PROXY STATEMENT
495 East Java Drive
Sunnyvale, California
94089
FOR THE ANNUAL MEETING OF STOCKHOLDERS OF
NETAPP, INC.
To Be Held Thursday,
September 14, 2017
Why am I receiving these materials?
The Board of Directors of NetApp, Inc. (Board or Board of Directors) has made these materials available to you on the Internet or, upon your
request, has delivered printed proxy materials to you in connection with the solicitation of proxies for use at our 2017 Annual Meeting of Stockholders, and any adjournment, postponement or other delay thereof (the Annual Meeting).
NetApp, Inc., a Delaware corporation, is referred to in this Proxy Statement as the Company, NetApp, we or our. This Proxy Statement describes proposals on which you, as a stockholder, are being asked
to vote. It also gives you information on these proposals, as well as other information, so that you can make an informed decision. As a stockholder, you are invited to attend the Annual Meeting and are requested to vote on the items of business
described in this Proxy Statement.
Why did I receive a Notice in the mail regarding the Internet availability of proxy materials?
In accordance with rules and regulations adopted by the Securities and Exchange Commission (the SEC), instead of mailing a printed copy of
our proxy materials to each of our stockholders, we are furnishing proxy materials to our stockholders over the Internet. If you received a Notice of Internet Availability of Proxy Materials (the Notice) by mail, you will not receive a
printed copy of the proxy materials. Instead, the Notice instructs you as to how you may access and review all of the information contained in the proxy materials. The Notice also instructs you as to how you may submit your proxy over the Internet
or by telephone. If you received a Notice by mail and would like to receive a printed copy of our proxy materials, you should follow the instructions for requesting such materials included in the Notice.
Who can vote at the Annual Meeting?
Stockholders of record as of the close of business July 17, 2017 (the Record Date) are entitled to vote at the Annual Meeting. If your shares are
registered directly in your name with our transfer agent, Computershare Trust Company, N.A., you are considered, with respect to those shares of common stock, the stockholder of record. If your shares of
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common stock are held by a bank, broker or other nominee, you are considered the beneficial owner of those shares, which are held in street name. As the beneficial owner,
you have the right to direct your bank, broker or other nominee how to vote your shares by following the voting instructions that your bank, broker or other nominee provides you. If you do not provide your bank, broker, or other nominee with
instructions on how to vote your shares, your bank, broker or other nominee may not vote your shares with respect to any
non-routine
matters, but may, in its discretion, vote your shares with respect to
routine matters. For more information on routine and
non-routine
matters, see
What are abstentions and broker
non-votes?
below.
When and where will the Annual Meeting take place?
The Annual Meeting will be held on Thursday, September 14, 2017, at 3:30 p.m. local time at the Companys headquarters at 495 East Java Drive, Sunnyvale,
California 94089. You may contact the Company at (408)
822-6000
for directions to the Annual Meeting.
How do I gain admittance to the Annual Meeting?
Each stockholder must present a valid picture identification, such as a drivers license or passport, and proof of stock ownership as of the Record Date for
entrance to the Annual Meeting. Stockholders holding shares of common stock in brokerage accounts through a bank, broker or other nominee may be required to show a brokerage or account statement reflecting their stock ownership. Cameras, recording
devices and other electronic devices will not be permitted at the Annual Meeting.
How many shares must be present to hold the Annual Meeting?
To hold the meeting and conduct business, a majority of NetApps shares of common stock issued and outstanding and entitled to vote, in person or by proxy, at the
Annual Meeting must be present in person or by proxy. This is called a quorum.
How many shares of NetApp common stock are entitled to vote at the Annual Meeting?
At the Annual Meeting, each holder of common stock is entitled to one vote for each share of common stock held by such stockholder on the Record Date. On the Record
Date, the Company had 270,438,848 shares of common stock outstanding and entitled to vote at the Annual Meeting. No shares of the Companys preferred stock were outstanding. There are no cumulative voting rights.
Who will count the votes?
A representative of Broadridge Financial Solutions, Inc. will act as the inspector of elections and tabulate the votes.
How many votes are required for each proposal?
For Proposal No. 1, a nominee for director will be elected to the Board if the number of votes cast FOR a nominees election exceed the number of
votes cast AGAINST such nominees election. Approval of each of Proposal Nos. 2, 3, 4, 6, 7 and 8 requires the affirmative vote of a majority of the stock having voting power present in person or represented by proxy. For Proposal
No. 5, the recommendation regarding the frequency of a
say-on-pay
advisory vote (every one, two or three years) will be determined based on a plurality of votes
cast. This means that the option that receives the most affirmative votes of the votes cast will be deemed to be recommended by the stockholders. Voting results will be published in a Current Report on Form
8-K,
which will be filed with the SEC within four business days of the Annual Meeting.
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The Company is offering stockholders of record four methods of voting: (1) you may vote by telephone; (2) you may vote over the Internet; (3) you may vote
in person by ballot at the Annual Meeting; and (4) finally, you may request a proxy card from us and indicate your vote by signing and dating the card where indicated, and mailing or otherwise returning the card in the prepaid envelope
provided.
If you submit a proxy card but do not specify your votes, your shares of common stock will be voted:
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FOR the election of all of the nominees named in Proposal No. 1;
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FOR Proposal Nos. 2, 3, 4 and 6;
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FOR a frequency of EVERY YEAR in Proposal No. 5;
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AGAINST Proposal No. 7; and
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ABSTAIN on Proposal No. 8.
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Uninstructed proxies will be voted in the proxy holders discretion as
to any other matter that may properly come before the Annual Meeting.
If you hold your shares of common stock through a bank, broker or other nominee, you will
receive a voting instruction form from your bank, broker or other nominee with instructions on how to vote. You will not be able to vote by ballot in person at the Annual Meeting unless you have previously obtained a legal proxy from your bank,
broker or other nominee and present it with your ballot at the Annual Meeting. Please contact your bank, broker or other nominee for information on obtaining a legal proxy.
How can I change my vote or revoke my proxy?
Any stockholder of record voting by proxy has the power to revoke a proxy at any time before the polls close at the Annual Meeting. You may revoke your proxy by filing
with the Secretary of the Company an instrument of revocation or a duly executed proxy bearing a later date or by attending the Annual Meeting and voting in person by ballot. If you are the beneficial owner of your shares, you must contact the bank,
broker or other nominee holding your shares and follow the instructions of such bank, broker or other nominee to revoke your proxy or change your vote.
What are abstentions and broker
non-votes?
Abstentions will be counted for the purposes of determining both (1) the presence or absence of a quorum for the transaction of business; and (2) the total
number of shares entitled to vote in person or by proxy at the Annual Meeting with respect to a proposal. Accordingly, abstentions will have the same effect as a vote against a proposal, except with respect to Proposal Nos. 1 and 5, where they
will have no effect.
A broker
non-vote
occurs when a bank, broker or other nominee holding shares for a
beneficial owner does not vote on a particular proposal because the bank, broker or other nominee does not have discretionary voting power with respect to such proposal and has not received voting instructions from the beneficial owner. Broker
non-votes
will be counted for the purpose of determining the presence or absence of a quorum for the transaction of business, but will not be counted for the purpose of determining the number of votes cast on a
proposal. Accordingly, a broker
non-vote
will make a quorum more readily attainable, but will not otherwise affect the outcome of the vote on a proposal.
If your shares are held in street name and you do not instruct your bank, broker or other nominee on how to vote your shares, your bank, broker or other nominee may, at
its discretion, either leave your shares unvoted or vote your shares on routine matters, but is not permitted to vote your shares on
non-routine
matters. Proposal No. 6 is considered a routine matter.
Proposal Nos. 1, 2, 3, 4, 5, 7 and 8 are considered
non-routine
matters.
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How many copies of the proxy materials will be delivered to stockholders sharing the same address?
The SEC has adopted rules that permit companies and intermediaries, such as brokers, to satisfy delivery requirements for proxy materials with respect
to two or more stockholders sharing the same address by delivering a single Proxy Statement addressed to those stockholders. This process, which is commonly referred to as householding, potentially provides extra convenience for
stockholders and cost savings for the Company. The Company and some banks and brokers household proxy materials unless contrary instructions have been received from one or more of the affected stockholders. If, at any time, you no longer wish to
participate in householding and would prefer to receive a separate Proxy Statement, or if you are receiving multiple copies of the Proxy Statement and wish to receive only one, please (1) follow the instructions provided when you vote over the
Internet; or (2) contact Broadridge Financial Solutions, Inc., either by calling toll free at
(800) 542-1061
or by writing to Broadridge Financial Solutions, Inc., Householding Department, 51
Mercedes Way, Edgewood, New York 11717.
Where may I obtain a copy of the Annual Report?
The Notice, this Proxy Statement and the Companys Annual Report on Form
10-K
for our fiscal year that ended on
April 28, 2017 (the Annual Report) have been made available on our website. Our fiscal year is reported on a
52-
or
53-week
year that ends on the last
Friday in April, and our fiscal 2017 began on April 30, 2016 and ended on April 28, 2017 (fiscal 2017). The Annual Report is not incorporated into this Proxy Statement and is not considered proxy soliciting material. The Annual
Report is posted at the following website address: http://investors.netapp.com/annuals.cfm.
Who pays for the solicitation of proxies?
We will bear the cost of soliciting proxies. Copies of solicitation materials will be made available upon request to brokerage houses, fiduciaries, and custodians
holding shares in their names that are beneficially owned by others to forward to such beneficial owners. The Company may reimburse such persons for their costs of forwarding the solicitation materials to such beneficial owners. The Company has
retained AST Phoenix Advisors, a professional proxy solicitation firm, to assist in the solicitation of proxies from stockholders of the Company. AST Phoenix Advisors may solicit proxies by personal interview, mail, telephone, facsimile, email, or
otherwise. The Company expects that it will pay AST Phoenix Advisors a customary fee, estimated to be approximately $10,000, plus reasonable
out-of-pocket
expenses
incurred in the process of soliciting proxies. In addition, the original solicitation of proxies may be supplemented by solicitation by telephone, electronic communication or other means by directors, officers, employees or agents of the Company. No
additional compensation will be paid to these individuals for any such services.
How and when may I submit proposals for consideration at next years Annual Meeting of
Stockholders?
The Companys stockholders may submit proposals for consideration at the 2018 Annual Meeting. Stockholders may also recommend
candidates for election to our Board of Directors for the 2018 Annual Meeting (see
Corporate Governance Director Selection
).
Pursuant to
Rule 14a-8
under the Exchange Act, stockholder proposals may be included in our 2018 Proxy Statement. Any such stockholder proposals must be submitted in writing to the attention of the Corporate Secretary,
NetApp, Inc., 495 East Java Drive, Sunnyvale, California 94089, no later than April 3, 2018, which is the date 120 calendar days prior to the first anniversary of the mailing date of this Proxy Statement.
Under the Companys bylaws, a proposal that a stockholder intends to present for consideration at the 2018 Annual Meeting but does not seek to include in the
Companys proxy materials for the 2018 Annual Meeting (including the nomination of an individual to serve as a director) must be received by the Corporate Secretary (at the address specified in the preceding paragraph) not less than 120
calendar days prior to the date of the 2018 Annual Meeting. The stockholders submission must include the information specified in the Companys bylaws.
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Stockholders interested in submitting such a proposal are advised to contact knowledgeable
legal counsel with regard to the detailed requirements of applicable securities laws.
If a stockholder gives notice of a proposal
or a nomination after the applicable deadline specified above, the notice will not be considered timely, and the stockholder will not be permitted to present the proposal or the nomination to the stockholders for a vote at the 2018 Annual Meeting.
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The name, age and position of each of the Companys directors as of August 1, 2017 are set forth
in the table below. Except as described below, each director has been engaged in his or her principal occupation during the past five years. There are no family relationships among any of our directors or executive officers. Messrs. Allen and Wall
will be retiring from the Board at the Annual Meeting and are not standing for election. The Board thanks them for their distinguished service to NetApp.
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Name of
Director
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Age
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Position
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Director Since
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T. Michael Nevens*
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67
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Chairman of the Board
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2009
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Jeffry R.
Allen*
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65
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Director
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2005
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Alan L.
Earhart*
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73
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Director
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2004
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Gerald
Held*
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69
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Director
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2009
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Kathryn M.
Hill*
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60
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Director
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2013
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George
Kurian
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50
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Director
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2015
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George T.
Shaheen*
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73
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Director
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2004
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Stephen M.
Smith*
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61
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Director
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2016
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Robert T.
Wall*
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72
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Director
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1993
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Richard P. Wallace*
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57
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Director
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2011
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*Denotes Independent Director
T. MICHAEL NEVENS
has been a member of the Board since December 2009 and Chairman since June 2015. From April 2014 until
becoming Chairman in June 2015, Mr. Nevens was the Companys Lead Independent Director. Since May 2006, Mr. Nevens has been a senior advisor to Permira Funds, an international private equity fund. Prior to his position with Permira
Funds, Mr. Nevens spent 23 years advising technology companies with McKinsey & Co., where he managed the firms Global High Tech Practice and chaired the firms IT vendor relations committee. Mr. Nevens currently serves
on the board of Ciena Corporation. He also served on the board of Altera Corporation until its acquisition by Intel Corporation in December 2015, as well as the board of Borland Software Corporation from 2004 until 2009. Mr. Nevens has a B.S.
degree in physics from the University of Notre Dame and M.S. degree in industrial administration from Purdue University.
Our Board
selected Mr. Nevens to serve as a director because his experience in equity investments and advising various technology companies throughout the world led our Board to conclude that he would be a valuable member of our Board, particularly as
the Company seeks to grow internationally. His experience on the boards of both public and private technology companies also provides significant value and adds to his diverse perspective.
ALAN L. EARHART
has been a member of the Board since December 2004. From 1970 until his retirement in 2001, Mr. Earhart held
several positions with Coopers & Lybrand and its successor, PricewaterhouseCoopers LLP, an accounting firm, including most recently as managing partner of PricewaterhouseCoopers Silicon Valley offices.
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Mr. Earhart currently serves on the board of directors of Brocade Communication Systems, Inc. and TiVo Corporation (formerly known as Rovi Corporation), both public technology companies, and
is an independent consultant and retired partner of PricewaterhouseCoopers. He previously served on the board of directors of Monolithic Power Systems Inc. and Quantum Corporation. Mr. Earhart holds a B.S. degree in accounting from the
University of Oregon.
Our Board selected Mr. Earhart to serve as a director because he brings to our Board a deep knowledge of financial and accounting issues.
Through his work experience and service on the boards of several high technology public companies, Mr. Earhart has developed knowledge of the complex issues facing global companies today. In addition, Mr. Earhart qualifies as an
audit committee financial expert under the rules and regulations of the SEC. Mr. Earhart is a skilled advisor who makes a strong contribution to the diversity of perspectives on our Board.
GERALD HELD
has been a member of the Board since December 2009. Since 1999, Dr. Held has been the Chief Executive Officer of Held Consulting, LLC, a
strategic consulting firm. From 2006 to 2010, he was the Executive Chairman of Vertica Systems, an analytic database company that was acquired by Hewlett-Packard Company. From 2002 to 2008, Dr. Held was on the board of Business Objects SA. He
was also a founding director for Microplace, Inc., a microfinance marketplace that was acquired by eBay, Inc. and Chairman of Bella Pictures, Inc., which was acquired by CPI Corp. Dr. Held serves on the board of Informatica Corporation, a
formerly public technology company, which was taken private by the Permira Funds and Canadian Pension Plan Investment Board. He also serves as chairman of the board of several private companies, including Tamr Inc., MemSQL Inc., and Madaket Inc.
From 1976 to 1997, Dr. Held served in a variety of executive roles at Tandem Computers, Inc. and Oracle Corporation.
Our Board selected Mr. Held to serve
as a director because he has over 40 years of experience in developing, managing and advising technology organizations. He also has experience leading organizations through periods of growth, including growing a startup company into a public company
generating several billion dollars in annual revenue. In addition to his professional experience, Mr. Held has a strong technical background, including an M.S. degree in systems engineering from the University of Pennsylvania and a Ph.D. degree
in computer science specializing in relational database technology from University of California, Berkeley.
KATHRYN M. HILL
has been a member of the Board
since September 2013. Ms. Hill served in a number of positions at Cisco Systems, Inc., a communications company, from 1997 to 2013, including, among others, Executive Advisor from 2011 to 2013, Senior Vice President, Development Strategy and
Operations from 2009 to 2011, Senior Vice President, Access Networking and Services Group from 2008 to 2009 and Senior Vice President, Ethernet Systems and Wireless Technology Group from 2005 to 2008. Prior to Cisco, Ms. Hill had a number of
engineering roles at various technology companies. Ms. Hill currently serves on the boards of Moodys Corporation and Celanese Corporation. Ms. Hill received a B.S. degree in Computational Mathematics from Rochester Institute of
Technology.
Our Board selected Ms. Hill to serve as a director because she has extensive experience in business management and leadership of engineering and
operations. Ms. Hill also has experience leading global technology organizations. Our Board believes that this experience, as well as Ms. Hills service on the board of another public company, adds to our Boards collective level
of expertise, skills and qualifications.
GEORGE KURIAN
has been a member of our Board since June 2015. Mr. Kurian was appointed as our Chief Executive
Officer on June 1, 2015 and President on May 20, 2016. From September 2013 to May 2015, he was Executive Vice President of Product Operations, overseeing all aspects of technology strategy and product and solutions development across our
product portfolio. Mr. Kurian joined NetApp in April 2011 as the Senior Vice President of the Storage Solutions Group and was appointed to Senior Vice President of the Data ONTAP group in December 2011. Prior to NetApp, from 2002 to 2011,
Mr. Kurian held several positions at Cisco Systems, including most recently as Vice President and General Manager of the application networking and switching technology group. From 1999 to 2002, Mr. Kurian was the Vice President of product
management and strategy at Akamai Technologies. Prior to that he was a management consultant with McKinsey and Company, and led software engineering and product management teams at Oracle Corporation. Mr. Kurian holds a BS degree in
electrical engineering from Princeton University and an MBA from Stanford University.
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Our Board selected Mr. Kurian to serve as a director because, as the Companys Chief Executive Officer,
Mr. Kurian has direct
day-to-day
exposure to all aspects of our business. In addition, Mr. Kurian has extensive experience and knowledge of the Company and the
industry. As a result of these and other factors, our Board believes that Mr. Kurian adds to our Boards collective level of expertise, skills and qualifications.
GEORGE T. SHAHEEN
has been a member of our Board since June 2004. From December 2006 until July 2009, he was the Chief Executive Officer and Chairman of the Board
of Directors of Entity Labs, Ltd., a technology company in the data collection, storage and analytics space. Mr. Shaheen was the Chief Executive Officer of Siebel Systems, Inc., a customer relationship management software company, from April
2005 until the sale of the company in January 2006. From October 1999 to April 2001, he served as the Chief Executive Officer and Chairman of the Board of Webvan Group, Inc. Prior to joining Webvan Group, Inc., Mr. Shaheen was the Chief
Executive Officer and Global Managing Partner of Andersen Consulting, which later became Accenture. Mr. Shaheen currently serves as Chairman of the Board of Korn/Ferry International. He also serves on the boards of 24/7 Customer, Inc., Green
Dot Corporation and Marcus & Millichap Inc. He has served as an IT Governor of the World Economic Forum and as a member of the Board of Advisors for the Northwestern University Kellogg Graduate School of Management. He has also served on
the Board of Trustees of Bradley University. Mr. Shaheen received a B.S. degree in business and an M.B.A. from Bradley University.
Our Board selected
Mr. Shaheen to serve as a director because he has significant experience leading, managing and advising companies. Mr. Shaheens consulting background gives him keen insight into sales and the customer-based service aspect of the
Companys operations. In addition, Mr. Shaheen has expertise on compliance matters as a result of his service on the boards of several private and public technology companies, including service as a chairman and member of the audit and
compensation committees of those boards.
STEPHEN M. SMITH
has been a member of the Board since May 2016. Since 2007, Mr. Smith has served as the Chief
Executive Officer, President and member of the board of directors of Equinix, Inc., a global interconnection and data center company. Prior to joining Equinix, Mr. Smith served as Senior Vice President at
HP-Services,
a business segment of Hewlett-Packard Co., from January 2005 to October 2006. From September 2003 to January 2005, Mr. Smith served as Vice-President of Global Professional and Managed
Services at Lucent Technologies Inc., a communications solutions provider. Prior to joining Lucent Technologies, Mr. Smith spent 17 years with Electronic Data Systems Corporation (EDS), a business and technology solutions company,
in a variety of positions, including Chief Sales Officer, President of EDS Asia-Pacific and President of EDS Western Region. Mr. Smith serves on the board of directors of F5 Networks, a public company, and, during the past five years, served as
a director of the public company Volterra Semiconductor Corporation. Mr. Smith graduated from the U.S. Military Academy at West Point and holds a B.S. in Engineering.
Our Board selected Mr. Smith to serve as a director because of his executive leadership skills and management experience as a current chief executive officer of a
publicly traded company, as well as because of his extensive career history in technology and critical infrastructure companies and his deep technology expertise. Mr. Smith brings a unique understanding of the evolution of IT impacting our
customers and current technology trends, all of which qualify him to serve on our Board.
RICHARD P. WALLACE
has been a member of the Board since March 2011.
Mr. Wallace currently serves as the President and Chief Executive Officer of
KLA-Tencor
Corporation, a supplier of process control and yield management solutions for semiconductor and related
microelectronics industries. He began his career at KLA Instruments in 1988 as an applications engineer and has held various general management positions throughout his
27-year
tenure with the company.
Mr. Wallace became the CEO of
KLA-Tencor
in January 2006. Mr. Wallace previously served as a member of the board of directors for Semiconductor Equipment and Materials International (SEMI), an
industry trade association, and previously served as a member of the board of directors for Beckman Coulter from 2009 to 2011. Mr. Wallace earned his B.S. degree in electrical engineering from the University of Michigan and an M.S. degree in
engineering management from Santa Clara University.
Our Board selected Mr. Wallace to serve as a director because of his experience as chief executive officer
of a publicly traded high-technology company. He brings to the Board more than two decades of experience gained while working at a technology company that has experienced growth. Mr. Wallace offers a unique perspective and expertise that is
relevant to leading and advising a growth company. His experience as a board member of another publicly traded company also provides important value and adds to his unique perspective.
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Our Board has adopted policies and procedures that our Board believes are in the best interests of the Company and its stockholders while being compliant
with the Sarbanes-Oxley Act of 2002 and the rules and regulations of the SEC and the NASDAQ Stock Market, LLC (NASDAQ).
Our Board
leadership structure reflects our Company leadership needs and provides effective oversight of Company management and risk management. Nine of our ten directors are independent, including our Chairman of the Board. Within the last six years, the
Company has added four new independent directors to our Board.
The operation and functions of the Board are governed by our Corporate Governance
Guidelines. In addition, all of the Companys directors, officers, and employees are subject to our Code of Conduct.
Further details on our
governance practices are provided in the following sections.
Board Leadership Structure
Our Board does not view any particular leadership structure as preferred and routinely considers the appropriate leadership structure. This consideration
includes the pros and cons of alternative leadership structures in light of the Companys operating and governance environment at the time, with the goal of achieving the optimal model for Board leadership and effective oversight of management
by our Board.
Our Board currently consists of ten directors, nine of whom are independent. Our only management director is Mr. Kurian, our
Chief Executive Officer. Mr. Nevens, an independent director, holds the role of Chairman of the Board. The Board believes this structure benefits the Board and the Company by enabling the Chief Executive Officer to focus on operational and
strategic matters while enabling the Chairman to focus on Board and governance matters, including, among other things, the creation of long-term stockholder value and long range strategic planning.
As described in more detail below, our Board of Directors has three standing committees, each of which is composed solely of independent directors and
chaired by an independent director. Our Board delegates substantial responsibility to each Board committee, which regularly reports its activities and actions back to the Board. We believe that our independent Board committees and their respective
chairs are an important aspect of our Board leadership structure.
Corporate Governance Guidelines
Our Board has adopted a formal set of Corporate Governance Guidelines concerning various issues related to Board membership, structure, function and
processes; Board committees; leadership development, including succession planning; oversight of risk management; and our ethics helpline. A copy of the Corporate Governance Guidelines is available on our website at
http://investors.netapp.com/corporate-governance.cfm.
Our Board, as a whole and through its committees, has responsibility for the oversight of risk management. With the oversight of our Board, our executive
officers are responsible for the
day-to-day
management of the material risks the Company faces. In its oversight role, our Board has the responsibility to satisfy itself
that the risk management processes designed and implemented by our executive officers are adequate and functioning as designed. The involvement of our Board in setting our long-term business strategy is a key part of our Boards oversight of
risk management and allows our Board to assess and determine what constitutes an appropriate level of risk for the Company and review and consider managements role in risk management. Our Board regularly receives updates from management and
outside advisors regarding material risks the Company faces.
Each committee of our Board oversees specific aspects of risk management. For example,
our Audit Committee oversees overall integrity of our financial statements, accounting and auditing matters and our compliance with
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legal, regulatory and public disclosure requirements; our Compensation Committee oversees the management risks associated with succession planning and the relationship between our compensation
policies and programs; and our Corporate Governance and Nominating Committee oversees the management of risks associated with director independence, conflicts of interest, board composition and organization, and director succession planning. Our
committees regularly report their findings to our Board.
Other than when our Board or a committee of our Board meets in executive session, senior
management attends all meetings of our Board and its committees and is available to address questions raised by directors with respect to risk management and other matters.
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 also provides 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. Specifically, in February 2017, the Board, including Mr. Kurian, reviewed and assessed the
Companys executive-level talent, with a focus on their potential to deliver on the Companys strategy and long-term plan, and discussed strategies for addressing gaps. Management is responsible for developing retention and development
plans for potential successors and periodic progress reports and reviews are provided to the Board.
A majority of our Board is composed of independent directors, as defined in the applicable laws and regulations of the SEC and the Listing
Rules of NASDAQ. The independent directors regularly meet in executive session, without management, as part of the normal agenda of our Board meetings. Our Chairman, Mr. Nevens, is a nonemployee director and is independent (as defined by the
NASDAQ Listing Rules).
Committees of the Board of Directors
Our Board of Directors maintains three standing committees and has adopted a charter for each that meets applicable NASDAQ rules. Charters are reviewed
by their respective committees annually and are available at http://investors.netapp.com/corporate-governance.cfm.
Corporate Governance and Nominating Committee
The responsibilities of the committee include:
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Review of matters concerning corporate governance and providing recommendations to the Board
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Review of composition of the Board of Directors and its committees and providing recommendations to the Board
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Evaluation of the performance of the Board and director compensation
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Review of conflicts of interest of members of the Board and corporate officers
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Review and approval of related person transactions
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Oversight and management of risks associated with director independence, conflicts of interest, board composition and organization, and director succession planning
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All of the members of the Corporate Governance and Nominating Committee meet the applicable requirements for independence from Company management.
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Compensation Committee
The responsibilities of the committee include:
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Review of the Companys overall compensation and benefits philosophy and strategy and advising the Companys management
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Evaluation and approval of the compensation policies, plans and programs for our Chief Executive Officer, other executive officers and nonemployee directors, and determination of compensation in accordance with the
Compensation Committee charter
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Review and approval of our incentive compensation plans in accordance with the Compensation Committee charter
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In accordance with NASDAQ rules, review and assessment of the independence of any compensation consultant, legal counsel or other advisor that provides advice to the Compensation Committee
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All of the members of the Compensation Committee meet the applicable requirements for independence as defined by applicable NASDAQ and Internal Revenue Service rules.
