typically measured with reference to point of sale as reported by NETGEAR’s channel partners, less returns and related marketing spending. Profit contribution is calculated for the worldwide business under Mr. Werdann’s sales leadership and is comprised of point of salenet revenue or net shipments, less related marketing spending.associated product costs and direct selling costs. The aggregate Company net revenue and profit contribution targettargets for 2018 was over $1.23 billion.2021 were approximately $1.24 billion and $0.47 billion, respectively. The sales commission plan also provides for the ability of Mr. Werdann to earn additional commissions for overachieving above the target measure of profit contribution,measures, calculated as up to three times the percentage by which actual achievement exceeds the target, calculated on a semi-annual basis. There also is a cap on the dollar amount of commissions that may be earned under the 20182021 sales commission plan, set at 200% of total target earnings (salary and commissions). The amount of the earned commission is paid on a monthly basis, based on achievement to-date of quarterly targets. Mr. Werdann’s achievement against his sales commission plan ranged from approximately 93% to 102% for the four quarterly periodswas 87% in 2018.
2021.The table below shows the 20182021 target sales commission amount for Mr. Werdann as a percentage of base salary and as a corresponding cash amount:
|
| | | | |
| NEO | | Target Sales Commissions as a Percentage of Salary | | Target 2018 Sales Commissions as a Cash Amount |
| Michael A. Werdann | | 67% | | $318,274 |
| | | | | | | | | | |
NEO | | Target Sales Commissions as a Percentage of Salary | | Target 2021 Sales Commissions as a Cash Amount |
Michael A. Werdann | | | | 67 | % | | | $ | 357,203 | |
The table below summarizes the target and total cash sales commissions paid to Mr. Werdann for 2018:
|
| | | | |
| NEO | | Target 2018 Cash Incentive Compensation | | Total 2018 Cash Incentive Compensation Paid |
| Michael A. Werdann | | $318,274 | | $316,969 |
2021. | | | | | | | | | | | | | | | |
NEO | | Target 2021 Cash Incentive Compensation | | Total 2021 Cash Incentive Compensation Paid (at 87% of target) | | Total 2021 Cash Incentive Compensation Paid as a percentage of salary |
Michael A. Werdann | | | $ | 357,203 | | | | $ | 310,770 | | | | | 58 | %(1) |
| (1) | The relatively higher performance achievement by Mr. Werdann compared to executive officers who participated in the 2021 executive bonus plan is mainly due to Mr. Werdann’s sales commission plan being based on revenue and profit contribution, with greater proportionate weighting attributed to revenue achievement. The 2021 executive bonus plan by contrast was based on Non-GAAP operating income performance. |
Long-Term Incentive Compensation
20182021 Equity Awards.We have historically provided long-term incentives through our 2003 Stock2006 Plan our Amended and Restated 2006 Long-Term Incentive Plan (“2006 Plan”) and our 2016 Equity Incentive Plan (“2016 Plan”).Plan. Equity grants have been granted in the past under these plans to provide additional incentive to Named Executive Officers to maximize long-term total return to our stockholders. We generally provide an initial grant upon employment commencement and subsequent smaller annual refresh grants. We may grantIn recent years, we have granted a mixture of equity grants,award types, including stock options and restricted stock units.RSUs. In 2021, we continued to include PSUs in our executive compensation program, in furtherance of the Compensation Committee’s goal of enhancing the link between compensation and performance against long-term performance goals. Our time-based equity awards generally vest over four years to retain executives and to reward long-term performance.performance, while our PSUs are subject to a three-year performance period (January 1, 2021—December 31, 2023) and an approximately three-year vesting period (from the grant date). We believe that equity grants are a particularly strong incentive, because they increase in value to our employees as the fair market value of our common stock increases.increases, and in the case of PSUs, are tied to our long-term performance objectives. In the case of restricted stock units,RSUs and PSUs, which have immediate underlying value, such awards also provide a retention benefit over the vesting period of the awards. While the annual incentive plan might focusprimarily focuses on achievement of shorter-term objectives related to Company performance, we believe equity awards to our Named Executive Officers provide an incentive to reach some of our longer-term objectives and metrics, such as building on our long-term competitive advantages and increasing the market value of our common stock over time.
With respect to the size of the equity awards granted to our Named Executive Officers, the Compensation Committee primarily relies on input from two sources to determine the amount of equity awards to be granted: research from the Compensation Committee consultant and input from our Chief Executive Officer. The Compensation Committee also reviews the then-current status of equity awards available for grant under our equity plan for the current year as well as for the foreseeable future. In addition, the Compensation Committee considers relevant factors, including without limitation the executive'sexecutive’s position, the executive'sexecutive’s individual performance, the number of equity awards held (if any), the extent to which those equity awards are
vested and market grant levels
atby our Peer Group. Our Chief Executive Officer also gives his input on the size of equity grants to be made to the NEOs, other than himself, with a review of the prior
year'syear’s grants as the baseline starting point
and such officer'sas well as the individual performance
forfactors demonstrated by such officer over the
prior year. Accordingly, by combining analysis of specific objective data (from both the Peer Group report and the status of equity awards available for grant) with subjective input from our Chief Executive Officer, the Compensation Committee determines an appropriate amount of equity awards to be granted for each Named Executive Officer for the current year.
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| | 2022 PROXY STATEMENT | | | 39 | |
Equity awards for our Named Executive Officers may be granted pursuant to written consent of the Compensation Committee but are typically granted during in-person meetings, which meetings are scheduled a year in advance to minimize the discretionary selection of grant dates and the appearance of granting optionsequity awards based on the timing of disclosure of material information to the public.
AsIn July 2021, as part of the Company'sour regular annual compensation review in the first half of 2018, annual NETGEAR equity awards were made to the Named Executive Officers during this period. The Named Executive Officers receivedcycle, our Compensation Committee granted our NEOs a combination of option and restricted stock unit awards. Other than for Mr. Murray, the number of sharesRSUs subject to each of these types of NETGEAR awards was identical totime-based vesting based on the number of shares subject to awards granted to the same NEOs in 2017. However, during part of 2018, including the time frame when these NEO grants were made, the Company's stock price was substantially elevated compared to 2017. Asfollowing split between time-based RSUs and PSUs (on a result, the grant date fair values of the 2018 NEO awards reflected in the tables belowshare-equivalent basis):
Chief Executive Officer: 25% time-based RSUs / 75% PSUs; and in the "Executive Compensation Tables" section below are meaningfully higher than those made in 2017. When approving the increased equity grant values awarded to our
NEOs the Compensation Committee considered the importance of motivating and retaining our executives while pursuing a stretch business plan for 2018 as well as completing the contemplated Arlo separation.
In connection with his promotion to CFO of NETGEAR in August 2018, Mr. Murray received a NETGEAR stock option grant for 30,000 shares. In connection with her transition to CFO of Arlo and the Arlo IPO, Ms. Gorjanc received an Arlo stock option grant for up to 468,750 shares. Ms. Gorjanc's options to purchase Arlo common stock were granted by the Arlo Board of Directors, independently from NETGEAR. They have a ten-year contractual term and are performance based options that vest depending on satisfaction of service-based criteria, as established by the Arlo Board of Directors.
The numbers of shares subject to the annual stock options granted to our NEOs in 2018 were as follows:
|
| | | | | | |
| NEO | | Security | | Shares Subject to Option (#) | | Grant Date Fair Value ($) |
| Patrick C.S. Lo | | NTGR | | 115,000 | | $2,372,254 |
| Bryan D. Murray | | NTGR | | 30,000 | | $620,697 |
| Michael F. Falcon | | NTGR | | 25,000 | | $515,708 |
| Andrew W. Kim | | NTGR | | 25,000 | | $515,707 |
| Michael A. Werdann | | NTGR | | 18,000 | | $371,309 |
| Christine M. Gorjanc | | NTGR | | 35,000 | | $721,990 |
| | | ARLO | | 468,750 | | $3,178,711 |
The above stock options, other than Ms. Gorjanc's Arlo stock options, vest over four years from grant, withthe CEO: 75% time-based RSUs / 25% of the total award vesting on the first anniversary of the vesting commencement date and the remainder vesting in equal monthly amounts over the following three years.PSUs.
The numbers of annual RSUs granted to our NEOs in 2018July 2021 were as follows:
|
| | | | |
| NEO | | RSUs (#) | | Grant Date Fair Value ($) |
| Patrick C.S. Lo | | 40,000 | | $2,806,000 |
| Bryan D. Murray | | 9,400 | | $591,810 |
| Michael F. Falcon | | 10,000 | | $701,500 |
| Andrew W. Kim | | 10,000 | | $701,500 |
| Michael A. Werdann | | 10,000 | | $701,500 |
| Christine M. Gorjanc | | 15,000 | | $1,052,250 |
| | | | | | | | | | |
NEO | | RSUs (#) | | Grant Date Fair Value ($) |
Patrick C.S. Lo | | | | 26,250 | | | | $ | 986,475 | |
Bryan D. Murray | | | | 33,750 | | | | $ | 1,268,325 | |
David J. Henry | | | | 18,750 | | | | $ | 704,625 | |
Andrew W. Kim | | | | 18,750 | | | | $ | 704,625 | |
Michael A. Werdann | | | | 18,750 | | | | $ | 704,265 | |
The above RSUs vest over four years from grant, with 25% of the total award vesting on each anniversary of the vesting commencement date.