Audit Committee
The responsibilities of the
committee include:
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Appointment, compensation, retention, termination and oversight of the work of the Companys independent registered public accounting firm, Deloitte & Touche LLP, which reports directly to the Audit
Committee
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Oversight of the integrity of the Companys financial statements and integrity of the Companys internal controls
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Oversight of the quality of the internal audit function of the Company, which reports directly to the Audit Committee
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Establishment of policies and procedures that are consistent with the SEC and NASDAQ requirements for auditor independence
|
All of the members of the Audit Committee meet the applicable requirements for independence from Company management and requirements for financial literacy. Each member
of the Audit Committee has the requisite financial management expertise.
Our Board has adopted guidelines for the identification, evaluation and nomination of candidates for director.
To assist with director nominations, our Board has assigned the Corporate Governance and Nominating Committee responsibility for reviewing and recommending nominees to
our Board. Although there are no specific minimum qualifications for director nominees, the ideal candidate should have the highest professional and personal ethics and values, and broad experience at the policy-making level in business, government,
education, technology, or public service. In evaluating the suitability of a particular director nominee, our Board considers a broad range of factors, including, without limitation, diversity of business experience, professional expertise, length
of service, character, integrity, judgment, independence, diversity (including with respect to race and gender), age, skills, education, understanding of the Companys business, and other commitments. In addition, our Corporate Governance and
Nominating Committee may also consider such other factors as it may deem, from time to time, are in our and our stockholders best interests.
The Corporate
Governance and Nominating Committee makes an effort to ensure that our Boards composition reflects a broad diversity of experience, professions, skills, viewpoints, geographic representation, personal traits and backgrounds. Additionally,
although we have no formal policy with respect to diversity, due to the global and
-14-
complex nature of our business, our Board believes it is important to identify otherwise qualified candidates who would increase our Boards racial, ethnic, gender and/or cultural diversity.
No specific weights are assigned to particular criteria, and the Corporate Governance and Nominating Committee does not believe that any specific criterion is necessarily applicable to all prospective nominees. When the Corporate Governance and
Nominating Committee reviews a potential new candidate, it looks specifically at the candidates qualifications in light of the needs of our Board at that time, given the then-current mix of director attributes. With respect to the nomination
of continuing directors for
re-election,
each continuing directors past contributions to our Board are also considered.
In the case of new director candidates, the Corporate Governance and Nominating Committee reviews whether the nominee is independent for NASDAQ purposes and recommends a
determination to the Board, which determination is based upon applicable NASDAQ listing standards, applicable SEC rules and regulations and the advice of counsel, if necessary. The Corporate Governance and Nominating Committee generally relies on a
variety of resources to compile a list of potential candidates, including, among other things and depending upon the circumstances, its network of contacts, searches of corporate, academic and government environments and resources, and, when
appropriate, a professional search firm. We believe utilizing such a broad variety of resources furthers our Boards goal of ensuring the identification and consideration of a diverse range of qualified candidates, including, without
limitation, women and minority candidates. After considering the function and needs of our Board, the Corporate Governance and Nominating Committee conducts appropriate and necessary inquiries into the backgrounds and qualifications of possible
candidates. The Corporate Governance and Nominating Committee meets to discuss and consider such candidates qualifications and then selects a nominee for recommendation to our Board by majority vote.
If the Corporate Governance and Nominating Committee determines that it wants to identify new independent director candidates for Board membership, it is authorized to
retain and to approve the fees of third-party executive search firms to help determine the skills and qualifications that would best complement our Board and identify prospective director nominees.
The Corporate Governance and Nominating Committee uses the same process for evaluating all nominees, regardless of the source of the nomination. In 2016, the Corporate
Governance and Nominating Committee retained the services of an executive search firm to assist it in identifying new candidates to join the Board.
A stockholder
who desires to recommend a candidate for election to our Board must direct the recommendation in writing to NetApp, Inc., 495 East Java Drive, Sunnyvale, California 94089, Attention: Corporate Secretary and must include the same information required
by the Companys bylaws in connection with the nomination of a director of our Board, including, without limitation, the candidates name; home and business contact information; detailed biographical data and qualifications; information
regarding any relationships between the candidate and the Company within the last three years; evidence of the nominating persons ownership of Company stock; and a written statement that, if nominated, such candidate will tender an irrevocable
advance resignation in accordance with the Companys Corporate Governance Guidelines.
Meetings and Committees of our Board of Directors
Our Board held six meetings and also acted by written consent during fiscal 2017. During fiscal 2017, each member of our Board attended at least 78% of the aggregate of
(1) the total number of meetings of our Board held during fiscal 2017; and (2) the total number of meetings held by all Board committees on which such director served, in each case covering the periods of fiscal 2017 during which such
director served on our Board or such committees, as applicable. Four out of the ten directors then serving attended all meetings of our Board and all meetings of their respective committees during fiscal 2017.
There are no family relationships among executive officers, directors or nominees of the Company. Our Board currently has three standing committees, each of which is
composed of entirely of independent directors, and each of which operates under a charter approved by our Board: the Audit Committee, the Corporate Governance and Nominating Committee, and the Compensation Committee.
-15-
The members of the committees as of the date of this Proxy Statement are identified in the following table:
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Director
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Audit
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Compensation
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Corporate Governance
and Nominating
|
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T. Michael Nevens
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☑
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Chair
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Jeffry R. Allen
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☑
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Alan L. Earhart
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Chair
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☑
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Gerald Held
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☑
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Kathryn M. Hill
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☑
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George T. Shaheen
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☑
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Stephen M. Smith
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☑
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Robert T. Wall
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Chair
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☑
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Richard P. Wallace
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☑
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All members of the Audit Committee are independent in accordance with the applicable laws and regulations of the SEC and the Listing
Rules of NASDAQ. Our Board has determined that Messrs. Earhart and Allen each qualify as an audit committee financial expert under the rules and regulations of the SEC. The Audit Committee reviews, acts on and reports to our Board with
respect to various auditing and accounting matters, including the selection of the Companys independent registered public accounting firm, the scope of the annual audits, fees to be paid to the independent registered public accounting firm,
the performance of the Companys independent registered public accounting firm, the accounting practices of the Company and other such functions as detailed in the Audit Committee Charter, which can be found on the Companys website at
http://investors.netapp.com/corporate-governance.cfm. The Audit Committee held eleven meetings during fiscal 2017.
All members of the Compensation Committee are
independent in accordance with the applicable laws and regulations of the SEC and the Listing Rules of NASDAQ, and qualify as an outside director within the meaning of Section 162(m) of the Internal Revenue Code, as amended. The
Compensation Committee establishes salaries, incentive compensation programs, and other forms of compensation for our officers and
non-employee
directors; creates the compensation guidelines under which
management establishes salaries for
non-officers
and other employees of the Company; and administers the incentive compensation and benefit plans of the Company. In carrying out its responsibilities, the
Compensation Committee reviews, at least annually, the compensation for the Chief Executive Officer, all executive vice presidents, all senior vice presidents and
non-employee
directors, the corporate goals
relevant to compensation, and our executive and leadership development policies. The functions of the Compensation Committee are detailed in the Compensation Committee Charter, which can be found on the Companys website at
http://investors.netapp.com/corporate-governance.cfm. The Compensation Committee meets regularly with its outside advisors independently of management. The Compensation Committee held seven meetings during fiscal 2017.
All members of the Corporate Governance and Nominating Committee are independent in accordance with the applicable laws and regulations of the SEC and the Listing Rules
of NASDAQ. The Corporate Governance and Nominating Committee evaluates and recommends to our Board candidates for Board membership and considers nominees recommended by stockholders who satisfy the conditions described above under
Corporate
Governance Director Selection.
The Corporate Governance and Nominating Committee also develops and recommends corporate governance policies and other governance guidelines and procedures to our Board. The functions of the Corporate
Governance and Nominating Committee are detailed in the Corporate Governance and
-16-
Nominating Committee Charter, which can be found on the Companys website at http://investors.netapp.com/corporate-governance.cfm. The Corporate Governance and Nominating Committee held
three meetings during fiscal 2017.
Stockholder Meeting Attendance for Directors
While we do not have a formal policy for director attendance at our annual meetings, historically they have been scheduled on the same day as a Board of Directors
meeting and were attended by the directors. In 2016, all of the directors then serving attended the 2016 Annual Meeting of Stockholders (the 2016 Annual Meeting) in person.
The Company has adopted a Code of Conduct that includes a conflict of interest policy that applies to all directors, officers and employees. All employees are required
to affirm in writing their understanding and acceptance of the Code of Conduct.
The Code of Conduct is posted on the Companys website at:
http://investors.netapp.com/corporate-governance.cfm. The Company will post any amendments to or waivers of the provisions of the Code of Conduct on its website.
Political Contributions Policy
The Companys Political Contributions Policy and its Code of Conduct prohibit political contributions of any kind, by or on behalf of the Company. Our Code of
Conduct also requires advance approval of any donation of NetApp assets or funds. We believe this provides an additional measure of oversight in enforcing our policy against Company political contributions.
Personal Loans to Executive Officers and Directors
The Company does not provide personal loans or extend credit to any executive officer or director.
Stockholder Communications Policy
Stockholders may contact any of the Companys directors by writing to them c/o NetApp, Inc., 495 East Java Drive, Sunnyvale, California 94089, Attn: Corporate
Secretary. Employees and others who wish to contact our Board or any member of the Audit Committee to report questionable practices may do so anonymously by using this address and designating the communication as confidential.
-17-
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
To the Companys knowledge, the following table sets forth
certain information regarding beneficial ownership of the Companys common stock as of July 17, 2017 by (1) each person or entity who is known by the Company to own beneficially more than 5% of the Companys common stock;
(2) each of the Companys directors and nominees for director; (3) each of the Companys executive officers set forth in the Summary Compensation Table; and (4) all of the Companys current directors and executive
officers as a group.
Except as indicated, the address of the beneficial owners is c/o NetApp, Inc., 495 East Java Drive, Sunnyvale,
California 94089. Information related to holders of more than 5% of the Companys common stock was obtained from filings with the SEC pursuant to Sections 13(d) or 13(g) of the Exchange Act.
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Name of Beneficial Owners
|
|
Number of
Shares
Beneficially
Owned+
|
|
|
Percentage
of
Class(1)
|
|
PRIMECAP Management Company(2)
|
|
|
41,682,076
|
|
|
|
15.4
|
%
|
177 E. Colorado Blvd, 11
th
Floor
Pasadena, CA 91105
|
|
|
|
|
|
|
|
|
The Vanguard Group(3)
|
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26,111,177
|
|
|
|
9.7
|
%
|
100 Vanguard Boulevard
Malvern, PA 19355
|
|
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|
|
|
|
|
|
Dodge & Cox(4)
|
|
|
23,029,321
|
|
|
|
8.5
|
%
|
555 California Street, 40th Floor
San Francisco, CA 94104
|
|
|
|
|
|
|
|
|
BlackRock, Inc.(5)
|
|
|
20,449,157
|
|
|
|
7.6
|
%
|
55 East 52nd Street
New York, NY 10055
|
|
|
|
|
|
|
|
|
Vanguard Chester Funds Vanguard Primecap Fund(6)
|
|
|
14,104,800
|
|
|
|
5.2
|
%
|
100 Vanguard Boulevard
Malvern, PA 19355
|
|
|
|
|
|
|
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|
Invesco Ltd.(7)
|
|
|
11,158,366
|
|
|
|
4.1
|
%
|
1555 Peachtree Street NE, Suite 1800
Atlanta, GA 30309
|
|
|
|
|
|
|
|
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George Kurian(8)
|
|
|
307,598
|
|
|
|
*
|
|
Ronald J. Pasek(9)
|
|
|
16,341
|
|
|
|
*
|
|
Joel D. Reich(10)
|
|
|
62,180
|
|
|
|
*
|
|
Henri P. Richard(11)
|
|
|
21,764
|
|
|
|
*
|
|
Matthew K. Fawcett(12)
|
|
|
218,385
|
|
|
|
*
|
|
Jeffry R. Allen(13)
|
|
|
71,612
|
|
|
|
*
|
|
Alan L. Earhart(14)
|
|
|
37,153
|
|
|
|
*
|
|
Gerald Held(15)
|
|
|
86,333
|
|
|
|
*
|
|
Kathryn M. Hill(16)
|
|
|
47,757
|
|
|
|
*
|
|
T. Michael Nevens(17)
|
|
|
63,801
|
|
|
|
*
|
|
George T. Shaheen(18)
|
|
|
85,208
|
|
|
|
*
|
|
Stephen M. Smith(19)
|
|
|
12,030
|
|
|
|
*
|
|
Robert T. Wall(20)
|
|
|
122,452
|
|
|
|
*
|
|
Richard P. Wallace(21)
|
|
|
114,467
|
|
|
|
*
|
|
All current directors and executive officers as a group (14 persons)(22)
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|
|
1,267,081
|
|
|
|
*
|
|
-21-
+
|
Pursuant to our outside director compensation policy, options to purchase shares of our common stock held by our nonemployee directors are early exercisable. Shares issued upon early exercise of stock options remain
subject to the same vesting schedule applicable to the exercised stock options. If a nonemployee director ceases to provide services to us prior to the date on which all such shares have vested, we have a right to repurchase any unvested shares at
the exercise price paid per share.
|
(1)
|
Percentage of Class is based on 270,438,848 shares of common stock outstanding on July 17, 2017. Shares of common stock subject to stock options and RSUs that are currently exercisable or will become
exercisable or issuable within 60 days of July 17, 2017 are deemed outstanding for computing the percentage of the person or group holding such options and/or RSUs, but are not deemed outstanding for computing the percentage of any other person
or group. Except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock.
|
(2)
|
Information concerning stock ownership was obtained from Amendment No. 3 to the Schedule 13G filed with the SEC on February 9, 2017 by PRIMECAP Management Company reported sole voting power with respect to
13,195,501 of such shares of common stock and sole dispositive power with respect to all 41,682,076 shares of common stock.
|
(3)
|
Information concerning stock ownership was obtained from Amendment No. 2 to the Schedule 13G filed with the SEC on February 10, 2017. The Vanguard Group reported sole voting power with respect to 443,377 of
such shares of common stock and sole dispositive power with respect to 25,619,390 of such shares of common stock.
|
(4)
|
Information concerning stock ownership was obtained from Amendment No. 6 to the Schedule 13G filed with the SEC on March 20, 2017. Dodge & Cox reported sole voting power with respect to 21,612,121 of
such shares of common stock and sole dispositive power with respect to 23,029,321 shares of common stock.
|
(5)
|
Information concerning stock ownership was obtained from Amendment No. 5 to the Schedule 13G filed with the SEC on January 25, 2017 by BlackRock Inc. BlackRock reported sole voting power with respect to
17,147,638 of such shares of common stock and sole dispositive power with respect to 20,391,698 shares of common stock.
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(6)
|
Information concerning stock ownership was obtained from the Schedule 13G filed with the SEC on February 13, 2017 by Vanguard Chester Funds Vanguard Primecap Fund. Vanguard Chester Funds Vanguard
Primecap Fund reported sole voting power with respect to 14,104,800 of such shares of common stock.
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(7)
|
Information concerning stock ownership was obtained from the Schedule 13G filed with the SEC on February 1, 2017. Invesco Ltd. reported sole voting power with respect to 10,556,687 of such shares of common stock
and sole dispositive power with respect to all 11,158,366 shares of common stock.
|
(8)
|
Consists of (i) 31,598 shares of common stock held of record by Mr. Kurian; and (ii) 276,000 shares of common stock issuable upon exercise of outstanding options exercisable within 60 days of July 17, 2017, of
which 267,800 shares were fully vested as of such date.
|
(9)
|
Consists of 16,341 shares of common stock held of record by Mr. Pasek.
|
(10)
|
Consists of (i) 2,272 shares of common stock held of record by Mr. Reich; and (ii) 59,908 shares of common stock issuable to Mr. Reich upon exercise of outstanding stock options exercisable within 60 days of
July 17, 2017, of which 58,166 shares were fully vested as of such date.
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(11)
|
Consists of 21,764 shares of common stock held of record by Henri Richard and Gay Richard
JTWROS
.
|
(12)
|
Consists of (i) 2,117 shares of common stock held of record by Mr. Fawcett; and (ii) 216,268 shares of common stock issuable upon exercise of outstanding options exercisable within 60 days of July 17, 2017, of
which 213,972 shares were fully vested as of such date.
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(13)
|
Consists of (i) 14,566 shares of common stock held of record by Jeffry R. Allen and Teri Allen, as Trustees of the Jeffry
and Teri Allen Revocable Trust dated 1/29/2002; (ii) 49,914 shares of common stock issuable
|
-22-
|
upon exercise of outstanding options exercisable within 60 days of July 17, 2017, of which all were fully vested as of such date; and (iii) 7,132 shares of common stock issuable upon the
vesting of RSUs within 60 days of July 17, 2017. Mr. Allen has shared voting and investment power with respect to the shares held of record by Jeffry R. Allen and Teri Allen, as Trustees of the Jeffry and Teri Allen Revocable Trust dated
1/29/2002.
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(14)
|
Consists of (i) 5,689 shares of common stock held of record by Mr. Earhart; (ii) 16,416 shares of common stock issuable upon exercise of outstanding options exercisable within 60 days of July 17, 2017, all of
which were fully vested as of such date; and (iii) 7,132 shares of common stock issuable upon the vesting of RSUs within 60 days of July 17, 2017; and (iv) 7,916 shares of common stock issuable upon the vesting of RSUs within 60 days of
July 17, 2017 and for which payout has been deferred by Mr. Earhart. The RSUs for which Mr. Earhart has elected to defer payout shall be paid out within 30 days of the earlier of the date his service on the Board ceases for any reason
or the date on which a Change of Control occurs. For the definition of Change of Control please see
Termination of Employment and Change of Control Agreements Definitions Contained in Change of Control Severance
Agreement
below.
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(15)
|
Consists of (i) 259 shares of common stock held of record by Mr. Held; (ii) 46,916 shares of common stock issuable upon exercise of outstanding options exercisable within 60 days of July 17, 2017, of which all
were fully vested as of such date; (iii) 7,132 shares of common stock issuable upon the vesting of RSUs within 60 days of July 17, 2017; and (iv) 32,026 shares of common stock issuable upon the vesting of RSUs within 60 days of July 17,
2017 and for which payout has been deferred by Mr. Held. The RSUs for which Mr. Held has elected to defer payout shall be paid out within 30 days of the earlier of the date his service on the Board ceases for any reason or the date on
which a Change of Control occurs. For the definition of Change of Control please see
Termination of Employment and Change of Control Agreements Definitions Contained in Change of Control Severance Agreement
below.
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(16)
|
Consists of (i) 13,628 shares of common stock held of record by Kathryn Hill Trustee of the Kathryn Hill 2007 Trust U/A/D 1/10/2007 Reserve Account; (ii) 26,997 shares of common stock issuable upon exercise of
outstanding options exercisable within 60 days of July 17, 2017, of which all were fully vested as of such date; and (iii) 7,132 shares of common stock issuable upon the vesting of RSUs within 60 days of July 17, 2017.
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(17)
|
Consists of (i) 13,838 shares of common stock held of record by The Nevens Family 1997 Trust; (ii) 42,831 shares of common stock issuable to Mr. Nevens upon exercise of outstanding options exercisable within 60
days of July 17, 2017, of which all were fully vested as of such date; and (iii) 7,132 shares of common stock issuable upon the vesting of RSUs within 60 days of July 17, 2017.
|
(18)
|
Consists of (i) 4,466 shares of common stock held of record by George T. Shaheen and Darlene F. Shaheen, as Trustees to the Shaheen Revocable Trust U/A DTD 12/15/88; (ii) 16,694 shares of common stock issuable upon the
payout of RSUs that are vested as of July 17, 2017 but for which Mr. Shaheen has elected to defer payout; (iii) 56,916 shares of common stock issuable upon exercise of outstanding options exercisable within 60 days of July 17,
2017, of which all were fully vested as of such date; and (iv) 7,132 shares of common stock issuable upon the vesting of RSUs within 60 days of July 17, 2017 for which Mr. Shaheen has elected to defer the release. The RSUs for which
Mr. Shaheen has elected to defer payout shall be paid out within 30 days of the earlier of the date his service on the Board ceases for any reason or the date on which a Change of Control occurs. For the definition of Change of
Control please see
Termination of Employment and Change of Control Agreements Definitions Contained in Change of Control Severance Agreement
below. Mr. Shaheen has shared voting and investment power with respect
to the shares held of record by George T. Shaheen and Darlene F. Shaheen, as Trustees to the Shaheen Revocable Trust U/A DTD 12/15/88.
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(19)
|
Consists of (i) 4,898 shares of common stock held of record by the Stephen Smith & Sandra Smith Trust UAD 9/13/2019; and (ii) 7,132 shares of common stock issuable to Mr. Smith upon the vesting of RSUs
within 60 days of July 17, 2017.
|
(20)
|
Consists of (i) 36,048 shares of common stock held of record by Mr. Wall; and (ii) 2,856 shares of common stock
issuable upon the payout of RSUs that are vested as of July 17, 2017 but for which Mr. Wall has
|
-23-
|
elected to defer payout; (iii) 76,416 shares of common stock issuable upon exercise of outstanding options exercisable within 60 days of July 17, 2017, of which all were fully vested as of
such date; and (iv) 7,132 shares of common stock issuable upon the vesting of RSUs within 60 days of July 17, 2017 The RSUs for which Mr. Wall has elected to defer payout shall be paid out within 30 days of the earlier of the date his
service on the Board ceases for any reason or the date on which a Change of Control occurs. For the definition of Change of Control please see
Termination of Employment and Change of Control Agreements Definitions
Contained in Change of Control Severance Agreement
below.
|
(21)
|
Consists of (i) 23,004 shares of common stock issuable to Mr. Wallace upon the payout of RSUs that are vested as of July 17, 2017 but for which Mr. Wallace has elected to defer payout; (ii) 84,331 shares
of common stock issuable upon exercise of outstanding options exercisable within 60 days of July 17, 2017, of which all were fully vested as of such date; and (iii) 7,132 shares of common stock issuable upon the vesting of RSUs within 60 days
of July 17, 2017. The RSUs for which Mr. Wallace has elected to defer payout shall be paid out within 30 days of the earlier of the date his service on the Board ceases for any reason or the date on which a Change of Control occurs. For
the definition of Change of Control please see
Termination of Employment and Change of Control Agreements Definitions Contained in Change of Control Severance Agreement
below.
|
(22)
|
Consists of (i) 167,484 shares of common stock held of record by our current directors and executive officers; (ii) 82,496 shares of common stock issuable upon the payout of RSUs that are vested as of July 17, 2017
but for which have been elected to be deferred for payout; (iii) 952,913 shares of common stock issuable upon the exercise of outstanding options held by our directors and exercisable within 60 days of July 17, 2017, of which 940,675 were fully
vested as of such date; (iv) 57,056 shares of common stock issuable upon the vesting of RSUs within 60 days of July 17, 2017; and (v) 7,132 shares of common stock issuable to our directors upon the vesting of RSUs within 60 days of
July 17, 2017 and for which payout has been deferred.
|
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Companys directors and executive officers and persons who own more than 10% of a registered class of the
Companys equity securities to file with the SEC initial reports of ownership and reports of changes in their ownership of common stock and other equity securities of the Company. Executive officers, directors and greater than 10% stockholders
are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on the review of the copies of such
reports furnished to the Company and written representations that no other reports were required, the Company believes that during fiscal 2017, its executive officers, directors and greater than 10% stockholders complied with all Section 16
filing requirements.
-24-
COMPENSATION DISCUSSION AND
ANALYSIS
This Compensation Discussion and Analysis (CD&A) provides information on our
executive compensation program and our compensation philosophy for our named executive officers (NEOs), who in fiscal 2017 were:
|
|
|
George Kurian, Chief Executive Officer and President
|
|
|
|
Ronald J. Pasek, Executive Vice President and Chief Financial Officer
|
|
|
|
Joel D. Reich, Executive Vice President, Product Operations
|
|
|
|
Henri Richard, Executive Vice President, Worldwide Field and Customer Operations
|
|
|
|
Matthew K. Fawcett, Senior Vice President, General Counsel and Secretary
|
The Board has
delegated to the Compensation Committee sole authority and responsibility for establishing and overseeing salaries, incentive compensation programs, and other forms of compensation for our executive officers, general remuneration policies for the
balance of our employee population and for overseeing and administering our equity incentive and benefits plans.
Business Overview and Program Highlights
Fiscal 2017 Company Performance
In fiscal 2017, the Company continued its focus on pivoting to the growth areas of the markets while reducing the cost structure of the
business. By innovating to redefine traditional markets, bring enterprise-grade technology to emerging areas of the market, and meet the evolving needs of our growing customer base, we are creating new opportunities for NetApp, gaining market share,
and expanding our addressable market. This intense focus helped us to systematically improve our execution and drive efficiency through the business and, ultimately, meet or beat our corporate goals.
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Our Strategic solutions, which represent our pivot to the growth areas of the market, are aligned to our customers top IT imperatives and position us to lead in the new era of IT. In fiscal 2017, these solutions
grew to 66% of net product revenue and grew at a rate of 17% from fiscal 2016. As planned, headwinds from our Mature solutions lessened over the course of the year. The combination of these two dynamics yielded positive growth of product revenue for
the year. Strategic solutions include Clustered ONTAP, branded
E-Series,
SolidFire, AltaVault and optional
add-on
software products. Mature solutions include
7-mode
ONTAP,
add-on
hardware and related operating system (OS) software and original equipment manufacturers (OEM) products.
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Our
All-Flash
Array business grew rapidly in fiscal 2017, outpacing the growth of the market. The annualized net revenue run rate of our
All-Flash
Array business was $1.7 billion, based on our Q4 fiscal 2017 results. We moved from the #5 position in the
All-Flash
Array market in calendar year 2015 to
the #2 position in calendar year 2016, as measured by IDC.
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Exiting fiscal 2017, the transition from our legacy
7-mode
ONTAP operating system to Clustered ONTAP was largely behind us. Almost half of the systems and more than half of the
capacity in our installed base are now running Clustered ONTAP. Additionally, 95% of the FAS systems shipped in Q4 fiscal 2017 were shipped with Clustered ONTAP.
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Late in fiscal 2016, we acquired SolidFire, Inc., which enhanced our ability to deliver solutions for the Next-Generation Data Center. In fiscal 2017, SolidFire revenue performance was in line with the expectations we
laid out at the time of acquisition and SolidFire was significantly less dilutive to our overall operating results than we expected. Additionally, in early fiscal 2018, we announced the development of a hyper-converged solution based on SolidFire
innovation that is expected to be available in calendar Q4 2017.
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In fiscal 2017, we took necessary actions to lower our cost structure and improve alignment of our resources to our strategy. We committed to reducing our cost structure across both cost of sales and operating expenses.
We overachieved on this goal with an annualized net run rate savings of approximately $140 million versus our goal of $130 million.