In additionThe target number of PSUs granted to the above annual RSUs, the Compensation Committee granted special performance-based RSUs to each of Mr. Falcon and Mr. Kimour NEOs in July 2018, with the goal of motivating and rewarding their efforts to achieve a timely Arlo Spin-Off. The vesting of these RSUs, and their potential forfeiture, was linked to the timing of the achievement of the Arlo Spin-Off. If the Arlo Spin-Off occurred by July 31, 2019, then the full award would continue to vest according to the original four-year
schedule. If the Arlo Spin-Off occurred between August 1, 2019 and July 31, 2020, then the first 25% installment of the award originally scheduled to vest on August 1, 2019 would be forfeited and the remaining 75% would vest on the subsequent anniversaries of the vesting start date. If the Arlo Spin-Off did not occur by July 31, 2020, then the full award would be forfeited. The numbers of these special performance-based RSUs granted to Mr. Falcon and Mr. Kim in 20182021 were as follows:
|
| | | | |
| NEO | | RSUs (#) | | Grant Date Fair Value ($) |
| Michael F. Falcon | | 10,000 | | $760,500 |
| Andrew W. Kim | | 20,000 | | $1,521,000 |
Because | | | | | | | | | | |
NEO | | PSUs (#) | | Grant Date Fair Value ($) |
Patrick C.S. Lo | | | | 78,750 | | | | $ | 2,959,425 | |
Bryan D. Murray | | | | 11,250 | | | | $ | 422,775 | |
David J. Henry | | | | 6,250 | | | | $ | 234,875 | |
Andrew W. Kim | | | | 6,250 | | | | $ | 234,875 | |
Michael A. Werdann | | | | 6,250 | | | | $ | 234,875 | |
The number of PSUs that will become eligible to vest will not exceed 150% of the performance conditiontarget number of achievingPSUs and will be calculated based on paid subscriptions at the Arlo Spin-Off priorend of 2023, as follows:
| | |
Paid Subscriptions at 12/31/2023 | | PSUs Eligible to Vest (as a % of the Target PSUs) |
1,812,500 | | 150% |
1,450,000 | | 100% |
1,087,500 | | 50% |
If the number of paid subscriptions falls between any of the thresholds above, then the number of PSUs that become eligible to vest will be calculated through linear interpolation between the payout percentages for the two thresholds.
Each NEO’s PSUs that become eligible to vest (if any) will vest on July 31, 2019 was achieved, these performance-based restricted stock unit awards will vest in four equal annual installments with the first installment vesting on August 1, 2019,2024, subject to the individual continuing to be aNEO’s continued service provider through such dates.
Adjustments to NETGEAR Equity Awards due tothat date. In addition, the Arlo Spin-Off
In connection with the Arlo Spin-Off, all outstanding NETGEAR equity compensation awards were equitably adjusted to reflect the impact of the transaction. The adjustments to each type of award outstanding pursuant to the NETGEAR equity compensation plans was determined in accordance with the terms of the employee matters agreement between NETGEAR and Arlo, dated as of August 2, 2018 (the “employee matters agreement”), and are described below. Because these adjustments were made effective on December 31, 2018, the date of the Arlo Spin-Off, they are reflected in the "Executive Compensation Tables" section below.
NETGEAR Options: (1) NETGEAR options granted prior to August 3, 2018 (the “cutoff date”) were converted into both an adjusted NETGEAR option and an Arlo option, (2) NETGEAR options granted on or following the cutoff date were converted solely into adjusted NETGEAR options and (3) NETGEAR outstanding and vested options held by former service providers of NETGEAR were converted solely into adjusted NETGEAR options. The formulas applicable to the foregoing NETGEAR option adjustments are set forth in the employee matters agreement and, in each case, the exercise price and number of shares subject to each option were adjusted to preserve the aggregate intrinsic value of the original NETGEAR option as measured immediately prior to and immediately following the distribution, subject to rounding. Following the Arlo Spin-Off, the NETGEAR options and Arlo optionsPSUs are subject to substantiallyvesting acceleration upon certain terminations of the same terms and vesting conditions that applied to the original NETGEAR option.
NETGEAR RSUs: (1) NETGEAR restricted stock units granted prior to the cutoff date were converted into both an adjusted NETGEAR restricted stock unit covering the same number of shares of NETGEAR common stock subject to the award prior to the Arlo Spin-Off and an Arlo restricted stock unit covering a number of shares of Arlo common stock equal to the number of shares of NETGEAR common stock subject to the award prior to the Arlo Spin-Off multiplied by 1.980295 (subject to rounding), which is the number of shares of Arlo common stock that was distributed in respect of each share of NETGEAR common stockNEO’s employment, as described further in the Arlo Spin-Off and (2) NETGEAR restricted stock units granted on“Potential Payments Upon Termination or following the cutoff date were converted solely into NETGEAR restricted stock units, on a basis that preserves the aggregate intrinsic value of the original NETGEAR restricted stock unit award (subject to rounding). The formulas applicable to the foregoing NETGEAR restricted stock unit adjustments are set forthChange in the employee matters agreement. Following the Arlo Spin-Off, the NETGEAR restricted stock units and Arlo restricted stock units are subject to substantially the same terms and vesting conditions that applied to the original NETGEAR restricted stock units.Control” section below. | | | | |
| 40 | | 2022 PROXY STATEMENT | | |
Other Compensation Policies and Information
Employee Benefits and Perquisites
We provide various employee benefit programs to our Named Executive Officers, including health, life and disability insurance, flexible spending accounts, a 401(k) plan and the opportunity to purchase our common stock through payroll deductions at a discounted price through our 2003 Employee Stock Purchase Plan. In addition, we match contributions made by Named Executive Officers to their 401(k) plan up to an amount equal to $3,000 per year. These benefit programs are generally available to all our employees on substantially equal terms.
In order to minimize the risk of undue overpayment of cash bonus amounts and granting excessive option and restricted stock unitequity awards, the Compensation Committee and the Board of Directors in 2010 approved the addition of a clawback provision to the executive bonus plan and to award agreements which apply to the Named Executive Officers. TheSubject to the discretion of the Compensation Committee and/or the independent members of the Board, the clawback provision may requireprovides for a forfeiture of previously paid cash bonus amounts or previously awarded option or restricted stock unitequity awards in the event that the financial statements of the Company are subsequently restated and if such restated statements would have resulted in less of an actual cash bonus award being paid to Named Executive Officer or less of an actual option or restricted
stock unitequity award being awarded to an Named Executive Officer, if such information had been known at the time the actual award had originally been calculated or determined. Pursuant to the clawback provision, the independent members of the Board of Directors or the Compensation Committee may require, in its discretion, that suchThe applicable Named Executive Officer would be required to forfeit and/or repay to the Company the amount by which an actual bonus award previously paid exceeds the lesser pro forma bonus award and the amount by which an actual award previously awarded exceeds the lesser pro forma option or restricted stock unitequity award, as the case may be. The policy is to put the Company in no worse position had the Compensation Committee known of the restatement of financial statements at the time of the awards. We believe this is a fair and equitable way to address any potential windfall that may benefit a Named Executive Officer in the event that our financial statements are materially inaccurate.
Stock Ownership Guidelines
We have also adopted stock ownership guidelines for our Named Executive Officers to own and hold common stock of the Company to further align their interests and actions with the interests of our stockholders. Under the guidelines, our Chief Executive Officer is expected to own approximately six times his annual base salary. Other Named Executive Officers are expected to achieve ownership levels equal to approximately one to three times base salary. Named Executive Officers have a five-year period in which to achieve the required compliance level. Shares owned directly by the executive and all unvested restricted stock unitsRSUs are counted toward the guidelines. As of December 31, 2018,2021, all of our NEOs were in compliance with the stock ownership guidelines.
Policy Against Hedging or Pledging NETGEAR Stock
Under our insider trading policy, directors and employees, including our Named Executive Officers, are prohibited from hedging or pledging of the Company'sCompany’s securities and from investing in derivatives of the Company'sCompany’s securities.
Impact of Accounting and Tax Requirements on Compensation
Deductibility of Executive Compensation. Generally, Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"“Code”), disallows a tax deduction to any publicly-held corporation for any remuneration in excess of $1 million paid in any taxable year to its chief executive officer and certain other highly compensated officers. For tax years beginning before January 1, 2018, remuneration in excess of $1 million may be deducted if it qualifies as “performance-based compensation” within the meaning of Section 162(m).
The exemption from Section 162(m)’s deduction limit for performance-based compensation has been repealed, effective for taxable years beginning after December 31, 2017, such that compensation paid to our covered executive officers in excess of $1 million will not be deductible unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017 that has not been subsequently materially modified.
We have not previously taken the deductibility limit imposed by Section 162(m) into consideration in setting compensation for our NEOs and do not currently have any immediate plans to do so. The Compensation Committee may, in its judgment, authorize compensation payments that are not fully tax deductible when it believes that such payments are appropriate to attract and retain executive talent or meet other business objectives. The Compensation Committee intends to continue to compensate our NEOs in a manner consistent with the best interests of NETGEAR and our stockholders.
Taxation of "Parachute"“Parachute” Payments and Deferred Compensation.
We do not provide our NEOs with a “gross-up”“gross-up” or other reimbursement payment for any tax liability that he or she might owe as a result of the application of Sections 280G, 4999 or 409A of the Code. | | | | | | |
| | 2022 PROXY STATEMENT | | | 41 | |
Sections 280G and 4999 of the Code provide that executive officers and directors who hold significant equity interests and certain other service providers may be subject to an excise tax if they receive payments or benefits in connection with a change in control that exceeds certain prescribed limits, and that the company, or a successor, may forfeit a deduction on the amounts subject to this additional tax. Section 409A also imposes additional significant taxes on the individual in the event that an executive officer, director or other service provider receives “deferred compensation” that does not meet certain requirements of Section 409A of the Code.
Accounting for Stock-Based Compensation.
We follow Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“ASC 718”), the standard which governs the accounting treatment of stock-based compensation awards. ASC 718 requires us to measure the compensation expense for all share-based payment awards made to the members of our executive team, other employees and members of our Board of Directors, including options to purchase shares of our common equity securities, based on the grant date “fair value” of these awards. The application of ASC 718 involves significant judgment in the determination of inputs into the Black-Scholes-Merton valuation model that we use to determine the fair value of any options to purchase shares of our common equity securities. These inputs are based on assumptions as to the volatility of the underlying equity securities, risk free interest rates and the expected life of the options. As required by the generally accepted accounting principles in the United States, we review our valuation assumptions at each grant date, and, as a result, our valuation assumptions used to value options granted in future periods may vary from the valuation assumptions we have used previously.
ASC 718 also requires us to recognize the compensation cost of these share-based payment awards in our statements of operations over the period that an executive officer, employee or member of our Board of Directors is required to render service in exchange for the option or other award (which, generally, will correspond to the award'saward’s vesting schedule). This calculation is performed for accounting purposes and reported in the compensation tables below, even though our executive officers, employees or members of our Board of Directors may never realize any value from their stock options or other share-based payment awards.
Compensation Risk Assessment
Our Compensation Committee assesses and considers potential risks when reviewing and approving our compensation policies and practices for our executive officers and our employees. We have designed our compensation programs, including our incentive compensation plans, with features to address potential risks while rewarding employees for achieving financial and strategic objectives through prudent business judgment and appropriate risk taking. Based upon its assessment, the Compensation Committee believes that any risks arising from our compensation programs do not create disproportionate incentives for our employees to take risks that could have a material adverse effect on us in the future.
| | | | |
| 42 | | 2022 PROXY STATEMENT | | |
COMPENSATION COMMITTEE REPORT
Notwithstanding any statement to the contraryThe material in any of our previous or future filings with the Securities and Exchange Commission, this Report of the Compensation Committee of our Board of Directors shallReport is not be“soliciting material,” is not deemed “filed” with the SecuritiesSEC and Exchange Commission or “soliciting material” under the 1934 Act, and shallis not to be incorporated by reference intoin any filing of the Company under the Securities Act or the Exchange Act, other than in NETGEAR’s Annual Report on Form 10-K where it shall be deemed to be furnished, whether made before or after the date hereof and irrespective of any general incorporation language in any such filings.
filing.The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis contained in this Proxy Statement. Based on the Compensation Committee'sCommittee’s review of and the discussions with management with respect to the Compensation Discussion and Analysis, the Compensation Committee recommended to the Board of Directors, and the Board of Directors ratified, that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference into our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
2021.Respectfully submitted by:
THE COMPENSATION COMMITTEE
THOMAS H. WAECHTER (CHAIR)
JEF T. GRAHAM
BARBARA V. SCHERER (CHAIR)
JANICE M. ROBERTS
SARAH S. BUTTERFASS
| | | | | | |
| | 2022 PROXY STATEMENT | | | 43 | |
EXECUTIVE COMPENSATION TABLES
Summary Compensation Table
The following Summary Compensation Table sets forth certain information regarding the compensation of our principal executive officer, each individual who served as our principal financial officer, during 2018, and our three other most highly compensated executive officers for 20182021 (our “Named Executive Officers”), for services rendered in all capacities for the years indicated.
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| Name and Principal Position | | Year | | Salary | | | Bonus | | Stock Awards(1) (2) | | Option Awards (1) (2) | | Non-Equity Incentive Plan Compensation (2) | | All Other Compensation (3) | | Total |
Patrick C.S. Lo, Chairman and Chief Executive Officer | | 2018 |
| | $ | 895,000 |
| | | $ | — |
| | | $ | 2,806,000 |
| | $ | 2,372,254 |
| | | $ | 1,019,604 |
| (4) | | $ | 3,000 |
| | $ | 7,095,858 |
|
| | 2017 |
| | $ | 850,000 |
| | | $ | — |
| | | $ | 2,020,702 |
| | $ | 1,408,440 |
| | | $ | 293,250 |
| | | $ | 3,000 |
| | $ | 4,575,392 |
|
| | 2016 |
| | $ | 799,616 |
| | | $ | — |
| | | $ | 1,185,900 |
| | $ | 1,412,522 |
| | | $ | 1,058,000 |
| | | $ | 3,000 |
| | $ | 4,459,038 |
|
Bryan D. Murray, Chief Financial Officer (since August 2018) | | 2018 |
| | $ | 349,475 |
| | | $ | 99,850 |
| (5) | | $ | 591,810 |
| | $ | 620,697 |
| | | $ | 224,172 |
| (6) | | $ | 3,000 |
| | $ | 1,889,004 |
|
Michael F. Falcon, Chief Operations Officer | | 2018 |
| | $ | 424,679 |
| | | $ | — |
| | | $ | 1,462,000 |
| | $ | 515,707 |
| | | $ | 252,868 |
| (4) | | $ | 3,000 |
| | $ | 2,658,254 |
|
| | 2017 |
| | $ | 407,438 |
| | | $ | — |
| | | $ | 492,607 |
| | $ | 306,183 |
| | | $ | 73,333 |
| | | $ | 3,000 |
| | $ | 1,282,561 |
|
| | 2016 |
| | $ | 385,904 |
| | | $ | — |
| | | $ | 395,300 |
| | $ | 307,070 |
| | | $ | 222,023 |
| | | $ | 3,000 |
| | $ | 1,313,297 |
|
Andrew W. Kim, Senior Vice President of Corporate Development, General Counsel and Corporate Secretary
| | 2018 |
| | $ | 436,343 |
| | | $ | 127,710 |
| (5) | | $ | 2,222,500 |
| | $ | 515,707 |
| | | $ | 260,005 |
| (4) | | $ | 3,000 |
| | $ | 3,565,265 |
|
| | 2017 |
| | $ | 406,350 |
| | | $ | — |
| | | $ | 490,840 |
| | $ | 306,183 |
| | | $ | 73,133 |
| | | $ | 3,000 |
| | $ | 1,279,506 |
|
| | 2016 |
| | $ | 375,661 |
| | | $ | — |
| | | $ | 395,300 |
| | $ | 307,070 |
| | | $ | 216,131 |
| | | $ | 3,000 |
| | $ | 1,297,162 |
|
Michael A. Werdann, Senior Vice President of Worldwide Sales | | 2018 |
| | $ | 477,411 |
| | | $ | 95,000 |
| (7) | | $ | 701,500 |
| | $ | 371,309 |
| | | $ | 316,969 |
| (8) | | $ | 3,000 |
| | $ | 1,965,189 |
|
| | 2017 |
| | $ | 438,600 |
| | | $ | — |
| | | $ | 427,000 |
| | $ | 220,451 |
| | | $ | 319,979 |
| | | $ | 3,000 |
| | $ | 1,409,030 |
|
| | 2016 |
| | $ | 396,173 |
| | | $ | — |
| | | $ | 384,500 |
| | $ | 221,090 |
| | | $ | 286,208 |
| | | $ | 3,000 |
| | $ | 1,290,971 |
|
Christine M. Gorjanc, Former Chief Financial Officer (until August 2018) | | 2018 |
| | $ | 556,691 |
| (9) | | $ | 62,823 |
| (10) | | $ | 1,052,250 |
| | $ | 3,900,701 |
| (11) | | $ | 185,384 |
| (12) | | $ | 3,000 |
| | $ | 5,760,849 |
|
| | 2017 |
| | $ | 543,250 |
| | | $ | — |
| | | $ | 771,714 |
| | $ | 428,656 |