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-25-
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The combination of revenue improvement and cost rationalization enabled NetApp to improve
Non-GAAP
operating margin
3
to 17.2% of revenue in fiscal 2017, from 13.5% of revenue in fiscal 2016. Additionally, we grew GAAP EPS by 134% and
Non-GAAP
EPS by 28% from fiscal 2016.
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Our performance is reflected in our total stockholder return as shown in the table below:
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Annualized Total Stockholder
Return
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Year-Over-Year (%)
Fiscal 2016 vs. Fiscal 2017
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3-Year
(%)
Fiscal 2015 Fiscal 2017
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NetApp, Inc.
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72%
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16%
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S&P 500 Information
Technology Index
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35%
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33%
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S&P 500 Index
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18%
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18%
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Fiscal 2017 Financial Performance
Below is a brief summary of our financial performance for fiscal 2017 compared to fiscal 2016:
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Financial Performance
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Fiscal 2016
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Fiscal 2017
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Change
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Net revenues
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$5.55 billion
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|
$5.51 billion
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-0.5%
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Non-GAAP
gross margin
3
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|
62.5%
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|
62.3%
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-0.2 p.p.
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Non-GAAP
operating margin
3
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13.5%
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17.2%
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3.7 p.p.
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Cash flows from operations
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|
$974 million
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$986 million
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1.2%
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Additionally, during fiscal 2017, we continued our commitment to quarterly cash dividends of $0.19 per share and paid stockholders an
aggregate of $208 million in cash dividends. We repurchased and retired 22 million shares of our common stock for an aggregate of $913 million, bringing our total cash returned to stockholders to approximately $1.12 billion in
fiscal 2017. We closed fiscal 2017 with $4.92 billion in cash and short-term investments.
Fiscal 2017 Executive Compensation
Principles
The Compensation Committees objectives for our executive compensation programs are:
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Drive long-term stock price appreciation by linking a meaningful portion of executive compensation to financial and
non-financial
measures that will drive or reflect the creation
of stockholder value;
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Help recruit, reward and retain experienced and highly qualified executives given the competitive labor environment in which the Company competes for such talent; and
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Motivate our executives to perform to the best of their abilities while holding them accountable for business results, particularly in their areas of their individual responsibility, and for obtaining those results
ethically.
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In accordance with our program objectives, the Compensation Committee took the following key actions with respect to executive
compensation in fiscal 2017:
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Executive Incentive Compensation Plan Redesign
. Introduced an individual performance metric for cash awards under the Executive Incentive Compensation Plan to motivate the executives to achieve certain individual
and Company priorities while also continuing to emphasize corporate revenue and operating profit;
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3
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A reconciliation of non-GAAP to GAAP results can be found in Annex A.
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-26-
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Executive Cash Incentive Compensation Plan Payout
. Approved awards from the Executive Incentive Compensation Plan to the NEOs ranging from 129% to 137% of target awards.
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Long-term Stock Based Incentive Compensation
. Approved, shortly after the end of fiscal 2017, (1) the attainment of 103% of the target number of Performance-Based RSUs (PBRSUs) by Messrs. Reich and
Fawcett for the performance period beginning on April 27, 2015 and ending on April 28, 2017, based on the Companys total stockholder return (TSR) exceeding the benchmark over that period by 0.2% and (2) the
attainment of 110% of target number of PBRSUs by Mr. Kurian for the performance period beginning on June 1, 2015 ending on April 28, 2017, based on the Companys TSR exceeding the benchmark over that period by 3.0%. The
difference in performance periods is due to Mr. Kurians promotion to CEO in June 2015. Messrs. Pasek and Richard did not receive PBRSUs in 2015 because they were not employees at that time.
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The Compensation Committee believes that through these actions, the relationship between pay and performance and the alignment between executive and stockholder
interests were further strengthened.
Alignment of Performance and Compensation
As evidenced by the actions described above, the Compensation Committee has a strong commitment to aligning performance and compensation. As such, each year, the
Compensation Committee, on behalf of the full Board, requests that Farient Advisors LLC (Farient), our independent compensation consultant, evaluate the relationship between our executive compensation and our financial and stockholder
return performance. In addition to conducting quantitative analyses commonly relied upon by independent proxy governance organizations to test the alignment of our CEOs pay and performance, Farient uses its proprietary pay for performance
alignment model to test whether the Companys Performance-Adjusted Compensation
TM
(PAC
TM
) was: (1) reasonable in comparison to the
Companys revenue size and the Compensation Peer Group (described below) that are significantly different in size as described in the
Competitive Market Data
section below), and (2) sensitive to the Companys TSR
over time. PAC includes our then serving CEOs salary, actual annual incentive compensation, the performance-adjusted value of long-term incentives, averaged over
3-year
rolling periods, and the value of
other compensation, as reported in the Summary Compensation Table. Performance is defined as TSR, averaged over the same
3-year
rolling periods. Each data point on the chart below, which is adjusted for
inflation and the Companys size, represents PAC over a three-year period and TSR for the same
3-year
period.
-27-
As indicated by the chart below, the Compensation Committee concluded there was a strong relationship between our
CEOs PAC and the Companys performance. This is because our CEOs PAC generally fluctuates with performance, recognizing that there is some variation in the pattern of pay since not all pay elements are directly dependent upon TSR.
Moreover, the Compensation Committee determined that our CEOs PAC was reasonable because it generally fell below the upper boundary of a competitive pay range that our consultant deemed to be acceptable based on the Companys size,
Compensation Peer Group PAC levels, and performance. Farients assessment considers the pay to the individual serving as CEO, not specific individuals, so in this case, the chart below reflects the pay to Thomas Georgens, our former CEO,
and George Kurian, our current CEO, for the three-year period ending in fiscal 2017.
Based on its review of Farients analyses, the Compensation Committee satisfied itself as to the coherence and integrity of our
executive pay system because the Companys pay practices move in concert with the Companys performance.
The link between Company performance, the
performance of our stock, and compensation for our NEOs is illustrated by the following charts, which show the portion of the major elements of the fiscal 2017 compensation for our NEOs disclosed in the
Summary Compensation Table
below.
As these charts illustrate, most of Mr. Kurians and the other NEOs total compensation is performance-based, meaning
that the actual value realized is subject to the Companys short-term financial performance or long-term stock price performance. By linking more of our NEOs total compensation to performance, the Company emphasizes variable pay, which is
consistent with the Companys
pay-for-performance
philosophy.
-28-
Element and Objectives of Executive Compensation
NetApp uses a number of pay elements to achieve the pay and performance alignment shown above. The following table describes the elements of our fiscal 2017 executive
compensation program and the objectives for each element.
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Type
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Element
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Key Characteristics
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Objective
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How We
Determine
Amount
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Fixed
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Base Salary
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Fixed, regular cash compensation
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Designed to promote excellence in the
day-to-day
management and operation of our business
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Qualifications and experience, scope of
responsibilities, future potential, past performance, and tenure
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Variable
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Executive Incentive Compensation Plan
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Cash incentive tied to annual operational performance metrics
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Aligns executive compensation to our annual performance and creates accountability for NEOs to enhance the value of the Company and drive strategic objectives
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Based on achievement of 2017 operating profit, revenue
and individual performance metrics
Targets based on competitive market data and CEO
recommendations
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Other
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Other Cash Incentives
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Discretionary bonus
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|
Discretionary bonuses are not typically granted; only used to reward extraordinary effort or special
event that is not captured by other payments under the Executive Compensation Plan
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Based on the Compensation Committees discretion
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Fixed
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Time-Based RSUs
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Vest annually in equal installments
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Promotes retention while aligning the ultimate award value directly with changes in our stock price over
the vesting period
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Competitive market data and CEO recommendations
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Variable
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PBRSUs
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50% of PBRSUs vest after a
2-year
performance period and 50% vest after a
3-year
performance period, based on
relative TSR performance
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Provides strong alignment between the interests of the NEOs and the stockholders
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Based on the relative performance of our TSR compared to
the S&P 1500 Technology Hardware and Equipment Index during
2-
and
3-
year performance periods
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-29-
Adherence to Best Practices
As noted above, the Compensation Committee seeks to ensure that total compensation is weighted toward variable, performance-based compensation. In addition, we adhere to
the following best practices for our executive compensation programs and policies:
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No Pension or SERPs.
We do not provide our NEOs with a defined benefit pension plan or any supplemental executive retirement plans. Our employees, including NEOs, are able to participate in our 401(k) plan and
our senior executives are able to participate in our nonqualified deferred compensation program.
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No Individual Executive Contracts.
We do not have separate employment contracts with our NEOs other than offer letters that set forth the basic terms of employment.
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Double Trigger Change of Control Severance Agreements.
Our change of control severance agreements provide severance payments and accelerated vesting of equity awards only on a double trigger basis;
that is, the change of control severance agreements provide for severance payments and accelerated vesting of equity awards only if the Company terminates the individuals employment without Cause or if the individual resigns for
Good Reason (as such terms are defined in the agreements) and such termination or resignation occurs on or within 24 months after a change of control of the Company.
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No Tax
Gross-Ups
on Change of Control.
Tax
gross-ups
are not provided to our NEOs on change of control severance payments.
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Clawback Policy.
We have a clawback, or recoupment, policy that covers all elements of our Executive Compensation Plan.
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Ownership Guidelines
. Equity compensation encourages our directors and executives to have an owners perspective in managing the Company. To extend and maintain that ownership perspective over time, the
Company has established stock ownership guidelines for the Companys directors, CEO, and all Executive Vice Presidents (discussed further below in
Stock Ownership Guidelines
).
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Risk Oversight.
The Compensation Committee oversees and evaluates the design and implementation of the incentives and risks associated with our compensation policies and practices.
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Independent Compensation Consultant.
The Compensation Committees compensation consultant provides services only for the Compensation Committee and does not provide any other services to the Company.
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No dividends paid on unvested shares
.
The Company does not pay dividends or dividend equivalents prior to the vesting of shares.
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The Compensation Committee believes that the programs and policies described above demonstrate our commitment to an effective
pay-for-performance
executive compensation program in fiscal 2017. For more information, please see the discussion below.
Our Process for Determining and Administering Our Compensation Program
The Compensation Committee determines and approves the principal components of compensation for our NEOs on an annual basis, typically shortly after the beginning of the
applicable fiscal year. At the outset of each fiscal year, the Compensation Committee establishes a formal planning calendar to ensure a consistent and deliberative approach to its executive compensation decisions, including scheduling its process
for evaluating competitive market data, reviewing compensation strategy and ensuring that its pay programs support the business strategy, approving executive pay actions, administering executive incentive plans, and reporting outcomes to
stockholders.
In making its decisions regarding compensation, the Compensation Committee obtains Farients advice and counsel. In fiscal 2017, Farient
provided information and guidance on our compensation strategy, peer group, competitive pay levels and pay practices, mix of short and long-term compensation, investor trends, alignment
-30-
between our executive pay and performance, design of our incentive plans, including performance measures and goals used in our Incentive Compensation Plan, disclosures to our stockholders, our
annual compensation risk assessment, and Board compensation. Farient also provided advice on key talent development processes, including top management evaluation. Farient did not provide any services to the Company other than those requested and
approved by the Compensation Committee. The Compensation Committee assessed the independence of Farient pursuant to SEC rules and concluded that no conflict of interest exists that would prevent Farient from independently representing the
Compensation Committee.
The Compensation Committee also solicits the input from our CEO regarding the salary, incentive compensation and equity-based compensation
to be paid to those executives reporting to him, including all of the NEOs other than himself. As part of the annual review process, our CEO provides recommendations for the executives consistent with our
pay-for-performance
philosophy. His recommendations are based on his assessment of each NEOs contributions to overall Company performance. With respect to compensation for our CEO, the Chair of the
Compensation Committee solicits input from our CEO and the Board of Directors as to their perspectives of the CEOs and the Companys performance, and from Farient regarding CEO compensation relative to the market and Company performance.
The Compensation Committee deliberates and makes decisions on our CEOs compensation without the CEO present.
The Compensation Committee established an equity
subcommittee. This subcommittee is currently comprised of our CEO and the Executive Vice President of Human Resources. The subcommittee may award equity to employees who hold positions at the Vice President level or below according to equity grant
guidelines established by the Compensation Committee each year, and provided that the equity subcommittee may not grant awards in excess of the pool authorized by the Compensation Committee.
Factors in Determining Compensation
The primary factors that the Compensation Committee takes into consideration in establishing the principal components of compensation for our NEOs are discussed below.
While these are typically the considerations upon which the Compensation Committee bases its compensation decisions for our NEOs, the Compensation Committee may, at its discretion, apply entirely different factors, such as different measures of
financial performance, for future fiscal years.
We do not have either a policy or a practice in place to grant equity awards that are timed to precede or follow the
release or withholding of material nonpublic information.
Say-on-Pay
NetApp values the input of our stockholders on our compensation programs. We hold an advisory vote on executive compensation on an annual basis. We also regularly
communicate with our stockholders to better understand their opinions on governance issues, including compensation. Our stockholders will have the opportunity once again at this years Annual Meeting to endorse our executive compensation
program through the stockholder advisory vote to approve executive compensation (commonly known as a
say-on-pay
vote) included as Proposal No. 4 in this
Proxy Statement. Last year, over 98% of the stockholder votes cast on this proposal (excluding broker
non-votes)
were voted in favor of our executive compensation proposal. The Compensation Committee believes
that the result of this vote affirms our stockholders support for our approach to executive compensation. Last years stockholder vote on executive compensation occurred in September 2016, while the Compensation Committees
consideration of fiscal 2017 executive compensation occurred earlier in 2016, with compensation for most elements established by June 2016. As a result, the Compensation Committee did not set or change fiscal 2017 executive compensation directly as
a result of last years stockholder vote. However, deliberations of fiscal 2017 compensation did consider stockholder views on performance-based equity compensation. The Compensation Committee expects to continue to consider input from
stockholders and the outcome of our annual
say-on-pay
votes when making future executive compensation decisions. We encourage you to review this CD&A, together with
the compensation tables that follow, prior to casting your advisory vote on the
say-on-pay
proposal.
-31-
Performance Assessment
After each fiscal year, executives in senior vice president positions and above perform an evaluation of their organizations performance and their own individual
performance for the prior year and how that performance contributed to the Companys performance. Our CEO uses these assessments as one of the factors, along with the others described below, in making his recommendations to the Compensation
Committee regarding executive equity and salaries for the following fiscal year. Likewise, as noted above, our CEO typically performs a similar self-assessment and communicates this to the Chairman of our Compensation Committee near the end of the
fiscal year. In addition, the Compensation Committee also reviews feedback from the CEOs direct reports and a performance assessment from the Board.
Competitive Market Data
In order to establish the market rate of pay for NEOs (including in connection with the hire of new NEOs), the Compensation
Committee reviews data from a targeted peer group of similarly situated technology companies. To determine the appropriate peer group, the Compensation Committee considers companies that are similar in one or more of the following criteria: revenue,
number of employees, market capitalization and other comparable business considerations such as a change in industry dynamics (including mergers and acquisitions). In addition to focusing on our direct product line competitors, we consider other
companies with whom we compete for talent in our various markets for which data is available.
For fiscal 2017, the Compensation Committee reviewed the
Companys compensation peer group used to benchmark compensation of our NEOs, as well as our broader executive population, with assistance and guidance from Farient. In particular, the Compensation Committee focused on a set of technology
companies where the median revenue of the group approximates NetApps revenue.
The fiscal 2017 Compensation Peer Group consisted of:
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Adobe Systems Inc.
Alphabet Inc.
Apple Inc.
Applied Materials Inc.
Broadcom Corporation
Brocade Communications Systems, Inc.
CA Technologies
Cisco Systems, Inc.
Citrix Systems, Inc.
CommVault Systems, Inc.
eBay Inc.
EMC Corporation
Hewlett-Packard Enterprise Company
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Hitachi Data Systems
Intel Corporation
International Business Machines Corp.
Intuit Inc.
Juniper Networks, Inc.
KLA-Tencor
Corp.
Lexmark International Inc.
Logitech International
Microsoft Corporation
NVIDIA Corporation
Oracle Corp.
QLogic Corp.
QUALCOMM Incorporated
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Red Hat, Inc.
Salesforce.com
SanDisk Corp.
SAP AG
Seagate Technology
Silicon Graphics International
Symantec Corporation
Teradata Corporation
VMware, Inc.
Western Digital Corp.
Xilinx, Inc.
Yahoo! Inc.
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In addition, with
Farients assistance and guidance, the Compensation Committee identified a more targeted list of sixteen companies in the storage and enterprise solutions markets to assess pay practices (for example, the use of equity incentives, performance
measures, and goal setting) and to supplement our compensation benchmarking of specific NEO compensation. The fiscal 2017 Compensation Practices Peers consisted of the following companies:
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Brocade Communications Systems, Inc.
CA
Technologies
Citrix Systems, Inc.
CommVault Systems, Inc.
EMC Corporation
|
|
Hewlett-Packard Enterprise Company
International Business Machines Corp.
Juniper Networks, Inc.
Microsoft Corporation
Oracle Corp.
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QUALCOMM Incorporated
Red Hat, Inc.
SanDisk Corp.
Symantec Corporation
Teradata Corporation
VMware, Inc.
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-32-
The Compensation Committee has established a pay positioning philosophy that considers the highly competitive market for talent in which we participate and the
relatively aggressive incentive goals for our organization. As a starting point, the Compensation Committee looked at the NEOs current compensation and the ranges of base salary, target annual cash incentive and equity compensation at the
25th, 50th, and 75th percentiles within the Compensation Peer Group. The Committee then applied its judgment in determining proper levels of each component of compensation for NEOs. The end result for fiscal 2017 was a total compensation
package for NEOs targeted at between the 50
th
and 65
th
percentile for total compensation relative to the Compensation Peer Group and the actual
total compensation received by the NEOs approximated the median.
A majority of each NEOs total compensation is performance-based, meaning that the actual
value realized is subject to short-term financial performance, individual performance, and long-term stock price performance. Target pay positioning may vary by individual based on a wide range of considerations, including each executives
role, skills, and overall impact on the management and strategic development of the Company.
Components of Compensation
Base Salary
Salaries for NEOs are set so that
total short-term cash compensation (salary plus target annual cash incentive) is between the 50
th
and 65th
percentile relative to the
Compensation Peer Group. Using this range ensures that the Companys salaries are competitive with the companies for which we compete for talent, but also permits the Compensation Committee to use its judgment in gauging competitiveness.
In fiscal 2017, the Compensation Committee adjusted Mr. Kurians base salary to reflect his experience and contributions as CEO and the competitive pay
position to the market. In addition, Mr. Reich received an increase in recognition of his contributions, expanded role leading both Product and Manufacturing Operations and the competitive pay position to the market. Mr. Fawcett received a
modest salary increase to reflect his contributions and tenure in his current role.
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Name
|
|
Fiscal 2016 Base Salary
|
|
Fiscal 2017 Base Salary
|
|
Percentage Increase
|
George Kurian
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|
$800,000
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$875,000
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9%
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Ronald J. Pasek
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$550,000
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$550,000
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0%
|
Joel D. Reich
|
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$425,000
|
|
$475,000
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|
12%
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Henri Richard
|
|
N/A(1)
|
|
$550,000
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|
N/A
|
Matthew K. Fawcett
|
|
$480,000
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$500,000
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4%
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(1)
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Mr. Richard began employment at NetApp at the beginning of fiscal 2017.
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Executive
ICP
The Compensation Committee annually approves metrics and goals for our Executive Compensation Plan (Executive ICP) with payment of incentives,
if any, shortly following the end of the fiscal year. Target ICP awards for NEOs are set so that target total short-term cash compensation (salary plus target ICP award) is between the 50th and 65th
percentile relative to the Compensation Peer Group. For fiscal 2017, our NEOs target total short-term cash compensation was positioned at approximately the median relative to the Compensation Peer Group.
-33-
In fiscal 2017, the Compensation Committee increased Mr. Kurians target cash incentive award by 10 percentage
points to 160% in recognition of his experience and contributions as CEO and the competitive pay position to the market.
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|
Name
|
|
Fiscal 2016 Target ICP
Award % of Salary
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|
Fiscal 2017 Target ICP
Award % of
Salary
|
|
|
Percentage Increase
|
George Kurian
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|
150%(1)
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160
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%
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|
10%
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Ronald J. Pasek
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|
N/A(2)
|
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|
110
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%
|
|
N/A
|
Joel D. Reich
|
|
110%
|
|
|
110
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%
|
|
0%
|
Henri Richard
|
|
N/A(2)
|
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|
110
|
%
|
|
N/A
|
Matthew K. Fawcett
|
|
80%
|
|
|
80
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%
|
|
0%
|
(1)
|
Prior to his promotion to CEO, Mr. Kurians target award equaled 110% of his base salary for fiscal 2016. In connection with his promotion, Mr. Kurian received an additional target award equal to 40% of
his base salary, which was intended to provide a total target award equal to 150% during the period in which he served as CEO.
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(2)
|
Messrs. Pasek and Richard were not eligible to participate in the Executive ICP in fiscal 2016.
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In fiscal 2017, the
Compensation Committee amended the Executive ICP framework whereby the cash awards under the plan were tied to both Company and individual performance goals. The Compensation Committee believes that an incentive plan tied to operational and
individual performance metrics drives accountability by our NEOs to achieve objectives that are important for ultimately driving stock price performance. To earn any award under the Executive ICP for fiscal 2017, NetApp was required to achieve a
threshold goal of $449 million in operating profit. If the threshold goal was not achieved, none of the participants in the Executive ICP were eligible to earn any incentive cash compensation. If NetApp achieved the operating profit threshold,
each participant was eligible to earn a maximum award of 200% of such participants target award. The Compensation Committee could, in its discretion, reduce the actual award earned by each participant in accordance with achievement by the
Company of revenue and operating profit goals (Financial Goals) and achievement by the NEO of an individual Management Business Objectives (MBOs) tied to the Companys strategic business objectives, as further described
below. The Compensation Committee determined awards to each executive, before any further discretion is applied, by weighting Financial Goals 75% and MBOs 25%. This plan was designed to, among other things, satisfy the requirements for 162(m)
deductibility of executive compensation expenses.
Financial Goals
With
regards to the Financial Goals, the Compensation Committee believes that the continued use of revenue as a performance measure for fiscal 2017 encouraged growth and the creation of stockholder value. The continued use of operating profit encouraged
our effective management of Company resources and the creation of stockholder value. Moreover, these measures are intended to reflect the Companys business strategy, which includes making tradeoffs between operating profit and revenue growth,
encouraging executives to make balanced decisions intended to benefit the Company as a whole, while mitigating the potential for executives taking undue risks.
Prior to or shortly after the beginning of each fiscal year, including fiscal 2017, the Company presents to the Board an annual operating plan (or AOP) that
includes a measure of
non-GAAP
income from operations (or operating profit, as described below) and revenue. The AOP is derived from results of the prior year as well as the Companys
expectations for its performance relative to its strategy, the Companys competitors and the overall market for the upcoming year. The AOP then is reviewed and approved by the Board of Directors. The target operating profit and revenue goals
for the incentive compensation plan for fiscal 2017 were set at the expected level of achievement of the AOP.
The measure of
non-GAAP
operating profit is derived from net revenues from our products and services and the costs related to the generation of those revenues, such as cost of revenue, sales and marketing, research and
development, and general and administrative expenses.
Non-GAAP
operating profit for fiscal 2017, both on an actual and target basis, excluded items that we believe are not reflective of our short-term
operating performance,
-34-
such as amortization of intangible assets, stock-based compensation expense, acquisition-related income and expenses, restructuring charges and gains on the sale of or losses on impairments of
assets. We publicly disclose a detailed reconciliation of GAAP to
non-GAAP
net income and operating profit, along with other statement of operations items, on a regular basis with the Companys quarterly
earnings announcements.
For fiscal 2017, the 75% of the Executive ICP based on Financial Goals was calculated based on the Companys achievement of revenue and
operating profit versus targets, with revenue weighted at 1/3rd and operating profit weighted at 2/3rds. In establishing our operating profit and revenue goals, we set the targets shown in the chart below. ()
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2017
Revenue
Goals
($MMs)
(1/3
weighting)
|
|
% of
Target
Goal
|
|
% of
Target
Award
|
|
Fiscal 2017
Operating
Profit
Goals
($MMs)
(2/3
weighting)
|
|
% of
Target
Goal
|
|
%
of
Target
Award
|
Maximum
|
|
$6,190
|
|
110%
|
|
200%
|
|
$988
|
|
110%
|
|
200%
|
Target
|
|
$5,627
|
|
100%
|
|
100%
|
|
$898
|
|
100%
|
|
100%
|
Threshold
|
|
$4,783
|
|
85%
|
|
25%
|
|
$718
|
|
80%
|
|
20%
|
<Threshold
|
|
<$4,783
|
|
<85%
|
|
0%
|
|
<$718
|
|
<80%
|
|
0%
|
Fiscal 2017 Achievement
|
|
$5,519
|
|
98%
|
|
90%
|
|
$950
|
|
106%
|
|
158%
|
()
|
Amount of awards determined by interpolating for performance between discrete points shown in the table.
|
Once the
Executive ICP pool was determined, the Compensation Committee allocated the pool and calculated the actual awards for each executive based on achievement by the Company of the revenue and operating profit goals, which were weighted 25% and 50%
respectively, and achievement by the executive of their MBO, which was weighted 25%.
For fiscal 2017, the Company achieved 106% of our annual target operating
profit goal, translating into 158% of the target award, and 98% of our annual target revenue goal, translating into 90% of the target award. Based on the translation of performance relative to target goals for the blend of revenue and operating
profit into a percent of target awards, the Executive ICP pool was funded at 135% of target.
-35-
Individual MBOs
For fiscal
2017, the 25% of the award based on individual performance was measured by the achievement of an executives individual MBO, each of which was designed to help achieve the Companys strategic objectives and drive individual accountability.
The MBOs for the NEOs related to the Companys strategic objectives within the following categories: (1) Grow the top line; (2) Transformation: Improve efficiency and effectiveness; and (3) Develop team.