| | | $ | 122,223 |
| | | $ | 3,000 |
| | $ | 1,868,843 |
|
| | 2016 |
| | $ | 514,539 |
| | | $ | — |
| | | $ | 592,950 |
| | $ | 429,898 |
| | | $ | 444,046 |
| | | $ | 3,000 |
| | $ | 1,984,433 |
|
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Name and Principal Position | | Year | | Salary | | Bonus | | Stock Awards(1)(2) | | Option Awards(1)(2) | | Non-Equity Incentive Plan Compensation(2)(3) | | All Other Compensation | | Total |
| | | | | | | | |
Patrick C.S. Lo, Chairman and Chief Executive Officer | | | | 2021 | | | | $ | 935,791 | | | | $ | — | | | | $ | 3,945,900 | | | | $ | — | | | | $ | 336,885 | | | | $ | 3,300 | (4) | | | $ | 5,221,876 | |
| | | | 2020 | | | | $ | 921,850 | | | | $ | — | | | | $ | 2,875,950 | | | | $ | — | | | | $ | 1,201,494 | | | | $ | 3,000 | | | | $ | 5,002,294 | |
| | | | 2019 | | | | $ | 921,850 | | | | $ | — | | | | $ | 1,596,600 | | | | $ | 1,677,166 | | | | $ | — | | | | $ | 22,536 | | | | $ | 4,218,152 | |
| | | | | | | | |
Bryan D. Murray, Chief Financial Officer | | | | 2021 | | | | $ | 457,677 | | | | $ | — | | | | $ | 1,691,100 | | | | $ | — | | | | $ | 102,977 | | | | $ | 3,300 | (4) | | | $ | 2,255,054 | |
| | | | 2020 | | | | $ | 408,769 | | | | $ | — | | | | $ | 836,225 | | | | $ | — | | | | $ | 347,486 | | | | $ | 3,000 | | | | $ | 1,595,480 | |
| | | | 2019 | | | | $ | 384,422 | | | | $ | — | | | | $ | 532,200 | | | | $ | 437,522 | | | | $ | — | | | | $ | 64,958 | | | | $ | 1,419,102 | |
| | | | | | | | |
David J. Henry, President and General Manager of Connected Home Products and Services | | | | 2021 | | | | $ | 488,487 | | | | $ | — | | | | $ | 939,500 | | | | $ | — | | | | $ | 109,910 | | | | $ | 3,300 | (4) | | | $ | 1,541,197 | |
| | | | 2020 | | | | $ | 447,532 | | | | $ | — | | | | $ | 643,250 | | | | $ | — | | | | $ | 304,350 | | | | $ | 3,000 | | | | $ | 1,398,132 | |
| | | | 2019 | | | | $ | 434,497 | | | | $ | — | | | | $ | 399,150 | | | | $ | 364,601 | | | | $ | — | | | | $ | 70,834 | | | | $ | 1,269,082 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Andrew W. Kim, Chief Legal Officer, Senior Vice President of Corporate Development, and Corporate Secretary | | | | 2021 | | | | $ | 493,292 | | | | $ | — | | | | $ | 939,500 | | | | $ | — | | | | $ | 88,793 | | | | $ | 3,300 | (4) | | | $ | 1,524,885 | |
| | | | 2020 | | | | $ | 471,837 | | | | $ | — | | | | $ | 643,250 | | | | $ | — | | | | $ | 320,880 | | | | $ | 3,000 | | | | $ | 1,438,967 | |
| | | | 2019 | | | | $ | 455,924 | | | | $ | — | | | | $ | 399,150 | | | | $ | 364,601 | | | | $ | — | | | | $ | 72,312 | | | | $ | 1,291,987 | |
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Michael A. Werdann, Chief Revenue Officer | | | | 2021 | | | | $ | 535,932 | | | | $ | — | | | | $ | 939,500 | | | | $ | — | | | | $ | 310,770 | (5) | | | $ | 3,300 | (4) | | | $ | 1,789,502 | |
| | | | 2020 | | | | $ | 512,623 | | | | $ | — | | | | $ | 643,250 | | | | $ | — | | | | $ | 605,577 | (5) | | | $ | 3,000 | | | | $ | 1,764,450 | |
| | | | 2019 | | | | $ | 495,335 | | | | $ | — | | | | $ | 399,150 | | | | $ | 291,681 | | | | $ | 296,451 | (5) | | | $ | 79,347 | | | | $ | 1,561,964 | |
| |
| (1) | The amounts reported in this column represent the aggregate value of the stock awards and option awards granted to the Named Executive Officers, during 2018, 2017 and 2016, based upon their grant date fair value, as determined in accordance with the share-based payment accounting guidance under ASC 718. For a discussion of fair value for stock awards and the valuation assumptions for stock options, see Note 1210 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018.2021. Please see the “Grants of Plan-Based Awards” table below for more information regarding the awards we granted in 2018.2021. |
| For fiscal years 2021 and 2020, the amounts shown include grant date fair values of the PSUs granted in fiscal years 2021 and 2020 at target achievement, respectively. Assuming the highest levels of performance are achieved, the values of these PSUs, based on the closing price for our common stock on the Nasdaq Global Select Market on the grant date of the PSUs in 2021 and 2020, respectively, were as follows: Mr. Lo, $4,439,138 and $3,333,388; Mr. Murray, $634,163 and $343,931; Mr. Henry, $352,313 and $264,563; Mr. Kim, $352,313 and $264,563; and Mr. Werdann, $352,313 and $264,563. |
| (2) | The amounts set forth in these columns are subject to clawback provisions. Please see “Compensation Discussion and Analysis—Other Compensation Policies and Information—Clawback Policy” above. |
| |
| (3) | ConsistsExcept as otherwise noted, Non-Equity Incentive Plan Compensation consists of cash paid pursuant to the overall terms of the Company’s Executive Bonus Plan and the annual terms and conditions established thereunder. |
| (4) | The amounts represent matching contributions of $3,000 under our 401(k) plan that were earned in 20182021 and paid in February 2019.2022 and $300 stipend related to work-from-home business expenses paid in March 2021. |
| (5) | The amount represents commissions earned under Mr. Werdann’s annual sales commission plan. |
| | | | |
(4)44 | Represents bonus amount earned under the Company's 2018 executive bonus plan paid during 2018 and in February 2019. | 2022 PROXY STATEMENT | | |
| |
(5) | Represents a discretionary retention bonus payment awarded by the Board of Directors for the efforts to timely complete the Arlo IPO and the Arlo Spin-Off. The retention bonus was paid during 2018 and in February 2019. |
| |
(6) | Consists of a $150,052 bonus earned under the Company's 2018 executive bonus plan, with respect to Mr. Murray's service as Chief Financial Officer, and a $74,120 bonus amount earned under the Company's 2018 non-executive bonus plan, with respect to Mr. Murray's prior service as Vice President, Finance. These amounts were paid during 2018 and in February 2019. |
| |
(7) | Represents a discretionary retention bonus payment awarded by the Board of Directors in recognition of Mr. Werdann's 20 years of service to the Company and for his role in facilitating the Arlo IPO and the Arlo Spin-Off. |
| |
(8) | Represents commission earned under Mr. Werdann's 2018 annual sales commission plan. |
| |
(9) | Represents the aggregate salary paid to Ms. Gorjanc during 2018 by the Company (to August 2, 2018) and Arlo (from August 2, 2018). |
| |
(10) | Represents a bonus amount earned under Arlo's 2018 executive bonus plan and paid in February 2019, with respect to Ms. Gorjanc's service as Chief Financial Officer of Arlo. |
| |
(11) | Represents the aggregate value of option awards granted to Ms. Gorjanc by the Company and by Arlo in 2018. The Arlo option awards are subject to performance vesting conditions, and the amount reflects the grant date fair value based on maximum achievement of such |
performance conditions, as determined under ASC 718. Assuming the highest level of achievement of the performance conditions, the aggregate maximum grant date fair value of the Arlo performance-vested option awards would be $2.3 million.
| |
(12) | Represents bonus earned under the Company's 2018 executive bonus plan and paid during 2018, with respect to Ms. Gorjanc's service as Chief Financial Officer of NETGEAR. |
Grants of Plan-Based Awards in Fiscal Year 2018
2021The following table provides certain information relating to incentive compensation and equity awards granted to, and the range of payouts that were achievable for, each of our Named Executive Officers during the fiscal year ended December 31, 2018. All NETGEAR stock options were granted under our 2016 Plan and have a term of ten years, subject to earlier termination in the event that the optionee's services to us cease. Because this table presents information as of the applicable grant dates during 2018, all equity award information in this table is presented on an unadjusted basis without regard to the subsequent Arlo Spin-Off.2021. Cash awards paid under our annual incentive plan are reflected in the Summary Compensation Table under “Non-Equity“Non-Equity Incentive Plan Compensation” for each of our Named Executive Officers. A description of the incentive plans can be found in “Compensation Discussion and Analysis-Incentive Compensation-Annual Incentive Plan.”
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| | | | | | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | | Estimated Future Payouts Under Equity Incentive Plan Awards | | All Other Stock Awards: Number of Shares of Stock (#) | | All Other Option Awards: Number of Securities Underlying Options (#) | | Exercise or Base Price of Option Awards ($/Share) | | Grant Date Fair Value of Stock and Option Awards (1) |
| Name | | Security | | Grant Date | | Threshold ($) | | Target ($) | | Maximum ($) | | Target (#) | |
| Patrick C.S. Lo | | NTGR | | 1/25/2018 (2) | | | | | | | | | | 40,000 |
| | — |
| | $ | — |
| | $ | 2,806,000 |
|
| | | NTGR | | 1/25/2018 (3) | | | | | | | | | | — |
| | 115,000 |
| | $ | 70.15 |
| | $ | 2,372,254 |
|
| | | | | 1/25/2018 (4) | | $ | — |
| | $ | 514,625 |
| | $ | 771,938 |
| | | | | | | | | | |
| | | | | 7/19/2018 (6) | | $ | — |
| | $ | 514,625 |
| | $ | 771,937 |
| | | | | | | | | |
|
|
| Bryan D. Murray | | NTGR | | 1/25/2018 (2) | | | | | | | | | | 1,400 |
| | — |
| | $ | — |
| | $ | 98,210 |
|
| | | NTGR | | 4/30/2018 (2) | | | | | | | | | | 8,000 |
| | — |
| | $ | — |
| | $ | 493,600 |
|
| | | NTGR | | 8/2/2018 (3) | | | | | | | | | | — |
| | 30,000 |
| | $ | 64.50 |
| | $ | 620,697 |
|
| | | | | 1/25/2018 (7) | | $ | — |
| | $ | 83,208 |
| | $ | 124,812 |
| | | | | | | | | | |
| | | | | 7/19/2018 (6) | | $ | — |
| | $ | 137,294 |
| | $ | 205,941 |
| | | | | | | | | | |
| Michael F. Falcon | | NTGR | | 1/25/2018 (2) | | | | | | | | | | 10,000 |
| | — |
| | $ | — |
| | $ | 701,500 |
|
| | | NTGR | | 1/25/2018 (3) | | | | | | | | | | — |
| | 25,000 |
| | $ | 70.15 |
| | $ | 515,708 |
|
| | | | | 1/25/2018 (4) | | $ | — |
| | $ | 125,213 |
| | $ | 187,820 |
| | | | | | | | | | |
| | | | | 7/19/2018 (6) | | $ | — |
| | $ | 129,595 |
| | $ | 194,391 |
| | | | | | | | | |
|
|
| | | NTGR | | 7/19/2018 (8) | | | | | | | | 10,000 |
| | — |
| | — |
| | $ | — |
| | $ | 760,500 |
|
Andrew W. Kim
| | NTGR | | 1/25/2018 (2) | | | | | | | | | | 10,000 |
| | — |
| | $ | — |
| | $ | 701,500 |
|
| | | NTGR | | 1/25/2018 (3) | | | | | | | | | | — |
| | 25,000 |
| | $ | 70.15 |
| | $ | 515,707 |
|
| | | | | 1/25/2018 (4) | | $ | — |
| | $ | 127,710 |
| | $ | 191,565 |
| | | | | | | | | |
|
|
| | | | | 7/19/2018 (6) | | $ | — |
| | $ | 134,096 |
| | $ | 201,143 |
| | | | | | | | | | |
| | | NTGR | | 7/19/2018 (8) | | | | | | | | 20,000 |
| | — |
| | — |
| | $ | — |
| | $ | 1,521,000 |
|
| Michael A. Werdann | | NTGR | | 1/25/2018 (2) | | | | | | | | | | 10,000 |
| | — |
| | $ | — |
| | $ | 701,500 |
|
| | | NTGR | | 1/25/2018 (3) | | | | | | | | | | — |
| | 18,000 |
| | $ | 70.15 |
| | $ | 371,309 |
|
| | | | | 1/2/2018 (9) | | $ | — |
| | $ | 318,274 |
| | $ | 1,591,433 |
| | | | | | | | | |
|
|
| Christine M. Gorjanc | | NTGR | | 1/25/2018 (2) | | | | | | | | | | 15,000 |
| | — |
| | $ | — |
| | $ | 1,052,250 |
|
| | | NTGR | | 1/25/2018 (3) | | | | | | | | | | — |
| | 35,000 |
| | $ | 70.15 |
| | $ | 721,990 |
|
| | | | | 1/25/2018 (4) | | $ | — |
| | $ | 206,688 |
| | $ | 313,031 |
| | | | | | | | | | |
| | | | | 8/2/2018 (10) | | $ | — |
| | $ | 206,688 |
| | N/A |
| | | | | | | | | | |
| | | ARLO | | 8/2/2018 (5) | | | | | | | | | | | | 468,750 |
| | $ | 16.00 |
| | $ | 3,178,711 |
|
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| | | | | | | |
Name | | Grant
Date | | Estimated Future Payouts Under
Non-Equity Incentive Plan Awards | | Estimated Future Payouts Under
Equity Incentive Plan Awards | | All Other
Stock
Awards:
Number of
Shares of
Stock (#) | | All Other
Option
Awards:
Number of
Securities
Underlying
Options (#) | | Exercise
or Base
Price of
Option
Awards
($/Share) | | Grant Date
Fair Value of
Stock and
Option
Awards(1) |
| | Threshold ($) | | Target ($) | | Maximum ($) | | Threshold (#) | | Target (#) | | Maximum (#) |
| | | | | | | | | | | |
Patrick C.S. Lo | | | | — | (2) | | | $ | — | | | | $ | 1,122,949 | | | | $ | 1,684,424 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | 7/16/2021 | (3) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 26,250 | | | | | — | | | | $ | — | | | | $ | 986,475 | |
| | | | | | | | | | | |
| | | | | 7/16/2021 | (4) | | | | | | | | | | | | | | | | | | | 39,375 | | | | | 78,750 | | | | | 118,125 | | | | | — | | | | | — | | | | $ | — | | | | $ | 2,959,425 | |
| | | | | | | | | | | |
Bryan D. Murray | | | | — | (2) | | | $ | — | | | | $ | 343,258 | | | | $ | 514,887 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | 7/16/2021 | (3) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 33,750 | | | | | — | | | | $ | — | | | | $ | 1,268,325 | |
| | | | | | | | | | | |
| | | | | 7/16/2021 | (4) | | | | | | | | | | | | | | | | | | | 5,625 | | | | | 11,250 | | | | | 16,875 | | | | | — | | | | | — | | | | $ | — | | | | $ | 422,775 | |
| | | | | | | | | | | |
David J. Henry | | | | — | (2) | | | $ | — | | | | $ | 366,365 | | | | $ | 549,548 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | 7/16/2021 | (3) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 18,750 | | | | | — | | | | $ | — | | | | $ | 704,625 | |
| | | | | | | | | | | |
| | | | | 7/16/2021 | (4) | | | | | | | | | | | | | | | | | | | 3,125 | | | | | 6,250 | | | | | 9,375 | | | | | — | | | | | — | | | | $ | — | | | | $ | 234,875 | |
| | | | | | | | | | | |
Andrew W. Kim | | | | — | (2) | | | $ | — | | | | $ | 295,976 | | | | $ | 443,963 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | 7/16/2021 | (3) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 18,750 | | | | | — | | | | $ | — | | | | $ | 704,625 | |
| | | | | | | | | | | |
| | | | | 7/16/2021 | (4) | | | | | | | | | | | | | | | | | | | 3,125 | | | | | 6,250 | | | | | 9,375 | | | | | — | | | | | — | | | | $ | — | | | | $ | 234,875 | |
| | | | | | | | | | | |
Michael A. Werdann | | | | — | (5) | | | $ | — | | | | $ | 357,203 | | | | $ | 1,786,373 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | 7/16/2021 | (3) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 18,750 | | | | | — | | | | $ | — | | | | $ | 704,625 | |
| | | | | | | | | | | |
| | | | | 7/16/2021 | (4) | | | | | | | | | | | | | | | | | | | 3,125 | | | | | 6,250 | | | | | 9,375 | | | | | — | | | | | — | | | | $ | — | | | | $ | 234,875 | |
| |
| (1) | These amounts represent the full grant date valuefair values of the awards without regard to vesting. For RSUs, the amount represents the grant date fair value of each equity award computed in accordance with accounting guidance under ASC 718. For PSUs, the amount represents the grant date fair value of each equity award at the target payout level computed in accordance with accounting guidance under ASC 718. See Note 1210 of the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2018,2021, regarding assumptions underlying the valuation of optionequity awards. Regardless |
| (2) | These potential payouts for the fiscal 2021 were pursuant to the overall terms of the value placed on a stock option onCompany’s Executive Bonus Plan and the grant date, the actual economic value of the option toannual terms and conditions established thereunder. The payout that could have been earned by the Named Executive Officer will depend onOfficers was dependent upon the market valueCompany’s level of non-GAAP operating income achieved during 2021 and was subject to reduction by the Compensation Committee based upon the Named Executive Officer’s achievement of his individual objectives. Notwithstanding the foregoing, a bonus is paid under the terms of the Company's common stock atExecutive Bonus Plan only if the date in the future when the option is exercised.Company achieves a certain level of operating income. |
| (3) | |
(2) | These restricted stock unitRSU awards will vest in four equal annual installments on the four anniversaries of the last day of the grant month, subject to the recipient continuing to be a service provider through such dates. |
| |
(3) | 25% of the shares subject to these options will vest twelve months after the grant date, and 1/48 of the total shares subject to these options shall vest each month thereafter, subject to the optionee continuing to be a service provider through such dates. |
| |
| (4) | These potential payouts for the first half of fiscal 2018 were pursuant to the terms of the Company's executive bonus plan. The maximum payout that could have been earned by the Named Executive Officers was dependent upon the Company's level of operating income achieved during the first half of 2018, and would have been subject to reduction by the Compensation Committee for individual Named Executive Officers based upon the executive's achievement of his or her individual objectives. Notwithstanding the foregoing, a bonus is paid under the terms of the executive bonus plan only if the Company achieves a certain level of operating income. |
| |
(5) | These options to purchase Arlo common stock were granted by the Arlo Board of Directors in connection with the Arlo IPO. They have a ten-year contractual term and are performance based options that vest depending on satisfaction of service-based criteria, as established by the Arlo Board of Directors. |
| |
(6) | These potential payouts for the second half of fiscal 2018 were pursuant to the terms of the Company's executive bonus plan. The maximum payout that could have been earned by the Named Executive Officers was dependent upon the Company's level of operating income achieved during the second half of 2018, and would have been subject to reduction by the Compensation Committee for individual Named Executive Officers based upon the executive's achievement of his or her individual objectives. Notwithstanding the foregoing, a bonus is paid under the terms of the executive bonus plan only if the Company achieves a certain level of operating income. |