At the end of fiscal 2017, Mr. Kurian reviewed with each NEO the NEOs MBOs achievement for the period and then determined each NEOs individual
rating on a scale of 1 to 5. Based on Mr. Kurians determination of the NEOs rating, Mr. Kurian then recommended to the Compensation Committee a payout percentage on between 0% and 200%, for each NEO in accordance with the chart
below. After reviewing Mr. Kurians assessment and recommendation, the Compensation Committee determined and approved the payout percentage. For Mr. Kurian, the Compensation Committee, in consultation with Mr. Kurian, determined
Mr. Kurians MBOs. At the end of fiscal 2017, Mr. Kurian submitted the self-assessment to the Compensation Committee. After reviewing Mr. Kurians self-assessment and making its own evaluation of Mr. Kurians
performance after consulting with the Board, the Compensation Committee determined and then approved Mr. Kurians payout amount in accordance with the chart below. In assessing Mr. Kurians achievements and approving his
compensation, the Compensation Committee considered his achievements within a broader set of expectations including strategic leadership, organizational quality and effectiveness, management abilities, and responsiveness to economic conditions.
|
|
|
|
|
|
|
|
|
|
|
MBO Achievement
|
|
5 Unsatisfactory
|
|
4 Needs
Improvement
|
|
3 Meets
Expectations
|
|
2 Exceeds
Expectations
|
|
1 Significantly
Exceeds Expectations
|
Payout
Percentage
|
|
0% 40%
|
|
41% 80%
|
|
81% 120%
|
|
121% 160%
|
|
161% 200%
|
Based on the level of performance described above on both the Company and individual performance metrics for fiscal 2017, the incentive
compensation payouts to the NEOs under the Executive ICP were as follows.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Target
Award
|
|
|
Target
Corporate
Financial
Award
|
|
|
Corporate
Financial
Award as
a %
of
Target
(Weighted
75%)
|
|
Target
Individual
MBO
|
|
|
Individual
MBO
Award as
a %
of
Target
(Weighted
25%)
|
|
|
Actual
Corporate
Financial
Award
|
|
|
Actual
Individual
MBO
Award
|
|
|
Fiscal 2017
Executive
ICP
|
|
|
Actual
Award
as a
%
of
Target
Award
|
George Kurian
|
|
|
$1,400,000
|
|
|
|
$1,050,000
|
|
|
135%
|
|
|
$350,000
|
|
|
|
143%
|
|
|
|
$1,420,650
|
|
|
|
$500,000
|
(1)
|
|
|
$1,920,650
|
|
|
137%
|
Ronald J. Pasek
|
|
|
$605,000
|
|
|
|
$453,750
|
|
|
135%
|
|
|
$151,250
|
|
|
|
120%
|
|
|
|
$613,924
|
|
|
|
$181,500
|
(2)
|
|
|
$795,424
|
|
|
131%
|
Joel D. Reich
|
|
|
$522,500
|
|
|
|
$391,875
|
|
|
135%
|
|
|
$130,625
|
|
|
|
110%
|
|
|
|
$530,207
|
|
|
|
$143,688
|
(3)
|
|
|
$673,894
|
|
|
129%
|
Henri Richard
|
|
|
$584,058
|
|
|
|
$438,043
|
|
|
135%
|
|
|
$146,014
|
|
|
|
115%
|
|
|
|
$592,673
|
|
|
|
$167,917
|
(4)
|
|
|
$760,589
|
|
|
130%
|
Matthew K. Fawcett
|
|
|
$400,000
|
|
|
|
$300,000
|
|
|
135%
|
|
|
$100,000
|
|
|
|
110%
|
|
|
|
$405,900
|
|
|
|
$110,000
|
(5)
|
|
|
$515,900
|
|
|
129%
|
(1)
|
Represents the actual MBO award paid to Mr. Kurian who built a strong leadership team, drove the company to exceed its goals for organizational transformation, delivered solid financial results in fiscal 2017, and
has positioned the Company for growth.
|
(2)
|
Represents the actual MBO award paid to Mr. Pasek who drove financial discipline and efficiency within the Company that enhanced the Companys standing with investors and analysts.
|
(3)
|
Represents the actual MBO award paid to Mr. Reich who continued to demonstrate strong leadership in our core business and delivered new world class innovations that position our Company to further penetrate new and
existing markets.
|
(4)
|
Represents the actual MBO award paid to Mr. Richard who created a sales culture with a renewed sense of urgency, and
re-aligned
the organization to achieve the Companys
revenue plan.
|
-36-
(5)
|
Represents the actual MBO award paid to Mr. Fawcett who drove the adoption of a global shared services model, innovated legal services at the Company and transformed our enterprise intellectual property strategy.
|
Other Cash Incentives
The
Compensation Committee retains authority to pay additional discretionary bonuses outside the Executive ICP if warranted. For fiscal 2017, the Compensation Committee elected to award a
one-time
signing bonus in
the amount of $400,000 to Mr. Richard in connection with the commencement of his employment with the Company. This signing bonus is subject to forfeiture and repayment if Mr. Richard voluntarily terminates his employment within two years
of his employment start date.
L
ong-Term Stock-Based Incentive Compensation
The grant of equity awards to our NEOs is designed to align their interests with those of the stockholders and provide them with a significant incentive to manage the
Company from the perspective of an owner with an equity stake in the business.
Equity award guidelines for our NEOs are targeted, on average, at the 50
th
percentile relative to the Compensation Peer Group. The size of the actual equity grant to each NEO is designed to create a meaningful opportunity for stock ownership and is based on a number of
factors, which include the NEOs current position with the Company, their strategic importance to the Company, the NEOs current level of performance, the NEOs potential for future responsibility and promotion over time, and the
remaining share reserve under the Companys equity plan. The Compensation Committee, however, does not place any particular weight on any one individual factor and does not strictly adhere to any specific guidelines in making its
determinations.
In fiscal 2017, the Compensation Committee granted PBRSUs and RSUs to all of our NEOs. In accordance with our principles of linking pay to
performance, the target mix of equity awards to the CEO is 75% PBRSUs and 25% RSUs. For other NEOs, the target mix of equity awards is 60% PBRSUs and 40% RSUs. We believe that this mix of performance-based versus time-based awards for these
executives appropriately reflects their relative impact upon, and accountability for, our stock price performance over time.
PBRSUs
The PBRSUs granted in fiscal 2017 allow the recipient to earn a variable number of shares of our common stock based on the relative performance of our TSR
compared to the median TSR of companies listed in the S&P 1500 Composite Technology Hardware and Equipment Index (Hardware and Equipment Index), comprised of 83 companies at the beginning of the performance period.
The PBRSUs have the following features:
|
|
|
The number of earned PBRSUs will be determined based on the Companys TSR measured against the TSR of the companies listed in the Hardware and Equipment Index during separate
two-year
and three-year performance periods. At the end of each performance period, our TSR is compared to the median TSR of the companies listed in the Hardware and Equipment Index at the end of the
applicable performance period, and the actual award amount is determined according to the relevant payout schedule. See the table below for a description of how achievement of the PBRSU awards is calculated.
|
|
|
|
50% of the total number of PBRSUs may be earned and issued at the end of a
two-year
performance period and 50% of the total number of PBRSUs may be earned and issued at the end of
a three-year performance period.
|
|
|
|
The PBRSUs will not vest until the completion of the applicable performance period, and vesting is subject to continued service through the vesting date, which is the last day of each performance period.
|
The Compensation Committee selected TSR because it believes that TSR is an important indicator of the Companys performance and provides strong
alignment between the interests of the NEOs and the stockholders. Separate performance periods help to moderate volatility and encourage and reward sustained and continuous
-37-
growth which aligns the interests of the NEOs and our stockholders. The Hardware and Equipment Index was selected to measure performance because it represents the broader market against which we
compete for talent and represents the broad range of our business operations while also being objectively determinable.
The number of earned PBRSUs will depend upon
the percentage of achievement of our TSR against the median TSR of the companies listed in the Hardware and Equipment Index as follows:
|
|
|
|
|
Relative Company TSR
performance less median TSR of
companies listed in the Hardware and Equipment Index
(1)
|
|
% of Target Number
of PBRSUs
Earned (2)
|
³
+30%
|
|
200%
|
0%
|
|
100%
|
-20%
|
|
50%
|
<-20%
|
|
0%
|
(1)
|
Performance is measured at the end of
two-year
and three-year performance periods with 50% of the total number of PBRSUs eligible to be earned during each performance period. The
median for the Hardware and Equipment Index is determined based on the TSR data for the companies in the index as of the end of the performance period.
|
(2)
|
The percentage earned is interpolated for performance between discrete points.
|
The actual award amount is paid following
the completion of the applicable performance period.
The performance period for the executives PBRSUs commenced on April 30, 2016 and will conclude at the end
of our fiscal 2018 and fiscal 2019, respectively. As a result, the PBRSUs granted in fiscal 2017 were not eligible to vest in fiscal 2017.
The performance period
for the PBRSUs granted in fiscal 2016 with a
2-year
vesting period ended as of April 28, 2017. The Compensation Committee certified the performance and vesting for the NEOs, other than Messrs. Pasek and
Richard, who were not Company employees in 2015, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Target Number of
PBRSUs
|
|
PBRSUs Vested
|
|
Relative TSR
%
|
|
%
of
Target Vested
|
George Kurian
|
|
85,750
|
|
94,325
|
|
3.0%
|
|
110%
|
Joel D. Reich
|
|
18,850
|
|
19,476
|
|
0.2%
|
|
103%
|
Matthew K. Fawcett
|
|
20,300
|
|
20,975
|
|
0.2%
|
|
103%
|
The performance period for Messrs. Reichs and Fawcetts vested PBRSUs began on April 27, 2015 and ended on April 28,
2017, whereas the performance period for Mr. Kurians vested PBRSUs for the performance period began on June 1, 2015 and ended on April 28, 2017, due to Mr. Kurians promotion to CEO in June 2015.
Time-Based RSUs
Time-based RSUs allow the
recipient to earn a fixed number of shares of our common stock for their continued service to the Company. Recognizing that a large portion of the NEOs equity compensation is at risk through the PBRSU program discussed above, the Compensation
Committee also grants time-based RSUs to promote retention while aligning the ultimate award value directly with changes in our stock price over the vesting period. The RSUs vest in equal annual installments on each annual anniversary of the grant
date beginning on the first anniversary of the grant date, subject to continued service through the applicable vesting date. The mix of PBRSUs versus RSUs will be reviewed by the Compensation Committee annually and may fluctuate from year to year.
-38-
The following chart shows the grants of PBRSUs and RSUs to our NEOs in fiscal 2017. In addition to the annual grants, the
following chart also reflects a grant of 64,129 RSUs to Mr. Pasek and a grant of 53,213 RSUs to Mr. Richard, which were made in connection with the commencement of each officers employment with the Company.
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Target Number of
PBRSUs
|
|
Maximum Number
PBRSUs (1)
|
|
RSUs
|
George Kurian
|
|
175,000
|
|
350,000
|
|
58,300
|
Ronald J. Pasek
|
|
47,965
|
|
95,930
|
|
96,438
|
Joel D. Reich
|
|
54,000
|
|
108,000
|
|
36,000
|
Henri Richard
|
|
90,945
|
|
181,890
|
|
113,843
|
Matthew K. Fawcett
|
|
39,000
|
|
78,000
|
|
26,000
|
(1)
|
This is based on a 200% maximum number of PBRSUs relative to target, per the terms of the award.
|
Stock Ownership Guidelines
The Board believes that stock ownership by the Companys directors and executives helps to align the interests of the Companys directors and executives with
the interests of the Companys stockholders. To extend and maintain that ownership perspective over time, the Company has established the following minimum share ownership guidelines for the Companys directors, CEO, and Executive Vice
Presidents:
|
|
|
|
|
Position
|
|
Guideline as a Multiple of
Salary/Cash Board
Retainer
|
Independent Directors
|
|
5x
|
CEO
|
|
5x
|
EVPs
|
|
2x
|
The Companys executives have five years from the adoption date of these stock ownership guidelines in fiscal year 2013 to meet
these guidelines. The stock ownership guideline for directors was increased in May 2017 from three times their cash retainer to five times their cash retainer, and the directors have until May 2022 to meet the new guideline. Newly appointed
directors and executives have five years from the time they are elected, appointed, hired, or promoted, as the case may be, to meet these guidelines. Once achieved, ownership at the guideline amount must be maintained. All of the directors and
executives were in compliance with the then-current guidelines as of the end of fiscal 2017.
Recovery of Incentive-Based Compensation
At the recommendation of the Compensation Committee, the Board adopted a policy that gives the Board discretion to require that designated Company employees, including
the NEOs and all persons holding the position of Executive Vice President and Senior Vice President, repay cash incentive or equity compensation to the Company if the Board determines that the individuals actions caused or partially caused the
Company to materially restate all or a portion of its financial statements on which such compensation was calculated. Such determination must be made by the Board within three years of the date of filing of the applicable financial statements. The
Compensation Committee believes that the Companys clawback policy is in keeping with good standards of corporate governance and mitigates the potential for excessive risk taking by Company executives. The SEC is expected to adopt regulations
requiring national listing exchanges to enact listing standards governing policies providing for the recovery of incentive based compensation, and the Company will revise and update its clawback policy within the time periods necessary to comply
with such listing standards.
-39-
Anti-Hedging and Anti-Pledging Policies
Our Board has adopted a policy prohibiting all employees, including the NEOs and members of the Board, from engaging in any hedging transactions with respect to any
equity securities of the Company held by them, which includes the purchase of any financial instrument (including prepaid variable forward contracts, equity swaps, collars, and exchange funds) designed to hedge or offset any decrease in the market
value of such equity securities. In addition, under the Companys Insider Trading Policy, employees of the Company, including the NEOs, and members of the Board are prohibited from pledging the Companys securities as collateral for a
loan.
Other Compensation for NEOs
Severance and Change of Control Arrangements
The
Compensation Committee maintains change of control severance agreements for its key senior executives to: (1) assure we will have the continued dedication and objectivity of our senior executives, notwithstanding the possibility of a change of
control of the Company, thereby aligning the interests of these key senior executives with those of the stockholders in connection with potentially advantageous offers to acquire the Company; and (2) create a total executive compensation plan
that was competitive with our peer group. The Compensation Committee from time to time determines which key senior executives will receive a change of control severance agreement. Individuals are selected as needed to support the above outlined
objectives.
The terms of the individual Change of Control Severance Agreements are described in further detail in the section below titled
Potential
Payments upon Termination or Change in Control
. The Compensation Committee believes that these change of control severance agreements satisfy the objectives above and ensure that key executives are focused on the Companys goals and
objectives, as well as the interests of our stockholders, rather than any negative personal consequences that may arise as a result of a change of control.
Effective June 22, 2016, the Company entered into Change of Control Severance Agreements with each of our NEOs, which superseded their existing Change of Control
Severance Agreements, as amended. Please see
Termination of Employment and Change of Control Agreements Change of Control Severance Agreements
below for further information on the new Change of Control Agreements.
Perquisites
Certain of our executives at the
Executive Vice President level and above are eligible to participate in the Companys Executive Retirement Medical Plan, which upon retirement provides a health reimbursement account to reimburse eligible retired executives for premiums paid
for individual insurance covering the retiree and any eligible dependents for the period from January 1, 2017 through December 31, 2019. On or after December 31, 2019 but ending on December 31, 2021, participants in the Executive
Retirement Medical Plan will be eligible to receive a taxable lump sum cash payment equal to two years of projected health care costs, or a prorated portion thereof, pursuant to the methodology set forth in the Executive Retirement Medical Plan. The
Executive Retirement Medical Plan terminates on December 31, 2019. The Executive Retirement Medical Plan was adopted by the Company as a method to retain the defined group of executives. In fiscal 2016, the Compensation Committee froze
eligibility under the Executive Retirement Medical Plan, limiting eligibility to those executives who were eligible for participation based on their respective Company positions as of November 12, 2015; participation in the plan is not offered
to Company executives who were not eligible for the plan on that date. Mr. Kurian and Mr. Reich will be eligible to receive benefits under the Executive Retirement Medical Plan as well as a lump sum payment (or
pro-rata
portion) if they retire prior to 2019 or 2021, as applicable. Our NEOs are also entitled to a preventative care medical benefit of up to $2,500 per calendar year not available to nonexecutives. The
Compensation Committee approved the use of a car service by Mr. Kurian for travel between his residence and the office in an amount of up to $40,000 per year so that he can conduct business during his commute. In fiscal 2017, the expense for
Mr. Kurians car service was $19,911. The Compensation Committee also approved payment by the Company of rental expenses for Mr. Reich for a residence and rental furniture in Sunnyvale, California, along with a
gross-up
for associated taxes. Although Mr. Reich is based on the Companys Waltham, Massachusetts office, his position requires frequent travel to the Companys headquarters in Sunnyvale. In fiscal
2017, the Company paid $136,639 for Mr. Reichs housing related expenses.
-40-
Other Benefits and Reimbursements
NEOs are eligible to participate in all of our employee benefit plans, such as medical, dental, vision, group life and accidental death and dismemberment insurance, our
401(k) plan and our nonqualified deferred compensation program. Effective January 1, 2015, we match 100% of the first 2% of eligible earnings contributed to our 401(k) plan, and match 50% of the next 4% of eligible earnings contributed, up to a
maximum of $6,000 per calendar year. Under the Companys nonqualified deferred compensation program (discussed in further detail below), participating employees (including the NEOs) may defer a percentage of their compensation. The program
permits contributions on a tax deferred basis in excess of IRS limits imposed on 401(k) plans as permitted and in compliance with Internal Revenue Code Section 409A. The only additional retirement benefits (other than the 401(k) plan) that we
offer to certain of our NEOs are those under the Executive Retirement Medical Plan discussed above.
Tax Deductibility of Compensation
Section 162(m) of the Code generally disallows a tax deduction to publicly held companies for compensation paid to certain executive officers to the extent that
compensation exceeds $1 million per officer in any year. The Company generally seeks to maximize the deductibility for tax purposes of all elements of compensation. Our 1999 Plan is structured so that any compensation recognized by an executive
officer in connection with the exercise of his or her outstanding options under the plan will qualify as performance-based compensation and will not be subject to the $1 million limitation. In addition, our 1999 Plan allowed our Compensation
Committee to structure the PBRSUs as performance-based compensation under Section 162(m), and our Executive Compensation Plan allows us to structure our cash incentives that are paid thereunder to qualify for a deduction under
Section 162(m). The Compensation Committee, however, periodically reviews applicable tax provisions, such as Section 162(m), and may revise compensation plans from time to time to comply with their rules and to maximize deductibility.
-41-
STOCKHOLDER PROPOSAL FOR ANNUAL DIVERSITY REPORT
Introduction
The New York City Police Pension Fund, the New York City Board
of Education Retirement System and the New York City Employees Retirement System, whose addresses and stockholdings will be provided by us upon request, have notified us that they intend to present the following proposal at the Annual Meeting:
Stockholder Proposal
RESOLVED: Shareholders request that the Board of
Directors adopt and enforce a policy requiring NetApp Inc. (the Company) to disclose annually its
EEO-1
data a comprehensive breakdown of its workforce by race and gender according to
10 employment categories on its website or in its corporate responsibility report, beginning in 2016.
Supporting Statement
Diversity matters. Numerous studies suggest that companies with comprehensive diversity policies and programs, and strong leadership commitment to implement and fully
integrate diversity into their culture and practices, enhance long-term shareholder value. A McKinsey & Company global study (
Diversity Matters
, February 2015), for example, found that companies in the top quartile for racial
and ethnic diversity are 35 percent more likely to have financial returns above their respective national industry median.
Workplace diversity provides
competitive advantage by generating diverse, valuable perspectives, creativity, innovation and adaptation, increased productivity and morale, while eliminating the limitations of groupthink. It also reduces potential legal and
reputational risks associated with workplace discrimination and builds corporate reputations as fair employers.
The high tech industry of which the company is a
part, is characterized by persistent and pervasive underrepresentation of minorities and women, particularly in senior positions.
Based on 2014
EEO-1
filings, the EEOC Commission estimates that the high tech industry is over 64% male and over 68% white. Blacks, Hispanics and women are under-represented in high tech compared to all private industries. Blacks
and Hispanics representation at the executive, managerial and professional levels is between one and five percent and women representation at these levels is between 20% and 30%. All three groups representation in high tech is lower than for
all private industries
(https://www.eeoc.gov/eeoc/statistics/reports/hightech/upload/diversity-in-high-tech-report.pdf).
NetApp provides no information on the gender and racial makeup of its total workforce. This does not allow investors to fully evaluate the companys diversity
initiatives and their impact, especially across job categories and particularly in more senior roles. Without more detailed quantitative information on a comparable basis, shareholders have no way to evaluate and benchmark the effectiveness of these
efforts over time and relative to peers.
Federal law requires companies with 100 or more employees to annually submit an
EEO-1
Report to the Equal Employment Opportunity Commission. The report profiles a companys workforce by race and gender in 10 job categories, including senior management.
Over
two-thirds
of S&P 100 companies now disclose
EEO-1
data, including companies in
the technology industry such as Apple, Alphabet, Salesforce and Ingram Micro.
The proposal does not limit the company from providing more detailed quantitative and
qualitative disclosures where appropriate. We also encourage the company to describe the steps it is taking and the challenges it faces in moving forward to achieve its diversity plans and goals.
-83-
Response of the Board
Our Board carefully considered this stockholder proposal and concluded that its adoption would not be in the best interests of the Company or its stockholders. In
particular, our Board believes that:
Ø
|
NetApp has a strong and active commitment to diversity;
|
Ø
|
NetApp has published diversity metrics that allow stockholders and the public to view evidence of its diverse workforce; and
|
Ø
|
The
EEO-1
data is not informative nor a reliable measure of our commitment to equal opportunity employment.
|
COMMITMENT TO DIVERSITY
From our inception, NetApp has been
committed to building a model company. We strive to achieve market leadership by Living Our Values. Inherent in our value of building a model company is our commitment to diversity. We celebrate the diversity of cultures, traditions,
perspectives and experiences that our customers and employees represent. We believe a diverse workforce makes our company stronger in service to our customers, our communities, our employees and our stockholders. NetApp is a global company with
employees in over 40 countries and customers all around the world and, as a result, diversity in all its forms is essential to our success.
Diversity Statistics
In an effort to provide information about its global workforce, NetApp publishes relevant diversity statistics on its web site
(http://www.netapp.com/us/careers/life/diversity-inclusion.aspx). These statistics include a breakdown of senior leaders and all other employees by gender and race.
1
Gender information is provided
for NetApps global workforce, which is more data than the
EEO-1
provides since the
EEO-1
data is only collected for the U.S. Because NetApp has published this
workforce information, there is no benefit to also publishing its
EEO-1
form, a document with many shortcomings as outlined below.
Hiring & Pipeline
NetApp dedicates time and resources to posting
jobs and soliciting candidates through myriad websites and community-based organizations focused on hiring women, veterans, minorities and individuals with disabilities.
In connection with its commitment to gender diversity in its leadership team, NetApp is committed to ensuring qualified female candidates are interviewed for all Vice
President-level job openings, with female leaders making up part of the interview team.
But ensuring a diverse workplace is both a
top-down
and
bottom-up
endeavor, which is why NetApp has set and exceeded university hiring goals for those candidates entering the workplace for the first time. Fully
30% of university hires in the Americas region in fiscal 2017 were female. In addition, NetApp has created eight dedicated job requisitions for hiring at the annual Grace Hopper Celebration, the worlds largest gathering of women technologists,
sponsored by the Anita Borg Institute.
NetApp Recognition for Diversity and Inclusion
NetApp is regularly and repeatedly recognized as a leader in workplace culture, including diversity. These accolades are achieved through the feedback our employees
provide to external experts and other organizations who specialize in measuring workplace culture.
|
|
|
Great Places to Work: For 13 consecutive years, NetApp has been recognized throughout the world as a great place to work by the Great Places to Work Institute
(http://www.greatplacetowork.net/best-companies/worlds-best-multinationals/profiles-of-the-winners/1524-3-netapp
and http://reviews.greatplacetowork.com/netapp). These positive accolades resulted in part from NetApps high marks on Great Places to Works Trust Index, which speaks to diversity.
|
1
|
Race information is only collected and reported for the U.S.
|
-84-
|
|
|
Diversity Awards: On March 7, 2017, the United Negro College Fund awarded NetApp the Corporation of the Year award honoring NetApps contributions and commitment to diversity. Also, Profiles in Diversity
Journal honored NetApp Sr. Director of GPSO, Information Engineer and NetApp Women in Technology (WIT)
Co-Chair
with the 2017 Women Worth Watching in STEM Awards. This recent praise validates NetApps
efforts in support of and commitment to diversity-focused initiatives.
|
Womens Leadership
Founded in October 2009, NetApps Women in Technology chapter (WIT) has grown into a global enterprise at NetApp with nearly 1,000 participants and a
Company-provided budget to support development of all women at NetApp. WIT enables that development through mentorship, networking, communication, training and personal development.
WIT offers conference sponsorship to events such as Anita Borgs Grace Hopper Celebration, the Professional Business Womens Conference, and the Massachusetts
Conference for Women. WIT also facilitates leadership training, theme-based networking, a mentorship program, and a
lean-in
group, among other opportunities. NetApp WIT also organizes and participates in
community outreach programs. In 2016, NetApp and its 100 volunteers hosted 250 young women across five Young Womens Technical workshops in the U.S. and India to introduce young women to coding and careers in technology.
Our Chief Technology Officer is personally committed to the development of women in technology and serves on the Board of Directors of the Anita Borg Institute. The
Anita Borg Institute is a social enterprise founded on the belief that women are vital to building technology that the world needs. The Anita Borg Institute helps women grow their careers and make significant contributions to technical fields.
In addition to its established partnership with the Anita Borg Institute, NetApp also has partnerships with Watermark (the Bay Areas largest organization dedicated
to increasing the number of women in leadership positions), and the Clayman Institute for gender research.
Director of Diversity and Inclusion
As part of NetApps strong and active commitment to diversity, the Company employs a Director of Diversity and Inclusion. The Director of Diversity and Inclusion,
who has significant experience helping technology companies optimize their talent, reports directly to the Executive Vice President of Human Resources. The charter of the Director of Diversity and Inclusion is to increase and strengthen the
initiatives discussed herein and also create others.
Diversity Messaging and Training
NetApp emphasizes the importance of diversity and inclusion in its workplace policies and Code of Conduct, as well as through regular messaging and training. For
example, all employees receive training on discrimination and harassment both through annual Code of Conduct recertification and in a biannual training dedicated to this topic. In addition, NetApp has created and distributed training for managers
regarding unconscious bias and how to combat it in workplace decisions.
Shortcomings of the
EEO-1
The Form
EEO-1
requires employers to categorize their workforce by gender and race according to certain Equal Employment
Opportunity Commission-mandated job categories that do not account for any company or industry specific factors. It is designed to yield generalized data across all categories of thousands of private employers rather than information specific to
NetApp or comparable companies. Additionally, because the
EEO-1
is required by the U.S. government, it only reports U.S. employee data and does not include any data related to a companys global
workforce.
-85-
For these reasons,
EEO-1
data is neither informative nor is it a reliable measure
of our global commitment to equal opportunity employment. We do not believe that disclosing it will meaningfully further the goal of workplace diversity.
Summary
For the above reasons, the Board does not believe that it is in the
best interests of NetApp, its employees or its stockholders to adopt this proposal. Doing so is unnecessary in light of NetApps existing and active commitment to diversity and publication of relevant diversity metrics.
Vote Required
The affirmative vote of a majority of the stock having voting
power present in person or represented by proxy is required to approve this Proposal Number 7. Unless you indicate otherwise, your proxy will be voted AGAINST the proposal.
Recommendation of the Board
Our Board of Directors
Unanimously Recommends That Stockholders
Vote AGAINST Proposal Number 7
-86-
PROPOSAL NUMBER 8:
STOCKHOLDER PROPOSAL FOR PROXY ACCESS
Introduction
The New York City Fire Department Pension Fund and the New York City Teachers Retirement System, whose addresses and stockholdings will be provided by us
upon request, have notified us that they intend to present the following proposal at the Annual Meeting:
Stockholder Proposal
RESOLVED: Shareholders of NetApp, Inc. (the Company) ask the board of directors (the Board) to take the steps necessary to adopt a
proxy access bylaw. Such a bylaw shall require the Company to include in proxy materials prepared for a shareholder meeting at which directors are to be elected the name, Disclosure and Statement (as defined herein) of any person
nominated for election to the board by a shareholder or group (the Nominator) that meets the criteria established below. The Company shall allow shareholders to vote on such nominee on the Companys proxy card.