| |
(7) | These potential payouts were pursuant to the terms of the Company's non-executive bonus plan. |
| |
(8) | Because the performance condition of achieving the Arlo Spin-Off prior to July 31, 2019 was achieved, these performance-based restricted stock unitPSU awards will vest in four equal annual installments withon July 31, 2024 if performance conditions are met. The number of PSUs that vest could range from 0% to 150% of the first installment vesting on August 1, 2019, subject to the individual continuing to be a service provider through such dates.target number of PSUs. |
| (5) | |
(9) | Represents the targeted and maximum potential commissions earnings for Mr. Werdann under his 20182021 annual sales commission plan. |
| | | | | | |
(10) | Represents Ms. Gorjanc's potential bonus payouts from Arlo for the second half of fiscal 2018, under terms approved by the Arlo Board of Directors. | 2022 PROXY STATEMENT | | | 45 | |
|
| | | | | | | | | | | | |
| Name and Address | | Number of Shares of Common Stock Beneficially Owned | | Number of Shares Underlying Equity Awards Beneficially Owned (8) | | Total Shares Beneficially Owned | | Percentage of Total Shares Beneficially Owned |
| 5% Stockholders: | | | | | | | | |
| BlackRock, Inc. (1) | | 4,769,026 |
| | — |
| | 4,769,026 |
| | 15.2 | % |
| FMR LLC (2) | | 4,728,857 |
| | — |
| | 4,728,857 |
| | 15.0 | % |
| The Vanguard Group, Inc. (3) | | 3,204,183 |
| | — |
| | 3,204,183 |
| | 10.2 | % |
| Dimensional Fund Advisors LP (4) | | 2,141,733 |
| | — |
| | 2,141,733 |
| | 6.8 | % |
| Named Executive Officers and Directors: | | | | | | | | |
| Patrick C.S. Lo (5) | | 389,701 |
| | 679,669 |
| | 1,069,370 |
| | 3.3 | % |
| Bryan D. Murray | | 2,801 |
| | 3,395 |
| | 6,196 |
| | * |
|
| Michael F. Falcon | | 19,545 |
| | 22,388 |
| | 41,933 |
| | * |
|
| Andrew W. Kim | | 14,257 |
| | 60,527 |
| | 74,784 |
| | * |
|
| Michael A. Werdann | | 1,739 |
| | 12,534 |
| | 14,273 |
| | * |
|
| Christine M. Gorjanc (6) | | 63,149 |
| | 105,805 |
| | 168,954 |
| | * |
|
| Jef T. Graham | | 5,183 |
| | 3,308 |
| | 8,491 |
| | * |
|
| Bradley L. Maiorino | | — |
| | 2,831 |
| | 2,831 |
| | * |
|
| Janice M. Roberts | | — |
| | 1,463 |
| | 1,463 |
| | * |
|
| Gregory J. Rossmann | | 27,620 |
| | 5,095 |
| | 32,715 |
| | * |
|
| Barbara V. Scherer (7) | | 12,142 |
| | 3,308 |
| | 15,450 |
| | * |
|
| Julie A. Shimer | | 31,620 |
| | 3,308 |
| | 34,928 |
| | * |
|
| Thomas H. Waechter | | 14,770 |
| | 3,308 |
| | 18,078 |
| | * |
|
| All current directors and executive officers as a group (17 persons) | | 639,244 |
| | 1,183,406 |
| | 1,822,650 |
| | 5.6 | % |
* Less than one percent of our outstanding shares of common stock
(1) Based on information contained in a Schedule 13G/A filed with the Securities and Exchange Commission on January 31, 2019, by BlackRock, Inc. (“BlackRock”). BlackRock has sole power to vote or direct the vote of 4,635,019 shares and sole power to dispose or to direct the disposition of 4,769,026 shares. The address of BlackRock is 55 East 52nd Street, New York, NY 10055.
(2) Based on information contained in a Schedule 13G/A filed with the Securities and Exchange Commission on February 13, 2019, by FMR LLC (“FMR”), Abigail P. Johnson and Fidelity Growth Company Fund. This Schedule states that FMR is a parent holding companies in accordance with Section 240.13-d(1)(b)(1)(ii)(G). This schedule reflects the securities beneficially owned, or that may be deemed to be beneficially owned, by FMR LLC, certain of its subsidiaries and affiliates, and other companies: sole power to vote or to direct the vote of 1,705,005 shares, and sole power to dispose or to direct the disposition of 4,728,857 shares. The address of FMR is 245 Summer Street, Boston, Massachusetts 02210.
(3) Based on information contained in a Schedule 13G/A filed with the Securities and Exchange Commission on February 11, 2019, by The Vanguard Group Inc. (“Vanguard Group”). Vanguard Group has sole power to vote or direct to vote of 38,102 shares, shared power to vote or direct to vote of 5,545 shares, sole power to dispose of or to direct the disposition of 3,163,362 shares and shared power to dispose or to direct the disposition of 40,821 shares. Vanguard Fiduciary Trust Company, a wholly-owned subsidiary of Vanguard Group, is the beneficial owner of 35,276 shares as a result of its serving as investment manager of collective trust accounts. Vanguard Investments Australia, Ltd., a wholly-owned subsidiary of Vanguard Group, is the beneficial owner of 8,371 shares as a result of its serving as investment manager of Australian investment offerings. The address of Vanguard Group is 100 Vanguard Blvd, Malvern, PA 19355.
(4) Based on information contained in a Schedule 13G/A filed with the Securities and Exchange Commission on February 8, 2019, by Dimensional Fund Advisors LP (“Dimensional Fund Advisors”). Dimensional Fund Advisors has sole power to vote or direct the vote of 2,067,845 shares and sole power to dispose or to direct the disposition of 2,141,733 shares. The address of Dimensional Fund Advisors is Building One, 6300 Bee Cave Road, Austin, Texas 78746.
(5) Shares beneficially owned by Mr. Lo include (1) 120,048 shares held by the Patrick and Emily Lo Revocable Trust dated 4-7-99, (2) 147,668 shares held by the education trusts of Mr. Lo's children and Mr. Lo is a co-trustee of each such trust, and (3) 121,985 shares held of record by Mr. Lo.
(6) Based on information contained in a Form 4 filed with the Securities and Exchange Commission on July 3, 2018, which is the most recent NETGEAR Form 4 for Ms. Gorjanc before she became Arlo's CFO in August 2018.
(7) Shares beneficially owned by Ms. Scherer include (1) 1,000 shares held by William S. & Barbara V. Scherer Trust, UAD 10/26/2000, Barbara Scherer & William S. Scherer TTEE's trust, and (2) 11,142 shares held of record by Ms. Scherer.
(8) The Securities and Exchange Commission deems a person to have beneficial ownership of all shares that he or she has the right to acquire within 60 days. The shares indicated represent shares underlying stock options exercisable and restricted stock units vesting within 60 days of April 1, 2019.
| (2) | Based on information contained in a Schedule 13G/A filed with the Securities and Exchange Commission on February 10, 2022, by The Vanguard Group Inc. (“Vanguard Group”). Vanguard Group has shared power to vote of 29,107 shares, sole power to dispose of 3,116,290 shares and shared power to dispose of 54,695 shares. The address of Vanguard Group is 100 Vanguard Blvd, Malvern, PA 19355. |
| (3) | Based on information contained in a Schedule 13G/A filed with the Securities and Exchange Commission on February 2, 2022, by Victory Capital Management Inc. (“Victory Capital Management”). Victory Capital Management has sole power to vote or direct the vote of 2,801,428 shares and sole power to dispose or to direct the disposition of 2,830,258 shares. The address of Victory Capital Management is 4900 Tiedeman Rd. 4th Floor, Brooklyn, OH 44144. |
| (4) | Based on information contained in a Schedule 13G/A filed with the Securities and Exchange Commission on February 8, 2022, by Dimensional Fund Advisors LP (“Dimensional Fund Advisors”). Dimensional Fund Advisors has sole power to vote or direct the vote of 1,557,525 shares and sole power to dispose or to direct the disposition of 1,597,185 shares. The address of Dimensional Fund Advisors is 6300 Bee Cave Road, Building One, Austin, Texas 78746. |
| (5) | Shares beneficially owned by Mr. Lo include (1) 278,468 shares held by the Patrick and Emily Lo Revocable Trust dated 4-7-99, (2) 169,828 shares held by the education trusts of Mr. Lo’s children and Mr. Lo is a co-trustee of each such trust, and (3) 5,906 shares held of record by Mr. Lo. |
| (6) | Shares beneficially owned by Ms. Scherer include (1) 1,000 shares held by William S. & Barbara V. Scherer Trust, UAD 10/26/2000, Barbara Scherer & William S. Scherer TTEE’s trust, and (2) 27,017 shares held of record by Ms. Scherer. |
| (7) | The Securities and Exchange Commission deems a person to have beneficial ownership of all shares that he or she has the right to acquire within 60 days. The shares indicated represent shares underlying stock options exercisable and restricted stock units vesting within 60 days of April 4, 2022. |
Delinquent Section 16(a) Beneficial Ownership Reporting Compliance
ReportsSection 16(a) of the 1934 Act requires our officers and directors, and persons who own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Executive officers, directors and greater than 10% stockholders are required by Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) forms they file. Based solely on our review of the copies of such forms that we have received, or written representations from reporting persons, we believe that during 20182021 all Section 16(a) filing requirements applicable to our officers, directors and greater than 10% stockholders were met, with the exception of a late Form 4 (reporting one transaction) filed on July 9, 2018,August 31, 2021, on behalf of Bradley L. Maiorino.
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| 54 | | 2022 PROXY STATEMENT | | |
APPENDIX A
NETGEAR, INC.
2003 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the Employee Stock Purchase Plan of NETGEAR, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company through accumulated payroll deductions. It is the intention of the Company to have the Plan qualify as an “Employee Stock Purchase Plan” under Section 423 of the Code, although the Company makes no undertaking or representation to maintain such qualification. In addition, this Plan document authorizes the grant of options under a non-423(b) Plan (“Non-423(b) Component”) which do not qualify under Section 423(b) of the Code. The provisions of the Plan, accordingly, shall be construed so as to extend and limit participation in a uniform and nondiscriminatory basis consistent with the requirements of Section 423 unless the offering is made under the Non-423(b) Component of the Plan.
2. Definitions.
(a) “Administrator” shall mean the Board or any Committee designated by the Board to administer the Plan pursuant to Section 14.
(b) “Board” shall mean the Board of Directors of the Company.
(c) “Change of Control” shall mean the occurrence of any of the following events:
(i) Any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities;
(ii) The consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets;
(iii) The consummation of 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 or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company, or such surviving entity or its parent outstanding immediately after such merger or consolidation; or
(iv) A change in the composition of the Board, as a result of which fewer than a majority of the Directors are Incumbent Directors. “Incumbent Directors” shall mean Directors who either (A) are Directors of the Company, as applicable, as of the date hereof, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of those Directors whose election or nomination was not in connection with any transaction described in subsections (i), (ii) or (iii) or in connection with an actual or threatened proxy contest relating to the election of Directors of the Company.
(d) “Code” shall mean the Internal Revenue Code of 1986, as amended.
(e) “Code Section 423(b) Plan” shall mean an employee stock purchase plan which is designed to meet the requirements set forth in Section 423(b) of the Code, as amended. The provisions of the Code Section 423(b) Plan should be construed, administered and enforced in accordance with Section 423(b).
(f) “Committee” means a committee appointed by the Board.
(g) “Common Stock” shall mean the common stock of the Company.
(h) “Company” shall mean NETGEAR, Inc., a Delaware corporation.
(i) “Compensation” shall mean all base straight time gross earnings, commissions, bonuses, overtime and shift premiums, but exclusive of payments for any other compensation. The Administrator may establish, in its discretion and on a uniform and nondiscriminatory basis, a different definition of Compensation prior to an applicable Offering Date, which definition may vary among Participants who are participating in separate Offering Periods or the Non-423(b) Component of the Plan.
(j) “Designated Subsidiary” shall mean any Subsidiary selected by the Administrator as eligible to participate in the Plan.
(k) “Director” shall mean a member of the Board.
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| | 2022 PROXY STATEMENT | | | 57 | |
(l) “Eligible Employee” shall mean any individual who is a common law employee of the Company or any Designated Subsidiary and whose customary employment with the Company or Designated Subsidiary is at least twenty (20) hours per week and more than five (5) months in any calendar year except for certain employees of certain Designated Subsidiaries that are participating in the Non-423(b) Component of the Plan that the Administrator may, from time to time, designate as ineligible to participate in the Plan. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on sick leave or other leave of absence approved by the Company. Where the period of leave exceeds three (3) months and the individual’s right to reemployment is not guaranteed either by statute or by contract, the employment relationship shall be deemed to have terminated three (3) months and one (1) day following the commencement of such leave.
(m) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
(n) “Exercise Date” shall mean February 15 and August 15 of each year, or the immediately preceding Trading Day if February 15 or August 15 is not a Trading Day.
(o) “Fair Market Value” shall mean, as of any date, the value of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital Market of the Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system on the date of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean of the closing bid and asked prices for the Common Stock on the date of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable; or
(iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Board.
(p) “Offering Date” shall mean the first Trading Day of each Offering Period.
(q) “Offering Periods” shall mean the periods of approximately six (6) months during which an option granted pursuant to the Plan may be exercised, and commencing on the first Trading Day on or after February 16 and August 16 of each year and terminating on the following August 15 and February 15, or the immediately preceding Trading Day if August 15 or February 15 is not a Trading Day. The duration and timing of Offering Periods may be changed pursuant to Section 4 of this Plan.
(r) “Parent” shall mean a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.
(s) “Plan” shall mean this Employee Stock Purchase Plan, which includes a Code Section 423(b) Plan and a Non-423(b) Component.
(t) “Purchase Price” shall mean 85% of the Fair Market Value of a share of Common Stock on the Offering Date or on the Exercise Date, whichever is lower; provided however, that the Purchase Price may be adjusted by the Administrator pursuant to Section 20.
(u) “Subsidiary” shall mean a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code.
(v) “Trading Day” shall mean a day on which national stock exchanges and the Nasdaq System are open for trading.
3. Eligibility.
(a) Offering Periods. Any Eligible Employee on a given Offering Date shall be eligible to participate in the Plan.
(b) Limitations. Any provisions of the Plan to the contrary notwithstanding, no Eligible Employee shall be granted an option under the Plan (i) to the extent that, immediately after the grant, such Eligible Employee (or any other person whose stock would be attributed to such Eligible Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company or any Parent or Subsidiary of the Company and/or hold outstanding options to purchase such stock possessing five percent (5%) or more of the total combined voting power or value of all classes of the capital stock of the Company or of any Parent or Subsidiary of the Company, or (ii) to the extent that his or her rights to purchase stock under all employee stock purchase plans (as defined in Section 423 of the Code) of the Company or any Parent or Subsidiary of the Company accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of stock (determined at the Fair Market Value of the shares at the time such option is granted) for each calendar year in which such option is outstanding at any time, as determined in accordance with Section 423 of the Code and the regulations thereunder.
4. Offering Periods. The Plan shall be implemented by consecutive Offering Periods with a new Offering Period commencing on the first Trading Day on or after February 16 and August 16 of each year, or on such other date as the Board shall determine, and
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| 58 | | 2022 PROXY STATEMENT | | |
continuing thereafter until terminated in accordance with Section 20 hereof. The Administrator shall have the power to change the duration of Offering Periods (including the commencement dates thereof) with respect to future offerings without shareholder approval if such change is announced prior to the scheduled beginning of the first Offering Period to be affected thereafter.
5. Participation. An Eligible Employee may become a participant in the Plan by completing a subscription agreement authorizing payroll deductions in the form of Exhibit A to this Plan and filing it with the Company’s payroll office prior to the applicable Offering Date.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription agreement, he or she shall elect to have payroll deductions made on each pay day during the Offering Period in an amount not exceeding 10% of the Compensation which he or she receives on each pay day during the Offering Period; provided, however, that should a pay day occur on an Exercise Date, a participant shall have the payroll deductions made on such day applied to his or her account under the new Offering Period. A participant’s subscription agreement shall remain in effect for successive Offering Periods unless terminated as provided in Section 10 hereof.
(b) Payroll deductions for a participant shall commence on the first payday following the Offering Date and shall end on the last payday in the Offering Period to which such authorization is applicable, unless sooner terminated by the participant as provided in Section 10 hereof.
(c) All payroll deductions made for a participant shall be credited to his or her account under the Plan and shall be withheld in whole percentages only. A participant may not make any additional payments into such account.
(d) A participant may discontinue his or her participation in the Plan as provided in Section 10 hereof, or may increase or decrease the rate of his or her payroll deductions during the Offering Period by completing or filing with the Company a new subscription agreement authorizing a change in payroll deduction rate. The Administrator may, in its discretion, limit the nature and/or number of participation rate changes during any Offering Period. The change in rate shall be effective with the first full payroll period following five (5) business days after the Company’s receipt of the new subscription agreement unless the Company elects to process a given change in participation more quickly.
(e) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant’s payroll deductions may be decreased to zero percent (0%) at any time during an Offering Period. Payroll deductions shall recommence at the rate originally elected by the participant effective as of the beginning of the first Offering Period which is scheduled to end in the following calendar year, unless terminated by the participant as provided in Section 10 hereof.