The number of shareholder-nominated candidates appearing in proxy materials shall not exceed the larger of two or one quarter of the directors then serving. This bylaw,
which shall supplement existing rights under Company bylaws, should provide that a Nominator must:
|
a)
|
have beneficially owned 3% or more of the Companys outstanding common stock continuously for at least three years before submitting the nomination;
|
|
b)
|
give the Company, within the time period identified in its bylaws, written notice of the information required by the bylaws and any Securities and Exchange Commission rules about (i) the nominee, including consent
to being named in the proxy materials and to serving as director if elected; and (ii) the Nominator, including proof it owns the required shares (the Disclosure); and
|
|
c)
|
certify that (i) it will assume liability stemming from any legal or regulatory violation arising out of the Nominators communications with the Company shareholders, including the Disclosure and Statement;
(ii) it will comply with all applicable laws and regulations if it uses soliciting material other than the Companys proxy materials; and (iii) to the best of its knowledge, the required shares were acquired in the ordinary course of
business and not to change or influence control at the Company.
|
The Nominator may submit with the Disclosure a statement not exceeding 500 words in
support of each nominee (the Statement). The Board shall adopt procedures for promptly resolving disputes over whether notice of a nomination was timely, whether the Disclosure and Statement satisfy the bylaw and applicable federal
regulations, and the priority to be given to multiple nominations exceeding the
one-quarter
limit.
Supporting Statement
We believe proxy access will make directors more accountable and enhance shareholder value. A 2014 study by the CFA Institute concluded that proxy access could
raise overall US market capitalization by up to $140.3 billion if adopted market-wide, with little cost or disruption. (http://cfapubs.org/doi/pdf/10.2469/ccb.v2014.n9.1)
The proposed terms are similar to those in vacated SEC Rule
14a-11
(https://www.sec.gov/rules/final/2010/33-9136.pdf).
The SEC, following extensive analysis and input from market participants,
determined that those terms struck the proper balance of providing shareholders with viable proxy access while containing appropriate safeguards.
The proposed terms
enjoy strong investor support and company acceptance. Between January 2015 and December 2016, 95 similar shareholder proposals received majority votes and at least 320 companies of various sizes across industries enacted bylaws with similar terms.
We urge shareholders to vote FOR this proposal.
-87-
Response of the Board
NetApp is
committed to strong corporate governance practices, including accountability to our stockholders. As part of this commitment, our Board considers stockholder-supported mechanisms that enhance stockholder
rights while simultaneously promoting
the long-term interests of the Company. However, as the landscape on proxy access continues to evolve, the Board is cognizant that there exist different viewpoints with respect to the issue of proxy access in general and how it should be
implemented.
Accordingly, the Board makes no recommendation, positive or negative, with respect to the stockholder
proposal. While the stockholder
proposal is advisory in nature and
non-binding,
the Board will take the results of the vote into consideration together with any other input from stockholders
and other relevant factors, in making
an informed decision regarding whether, and the proper terms upon which, to implement proxy access in the best interests of the Company and its stockholders.
Vote Required
The affirmative vote of a majority of the stock having voting
power present in person or represented by proxy is required to approve this Proposal Number 8. Unless you indicate otherwise, your proxy will be voted ABSTAIN the proposal.
Recommendation of the Board
Our Board of Directors Makes
No Recommendation with Respect to the Stockholder Proposal.
-88-
Our Board of Directors knows of no other business that will be presented for consideration at the Annual Meeting. If other matters are
properly brought before the Annual Meeting, however, it is the intention of the persons named in the accompanying proxy to vote the shares represented thereby on such matters in accordance with their best judgment.
FORM
10-K
The Company
filed an Annual Report on Form
10-K
with the SEC on June 20, 2017. Our Internet address is www.netapp.com. Information on our website is not incorporated by reference into this Proxy Statement. We make
available through our website our annual reports on Form
10-K,
quarterly reports on Form
10-Q,
current reports on Form
8-K,
and
amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Stockholders may also obtain a copy of
this report, without charge, by writing to Kris Newton, Vice President, Investor Relations at the Companys principal executive offices located at 495 East Java Drive, Sunnyvale, California 94089.
By Order of the Board of Directors
George Kurian
Chief Executive Officer and President
August 1, 2017
©
2017 NetApp, Inc. All Rights Reserved. NETAPP, the NETAPP logo, and the marks listed at http://www.netapp.com/TM are trademarks of NetApp, Inc. Other company and product names may be trademarks of their respective owners.
-89-
NETAPP, INC.
RECONCILIATION OF
NON-GAAP
TO GAAP
FINANCIAL STATEMENT INFORMATION
(In
millions, except net income per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
April 28,
2017
|
|
|
April 29,
2016
|
|
|
|
|
NET INCOME
|
|
$
|
509
|
|
|
$
|
229
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
48
|
|
|
|
67
|
|
Stock-based compensation
|
|
|
195
|
|
|
|
260
|
|
Asset impairment
|
|
|
|
|
|
|
11
|
|
Restructuring and other charges
|
|
|
52
|
|
|
|
108
|
|
Acquisition-related expense
|
|
|
|
|
|
|
8
|
|
Gain on sale of properties
|
|
|
(10
|
)
|
|
|
(51)
|
|
Income tax effect of
non-GAAP
adjustments
|
|
|
(26
|
)
|
|
|
(86)
|
|
Income tax charge from integration of intellectual properties from acquisition
|
|
|
|
|
|
|
64
|
|
Settlement of income tax audit
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
NON-GAAP
NET INCOME
|
|
$
|
768
|
|
|
$
|
633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
$
|
3,390
|
|
|
$
|
3,373
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
29
|
|
|
|
61
|
|
Stock-based compensation
|
|
|
17
|
|
|
|
24
|
|
Asset Impairment
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
NON-GAAP
GROSS PROFIT
|
|
$
|
3,436
|
|
|
$
|
3,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM OPERATIONS
|
|
$
|
665
|
|
|
$
|
348
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
48
|
|
|
|
67
|
|
Stock-based compensation
|
|
|
195
|
|
|
|
260
|
|
Asset impairment
|
|
|
|
|
|
|
11
|
|
Restructuring and other charges
|
|
|
52
|
|
|
|
108
|
|
Acquisition-related expense
|
|
|
|
|
|
|
8
|
|
Gain on sale of properties
|
|
|
(10
|
)
|
|
|
(51)
|
|
|
|
|
|
|
|
|
|
|
NON-GAAP
INCOME FROM OPERATIONS
|
|
$
|
950
|
|
|
$
|
751
|
|
|
|
|
|
|
|
|
|
|
NET INCOME PER SHARE
|
|
$
|
1.81
|
|
|
$
|
0.77
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
0.17
|
|
|
|
0.23
|
|
Stock-based compensation
|
|
|
0.69
|
|
|
|
0.88
|
|
Asset impairment
|
|
|
|
|
|
|
0.04
|
|
Restructuring and other charges
|
|
|
0.19
|
|
|
|
0.36
|
|
Acquisition-related expense
|
|
|
|
|
|
|
0.03
|
|
Gain on sale of properties
|
|
|
(0.04
|
)
|
|
|
(0.17)
|
|
Income tax effect of
non-GAAP
adjustments
|
|
|
|
|
|
|
(0.29)
|
|
Income tax charge from integration of intellectual properties from acquisition
|
|
|
|
|
|
|
0.22
|
|
Settlement of income tax audit
|
|
|
|
|
|
|
0.08
|
|
|
|
|
|
|
|
|
|
|
NON-GAAP
NET INCOME PER SHARE
|
|
$
|
2.73
|
|
|
$
|
2.13
|
|
|
|
|
|
|
|
|
|
|
A-1
Non-GAAP
Financial Measures
To supplement NetApps condensed consolidated financial statement information presented in accordance with generally accepted accounting principles in the
United States (GAAP), NetApp provides investors with certain
non-GAAP
measures, including, but not limited to, historical
non-GAAP
operating results, net income and net
income per diluted share. For purposes of internal planning, performance measurement and resource allocation, NetApps management uses
non-GAAP
measures of net income that exclude: (a) amortization
of intangible assets, (b) stock-based compensation expenses, (c) acquisition-related expenses, (d) restructuring charges, (e) asset impairments, (f) gains and losses on the sale of property, and (g) our GAAP tax
provision, but includes a
non-GAAP
tax provision based upon our projected annual
non-GAAP
effective tax rate for the first three quarters of the fiscal year and an
actual
non-GAAP
tax provision for the fourth quarter of the fiscal year. NetApp makes additional adjustments to the
non-GAAP
tax provision for certain tax matters as
described below. NetApps management uses these
non-GAAP
measures in making operating decisions because it believes the measurements provide meaningful supplemental information regarding NetApps
ongoing operational performance. These
non-GAAP
financial measures are used to: (1) measure company performance against historical results, (2) facilitate comparisons to our competitors
operating results and (3) allow greater transparency with respect to information used by management in financial and operational decision making. In addition, these
non-GAAP
financial measures are used to
measure company performance for the purposes of determining employee incentive plan compensation.
As described above, NetApp excludes the following items from its
non-GAAP
measures:
A.
Amortization of intangible assets.
NetApp records
amortization of intangible assets that were acquired in connection with its business combinations. The amortization of intangible assets varies depending on the level of acquisition activity. Management finds it useful to exclude these charges to
assess the appropriate level of various operating expenses to assist in budgeting, planning and forecasting future periods and in measuring operational performance.
B.
Stock-based compensation expenses.
NetApp excludes stock-based compensation expenses from its
non-GAAP
measures primarily because they are
non-cash
expenses. While management views stock-based compensation as a key element of our employee retention and long-term
incentives, we do not view it as an expense to be used in evaluating operational performance in any given period.
C.
Acquisition-related expenses.
NetApp excludes acquisition-related expenses, including due diligence, legal and other
one-time
integration charges, and the write down of assets acquired that NetApp does not intend to use in its ongoing business, from its
non-GAAP
measures primarily because
they are not related to our
on-going
business or cost base and, therefore, cannot be relied upon for future planning and forecasting.
D.
Restructuring charges.
These charges include restructuring charges that are incurred based on the particular facts and
circumstances of restructuring decisions, including employment and contractual settlement terms, and other related charges, and can vary in size and frequency. We therefore exclude them in our assessment of operational performance.
E.
Asset impairments.
These are
non-cash
charges to write down assets when there
is an indication that the asset has become impaired. Management finds it useful to exclude these
non-cash
charges due to the unpredictability of these events in its assessment of operational performance.
F.
Gains/losses on the sale of property.
These are gains/losses from the sale of our properties. Management believes that
these transactions do not reflect the results of our underlying,
on-going
business and, therefore, cannot be relied upon for future planning or forecasting.
G.
Income tax adjustments
.
NetApps
non-GAAP
tax provision is based on
a projected annual
non-GAAP
effective tax rate for the first three quarters of the fiscal year and an actual
non-GAAP
tax provision for the fourth quarter of the fiscal
year. The
non-GAAP
tax provision also excludes, when applicable, (a) tax charges or benefits in the current period that relate to one or more prior fiscal periods that are a result of
A-2
events such as changes in tax legislation and authoritative guidance, income tax audit settlements and/or court decisions, and (b) tax charges or benefits that are attributable to unusual or
non-recurring
book and/or tax accounting method changes, (c) tax charges that are a result of
non-routine
foreign cash repatriation, (d) tax charges or
benefits that are a result of infrequent restructuring of the Companys tax structure, (e) tax charges or benefits that are a result of a change in valuation allowance, and (f) tax charges resulting from the integration of
intellectual properties from acquisitions. Management believes the use of a
non-GAAP
tax provision provides a more meaningful measure of the Companys operational performance in any given period.
There are limitations in using
non-GAAP
financial measures because the
non-GAAP
financial
measures are not prepared in accordance with generally accepted accounting principles and may be different from
non-GAAP
financial measures used by other companies. In addition, the
non-GAAP
financial measures are limited in value because they exclude certain items that may have a material impact upon our reported financial results. Management compensates for these limitations by analyzing
current and future results on a GAAP basis as well as a
non-GAAP
basis and also by providing GAAP measures in our earnings release and prepared remarks. The presentation of
non-GAAP
financial information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with generally accepted accounting principles
in the United States. The
non-GAAP
financial measures are meant to supplement, and be viewed in conjunction with, GAAP financial measures. Investors should review the information regarding
non-GAAP
financial measures provided in our press release and prepared remarks.
A-3
Appendix A
NETAPP, INC.
1999 STOCK OPTION PLAN
AS AMENDED AND RESTATED THROUGH JULY 20, 2017
ARTICLE ONE
GENERAL PROVISIONS
This 1999 Stock Option Plan is intended to promote the interests of NetApp, Inc., a Delaware corporation, by providing eligible persons
with the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Corporation as an incentive for them to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in the attached Appendix.
All share numbers in this document reflect (i) the
2-for-1
split of the Common Stock effected on December 20, 1999 and (ii) the
2-for-1
split of the Common Stock effected on March 22, 2000.
|
II.
|
STRUCTURE OF THE PLAN
|
A. The Plan shall be divided into five separate equity programs:
(i) the Discretionary Option Grant Program under which
eligible persons may, at the discretion of the Plan Administrator, be granted options to purchase shares of Common Stock,
(ii) the Stock Appreciation Rights Program under which
eligible persons may, at the discretion of the Plan Administrator, be granted stock appreciation rights that will allow individuals to receive the appreciation in Fair Market Value of the Shares subject to the award between the exercise date and the
date of grant,
(iii) the Stock Issuance Program
under which eligible persons may, at the discretion of the Plan Administrator, be issued shares of Common Stock directly, either through the issuance or immediate purchase of such shares or as a bonus for services rendered the Corporation (or any
Parent or Subsidiary) or pursuant to restricted stock units on such terms as the Plan Administrator deems appropriate,
(iv) the Performance Share and Performance Unit Program
under which eligible persons may, at the discretion of the Plan Administrator, be granted performance shares and performance units, which are awards that will result in a payment to a Participant only if the performance goals or other vesting
criteria the established by the Plan Administrator are achieved or the awards otherwise vest, or
(v) the Automatic Award Program (formerly known as the
Automatic Option Grant Program) under which
non-employee
Board members automatically receive award grants pursuant to a compensation policy as in effect from time to time.
A-1
B. The provisions of Articles
One and Seven shall apply to all equity programs under the Plan and shall accordingly govern the interests of all persons under the Plan.
|
III.
|
ADMINISTRATION OF THE PLAN
|
A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant, the Stock Appreciation Rights Program, Stock Issuance Programs and the Performance Share and Performance Unit Program with respect to Section 16 Insiders. Administration of the Discretionary Option
Grant, Stock Appreciation Rights, Stock Issuance and Performance Share and Performance Unit Programs with respect to all other eligible persons may, at the Boards discretion, be vested in the Primary Committee or a Secondary Committee, or the
Board may retain the power to administer that program with respect to all such persons.
B. Members of the Primary Committee or any Secondary Committee shall serve
for such period of time as the Board may determine and may be removed by the Board at any time. The Board may also at any time terminate the functions of any Secondary Committee and reassume all powers and authority previously delegated to such
committee.
C. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority to establish such rules and regulations as it may deem appropriate for proper administration of the Discretionary Option Grant, Stock Appreciation Rights, Stock Issuance and
Performance Share and Performance Unit Programs and to make such determinations under, and issue such interpretations of, the provisions of such programs and any outstanding options thereunder as it may deem necessary or advisable. Decisions of the
Plan Administrator within the scope of its administrative functions under the Plan shall be final and binding on all parties who have an interest in the Discretionary Option Grant, Stock Appreciation Rights, Stock Issuance or Performance Share and
Performance Unit Program under its jurisdiction or any award granted thereunder.
D. Service by Board members on the Primary Committee or the Secondary
Committee shall constitute service as a Board member, and Board members of each such committee shall accordingly be entitled to full indemnification and reimbursement as Board members for their service on such committee. No member of the Primary
Committee or the Secondary Committee shall be liable for any act or omission made in good faith with respect to the Plan or any option grants under the Plan.
E. Administration of the Automatic Award Program shall be self-executing in
accordance with the terms of that program, and no Plan Administrator shall exercise any discretionary functions with respect to award grants made thereunder, except that the Plan Administrator, in its discretion, may change and otherwise revise the
terms of any compensation policy relating to
non-employee
Board members.
A.The persons eligible to participate in the Discretionary Option Grant, Stock Appreciation Rights, Stock Issuance and Performance
Share and Performance Unit Programs are as follows:
(i) Employees,
(ii)
non-employee
Board members, and
(iii) consultants and other independent
advisors who provide services to the Corporation (or any Parent or Subsidiary).
B. Each Plan Administrator shall, within the scope of its administrative
jurisdiction under the Plan, have full authority (subject to the provisions of the Plan) to determine (i) with respect to the
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Discretionary Option Grant and Stock Appreciation Rights Programs, which eligible persons are to receive awards under the Discretionary Option Grant and Stock Appreciation Rights Programs, the
time or times when such awards are to be made, the number of shares to be covered by each such grant, the status of an option as either an Incentive Option or a
Non-Statutory
Option, the time or times when
each award is to become exercisable, the vesting schedule (if any) applicable to the award, the maximum term for which the award is to remain outstanding, and whether to modify or amend each award, including the discretionary authority to extend the
post-termination exercisability period of awards longer than is otherwise provided for in the Plan, and (ii) with respect to awards granted under the Stock Issuance and Performance Share and Performance Unit Programs, which eligible persons are
to receive awards, the time or times when such awards are to be made, the number of shares subject to awards to be issued to each Participant, the vesting schedule (if any) applicable to the awards, the consideration, if any, to be paid for shares
subject to such awards and the form (cash, shares of Common Stock, or a combination thereof) in which the award is to be settled.
C. Only
non-employee
Board members
shall be eligible to participate in the Automatic Award Program.
D. No
non-employee
Board member participating in the Discretionary Option Grant, Stock Appreciation Rights, Stock Issuance and Performance Share and Performance Unit Programs may be granted, in any calendar year of the
Corporation, awards (whether settled in cash or shares) with a grant date fair value (determined in accordance with U.S. generally accepted accounting principles) of more than $1,000,000. For purposes of clarification, this limitation only applies
to awards granted under the Discretionary Option Grant, Stock Appreciation Rights, Stock Issuance and Performance Share and Performance Unit Programs and does not apply to the value of awards
non-employee
Board members may receive under the Automatic Award Program.
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V.
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STOCK SUBJECT TO THE PLAN
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A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the Corporation on the open market. The maximum number of shares of Common Stock which may be issued over the term of the Plan shall not exceed 157,180,429 shares. Such authorized
share reserve is comprised of (i) the 13,200,000 shares of Common Stock initially authorized for issuance under the Plan, (ii) an additional increase of 15,000,000 shares authorized by the Board on August 17, 2000 and approved by the
stockholders at the 2000 Annual Meeting, (iii) an additional increase of 13,400,000 shares authorized by the Board on August 9, 2001 and approved by the stockholders at the 2001 Annual Meeting, (iv) an additional increase of
14,000,000 shares authorized by the Board on July 2, 2002 and approved by the stockholders at the 2002 Annual Meeting, (v) an additional increase of 10,200,000 shares authorized by the Board on July 7, 2004 and approved by the
stockholders at the 2004 Annual Meeting, (vi) an additional increase of 10,600,000 shares authorized by the Board on July 1, 2005 and approved by the stockholders at the 2005 Annual Meeting, (vii) an additional increase of 10,900,000
shares authorized by the Board on July 10, 2006 and approved by the stockholders at the 2006 Annual Meeting, (viii) an additional increase of 7,200,000 shares authorized by the Board on July 13, 2007 and approved by the stockholders
at the 2007 Annual Meeting, (ix) an additional increase of 6,600,000 shares authorized by the Board on July 11, 2008 and approved by the stockholders at the 2008 Annual Meeting, (x) an additional increase of 7,000,000 shares
authorized by the Board on July 13, 2010 and approved by the stockholders at the 2010 Annual Meeting, (xi) an additional increase of 7,700,000 shares authorized by the Board on July 14, 2011 and approved by the stockholders at the
2011 Annual Meeting, (xii) an additional increase of 7,350,000 shares authorized by the Board on July 18, 2012 and approved by the stockholders at the 2012 Annual Meeting, (xiii) an additional increase of 10,000,000 shares authorized
by the Compensation Committee of the Board (pursuant to authority delegated by the Board) on July 31, 2013 and approved by the stockholders at the 2013 Annual Meeting, (xiv) an additional increase of 7,500,000 shares authorized by the
Compensation Committee of the Board (pursuant to authority delegated by the Board) on July 23, 2014 and approved by the stockholders at the 2014 Annual Meeting, (xv) an additional increase of 15,500,000 shares authorized by the
Compensation Committee
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of the Board (pursuant to authority delegated by the Board) on July 24, 2015 and approved by the stockholders at the 2015 Annual Meeting, (xvi) an additional increase of 4,300,000
shares authorized by the Board on July 30, 2016, pursuant to a recommendation by the Boards Compensation Committee and approved by the stockholders at the 2016 Annual Meeting, plus (xvii) an additional increase of 8,500,000 shares
authorized by Companys Chief Executive Officer in consultation with the chair of the Boards Compensation Committee on July 20, 2017, pursuant to authority delegated by the Board, subject to the approval by the stockholders at the
2017 Annual Meeting on September 14, 2017. Pursuant to the
one-time
stock option exchange program, as described in the proxy statement pursuant to the Special Meeting of Stockholders held on
April 21, 2009, all of the shares underlying options surrendered in the option exchange program were returned to the Plan and restricted stock unit grants made in connection with the stock option exchange program were made from such returned
shares. After making the restricted stock unit grants in connection with the stock option exchange program, the Plans share reserve was reduced such that, in effect, only 3,500,000 of the shares underlying the surrendered options were retained
as available for future grant under the Plan, thereby reducing the number of shares of Common Stock which may be issued over the term of the Plan from 101,100,000 shares to 89,330,429 shares. In addition, shares issued under the Corporations
1995 Stock Incentive Plan or the Special
Non-Officer
Stock Option Plan shall not reduce or otherwise affect the number of shares of Common Stock available for issuance under this Plan. Any shares subject to
awards granted under the Plan other than options to purchase shares of Common Stock or stock appreciation rights and granted after the 2013 Annual Meeting, will be counted against the maximum number of shares of Common Stock which may be issued over
the term of the Plan pursuant to this Article One Section V.A. as two (2) shares for every one (1) share subject thereto.
B. Subject to the provisions in the Plan, no one person participating in the
Plan may receive stock options and/or stock appreciation rights under the Plan for more than 3,000,000 shares of Common Stock in the aggregate per calendar year.
C. Shares of Common Stock subject to outstanding options or stock
appreciation rights shall be available for subsequent issuance under the Plan to the extent the options or stock appreciation rights expire or terminate for any reason prior to exercise in full. In addition, any unvested shares issued under the Plan
and subsequently repurchased or reacquired by the Corporation pursuant to the Corporations repurchase rights under the Plan shall be added back to the number of shares of Common Stock reserved for issuance under the Plan and shall accordingly
be available for reissuance through one or more subsequent awards under the Plan. If shares subject to awards granted under the Plan were counted against the maximum number of shares of Common Stock which may be issued over the term of the Plan
pursuant to Article One Section V.A. as two (2) shares for every one (1) share subject thereto and are forfeited or otherwise return to the Plan, two (2) times the number of shares so forfeited will return to the Plan and will again
become available for issuance. For purposes of clarity, shares subject to awards granted under the Plan prior to the 2013 Annual Meeting that are forfeited or otherwise return to the Plan, will return to the Plan as one (1) share for every one
(1) share subject thereto and will again become available for issuance. Should the exercise price of an award under the Plan be paid with shares of Common Stock or should shares of Common Stock otherwise issuable under the Plan be withheld by
the Corporation in satisfaction of the withholding taxes incurred in connection with the exercise of an award or the vesting or disposition of exercised shares or stock issuances under the Plan, then the number of shares of Common Stock available
for issuance under the Plan shall be reduced by the gross number of shares for which the award is exercised or the gross number of exercised shares or stock issuances which vest, and not by the net number of shares of Common Stock issued to the
holder of such award or exercised shares or stock issuances. With respect to stock appreciation rights, all of the shares of Common Stock covered by the award (that is, shares of Common Stock actually issued pursuant to a stock appreciation right,
as well as the shares of Common Stock that represent payment of the exercise price) shall cease to be available under the Plan.
D. Should any change be made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporations receipt of consideration, appropriate adjustments shall be
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made to (i) the maximum number and/or class of securities issuable under the Plan, (ii) the maximum number, value and/or class of securities for which any one person may be granted
stock options and/or stock appreciation rights or awards under the Stock Issuance and Performance Share and Performance Unit Programs per calendar year, (iii) the number, value and/or class of securities for which automatic award grants are to
be made subsequently under the Automatic Award Program and (iv) the number and/or class of securities and the exercise price per share in effect under each outstanding award in order to prevent the dilution or enlargement of benefits
thereunder. The adjustments determined by the Plan Administrator shall be final, binding and conclusive.
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ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
Each option shall be evidenced by one or more documents in the form approved by the Plan Administrator;
provided
, however, that
each such document shall comply with the terms specified below. Each document evidencing an Incentive Option shall, in addition, be subject to the provisions of the Plan applicable to such options.
A.
Exercise Price
.
1. The exercise price per share shall be fixed by the Plan Administrator but
shall not be less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of the
option and shall be payable in one or more of the forms specified by the Plan Administrator, including without limitation, by one of the following forms of consideration:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporations earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date, or
(iii) to the extent the option is exercised for
vested shares, through a special sale and remittance procedure pursuant to which the Optionee shall concurrently provide irrevocable instructions to (a) a brokerage firm reasonably satisfactory to the Corporation for purposes of administering
such procedure to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus
all applicable Federal, state and local income and employment taxes required to be withheld by the Corporation by reason of such exercise and (b) the Corporation to deliver the certificates for the purchased shares directly to such brokerage
firm in order to complete the sale transaction.
Except to the extent such sale and remittance procedure is utilized, payment of
the exercise price for the purchased shares must be made on the Exercise Date.
B.
Exercise and Term of Options
. Each option shall
be exercisable at such time or times, during such period and for such number of shares as shall be determined by the Plan Administrator and set forth in the documents evidencing the option. However, no option shall have a term in excess of seven
(7) years measured from the option grant date.
C.
Effect of Termination of Service
.
1. The following provisions shall govern the exercise of any options
held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the
Optionees cessation of Service for any reason shall remain exercisable for such period of time thereafter as shall be determined by the Plan Administrator and set forth in the documents evidencing the option, but no such option shall be
exercisable after the expiration of the option term.
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(ii) Any
option exercisable in whole or in part by the Optionee at the time of death may be exercised subsequently by the personal representative of the Optionees estate or by the person or persons to whom the option is transferred pursuant to the
Optionees will or in accordance with the laws of descent and distribution.
(iii) During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for more than the number of vested shares for which the option is exercisable on the date of the Optionees cessation of Service. Upon the expiration of the applicable exercise period or
(if earlier) upon the expiration of the option term, the option shall terminate and cease to be outstanding for any vested shares for which the option has not been exercised. However, the option shall, immediately upon the Optionees cessation
of Service, terminate and cease to be outstanding to the extent the option is not otherwise at that time exercisable for vested shares.
(iv) Should the Optionees Service be terminated
for Misconduct, then all outstanding options held by the Optionee shall terminate immediately and cease to be outstanding.
2. The Plan Administrator shall have the discretion, exercisable
either at the time an option is granted or at any time while the option remains outstanding, to extend the period of time for which the option is to remain exercisable following the Optionees cessation of Service from the period otherwise in
effect for that option to such greater period of time as the Plan Administrator shall deem appropriate, but in no event beyond the expiration of the option term.
D.
Stockholder Rights
. The holder of an option
shall have no stockholder rights with respect to the shares subject to the option until such person shall have exercised the option, paid the exercise price and become a holder of record of the purchased shares.
E.
Repurchase Rights
. The Plan Administrator shall
have the discretion to grant options which are exercisable for unvested shares of Common Stock. Should the Optionee cease Service while holding such unvested shares, the Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase right shall be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares) shall be established by the
Plan Administrator and set forth in the document evidencing such repurchase right.
F.
Limited Transferability of Options
. During the
lifetime of the Optionee, Incentive Options shall be exercisable only by the Optionee and shall not be assignable or transferable other than by will or by the laws of inheritance following the Optionees death. However,
Non-Statutory
Options may be assigned in whole or in part during the Optionees lifetime to one or more members of the Optionees family or to a trust established exclusively for one or more such family
members or the Optionees former spouse, to the extent such assignment is in connection with the Optionees estate plan, or to the Optionees former spouse pursuant to a domestic relations order. The person or persons who acquire a
proprietary interest in the option pursuant to the assignment may only exercise the assigned portion. The terms applicable to the assigned portion shall be the same as those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may deem appropriate.
The terms specified below shall be applicable to all Incentive Options. Except as modified by the provisions of this Section II, all
the provisions of Articles One, Two and Seven shall be applicable to Incentive
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Options. Options which are specifically designated as
Non-Statutory
Options when issued under the Plan shall
not
be subject to the terms of this
Section II.
A.
Eligibility
. Incentive Options
may only be granted to Employees.
B.
Dollar
Limitation
. The aggregate Fair Market Value of the shares of Common Stock (determined as of the respective date or dates of grant) for which one or more options granted to any Employee under the Plan (or any other option plan of the
Corporation or any Parent or Subsidiary) may for the first time become exercisable as Incentive Options during any one (1) calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two
(2) or more such options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability of such options as Incentive Options shall be applied on the basis of the order in which such options
are granted.
C.
10% Stockholder
. If any
Employee to whom an Incentive Option is granted is a 10% Stockholder, then the exercise price per share shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the option grant date, and the option
term shall not exceed five (5) years measured from the option grant date.
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III.
|
CORPORATE TRANSACTION/CHANGE IN CONTROL
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A. Each option, to the extent outstanding under the Plan at the time of a
Corporate Transaction but not otherwise exercisable for all the option shares, shall automatically accelerate so that each such option shall, immediately prior to the effective date of the Corporate Transaction, become exercisable for all of the
shares of Common Stock at the time subject to such option and may be exercised for any or all of those shares as fully-vested shares of Common Stock. However, an outstanding option shall not become exercisable on such an accelerated basis if and to
the extent: (i) such option is, in connection with the Corporate Transaction, to be assumed by the successor corporation (or parent thereof) or replaced with a comparable option to purchase shares of the capital stock of the successor
corporation (or parent thereof), (ii) such option is to be replaced with a cash incentive program of the successor corporation which preserves the spread existing on the unvested option shares at the time of the Corporate Transaction and provides
for subsequent payout in accordance with the same vesting schedule applicable to those option shares or (iii) the acceleration of such option is subject to other limitations imposed by the Plan Administrator at the time of the option grant. The
determination of option comparability under clause (i) above shall be made by the Plan Administrator, and its determination shall be final, binding and conclusive.
B. All outstanding repurchase rights shall also terminate automatically, and
the shares of Common Stock subject to those terminated rights shall immediately vest in full, in the event of any Corporate Transaction, except to the extent: (i) those repurchase rights are to be assigned to the successor corporation (or
parent thereof) in connection with such Corporate Transaction or (ii) such accelerated vesting is precluded by other limitations imposed by the Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate Transaction, all
outstanding options shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof).
D. Each option which is assumed in connection with a Corporate Transaction shall be appropriately adjusted,
immediately after such Corporate Transaction, to apply to the number and class of securities which would have been issuable to the Optionee in consummation of such Corporate Transaction had the option been exercised immediately prior to such
Corporate Transaction. Appropriate adjustments to reflect such Corporate Transaction shall also be made to (i) the exercise price payable per share under each outstanding option,
provided
the aggregate exercise price payable for such
securities shall remain the same,
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(ii) the maximum number and/or class of securities available for issuance over the remaining term of the Plan and (iii) the maximum number and/or class of securities for which any one
person may be granted stock options under the Plan per calendar year.
E. The Plan Administrator shall have the full power and authority to
accelerate the vesting of options granted under the Discretionary Option Grant Program upon a Corporate Transaction or Change in Control or upon an event or events occurring in connection with such transactions. The portion of any Incentive Option
accelerated in connection with a Corporate Transaction or Change in Control shall remain exercisable as an Incentive Option only to the extent the applicable One Hundred Thousand Dollar limitation is not exceeded. To the extent such dollar
limitation is exceeded, the accelerated portion of such option shall be exercisable as a
Non-Qualified
Option under the Federal tax laws.
F. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.
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IV.
|
REPRICING OR CANCELLATION AND REGRANT OF AWARDS
|
The Plan Administrator may not modify or amend a stock option or stock appreciation right to reduce the exercise price of such stock
option or stock appreciation right after it has been granted (except for adjustments made pursuant to Article One Section V.D.), unless approved by the Corporations stockholders and neither may the Plan Administrator, without the approval of
the Corporations stockholders, cancel any outstanding stock option or stock appreciation right and immediately replace it with a new stock option or stock appreciation right with a lower exercise price, awards of a different type, and/or cash.
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ARTICLE THREE
STOCK APPRECIATION RIGHTS PROGRAM
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I.
|
STOCK APPRECIATION RIGHT TERMS
|
Each stock appreciation right shall be evidenced by one or more documents in the form approved by the Plan Administrator;
provided
, however, that each such document shall comply with the terms specified below.
A.
Exercise Price
.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the option grant date.
B.
Payment of SAR Amount
. Upon exercise of a stock
appreciation right, a Participant will be entitled to receive payment from the Corporation in an amount determined by multiplying:
1. The difference between the Fair Market Value of a share of Common Stock
on the date of exercise over the exercise price; times
2. The number of
shares of Common Stock with respect to which the stock appreciation right is exercised.
At the discretion of the Plan
Administrator, the payment upon the exercise of a stock appreciation right may be in cash, in shares of Common Stock of equivalent value, or in some combination thereof.
C.
Exercise and Term of Stock Appreciation Rights
.
Each stock appreciation right shall be exercisable at such time or times, during such period and for such number of shares as shall be determined by the Plan Administrator and set forth in the documents evidencing the stock appreciation right.
However, no stock appreciation right shall have a term in excess of seven (7) years measured from the stock appreciation right grant date.
D.
Effect of Termination of Service
. A stock
appreciation right granted under the Plan will expire upon the date determined by the Plan Administrator, in its sole discretion, and set forth in the agreement evidencing the award. Notwithstanding the foregoing, the rules of Article Two Section
I.C. also will apply to stock appreciation rights.
E.
Stockholder Rights
. The holder of a stock
appreciation right shall have no stockholder rights with respect to the shares subject to the stock appreciation right until such person shall have exercised the stock appreciation right and become a holder of record of shares, if any, issued
thereunder.
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II.
|
CORPORATE TRANSACTION/CHANGE IN CONTROL
|
A. Each stock appreciation right, to the extent outstanding under the
Plan at the time of a Corporate Transaction but not otherwise exercisable for all the shares subject thereto, shall automatically accelerate so that each such stock appreciation right shall, immediately prior to the effective date of the Corporate
Transaction, become exercisable for all of the shares of Common Stock at the time subject to such stock appreciation right and may be exercised for any or all of those shares as fully-vested shares of Common Stock. However, an outstanding stock
appreciation right shall not become exercisable on such an accelerated
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basis if and to the extent: (i) such stock appreciation right is, in connection with the Corporate Transaction, to be assumed by the successor corporation (or parent thereof) or replaced
with a comparable award, (ii) such stock appreciation right is to be replaced with a cash incentive program of the successor corporation which preserves the spread existing on the unvested shares subject to the award at the time of the
Corporate Transaction and provides for subsequent payout in accordance with the same vesting schedule applicable to the award or (iii) the acceleration of such stock appreciation right is subject to other limitations imposed by the Plan
Administrator at the time of grant. The determination of stock appreciation right comparability under clause (i) above shall be made by the Plan Administrator, and its determination shall be final, binding and conclusive.
B. Immediately following the consummation of the Corporate
Transaction, all outstanding stock appreciation rights shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof).
C. Each stock appreciation right which is assumed in connection with a
Corporate Transaction shall be appropriately adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been issuable to the Participant in consummation of such Corporate Transaction had
the stock appreciation right been exercised immediately prior to such Corporate Transaction. Appropriate adjustments to reflect such Corporate Transaction shall also be made to (i) the exercise price payable per share under each outstanding
stock appreciation right,
provided
the aggregate exercise price for such award shall remain the same, (ii) the maximum number and/or class of securities available for issuance over the remaining term of the Plan, and (iii) the
maximum number and/or class of securities for which any one person may be granted stock appreciation rights under the Plan per calendar year.
D. The Plan Administrator shall have the full power and authority to
accelerate the vesting of stock appreciation rights granted under the Stock Appreciation Rights Program upon a Corporate Transaction or Change in Control or upon an event or events occurring in connection with such transactions.
E. The outstanding stock appreciation rights shall in no way affect
the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.
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III.
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REPRICING OR CANCELLATION AND REGRANT OF AWARDS
|
The Plan Administrator may not modify or amend a stock option or stock appreciation right to reduce the exercise price of such stock
option or stock appreciation right after it has been granted (except for adjustments made pursuant to Article One Section V.D.), unless approved by the Corporations stockholders and neither may the Plan Administrator, without the approval of
the Corporations stockholders, cancel any outstanding stock option or stock appreciation right and immediately replace it with a new stock option or stock appreciation right with a lower exercise price, awards of a different type, and/or cash.
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ARTICLE FOUR
STOCK ISSUANCE PROGRAM
Shares of Common Stock may be issued under the Stock Issuance Program through direct and immediate issuances without any intervening
option grants. Each such stock issuance shall be evidenced by a Stock Issuance Agreement which complies with the terms specified below. Shares of Common Stock may also be issued under the Stock Issuance Program pursuant to grants of restricted stock
and restricted stock units which entitle the recipients to retain or receive, as applicable, the shares underlying the award upon the attainment of designated performance goals or the satisfaction of specified Service requirements. To the extent any
shares issued pursuant to awards granted under the Stock Issuance Program are forfeited or otherwise return to the Plan, such shares will not count against the number of shares of Common Stock which may be issued under the Plan pursuant to
Article One, Section V of the Plan and may once again be issued pursuant to awards under the Plan as if the original award were never granted. The Plan Administrator, in its sole discretion, shall determine the number of shares of Common
Stock and/or restricted stock units to be granted to each Participant, provided that during any calendar year and subject to the provisions in the Plan, no Participant shall receive an award under the Stock Issuance Program covering more than
1,000,000 shares of Common Stock.
A.
Purchase Price
.
1. The purchase price per share of Common Stock, if any, shall
be fixed by the Plan Administrator.
2. Shares of Common
Stock may be issued under the Stock Issuance Program for any item of consideration which the Plan Administrator may deem appropriate in each individual instance, including, without limitation, the following:
(i) cash or check made payable to the
Corporation, or
(ii) past services rendered
to the Corporation (or any Parent or Subsidiary).
B.
Vesting/Issuance Provisions
.
1. The Plan Administrator may issue shares of Common Stock under the
Stock Issuance Program which are fully and immediately vested upon issuance or which are to vest in one or more installments over the Participants period of Service or upon attainment of specified performance objectives. Shares of Common Stock
may also be issued under the Stock Issuance Program pursuant to restricted stock units which entitle the recipients to receive the shares underlying the restricted stock units and which vest in one or more installments over the Participants
period of Service or upon attainment of specified performance objectives. The elements of the vesting schedule applicable to any awards granted under the Stock Issuance Program, namely:
(i) the Service period to be completed by the
Participant or the performance objectives to be attained,
(ii) the number of installments in which the awards are
to vest,
(iii) the interval or intervals (if any)
which are to lapse between installments, and
(iv) the effect which death, Permanent Disability or
other event designated by the Plan Administrator is to have upon the vesting schedule,
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shall be determined by the Plan Administrator and incorporated into the Stock Issuance Agreement. For
purposes of qualifying awards made under the Stock Issuance Program as performance-based compensation under Section 162(m) of the Code, the Plan Administrator, in its discretion, may set restrictions based upon the achievement of
Performance Goals, which shall be set by the Plan Administrator on or before the Determination Date. In establishing Performance Goals, the Plan Administrator may provide that performance shall be appropriately adjusted as follows:
(i) to include or exclude restructuring charges;
(ii) to include or exclude exchange rate effects, as
applicable, for
non-U.S.
dollar denominated Performance Goals;
(iii) to include or exclude the effects of changes to generally
accepted accounting principles required by the Financial Accounting Standards Board;
(iv) to include or exclude the effects of any statutory adjustments
to corporate tax rates;
(v) to include or exclude the effects
of any extraordinary items as determined under generally accepted accounting principles;
(vi) to include or exclude the effect of payment of bonuses under
any cash bonus plan of the Corporation;
(vii) to include or exclude
the effect of stock based compensation and/or deferred compensation;
(viii) to include or exclude any other unusual gain or loss or other
extraordinary item;
(ix) to respond to, or in
anticipation of, any unusual or extraordinary corporate item, transaction, event or development;
(x) to respond to, or in anticipation of, changes in
applicable laws, regulations, accounting principles, or industry conditions;
(xi) to include or exclude the effects of divestitures,
acquisitions or joint ventures;
(xii) to include or exclude the
effects of discontinued operations that do not qualify as a segment of a business unit under generally accepted accounting principles;
(xiii) to assume that any business divested by the Corporation achieved
performance objectives at targeted levels during the balance of a Performance Period following such divestiture;
(xiv) to include or exclude the effect of any change in the outstanding
shares of Common Stock by reason of any stock dividend or split, stock repurchase, reorganization, recapitalization, merger, consolidation,
spin-off,
combination or exchange of shares or other similar
corporate change, or any distributions to common shareholders other than regular cash dividends;
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(xv) to reflect
a corporate transaction, such as a merger, consolidation, separation (including a spinoff or other distribution of stock or property by a corporation), or reorganization (whether or not such reorganization comes within the definition of such term in
Section 368 of the Code);
(xvi) to reflect any partial or
complete corporate liquidation; and
(xvii) to include or exclude the
amortization of purchased intangibles and technology license arrangements.
In this connection, the Plan Administrator shall follow
any procedures determined by it from time to time to be necessary or appropriate to ensure qualification of awards made under the Stock Issuance Program under Section 162(m) of the Code (e.g., in determining the Performance Goals). To the
extent necessary to comply with the performance-based compensation provisions of Section 162(m) of the Code, with respect to any award granted subject to Performance Goals, within the first twenty-five percent (25%) of the Performance Period,
but in no event more than ninety (90) days following the commencement of any Performance Period (or such other time as may be required or permitted by Section 162(m) of the Code), the Plan Administrator shall, in writing,
(A) designate one or more Participants to whom awards made under the Stock Issuance Program shall be made, (B) select the Performance Goals applicable to the Performance Period, (C) establish the Performance Goals and amounts of such
awards made under the Stock Issuance Program, as applicable, which may be earned for such Performance Period, and (D) specify the relationship between the Performance Goals and the amounts of such awards made under the Stock Issuance Program,
as applicable, to be earned by each Participant for such Performance Period. Following the completion of each Performance Period, the Plan Administrator shall certify in writing whether the applicable Performance Goals have been achieved for such
Performance Period. In determining the amounts earned by a Participant, the Plan Administrator shall have the right to reduce or eliminate (but not to increase) the amount payable at a given level of performance to take into account additional
factors that the Plan Administrator may deem relevant to the assessment of individual or corporate performance for the Performance Period. A Participant shall be eligible to receive payment pursuant to an award intended to qualify as
performance-based compensation under Section 162(m) of the Code made under the Stock Issuance Program for a Performance Period only if the Performance Goals for such period are achieved. Notwithstanding any other provision of the Plan, any
award which is granted to a Participant and is intended to constitute qualified performance-based compensation under Section 162(m) of the Code shall be subject to any additional limitations set forth in the Code (including any amendment to
Section 162(m)) or any regulations and ruling issued thereunder that are requirements for qualification as qualified performance-based compensation as described in Section 162(m) of the Code, and the Plan shall be deemed amended to the
extent necessary to conform to such requirements.
2. Any
new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) which the Participant may have the right to receive with respect to his or her unvested shares of Common Stock by reason of any
stock dividend, stock split, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporations receipt of consideration shall be issued subject to
(i) the same vesting requirements applicable to the Participants unvested shares of Common Stock and (ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock Issuance Program (for these purposes, shares to be issued upon settlement of a restricted stock unit award will not be issued until the award has actually been settled),
whether or not the Participants interest in those shares is vested. Accordingly, the Participant shall have the right to vote such shares and to receive any regular cash dividends paid on such shares.
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4. Should the
Participant cease to remain in Service while holding one or more unvested shares of Common Stock issued under the Stock Issuance Program or should the performance objectives not be attained with respect to one or more such unvested shares of Common
Stock, then those shares shall be immediately surrendered to the Corporation for cancellation, and the Participant shall have no further stockholder rights with respect to those shares. To the extent the surrendered shares were previously issued to
the Participant for cash consideration, unless the Plan Administrator provides otherwise, the Corporation shall repay that consideration to the Participant at the time the shares are surrendered.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock (or other assets attributable thereto) which would otherwise occur upon the cessation of the Participants Service or the
non-attainment
of the performance objectives applicable to those shares. Such waiver shall result in the immediate vesting of the Participants interest in the shares of Common Stock as to which the
waiver applies. Such waiver may be effected at any time, whether before or after the Participants cessation of Service or the attainment or
non-attainment
of the applicable performance objectives.
6. Outstanding restricted stock units under the Stock Issuance
Program shall automatically terminate, and no shares of Common Stock shall actually be issued in satisfaction of those awards, if the performance goals or Service requirements established for such awards are not attained or satisfied. The Plan
Administrator, however, shall have the discretionary authority to issue shares of Common Stock under outstanding awards in satisfaction of one or more outstanding restricted stock unit awards as to which the designated performance goals are not
attained or satisfied. On the date set forth in the Stock Issuance Agreement, all unearned restricted stock units shall be forfeited to the Corporation.
7. Upon meeting the applicable vesting criteria, the Participant
shall be entitled to a payout of restricted stock units as specified in the Stock Issuance Agreement. Notwithstanding the foregoing, after the grant of restricted stock units, the Plan Administrator, in its sole discretion, may reduce or waive any
performance objectives or other vesting provisions for such restricted stock units. Payment of earned restricted stock units shall be made as soon as practicable after the date(s) set forth in the Stock Issuance Agreement or as otherwise provided in
the applicable Stock Issuance Agreement or as required by applicable laws. The Plan Administrator, in its sole discretion, may pay earned restricted stock units in cash, in shares of Common Stock (which have an aggregate Fair Market Value equal to
the value of the earned restricted stock units), or a combination thereof.
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II.
|
CORPORATE TRANSACTION/CHANGE IN CONTROL
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A. All of the Corporations outstanding repurchase rights under the
Stock Issuance Program shall terminate automatically, and all the shares of Common Stock subject to those terminated rights and the awards issued under the Stock Issuance Program shall immediately vest in full (with all performance goals or other
vesting criteria deemed achieved at target levels), in the event of any Corporate Transaction, except to the extent (i) the awards as to which those repurchase rights or other vesting criteria pertain are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or (ii) such accelerated vesting is precluded by other limitations imposed in the Stock Issuance Agreement.
B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while the Corporations repurchase rights remain outstanding under the Stock Issuance Program or while the awards under the Stock Issuance Program are unvested, to
provide that those rights or awards shall automatically terminate in whole or in part, and the shares of Common Stock subject to those terminated rights or awards shall immediately vest upon a Corporate Transaction or Change in Control or upon an
event or events associated with such transactions.
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III.
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SHARE ESCROW/LEGENDS
|
Unvested shares may, in the Plan Administrators discretion, be held in escrow by the Corporation until the Participants
interest in such shares vests or may be issued directly to the Participant with restrictive legends on the certificates evidencing those unvested shares.
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ARTICLE FIVE
PERFORMANCE SHARE AND PERFORMANCE UNIT PROGRAM
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I.
|
PERFORMANCE UNITS AND PERFORMANCE SHARES
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Shares of Common Stock or cash may be issued under the Performance Share or Performance Unit Program through awards of performance
shares and performance units, which are awards that will result in a payment to a Participant only if the performance goals or other vesting criteria established by the Plan Administrator are achieved or the awards otherwise vest. Each award granted
hereunder shall be evidenced by an agreement in such form as the Plan Administrator shall determine which complies with the terms specified below. To the extent any shares issued pursuant to awards granted under the Performance Share and Performance
Unit Program are forfeited or otherwise return to the Plan, such shares will not count against the number of shares of Common Stock which may be issued under the Plan pursuant to Article One, Section V of the Plan and may once again be
issued pursuant to awards under the Plan as if the original award were never granted.
A.
Grant of Performance Units/Shares
. The Plan Administrator
will have complete discretion in determining the number of performance units and performance shares granted to each Participant provided that during any calendar year and subject to the provisions in the Plan, (a) no Participant will receive
performance units having an initial value greater than $5,000,000, and (b) no Participant will receive more than 1,000,000 performance shares.
B.
Value of Performance Units/Shares
. Each performance unit will have
an initial value that is established by the Plan Administrator on or before the date of grant. Each performance share will have an initial value equal to the Fair Market Value of a share of Common Stock on the date of grant.
C.
Performance Objectives and Other Terms
. The Plan Administrator
will set performance objectives or other vesting provisions (including, without limitation, continued status as an Employee) in its discretion which, depending on the extent to which they are met, will determine the number or value of performance
units/shares that will be paid out to the Participant. Each Award of performance units/shares will be evidenced by an agreement that will specify the Performance Period, and such other terms and conditions as the Plan Administrator, in its sole
discretion, will determine.
1.
General Performance Objectives
.
The Plan Administrator may set performance objectives based upon the achievement of Corporation-wide, divisional, or individual goals, or any other basis determined by the Plan Administrator in its discretion.
2.
Section 162(m) Performance Objectives
. For purposes of qualifying
grants of performance units/shares as performance-based compensation under Section 162(m) of the Code, the Plan Administrator, in its discretion, may determine that the performance objectives applicable to performance units/shares
will be based on the achievement of Performance Goals. The Plan Administrator will set the Performance Goals on or before the Determination Date. In establishing Performance Goals, the Plan Administrator may provide that performance shall be
appropriately adjusted as follows:
(i) to include or exclude restructuring
charges;
(ii) to include or exclude exchange rate effects, as applicable, for
non-U.S.
dollar denominated Performance Goals;
(iii) to include or exclude the effects of changes to generally accepted accounting
principles required by the Financial Accounting Standards Board;
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(iv) to include or exclude
the effects of any statutory adjustments to corporate tax rates;
(v) to include or exclude the effects of any extraordinary
items as determined under generally accepted accounting principles;
(vi) to include or exclude the effect of payment of bonuses under any cash
bonus plan of the Corporation;
(vii) to include or exclude the effect of
stock based compensation and/or deferred compensation;
(viii) to include or
exclude any other unusual gain or loss or other extraordinary item;
(ix) to
respond to, or in anticipation of, any unusual or extraordinary corporate item, transaction, event or development;
(x) to respond to, or in anticipation of, changes in applicable laws,
regulations, accounting principles, or industry conditions;
(xi) to
include or exclude the effects of divestitures, acquisitions or joint ventures;
(xii) to include or exclude the effects of discontinued operations that do not
qualify as a segment of a business unit under generally accepted accounting principles;
(xiii) to assume that any business divested by the Corporation achieved
performance objectives at targeted levels during the balance of a Performance Period following such divestiture;
(xiv) to include or exclude the effect of any change in the outstanding shares of Common
Stock by reason of any stock dividend or split, stock repurchase, reorganization, recapitalization, merger, consolidation,
spin-off,
combination or exchange of shares or other similar corporate change, or any
distributions to common shareholders other than regular cash dividends;
(xv) to
reflect a corporate transaction, such as a merger, consolidation, separation (including a spinoff or other distribution of stock or property by a corporation), or reorganization (whether or not such reorganization comes within the definition of such
term in Section 368 of the Code);
(xvi) to reflect any partial or
complete corporate liquidation; and
(xvii) to include or exclude the amortization of
purchased intangibles and technology license arrangements
In granting performance units/shares which are intended to qualify under
Section 162(m) of the Code, the Plan Administrator will follow any procedures determined by it from time to time to be necessary or appropriate to ensure qualification of the performance units/shares under Section 162(m) of the Code (e.g.,
in determining the Performance Goals). To the extent necessary to comply with the performance-based compensation provisions
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of Section 162(m) of the Code, with respect to any award granted subject to Performance Goals, within the first twenty-five percent (25%) of the Performance Period, but in no event more than
ninety (90) days following the commencement of any Performance Period (or such other time as may be required or permitted by Section 162(m) of the Code), the Plan Administrator shall, in writing, (A) designate one or more Participants
to whom awards made under the Performance Share and Performance Unit Program shall be made, (B) select the Performance Goals applicable to the Performance Period, (C) establish the Performance Goals and amounts of such awards made under
the Performance Share and Performance Unit Program, as applicable, which may be earned for such Performance Period, and (D) specify the relationship between the Performance Goals and the amounts of such awards made under the Performance Share
and Performance Unit Program, as applicable, to be earned by each Participant for such Performance Period. Following the completion of each Performance Period, the Plan Administrator shall certify in writing whether the applicable Performance Goals
have been achieved for such Performance Period. In determining the amounts earned by a Participant, the Plan Administrator shall have the right to reduce or eliminate (but not to increase) the amount payable at a given level of performance to take
into account additional factors that the Plan Administrator may deem relevant to the assessment of individual or corporate performance for the Performance Period. A Participant shall be eligible to receive payment pursuant to an award intended to
qualify as performance-based compensation under Section 162(m) of the Code made under the Performance Share and Performance Unit Program for a Performance Period only if the Performance Goals for such period are achieved. Notwithstanding any
other provision of the Plan, any award which is granted to a Participant and is intended to constitute qualified performance-based compensation under Section 162(m) of the Code shall be subject to any additional limitations set forth in the
Code (including any amendment to Section 162(m)) or any regulations and ruling issued thereunder that are requirements for qualification as qualified performance-based compensation as described in Section 162(m) of the Code, and the Plan
shall be deemed amended to the extent necessary to conform to such requirements.