(f) At the time the option is exercised, in whole or in part, or at the time some or all of the Company’s Common Stock issued under the Plan is disposed of, the participant must make adequate provision for the Company’s federal, state, or other tax liability payable to any authority, national insurance, social security or other tax withholding obligations, if any, which arise upon the exercise of the option or the disposition of the Common Stock. At any time, the Company or the employing Designated Subsidiary, as applicable, may, but shall not be obligated to, withhold from the participant’s compensation the amount necessary for the Company to meet applicable withholding obligations, including any withholding required to make available to the Company or the employing Designated Subsidiary, as applicable, any tax deductions or benefits attributable to sale or early disposition of Common Stock by the Eligible Employee.
7. Grant of Option. On the Offering Date of each Offering Period, each Eligible Employee participating in such Offering Period shall be granted an option to purchase on each Exercise Date during such Offering Period (at the applicable Purchase Price) up to a number of shares of the Company’s Common Stock determined by dividing such Eligible Employee’s payroll deductions accumulated prior to such Exercise Date and retained in the participant’s account as of the Exercise Date by the applicable Purchase Price; provided that in no event shall an Eligible Employee be permitted to purchase during each Offering Period more than 10,000 shares of the Company’s Common Stock (subject to any adjustment pursuant to Section 19), and provided further that such purchase shall be subject to the limitations set forth in Sections 3(b) and 13 hereof. The Eligible Employee may accept the grant of such option by turning in a completed Subscription Agreement (attached hereto as Exhibit A) to the Company on or prior to an Offering Date. The Administrator may, for future Offering Periods, increase or decrease, in its absolute discretion, the maximum number of shares of the Company’s Common Stock an Eligible Employee may purchase during each Offering Period. Exercise of the option shall occur as provided in Section 8 hereof, unless the participant has withdrawn pursuant to Section 10 hereof. The option shall expire on the last day of the Offering Period.
8. Exercise of Option.
(a) Unless a participant withdraws from the Plan as provided in Section 10 hereof, his or her option for the purchase of shares shall be exercised automatically on the Exercise Date, and the maximum number of full shares subject to the option shall be purchased
| | | | | | |
| | 2022 PROXY STATEMENT | | | 59 | |
for such participant at the applicable Purchase Price with the accumulated payroll deductions in his or her account. No fractional shares shall be purchased; any payroll deductions accumulated in a participant’s account which are not sufficient to purchase a full share shall be retained in the participant’s account for the subsequent Offering Period, subject to earlier withdrawal by the participant as provided in Section 10 hereof. Any other funds left over in a participant’s account after the Exercise Date shall be returned to the participant. During a participant’s lifetime, a participant’s option to purchase shares hereunder is exercisable only by him or her.
(b) If the Administrator determines that, on a given Exercise Date, the number of shares with respect to which options are to be exercised may exceed (i) the number of shares of Common Stock that were available for sale under the Plan on the Offering Date of the applicable Offering Period, or (ii) the number of shares available for sale under the Plan on such Exercise Date, the Administrator may in its sole discretion (x) provide that the Company shall make a pro rata allocation of the shares of Common Stock available for purchase on such Offering Date or Exercise Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Exercise Date, and continue all Offering Periods then in effect, or (y) provide that the Company shall make a pro rata allocation of the shares available for purchase on such Offering Date or Exercise Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Exercise Date, and terminate any or all Offering Periods then in effect pursuant to Section 20 hereof. The Company may make a pro rata allocation of the shares available on the Offering Date of any applicable Offering Period pursuant to the preceding sentence, notwithstanding any authorization of additional shares for issuance under the Plan by the Company’s shareholders subsequent to such Offering Date.
9. Delivery. As soon as reasonably practicable after each Exercise Date on which a purchase of shares occurs, the Company shall arrange the delivery to each participant the shares purchased upon exercise of his or her option in a form determined by the Administrator, including by means of electronic notice.
10. Withdrawal.
(a) A participant may withdraw all but not less than all the payroll deductions credited to his or her account and not yet used to exercise his or her option under the Plan at any time prior to the Exercise Date for an Offering Period by giving written notice to the Company in the form of Exhibit B to this Plan. All of the participant’s payroll deductions credited to his or her account shall be paid to such participant promptly after receipt of notice of withdrawal and such participant’s option for the Offering Period shall be automatically terminated, and no further payroll deductions for the purchase of shares shall be made for such Offering Period. If a participant withdraws from an Offering Period, payroll deductions shall not resume at the beginning of the succeeding Offering Period unless the participant delivers to the Company a new subscription agreement.
(b) A participant’s withdrawal from an Offering Period shall not have any effect upon his or her eligibility to participate in any similar plan which may hereafter be adopted by the Company or in succeeding Offering Periods which commence after the termination of the Offering Period from which the participant withdraws.
11. Termination of Employment. Upon a participant ceasing to be an Eligible Employee, for any reason, he or she shall be deemed to have elected to withdraw from the Plan and the payroll deductions credited to such participant’s account during the Offering Period but not yet used to purchase shares of Common Stock under the Plan shall be returned to such participant or, in the case of his or her death, to the person or persons entitled thereto under Section 15 hereof, and such participant’s option shall be automatically terminated.
12. Interest. No interest shall accrue on the payroll deductions of a participant in the Plan.
13. Stock.
(a) Subject to adjustment upon changes in capitalization of the Company as provided in Section 19 hereof, the maximum number of shares of the Company’s Common Stock which shall be made available for sale under the Plan shall be 3,000,000 shares of Common Stock.
(b) Until the shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), a participant shall only have the rights of an unsecured creditor with respect to such shares, and no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to such shares.
(c) Shares of Common Stock to be delivered to a participant under the Plan shall be registered in the name of the participant or in the name of the participant and his or her spouse.
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14. Administration. The Administrator shall administer the Plan and shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan. Every finding, decision and determination made by the Administrator shall, to the full extent permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant’s account under the Plan in the event of such participant’s death subsequent to an Exercise Date on which the option is exercised but prior to delivery to such participant of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant’s account under the Plan in the event of such participant’s death prior to exercise of the option. If a participant is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant’s death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.
(c) All beneficiary designations shall be in such form and manner as the Administrator may designate from time to time.
16. Transferability. Neither payroll deductions credited to a participant’s account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 15 hereof) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions. Until shares are issued, participants shall only have the rights of an unsecured creditor.
18. Reports. Individual accounts shall be maintained for each participant in the Plan. Statements of account shall be given to participating Eligible Employees at least annually, which statements shall set forth the amounts of payroll deductions, the Purchase Price, the number of shares purchased and the remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation or Change of Control.
(a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the maximum number of shares of the Company’s Common Stock which shall be made available for sale under the Plan, the maximum number of shares each participant may purchase each Offering Period (pursuant to Section 7), as well as the price per share and the number of shares of Common Stock covered by each option under the Plan which has not yet been exercised shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other change in the number of shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by the Administrator, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Offering Period then in progress shall be shortened by setting a new Exercise Date (the “New Exercise Date”), and shall terminate immediately prior to the consummation of such proposed dissolution or liquidation, unless provided otherwise by the Administrator. The New Exercise Date shall be before the date of the Company’s proposed dissolution or liquidation. The Administrator shall notify each participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for the participant’s option has been changed to the New Exercise Date and that the participant’s option shall be exercised automatically on the New Exercise Date, unless prior to such date the participant has withdrawn from the Offering Period as provided in Section 10 hereof.
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(c) Change of Control. In the event of a Change of Control, each outstanding option shall be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the option, any Offering Periods then in progress shall be shortened by setting a New Exercise Date and any Offering Periods then in progress shall end on the New Exercise Date. The New Exercise Date shall occur before the date of the Company’s proposed Change of Control. The Administrator shall notify each participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for the participant’s option has been changed to the New Exercise Date and that the participant’s option shall be exercised automatically on the New Exercise Date, unless prior to such date the participant has withdrawn from the Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
(a) The Administrator may at any time and for any reason terminate, amend or suspend the Plan. Except as otherwise provided in the Plan, no such termination can affect options previously granted, provided that an Offering Period may be terminated by the Administrator on any Exercise Date if the Administrator determines that the termination of the Offering Period or the Plan is in the best interests of the Company and its shareholders. Except as provided in Section 19 and this Section 20 hereof, no amendment may make any change in any option theretofore granted which adversely affects the rights of any participant. To the extent necessary to comply with Section 423 of the Code (or any successor rule or provision or any other applicable law, regulation or stock exchange rule), the Company shall obtain shareholder approval in such a manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any participant rights may be considered to have been “adversely affected,” the Administrator shall be entitled to change the Offering Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in the Company’s processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with amounts withheld from the participant’s Compensation, and establish such other limitations or procedures as the Administrator determines in its sole discretion advisable which are consistent with the Plan.
(c) In the event the Administrator determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Board may, in its discretion and, to the extent necessary or desirable, modify, amend or terminate the Plan to reduce or eliminate such accounting consequence including, but not limited to:
(i) increasing the Purchase Price for any Offering Period including an Offering Period underway at the time of the change in Purchase Price;
(ii) shortening any Offering Period so that the Offering Period ends on a new Exercise Date, including an Offering Period underway at the time of the Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder approval or the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form and manner specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares of Common Stock shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to occur of its adoption by the Board of Directors or its approval by the shareholders of the Company. It shall continue in effect until terminated under Section 20 hereof.
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