D.
Earning of Performance Units/Shares
. After the applicable
Performance Period has ended, the holder of performance units/shares will be entitled to receive a payout of the number of performance units/shares earned by the Participant over the Performance Period, to be determined as a function of the extent
to which the corresponding performance objectives or other vesting provisions have been achieved. After the grant of a performance unit/share, the Plan Administrator, in its sole discretion, may reduce or waive any performance objectives or other
vesting provisions for such performance unit/share.
E.
Form and
Timing of Payment of Performance Units/Shares
. Payment of earned performance units/shares will be made as soon as practicable after the expiration of the applicable Performance Period. The Administrator, in its sole discretion, may pay earned
performance units/shares in the form of cash, in shares of Common Stock (which have an aggregate Fair Market Value equal to the value of the earned performance units/shares at the close of the applicable Performance Period) or in a combination
thereof.
F.
Cancellation of Performance Units/Shares
. On the
date set forth in the agreement evidencing the award, all unearned or unvested performance units/shares will be forfeited to the Corporation, and again will be available for grant under the Plan.
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II.
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CORPORATE TRANSACTION/CHANGE IN CONTROL
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A. All performance goals or other vesting criteria will be deemed achieved
at target levels and all other terms and conditions met with respect to performance shares and performance units in the event of any Corporate Transaction, except to the extent (i) those awards are assumed or an equivalent option or right
substituted by the successor corporation (or parent thereof) in connection with such Corporate Transaction or (ii) such accelerated vesting is precluded by other limitations imposed in the award Agreement.
B. The Plan Administrator shall have the discretionary
authority, exercisable either at the time the unvested awards are granted or any time while such awards remain unvested and outstanding
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under the Performance Share or Performance Unit Program, to provide that those awards shall immediately vest upon a Corporate Transaction or Change in Control or upon an event or events
associated with such transactions.
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ARTICLE SIX
AUTOMATIC AWARD PROGRAM
On August 17, 2000, the Board approved the following changes to the Automatic Award Program which became effective when approved
by the stockholders at the 2000 Annual Meeting: (i) reduced the number of shares of Common Stock for which option grants are to be made to new
non-employee
Board members under the Automatic Award Program
from 160,000 shares (as adjusted to reflect the two splits of the Common Stock which have occurred since the implementation of the Plan) to 40,000 shares and (ii) reduced the number of shares of Common Stock for which option grants are to be
made to continuing
non-employee
Board members under the Automatic Award Program from 40,000 shares (as adjusted to reflect the two splits of the Common Stock which have occurred since the implementation of the
Plan) to 15,000 shares.
On August 9, 2001, the Board approved the following changes to the Automatic Award Program which
became effective with stockholder approval at the 2001 Annual Meeting: (i) increase the number of shares of Common Stock for which option grants are to be made to new
non-employee
Board members under the
Automatic Award Program from 40,000 shares to 55,000 shares and (ii) modify the vesting schedule applicable to each such option grants from four (4) successive equal annual installments to the vesting of 25,000 shares after one
(1) year of Board service and the balance in three (3) successive equal annual installments thereafter.
On May 16,
2006, the Board approved the following changes to the Automatic Award Program which became effective with stockholder approval at the 2006 Annual Meeting: increase the number of shares of Common Stock for which option grants are to be made to
continuing
non-employee
Board members under the Automatic Award Program from 15,000 shares to 20,000 shares.
On July 13, 2007, the Board approved the following changes to the Automatic Award Program which became effective with stockholder
approval at the 2007 Annual Meeting: reduce the term of option grants under the Automatic Award Program from ten (10) years to seven (7) years.
On August 17, 2009, the Board approved the following changes to the Automatic Award Program which became effective with
stockholder approval at the 2009 Annual Meeting: amend the Automatic Award Program so that the Plan Administrator may institute a program whereby a
non-employee
Board member may elect to receive his or her
automatic equity grants in the form of all stock options or in a combination of stock options and restricted stock units. With this amendment, the title of this Article Six was changed from Automatic Option Grant Program to
Automatic Award Program and references in the Plan to the Automatic Option Grant Program were modified to reference the Automatic Award Program.
On July 14, 2011, the Board approved the following changes to the Automatic Award Program: amend the Automatic Award Program so
that
non-employee
Board members would receive equity grants under the Plan (in any form of award permitted under the Discretionary Option Grant, Stock Appreciation Rights, Stock Issuance and Performance Share
and Performance Unit Programs) pursuant to a compensation policy applicable to
non-employee
Board members as the Board or Primary Committee may determine from time to time.
On July 17, 2015, the Board approved the following changes to the Automatic Award Program: amend the Automatic Award Program to
include limits on the value of awards that any
non-employee
Board member may receive pursuant to the Automatic Award Program during any calendar year of the Corporation.
A.
Nonemployee Board Member Compensation Policy
. Each individual who
is or becomes a
non-employee
Board member on or after July 14, 2011 shall be granted equity awards pursuant to a
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compensation policy adopted by the Board or a Primary Committee, as in effect from time to time. Notwithstanding the foregoing, no
non-employee
Board
member participating in the Automatic Award Program may be granted, in any calendar year of the Corporation, awards (whether settled in cash or stock) with a grant date fair value (determined in accordance with U.S. generally accepted accounting
principles) of more than $1,000,000.
B.
Adjustments
. The Board
or a Primary Committee, in their respective discretion, may change and otherwise revise the terms of awards granted under the compensation policy for
non-employee
Board members for awards granted on or after
the date the Board or the Primary Committee determines to make any such change or revision. For purposes of clarification, the changes or other revisions the Board or the Primary Committee can make to the compensation policy include, but are not
limited to, the number of shares of Common Stock subject to the awards, the type of awards granted, and the vesting and other conditions of the awards.
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II.
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CORPORATE TRANSACTION/CHANGE IN CONTROL
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A. The shares of Common Stock subject to each outstanding option granted
under the Automatic Award Program at the time of a Corporate Transaction, but not otherwise vested, shall automatically vest in full so that each such option shall, immediately prior to the effective date of that Corporate Transaction, become fully
exercisable for all of the shares of Common Stock at the time subject to such option and may be exercised for all or any portion of those shares as fully-vested shares of Common Stock. Immediately following the consummation of the Corporate
Transaction, each such option grant shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof).
B. The shares of Common Stock subject to each outstanding option granted
under the Automatic Award Program at the time of a Change in Control, but not otherwise vested, shall automatically vest in full so that each such option shall, immediately prior to the effective date of that Change in Control, become fully
exercisable for all of the shares of Common Stock at the time subject to such option and may be exercised for all or any portion of those shares as fully-vested shares of Common Stock. Each such option shall remain exercisable for such fully-vested
shares until the expiration or sooner termination of the options term.
C. All repurchase rights of the Corporation outstanding under the Automatic
Award Program at the time of a Corporate Transaction or Change in Control shall automatically terminate at that time, and the shares of Common Stock subject to those terminated rights shall immediately vest.
D. Each option granted under the Automatic Award Program that is assumed in
connection with a Corporate Transaction shall be appropriately adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been issuable to the Optionee in consummation of such Corporate
Transaction had such option been exercised immediately prior to such Corporate Transaction. Appropriate adjustments to reflect such Corporate Transaction shall also be made to the exercise price payable per share under each such outstanding option,
provided the aggregate exercise price payable for such securities shall remain the same.
E. All vesting criteria relating to any outstanding restricted stock units
granted under the Automatic Award Program shall be deemed satisfied and all other terms and conditions met with respect to such awards in the event of any Corporate Transaction or a Change in Control.
F. The grant of awards under the Automatic Award Program shall in no way
affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets
A-22
The remaining terms of each award granted under the Automatic Award Program shall be the same as the terms in effect for same type of
awards made under the Discretionary Option Grant, Stock Appreciation Rights, Stock Issuance and Performance Share and Performance Unit Programs.
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ARTICLE SEVEN
MISCELLANEOUS
A. The Corporations obligation to deliver shares of Common Stock upon
the exercise or issuance of awards or vesting of such shares under the Plan shall be subject to the satisfaction of all applicable Federal, state and local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all holders
of unexercised or unvested awards under the Plan (other than the options granted or the shares issued under the Automatic Option Grant Program) with the right to use shares of Common Stock in satisfaction of all or part of the minimum Withholding
Taxes to which such holders become subject in connection with the exercise of their awards or the vesting or disposition of their shares issued pursuant thereto. Such right may be provided to any such holder in either or both of the following
formats:
(i)
Stock Withholding
: The
election to have the Corporation withhold, from the shares of Common Stock otherwise issuable upon the exercise of such award, the vesting or issuance of such shares or upon disposition of the shares, a portion of those shares with an aggregate Fair
Market Value equal to the percentage of the Withholding Taxes (not to exceed one hundred percent (100%) of the minimum amount required to be withheld) designated by the holder.
(ii)
Stock Delivery
: The election to deliver to
the Corporation, at the time the award is exercised, the shares vest or are otherwise issued or upon disposition of the shares, one or more shares of Common Stock previously acquired by such holder (other than in connection with the exercise of an
award or share vesting triggering the Withholding Taxes) with an aggregate Fair Market Value equal to the percentage of the Withholding Taxes (not to exceed one hundred percent (100%) of the minimum amount required to be withheld) designated by the
holder.
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II.
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EFFECTIVE DATE AND TERM OF THE PLAN
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The Plan became effective on the Plan Effective Date and shall remain in effect until the
earliest
of (i) August 16, 2019,
(ii) the date on which all shares available for issuance under the Plan shall have been issued or (iii) the termination of all outstanding awards in connection with a Corporate Transaction (unless the acquiror assumes the Plan in the
transaction). Upon such Plan termination, all outstanding awards and unvested shares issued pursuant to awards shall continue to have force and effect in accordance with the provisions of the documents evidencing such awards.
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III.
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AMENDMENT OF THE PLAN
|
A. The Board or the Primary Committee shall have complete and exclusive
power and authority to amend or modify the Plan in any or all respects, subject to any stockholder approval which may be required pursuant to applicable laws or regulations; provided, however, that the Board or the Primary Committee may not, without
stockholder approval, (i) increase the number of shares of Common Stock authorized for issuance under the Plan, or (ii) materially increase the benefits offered to participants under the 1999 Plan. No amendment or modification shall
adversely affect any rights and obligations with respect to awards at the time outstanding under the Plan unless the Optionee or Participant consents to such amendment or modification.
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B. The Plan was amended on
August 17, 2000, to increase the number of shares of Common Stock authorized for issuance under the Plan by an additional 15,000,000 shares. The amendment was approved by the stockholders at the 2000 Annual Meeting, and no option grants were
made on the basis of the
15,000,000-share
increase, until such stockholder approval was obtained.
C. The Plan was amended on August 9, 2001, to: (i) increase the
number of shares of Common Stock authorized for issuance under the Plan by an additional 13,400,000 shares, (ii) increase the number of shares of Common Stock for which option grants are to be made to newly elected or appointed
non-employee
Board members under the Automatic Option Grant Program from 40,000 shares to 55,000 shares and (iii) modify the vesting schedule applicable to such option grants from four (4) successive equal
annual installments to the vesting of 25,000 shares after one (1) year of Board service and the balance in three (3) successive equal annual installments. Such amendment was approved by the stockholders at the 2001 Annual Meeting, and no
options grants were made on the basis of the
13,400,000-share
increase or the amendments to the Automatic Option Grant Program until such stockholder approval was obtained.
D. The Plan was amended on July 2, 2002, to increase the number of
shares of Common Stock authorized for issuance under the Plan by an additional 14,000,000 shares. Such amendment was approved by the stockholders at the 2002 Annual Meeting, and no option grants were made on the basis of the
14,000,000-share
increase, until such stockholder approval was obtained.
E. The Plan was amended and restated on June 12, 2003, so that awards
under the Plan could qualify as performance based compensation under Section 162(m) of the Code. The stockholders approved the amended and restated Plan at the 2003 Annual Meeting.
F. The Plan was amended and restated on July 7, 2004, to
(i) increase the number of share of Common Stock authorized for issuance under the Plan by an additional 10,200,000, and (ii) to add the Stock Appreciation Rights and Performance Share and Performance Unit Programs. The stockholders
approved the amended and restated Plan at the 2004 Annual Meeting.
G. The Plan was amended on July 1, 2005, to increase the number of
shares of Common Stock authorized for issuance under the Plan by an additional 10,600,000 shares. Such amendment was approved by the stockholders at the 2005 Annual Meeting, and no awards were granted on the basis of the
10,600,000-share
increase, until such stockholder approval was obtained.
H. The Plan was amended on July 10, 2006, to (i) increase the
number of shares of Common Stock authorized for issuance under the Plan by an additional 10,900,000 shares, and (ii) increase the number of shares of Common Stock for which option grants are to be made to continuing
non-employee
Board members under the Automatic Option Grant Program from 15,000 shares to 20,000 shares. Such amendment was approved by the stockholders at the 2006 Annual Meeting, and no awards were granted on the
basis of the
10,900,000-share
increase, until such stockholder approval was obtained.
I. The Plan was amended on July 13, 2007, to (i) increase the
number of shares of Common Stock authorized for issuance under the Plan by an additional 7,200,000 shares, (ii) extend the term of the Plan by ten (10) years, (iii) provide that the number of shares subject to awards granted under the
Stock Issuance and Performance Share and Performance Unit Programs may not exceed more than thirty percent (30%) of the sum of (1) the number of shares of Common Stock added to the Plan at the 2007 Annual Meeting, (2) the number of shares
of Common Stock available to be granted pursuant to awards under the Plan as of May 25, 2007, and (3) the number of shares of Common Stock subject to outstanding awards as of May 25, 2007 that actually return to the Plan upon the
repurchase or reacquisition of unvested shares or that were subject to awards that terminated without any shares actually having been issued pursuant thereto, (iv) increase the initial value of performance units that a Participant may receive
during any calendar year from $1,000,000 to $2,000,000 and (v) decrease the maximum term of options granted under the Discretionary
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Option Grant Program and Automatic Option Grant Program and of stock appreciation rights granted under the Stock Appreciation Rights Program from ten (10) years to seven (7) years. Such
amendments were approved by the stockholders at the 2007 Annual Meeting, and no awards were granted on the basis of the
7,200,000-share
increase or the amendments to the Stock Issuance, Performance Share and
Performance Unit Programs, Discretionary Option Grant Program, Automatic Option Grant Program and Stock Appreciation Rights Program until such stockholder approval was obtained.
J. The Plan was amended on July 11, 2008, to (i) increase the
number of shares of Common Stock authorized for issuance under the Plan by an additional 6,600,000 shares, (ii) permit the Corporation to grant equity awards to the Corporations
non-employee
Board
members under all equity programs under the Plan and (iii) provide that the number of shares subject to awards granted under the Stock Issuance and Performance Share and Performance Unit Programs may not exceed more than thirty percent (30%) of
the sum of (1) the number of shares of Common Stock added to the Plan at the 2008 Annual Meeting, (2) the number of shares of Common Stock available to be granted pursuant to awards under the Plan as of May 23, 2008, and (3) the
number of shares of Common Stock subject to outstanding awards as of May 23, 2008. Such amendments were approved by the stockholders at the 2008 Annual Meeting, and no awards were granted on the basis of the
6,600,000-share
increase or the other amendments to the Plan until such stockholder approval was obtained.
K. Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant Program in excess of the number of shares then available for issuance under the Plan, provided any excess shares actually issued under such program are held in escrow until there is obtained stockholder approval of an
amendment sufficiently increasing the number of shares of Common Stock available for issuance under the Plan. If such stockholder approval is not obtained within twelve (12) months after the date the first such excess grants are made, then
(i) any unexercised options granted on the basis of such excess shares shall terminate and cease to be outstanding and (ii) the Corporation shall promptly refund to the Optionees the exercise price paid for any excess shares issued under
the Plan and held in escrow, together with interest (at the applicable Short Term Federal Rate) for the period the shares were held in escrow, and such shares shall thereupon be automatically cancelled and cease to be outstanding.
L. The Plan was amended on March 6, 2009, to provide for a
one-time
stock option exchange program, as described in the proxy statement pursuant to the Special Meeting of Stockholders held on April 21, 2009, under which certain outstanding options may be surrendered in
exchange for a lesser number of restricted stock units (or cash payment involving exchanges of a small number of surrendered options). Pursuant to the stock option exchange program, all of the shares underlying options surrendered in the option
exchange program were returned to the Plan and restricted stock unit grants made in connection with the stock option exchange program were made from such returned shares. After making the restricted stock unit grants in connection with the stock
option exchange program, the Plans share reserve was reduced such that, in effect, only 3,500,000 of the shares underlying the surrendered options were retained as available for future grant under the Plan, thereby reducing the number of
shares of Common Stock which may be issued over the term of the Plan from 101,100,000 shares to 89,330,429 shares.
M. The Plan was amended on August 17, 2009, to (i) approve an
amendment to the Automatic Award Program (formerly known as the Automatic Option Grant Program) so that the Plan Administrator may implement a program whereby a
non-employee
Board member may elect to receive
his or her automatic equity grants in the form of all stock options or in a combination of stock options and restricted stock units, and (ii) provide that the number of shares of Common Stock that may be issued pursuant to the Stock Issuance
and Performance Share or Performance Unit Programs equals 8,893,237 plus the sum of: (A) fifty percent (50%) of the number of shares subject to outstanding awards as of August 17, 2009 that actually return to the Plan pursuant to Article
One, Section V, Clause C, and (B) fifty percent (50%) of the number of shares of Common Stock that are added to the Plan upon approval of the Corporations stockholders after the 2009 Annual Meeting. Such amendments were approved by the
stockholders at the 2009 Annual Meeting, and no awards were granted based on the amendments to the Plan until such stockholder approval was obtained.
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N. The Plan was amended on
July 13, 2010, to increase the number of shares of Common Stock authorized for issuance under the Plan by an additional 7,000,000 shares. The stockholders approved such amendment at the 2010 Annual Meeting, and no awards were granted on the
basis of the
7,000,000-share
increase until such stockholder approval was obtained.
O. The Plan was amended on July 14, 2011, to (i) amend the
Automatic Award Program so that
non-employee
Board members would receive equity grants under the Plan (in any form of award permitted under the Discretionary Option Grant, Stock Appreciation Rights, Stock
Issuance and Performance Share and Performance Unit Programs) pursuant to a compensation policy applicable to
non-employee
Board members as the Board or Primary Committee may determine from time to time, and
(ii) to increase the number of shares of Common Stock authorized for issuance under the Plan by an additional 7,700,000 shares. The stockholders approved the share increase at the 2011 Annual Meeting, and no awards were granted on the basis of
the
7,700,000-share
increase until such stockholder approval was obtained.
P. The Plan was amended on July 18, 2012, to increase the number of
shares of Common Stock authorized for issuance under the Plan by an additional 7,350,000 shares. The stockholders approved such amendment at the 2012 Annual Meeting and no awards were granted on the basis of the
7,350,000-share
increase until such stockholder approval was obtained.
Q. The Plan was amended on July 22, 2013, (i) to increase the
number of shares of Common Stock that a Participant may receive during any calendar year pursuant to an award granted under the Stock Issuance Program from 200,000 to 1,000,000, and (ii) to increase the number of shares of Common Stock and the
initial value of an award that a Participant may receive during any calendar year pursuant to an award granted under the Performance Share and Performance Unit Program from 200,000 to 1,000,000 and from $2,000,000 to $5,000,000, respectively. The
stockholders approved such amendments at the 2013 Annual Meeting and no awards were granted on the basis of the amendments until such stockholder approval was obtained.
R. The Plan was amended on July 31, 2013, (i) to amend the Stock
Issuance and Performance Share and Performance Unit Programs such that the number of shares of Common Stock which may be issued under each such program will not be subject to a share limitation specific to that program, but will remain subject to
the limitations with respect to the number of shares of Common Stock which may be issued under the Plan pursuant to Article One, Section V of the Plan, (ii) to amend Article One Section V.A. of the Plan such that any shares subject to
awards granted under the Plan other than options to purchase shares of Common Stock or stock appreciation rights will be counted against the maximum number of shares of Common Stock which may be issued over the term of the Plan as two
(2) shares for every one (1) share subject thereto, (iii) to increase the number of shares of Common Stock authorized for issuance under the Plan by an additional 10,000,000 shares and (iv) amend the performance criteria that may
be used as a basis for establishing performance-based compensation under the 1999 Plan. The stockholders approved such amendments at the 2013 Annual Meeting and no awards were granted on the basis of the amendments until such stockholder approval
was obtained.
S. The Plan was amended on July 23, 2014, to
increase the number of shares of Common Stock authorized for issuance under the Plan by an additional 7,500,000 shares. The stockholders approved such amendment at the 2014 Annual Meeting and no awards were granted on the basis of the amendment
until such stockholder approval was obtained.
T. The Plan was amended
on July 17, 2015, (i) to clarify that all of the shares of Common Stock covered by an award of stock appreciation rights (that is, shares of Common Stock actually issued pursuant to a stock appreciation right, as well as the shares of Common
Stock that represent payment of the exercise price) shall cease to be available under the Plan, (ii) to amend the definition of Service under the Plan and (iii) to include limits on the value of awards that any
non-employee
Board member may receive during any
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calendar year of the Corporation. The Plan was amended on July 24, 2015 to increase the number of shares of Common Stock authorized for issuance under the Plan by an additional 15,500,000
shares. The stockholders approved such amendment at the 2015 Annual Meeting and no awards were granted on the basis of the amendment until such stockholder approval was obtained.
U. The Plan was amended on July 30, 2016, to increase the number of
shares of Common Stock authorized for issuance under the Plan by an additional 4,300,000 shares. The stockholders approved such amendment at the 2016 Annual Meeting and no awards were granted on the basis of the amendment until such stockholder
approval was obtained.
V. The Plan was amended on July 20, 2017,
to increase the number of shares of Common Stock authorized for issuance under the Plan by an additional 8,500,000 shares. The stockholders will be asked to approve the share increase at the 2017 Annual Meeting, and no awards will be granted on the
basis of the share increase until such stockholder approval is obtained.
A. The implementation of the Plan, the granting of any award under the Plan
and the issuance of any shares of Common Stock pursuant to an award shall be subject to the Corporations procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the awards granted under it
and the shares of Common Stock issued pursuant to it.
B. No shares of
Common Stock or other assets shall be issued or delivered under the Plan unless and until there shall have been compliance with all applicable requirements of Federal and state securities laws and all applicable listing requirements of any stock
exchange (or the Nasdaq National Market, if applicable) on which Common Stock is then listed for trading.
Any cash proceeds received by the Corporation from the sale of shares of Common Stock under the Plan shall be used for general
corporate purposes.
|
VI.
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NO EMPLOYMENT/SERVICE RIGHTS
|
Nothing in the Plan shall confer upon the Optionee or the Participant any right to continue in Service for any period of specific
duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining such person) or of the Optionee or the Participant, which rights are hereby expressly reserved by each, to
terminate such persons Service at any time for any reason, with or without cause.
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APPENDIX
The following definitions shall be in effect under the Plan:
A.
Annual Revenue
means, as to any Performance
Period, the Corporations or business units net sales.
B.
Automatic Award Program
shall mean the
automatic award program in effect under Article Six of the Plan.
C.
Board
shall mean the Corporations Board
of Directors.
D.
Cash Position
means, as to
any Performance Period, the Corporations level of cash and cash equivalents.
E.
Change in Control
shall mean a change in
ownership or control of the Corporation effected through either of the following transactions:
(i) the acquisition, directly
or indirectly, by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation), of beneficial ownership (within the meaning
of Rule
13d-3
of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporations outstanding securities pursuant to a tender or exchange offer
made directly to the Corporations stockholders, or
(ii) a change in the
composition of the Board over a period of
thirty-six
(36) consecutive months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to
be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board
members described in clause (A) who were still in office at the time the Board approved such election or nomination.
F.
Code
shall mean the Internal Revenue Code of
1986, as amended.
G.
Common Stock
shall mean
the Corporations common stock.
H.
Corporate
Transaction
shall mean either of the following stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation
in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporations outstanding securities are transferred to a person or persons different from the persons holding those securities immediately
prior to such transaction; or
(ii) the sale, transfer or
other disposition of all or substantially all of the Corporations assets in complete liquidation or dissolution of the Corporation.
I.
Corporation
shall mean NetApp, Inc., a Delaware
corporation, and any corporate successor to all or substantially all of the assets or voting stock of NetApp, Inc. which shall by appropriate action adopt the Plan.
A-A-1
J.
Determination Date
means the latest possible
date that will not jeopardize the qualification of an award granted under the Plan as performance-based compensation under Section 162(m) of the Code.
K.
Discretionary Option Grant Program
shall mean the discretionary option
grant program in effect under Article Two of the Plan.
L.
Earnings Per Share
means, as to any Performance
Period, the Corporations or a business units Net Income, divided by a weighted average number of common shares outstanding and dilutive common equivalent shares deemed outstanding.
M.
EBIT
means, as to any Performance
Period, income before taxes excluding depreciation and amortization.
N.
EBITDA
means, as to any Performance Period,
cash provided by operating activities less cash paid to purchase property and equipment.
O.
Employee
shall mean an individual who is in the
employ of the Corporation (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance.
P.
Exercise Date
shall mean the date on which the
Corporation shall have received written notice of the option exercise.
Q.
Fair Market Value
per share of Common Stock on
any relevant date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at
the time traded on the Nasdaq National Market, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question, as such price is reported by the National Association of Securities Dealers on the Nasdaq
National Market and published in
The Wall Street Journal
. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which
such quotation exists.
(ii) If the Common Stock is at
the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Common
Stock, as such price is officially quoted in the composite tape of transactions on such exchange and published in
The Wall Street Journal
. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for which such quotation exists.
(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 Plan Administrator.
R.
Free Cash Flow
means, as to any Performance
Period, cash provided by operating activities less cash paid to purchase property and equipment.
S.
Incentive Option
shall mean an option which
satisfies the requirements of Code Section 422.
A-A-2
T.
Individual
Objectives
means as to an Optionee or Participant for any Performance Period, the objective and measurable goals set by a process and approved by the Plan Administrator (in its discretion).
U.
Misconduct
shall mean the commission of any act
of fraud, embezzlement or dishonesty by the Optionee, any unauthorized use or disclosure by such person of confidential information or trade secrets of the Corporation (or any Parent or Subsidiary), or any other intentional misconduct by such person
adversely affecting the business or affairs of the Corporation (or any Parent or Subsidiary) in a material manner. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Corporation (or any Parent or
Subsidiary) may consider as grounds for the dismissal or discharge of any Optionee or other person in the Service of the Corporation (or any Parent or Subsidiary).
V.
1934 Act
shall mean the Securities Exchange Act
of 1934, as amended.
W.
Net Income
means, as
to any Performance Period, the Corporations or a business units income after taxes.
X.
Non-Statutory
Option
shall mean an option not intended to satisfy the requirements of Code Section 422.
Y.
Operating Cash Flow
means, as to any
Performance Period, the Corporations or a business units sum of Net Income plus depreciation and amortization less capital expenditures plus changes in working capital comprised of accounts receivable, inventories, other current assets,
trade accounts payable, accrued expenses, product warranty, advance payments from customers and long-term accrued expenses.
Z.
Operating Income
or
Operating
Profit
means, as to any Performance Period, the Corporations or a business units income from operations.
AA.
Optionee
shall mean any person to whom an option is granted
under the Plan.
BB.
Parent
shall mean any corporation (other
than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other corporations in such chain.
CC.
Participant
shall mean any person who is issued an award under
the Stock Appreciation Rights, Stock Issuance, or Performance Share and Performance Unit Programs.
DD.
Performance Goals
means the goal(s) (or combined goal(s))
determined by the Plan Administrator (in its discretion) to be applicable to an Optionee or Participant with respect to an award granted under the Plan (an Award). As determined by the Plan Administrator, the Performance Goals applicable
to an Award may provide for a targeted level or levels of achievement using one or more of the following measures: (a) Annual Revenue, (b) Cash Position, (c) Earnings Per Share, (d) EBIT, (e) EBITDA, (f) Free Cash Flow,
(g) Individual Objectives, (h) Net Income, (i) Operating Cash Flow, (j) Operating Income, (k) Operating Profit, (l) Return on Assets, (m) Return on Capital, (n) Return on Equity, (o) Return on Sales, and
(p) Total Stockholder Return. The Performance Goals may differ from Optionee to Optionee and from award to award. Prior to the Determination Date, the Plan Administrator shall determine whether any significant element(s) shall be included in or
excluded from the calculation of any Performance Goal with respect to any Optionee or Participant. For example (but not by way of limitation), the Plan Administrator may determine that the measures for one or more Performance Goals shall be based
upon the Corporations
pro-forma
results and/or results in accordance with generally accepted accounting principles.
A-A-3
EE.
Performance Period
means any fiscal year of the Corporation or such other period as determined by the Administrator in its sole discretion.
FF.
Performance Share and Performance Unit Program
shall mean the
performance share and performance unit program in effect under Article Five of the Plan.
GG.
Permanent Disability or Permanently Disabled
shall mean the
inability of the Optionee or the Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months
or more. However, solely for the purposes of the Automatic Option Grant Program, Permanent Disability or Permanently Disabled shall mean the inability of the
non-employee
Board member to perform his or her
usual duties as a Board member by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more.
HH.
Plan
shall mean the Corporations 1999 Stock Option Plan,
as set forth in this document.
II.
Plan Administrator
shall
mean the particular entity, whether the Primary Committee, the Board or the Secondary Committee, which is authorized to administer the Discretionary Option Grant, Stock Appreciation Rights, Stock Issuance and Performance Share and Performance Unit
Programs with respect to one or more classes of eligible persons, to the extent such entity is carrying out its administrative functions under such program with respect to the persons under its jurisdiction.
JJ.
Plan Effective Date
shall mean August 17, 1999, the date on
which the Board adopted the Plan.
KK.
Primary Committee
shall
mean the committee of two (2) or more
non-employee
Board members appointed by the Board to administer the Discretionary Option Grant Program with respect to Section 16 Insiders or to determine the
terms of, and otherwise administer, any compensation policy adopted by the Corporation for
non-employee
Board members.
LL.
Return on Assets
means, as to any Performance Period, the
percentage equal to the Corporations or a business units Operating Income before incentive compensation, divided by average net Corporation or business unit, as applicable, assets.
MM.
Return on Capital
means, as to any Performance Period, income
from operations less income taxes on operations divided by the sum of the book value of debt and the book value of equity less cash.
NN.
Return on Equity
means, as to any Performance Period, the
percentage equal to the Corporations Net Income divided by average stockholders equity.
OO.
Return on Sales
means, as to any Performance Period, the
percentage equal to the Corporations or a business units Operating Income before incentive compensation, divided by the Corporations or the business units, as applicable, revenue.
PP.
Secondary Committee
shall mean a committee of Board members or
of other individuals satisfying applicable laws appointed by the Board to administer the Discretionary Option Grant and Stock Issuance Programs with respect to eligible persons other than Section 16 Insiders.
QQ.
Section 16 Insider
shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the 1934 Act.
A-A-4
RR.
Service
shall mean
the provision of services to the Corporation (or any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee
member of the board of directors or a consultant or independent advisor,
except to the extent otherwise specifically provided in the documents evidencing the option grant or stock issuance. Service shall include any notice of termination period (e.g., garden leave, etc.) through the effective date of an Employees
termination of employment as set forth in the notice, whether or not the Employee is providing active services to the Corporation (or any Parent or Subsidiary) during the notice period.
SS.
Stock Appreciation Rights Program
shall mean the stock
appreciation rights program in effect under Article Three of the Plan.
TT.
Stock Exchange
shall mean either the American Stock Exchange or
the New York Stock Exchange.
UU.
Stock Issuance Agreement
shall
mean the agreement entered into by the Corporation and the Participant at the time of issuance of shares of Common Stock or the grant of restricted stock units under the Stock Issuance Program.
VV.
Stock Issuance Program
shall mean the stock issuance program in
effect under Article Four of the Plan.
WW.
Subsidiary
shall
mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock
possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
XX.
10% Stockholder
shall mean the owner of stock (as determined
under Code Section 424(d)) possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation (or any Parent or Subsidiary).
YY.
Total Stockholder Return
means as to any Performance Period, the
total return (change in share price plus reinvestment of any dividends) of a Share.
ZZ.
Withholding Taxes
shall mean the Federal, state and local income
and employment withholding taxes to which the holder of options or unvested shares of Common Stock becomes subject in connection with the exercise of those options, or the vesting of those shares or upon the disposition of shares acquired pursuant
to an option or stock issuance.
A-A-5
Appendix B
NETAPP, INC. EMPLOYEE STOCK PURCHASE PLAN
As Amended Effective July 17, 2017
I. PURPOSE OF THE PLAN
This
Employee Stock Purchase Plan is intended to promote the interests of NetApp, Inc. by providing eligible employees with the opportunity to acquire a proprietary interest in the Corporation through participation in a payroll-deduction based employee
stock purchase plan designed to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to such terms
in the attached Appendix.
Certain provisions of the Plan as restated August 2001 (the 2001 Restatement) became effective with the
offering period commencing December 3, 2001 and did not have any force or effect prior to such date.
All share numbers in this document
reflect (i) the two-for-one split of the Common Stock effected on December 19, 1997, (ii) the two-for-one split of the Common Stock effected on December 22, 1998, (iii) the two-for-one split of the Common Stock effected on
December 21, 1999, and (iv) the two-for-one split of the Common Stock effected on March 23, 2000.
II. ADMINISTRATION
OF THE PLAN
The Plan Administrator shall have full authority to interpret and construe any provision of the Plan and to adopt such rules and
regulations for administering the Plan as it may deem necessary in order to comply with the requirements of Code Section 423, including designating separate Offerings under the Plan. Without limiting the generality of the foregoing, the Plan
Administrator is specifically authorized to adopt rules and procedures regarding eligibility to participate, the determination of what compensation qualifies as Cash Earnings, handling of the payroll deductions and other additional payments that the
Corporation may permit to be made by a Participant to fund the exercise of purchase rights granted pursuant to the Plan, making of contributions to the Plan (including, without limitation, in forms other than payroll deductions), establishment of
bank or trust accounts to hold contributions, payment of interest, conversion of local currency, obligations to pay payroll tax, determination of beneficiary designation requirements, withholding procedures and handling of stock certificates that
vary with applicable local requirements. Further, without shareholder consent and without limiting Section X.A, the Plan Administrator shall be entitled to change the offering periods, designate separate Offerings, 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 Corporations 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 contribution amounts, and establish such other limitations or procedures as the Plan Administrator determines in its sole discretion advisable that are consistent with the
Plan.
Decisions of the Plan Administrator shall be final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A.
The stock purchasable under the Plan shall be shares of authorized but unissued or reacquired Common Stock, including shares of Common Stock purchased on the open market. The maximum number of
B-1
shares of Common Stock which may be issued over the term of the Plan shall not exceed Sixty Three Million Seven Hundred Thousand (63,700,000) shares, including (i) an increase of One
Million Six Hundred Thousand (1,600,000) shares authorized by the Board on August 11, 1998 and approved by the shareholders on October 8, 1998, (ii) an increase of One Million (1,000,000) shares authorized by the Board
on August 17, 1999 and approved by the shareholders on October 26, 1999, (iii) an increase of Three Million (3,000,000) shares authorized by the Board on August 9, 2001 and approved by the shareholders at the 2001 Annual
Meeting held on October 18, 2001, (iv) an increase of Two Million Four Hundred Thousand (2,400,000) shares authorized by the Board on July 2, 2002, and approved by the shareholders at the 2002 Annual Meeting held on
August 29, 2002, (v) an increase of One Million (1,000,000) shares authorized by the Board on June 12, 2003 and approved by shareholders at the 2003 Annual Meeting held on September 2, 2003, (vi) an increase of One
Million Three Hundred Thousand (1,300,000) shares authorized by the Board on July 7, 2004 and approved by the shareholders at the 2004 Annual Meeting held on September 2, 2004, (vii) an increase of One Million Five Hundred
Thousand (1,500,000) shares authorized by the Board on July 1, 2005 and approved by the shareholders at the 2005 Annual Meeting held on August 31, 2005, (viii) an increase of One Million Six Hundred Thousand
(1,600,000) shares authorized by the Board on July 10, 2006 and approved by the shareholders at the 2006 Annual Meeting held on August 31, 2006, (ix) an increase of One Million Six Hundred Thousand (1,600,000) shares
authorized by the Board on July 13, 2007 and approved by the shareholders at the 2007 Annual Meeting held on September 19, 2007, (x) an increase of Two Million Nine Hundred Thousand (2,900,000) shares authorized by the Board on
July 11, 2008 and approved by the shareholders at the 2008 Annual Meeting held on September 2, 2008, (xi) an increase of Six Million Seven Hundred Thousand (6,700,000) shares authorized by the Board on August 17, 2009 and
approved by the shareholders at the 2009 Annual Meeting held on October 14, 2009, (xii) an increase of Five Million (5,000,0000) shares authorized by the Board on July 13, 2010 and approved by the shareholders at the 2010 Annual
Meeting held on August 31, 2010, (xiii) an increase of Three Million Five Hundred Thousand (3,500,0000) shares authorized by the Board on July 14, 2011 and approved by the shareholders at the 2011 Annual Meeting held on
August 31, 2011, (xiv) an increase of Five Million (5,000,000) shares authorized by the Board on July 18, 2012 and approved by the shareholders at the 2012 Annual Meeting held on August 31, 2012, (xv) an increase of
Five Million (5,000,000) shares authorized by the Compensation Committee of the Board (pursuant to authority delegated by the Board) on July 31, 2013 and approved by the shareholders at the 2013 Annual Meeting held on September 13,
2013, (xvi) an increase of Five Million (5,000,000) shares authorized by the Board on July 23, 2014 and approved by the shareholders at the 2014 Annual Meeting held on September 5, 2014, (xvii) an increase of Five Million
(5,000,000) shares authorized by the Compensation Committee of the Board (pursuant to authority delegated by the Board) on July 24, 2015 and approved by the shareholders at the 2015 Annual Meeting held on September 11, 2015,
(xviii) an increase of Two Million Five Hundred Thousand (2,500,000) shares approved by the Board on July 30, 2016, pursuant to a recommendation by the Boards Compensation Committee and approved by the shareholders at the 2016
Annual Meeting held on September 15, 2016, plus (xix) an increase of Two Million Five Hundred Thousand (2,500,000) shares approved by the Board on July 17, 2017.
B. Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without the Corporations receipt of consideration, appropriate adjustments shall be made to (i) the maximum number and class of securities issuable under the Plan,
(ii) the maximum number and class of securities purchasable per Participant on any one Purchase Date, (iii) the maximum number and class of securities purchasable in total by all Participants on any one Purchase Date under the Plan and
(iv) the number and class of securities and the price per share in effect under each outstanding purchase right in order to prevent the dilution or enlargement of benefits thereunder.
B-2
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under the Plan through a series of overlapping offering periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan shall have been purchased or (ii) the Plan shall have been sooner terminated.
B. Each offering period shall be of such duration (not to exceed twenty-four (24) months) as determined by the Plan Administrator prior to the
start date of such offering period. Offering periods shall commence at semi-annual intervals on the first business day of June and December each year over the remaining term of the Plan. Accordingly, two (2) separate offering periods shall
commence in each calendar year the 2001 Restatement remains in existence. However, the initial offering period under the 2001 Restatement shall begin on the first business day in December 2001 and end on the last business day in November 2003.
NOTE
: Prior to December 3, 2001, shares of Common Stock were offered for purchase under the Plan through a series of successive
offering periods, each with a maximum duration of twenty-four (24) months. The last such offering period began on the first business day in December 1999 and terminated on November 30, 2001.
C. Each offering period shall be comprised of a series of one or more successive Purchase Intervals. Purchase Intervals shall run from the first
business day in June each year to the last business day in November of the same year and from the first business day in December each year to the last business day in May of the following year.
D. Should the Fair Market Value per share of Common Stock on any Purchase Date within any offering period beginning on or after December 3, 2001 be
less than the Fair Market Value per share of Common Stock on the start date of that offering period, then the individuals participating in such offering period shall, immediately after the purchase of shares of Common Stock on their behalf on such
Purchase Date, be transferred from that offering period and automatically enrolled in the next offering period commencing after such Purchase Date.
V. ELIGIBILITY
A. Each
individual who is an Eligible Employee on the start date of any offering period under the Plan may enter that offering period on such start date (subject to the provisions of Section V.B); provided, however, that the Plan Administrator, in its
discretion, from time to time may, prior to a start date of any offering period for all purchase rights for future offering periods, establish (on a uniform and nondiscriminatory basis) waiting periods for participation in future offering periods of
not more than two (2) years from the participants date of hire. However, an Eligible Employee may participate in only one offering period at a time. Employees who are citizens or residents of a non-U.S. jurisdiction may be excluded from
participation in the Plan or an Offering if the participation of such employees is prohibited under the laws of the applicable jurisdiction or if complying with the laws of the applicable jurisdiction would cause the Plan or an Offering to violate
Section 423 of the Code.
B. Except as otherwise provided in Section IV.D, an Eligible Employee must, in order to participate in the Plan
for a particular offering period, complete an on-line enrollment process in a uniform and non-discriminatory basis prescribed by the Plan Administrator or complete the enrollment forms prescribed by the Plan Administrator (including a stock purchase
agreement and a payroll deduction authorization form) and file such forms with the Plan Administrator (or its designate) on or before the seventh (7th) business day prior to the start date of the applicable offering period or the date
established by the Plan Administrator on or prior to that offering period in a uniform and non-discriminatory basis.
B-3
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for purposes of acquiring shares of Common Stock during an offering period may be any multiple of
one percent (1%) of the Cash Earnings paid to the Participant during each Purchase Interval within that offering period, up to a maximum of ten percent (10%). The deduction rate so authorized by a Participant shall continue in effect throughout
the offering period, except to the extent such rate is changed in accordance with the following guidelines:
(i) The Participant
may, at any time during the offering period, reduce his or her rate of payroll deduction to become effective as soon as possible after filing the appropriate form with the Plan Administrator. The Participant may not, however, effect more than one
(1) such reduction per Purchase Interval.
(ii) The Participant may, prior to the commencement of any new Purchase Interval
within the offering period, increase the rate of his or her payroll deduction by filing the appropriate form with the Plan Administrator. The new rate (which may not exceed the ten percent (10%) maximum) shall become effective as of the start
date of the first Purchase Interval following the filing of such form.
B. Payroll deductions on behalf of the Participant shall begin on the first
pay day following the start date of the offering period in which he or she is enrolled and shall (unless sooner terminated by the Participant) continue through the pay day ending with or immediately prior to the last day of that offering period. The
amounts so collected shall be credited to the Participants book account under the Plan, but no interest shall be paid on the balance from time to time outstanding in such account, except as may be required by applicable law, as determined by
the Corporation, and if so required, will apply to all Participants in the relevant Offering, except to the extent otherwise permitted by U.S. Treasury Regulation Section 1.423-2(f). The amounts collected from the Participant shall not be held
in any segregated account or trust fund and may be commingled with the general assets of the Corporation and used for general corporate purposes, except under Offerings in which applicable local law requires that amounts collected from the
Participants be segregated from the Corporations general corporate funds and/or deposited with an independent third party for Participants in non-U.S. jurisdictions.
C. Payroll deductions shall automatically cease upon the Participants withdrawal from the offering period or the termination of his or her
purchase right in accordance with the provisions of the Plan.
D. The Participants acquisition of Common Stock under the Plan on any Purchase
Date shall neither limit nor require the Participants acquisition of Common Stock on any subsequent Purchase Date, whether within the same or a different offering period.
E. The Plan Administrator shall have the discretion, exercisable prior to the start date of any offering period under the Plan, to determine whether the
payroll deductions authorized by Participants during such offering period shall be calculated as a percentage of Base Salary or Cash Earnings.
VII. PURCHASE RIGHTS
A.
Grant
of Purchase Right.
A Participant shall be granted a separate purchase right for each offering period in which he or she is enrolled. The purchase right shall be granted on the start date of the offering period and shall provide the Participant
with the right to purchase shares of Common Stock, in a series of successive installments during that offering period, upon the terms set forth below. The Participant shall execute a stock purchase agreement embodying such terms and such other
provisions (not inconsistent with the Plan) as the Plan Administrator may deem advisable. For purposes of the Plan, the Plan Administrator may designate separate Offerings under the Plan (the terms of which need not be identical) in which Eligible
Employees will participate, even if the dates of the applicable offering periods of each such Offering are identical.
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Under no circumstances shall purchase rights be granted under the Plan to any Eligible Employee if such
individual would, immediately after the grant, own (within the meaning of Code Section 424(d)) or hold outstanding options or other rights to purchase, stock possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Corporation or any Corporate Affiliate.
B.
Exercise of the Purchase Right.
Each purchase right shall be
automatically exercised in installments on each successive Purchase Date within the offering period, and shares of Common Stock shall accordingly be purchased on behalf of each Participant on each such Purchase Date. The purchase shall be affected
by applying the Participants payroll deductions for the Purchase Interval ending on such Purchase Date to the purchase of whole shares of Common Stock at the purchase price in effect for the Participant for that Purchase Date.
C.
Purchase Price.
The purchase price per share at which Common Stock will be purchased on the Participants behalf on each Purchase Date
within the particular offering period in which he or she is enrolled shall be equal to eighty-five percent (85%) of the lower of (i) the Fair Market Value per share of Common Stock on the start date of that offering period or (ii) the
Fair Market Value per share of Common Stock on that Purchase Date.
D.
Number of Purchasable Shares.
The number of shares of Common Stock
purchasable by a Participant on each Purchase Date during the particular offering period in which he or she is enrolled shall be the number of whole shares obtained by dividing the amount collected from the Participant through payroll deductions
during the Purchase Interval ending with that Purchase Date by the purchase price in effect for the Participant for that Purchase Date. However, the maximum number of shares of Common Stock purchasable per Participant on any one Purchase Date shall
not exceed One Thousand Five Hundred (1,500) shares, subject to periodic adjustments in the event of certain changes in the Corporations capitalization. However, the Plan Administrator shall have the discretionary authority, exercisable
prior to the start of any offering period under the Plan, to increase or decrease, or implement, the limitations to be in effect for the number of shares purchasable per Participant and in total by all Participants enrolled in that particular
offering period on each Purchase Date which occurs during that offering period.
E.
Excess Payroll Deductions.
Any payroll deductions not
applied to the purchase of shares of Common Stock on any Purchase Date because they are not sufficient to purchase a whole share of Common Stock shall be promptly refunded to Participant after each Purchase Date.
F.
Suspension of Payroll Deductions.
In the event that a Participant is, by reason of the accrual limitations in Article VIII, precluded
from purchasing additional shares of Common Stock on one or more Purchase Dates during the offering period in which he or she is enrolled, then no further payroll deductions shall be collected from such Participant with respect to those Purchase
Dates. The suspension of such deductions shall not terminate the Participants purchase right for the offering period in which he or she is enrolled, and payroll deductions shall automatically resume on behalf of such Participant once he or she
is again able to purchase shares during that offering period in compliance with the accrual limitations of Article VIII.
G.
Withdrawal from
Offering Period.
The following provisions shall govern the Participants withdrawal from an offering period under the Plan:
(i) A Participant may withdraw from the offering period in which he or she is enrolled by completing an on-line withdrawal process in a
uniform and non-discriminatory basis prescribed by the Plan Administrator or by filing the appropriate form with the Plan Administrator (or its designate) at any time on or before the seventh
(7
th
) business day prior to the next scheduled Purchase Date in the offering period (unless such timing restriction is prohibited under the laws of the applicable jurisdiction), and no
further payroll deductions shall be collected from the Participant with respect to that offering period; provided, however, that the Plan Administrator, in its discretion, from time to time may, prior to a start date of any offering period for all
purchase rights for future offering periods, establish (on a uniform and
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nondiscriminatory basis) a different date for effective withdrawals from the Plan. Any payroll deductions collected during the Purchase Interval in which such timely withdrawal occurs shall be
refunded as soon as possible and no shares will be purchased on behalf of such Participant on the next Purchase Date, and if such withdrawal is not timely made, and subject to the laws of the applicable jurisdiction, any payroll deductions collected
during the Purchase Interval will be used to purchase shares on the next Purchase Date on behalf of such Participant.
(ii) The
Participants withdrawal from the offering period shall be irrevocable, and the Participant may not subsequently rejoin that offering period. In order to resume participation in any subsequent offering period, such individual must re-enroll in
the Plan (by completing an on-line enrollment process in a manner prescribed by the Plan Administrator or by making a timely filing of the prescribed enrollment forms) on or before the seventh
(7
th
) business day prior to the start date of the applicable offering period or the date determined by the Plan Administrator pursuant to Section V of that offering period.
H.
Termination of Eligible Employee Status.
Should the Participant cease to remain an Eligible Employee for any reason (including death,
disability or change in status) while his or her purchase right remains outstanding, then that purchase right shall immediately terminate, and all of the Participants payroll deductions for the Purchase Interval in which the purchase right so
terminates shall be immediately refunded. A Participants purchase right shall not terminate during any notice of termination period (e.g., garden leave, etc.) through the effective date of the Participants termination of employment as
set forth in the notice, whether or not the Participant is providing active service to the Corporation. However, should the Participant cease to remain in active service by reason of an approved unpaid leave of absence, then the Participant shall
have the right, exercisable up until the seventh (7
th
) business day prior to the Purchase Interval in which such leave commences (unless such timing restriction is prohibited under the laws
of the applicable jurisdiction), to withdraw all the payroll deductions collected to date on his or her behalf for that Purchase Interval. In no event, however, shall any further payroll deductions be collected on the Participants behalf
during such leave; provided, however, that payroll deductions on the Participants behalf may be collected for amounts paid during such leave for services rendered by the Participant prior to his or her leave. Upon the Participants return
to active service (i) within three (3) months following the commencement of such leave or (ii) prior to the expiration of any longer period for which such Participants right to reemployment with the Corporation is guaranteed by
either statute or contract, his or her payroll deductions under the Plan shall automatically resume at the rate in effect at the time the leave began, unless the Participant withdraws from the Plan prior to his or her return. An individual who
returns to active employment following a leave of absence which exceeds in duration the applicable time period shall be treated as a new Employee for purposes of subsequent participation in the Plan and must accordingly re-enroll in the Plan (by
completing an on-line enrollment process in a manner prescribed by the Plan Administrator or making a timely filing of the prescribed enrollment forms) on or before the seventh (7
th
) business
day prior to the start date of the applicable offering period or the date determined by the Plan Administrator pursuant to Section V of any offering period in which he or she wishes to participate.
I.
Change in Control.
Each outstanding purchase right shall automatically be exercised, immediately prior to the effective date of any Change in
Control, by applying the payroll deductions of each Participant for the Purchase Interval in which such Change in Control occurs to the purchase of whole shares of Common Stock at a purchase price per share equal to eighty-five percent (85%) of
the lower of (i) the Fair Market Value per share of Common Stock on the start date of the offering period in which the Participant is enrolled at the time of such Change in Control or (ii) the Fair Market Value per share of Common Stock
immediately prior to the effective date of such Change in Control. However, the applicable limitation on the number of shares of Common Stock purchasable per Participant shall continue to apply to any such purchase, but not the limitation applicable
to the maximum number of shares of Common Stock purchasable in total by all Participants on any one Purchase Date.
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The Corporation shall use its best efforts to provide at least ten (10) days prior written notice of
the occurrence of any Change in Control, and Participants shall, following the receipt of such notice, have the right to terminate their outstanding purchase rights prior to the effective date of the Change in Control.
J.
Proration of Purchase Rights.
Should the total number of shares of Common Stock to be purchased pursuant to outstanding purchase rights on any
particular date exceed either (i) the maximum limitation on the number of shares purchasable in total by all Participants on such date or (ii) the number of shares then available for issuance under the Plan, the Plan Administrator shall
make a pro-rata allocation of the available shares on a uniform and nondiscriminatory basis, and the payroll deductions of each Participant, to the extent in excess of the aggregate purchase price payable for the Common Stock pro-rated to such
individual, shall be refunded.
K.
Assignability.
The purchase right shall be exercisable only by the Participant and shall not be assignable
or transferable by the Participant.
L.
Shareholder Rights.
A Participant shall have no shareholder rights with respect to the shares subject
to his or her outstanding purchase right until the shares are purchased on the Participants behalf in accordance with the provisions of the Plan and the Participant has become a holder of record of the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No
Participant shall be entitled to accrue rights to acquire Common Stock pursuant to any purchase right outstanding under this Plan if and to the extent such accrual, when aggregated with (i) rights to purchase Common Stock accrued under any
other purchase right granted under this Plan and (ii) similar rights accrued under other employee stock purchase plans (within the meaning of Code Section 423) of the Corporation or any Corporate Affiliate, would otherwise permit such
Participant to purchase more than Twenty-Five Thousand Dollars ($25,000) worth of stock of the Corporation or any Corporate Affiliate (determined on the basis of the Fair Market Value per share on the date or dates such rights are granted) for each
calendar year such rights are at any time outstanding.
B. For purposes of applying such accrual limitations to the purchase rights granted under
the Plan, the following provisions shall be in effect:
(i) The right to acquire Common Stock under each outstanding purchase right
shall accrue in a series of installments on each successive Purchase Date during the offering period in which such right remains outstanding.
(ii) No right to acquire Common Stock under any outstanding purchase right shall accrue to the extent the Participant has already accrued
in the same calendar year the right to acquire Common Stock under one (1) or more other purchase rights at a rate equal to Twenty-Five Thousand Dollars ($25,000) worth of Common Stock (determined on the basis of the Fair Market Value per share
on the date or dates of grant) for each calendar year such rights were at any time outstanding.
C. If by reason of such accrual limitations, any
purchase right of a Participant does not accrue for a particular Purchase Interval, then the payroll deductions which the Participant made during that Purchase Interval with respect to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions of this Article and one or more provisions of the Plan or any instrument issued thereunder,
the provisions of this Article shall be controlling.
IX
.
EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on September 26, 1995 and was subsequently approved by the shareholders and became effective at the Effective
Time.
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B. The Plan was amended by the Board on August 11, 1998 (the 1998 Amendment) to increase
the maximum number of shares of Common Stock authorized for issuance under the Plan by an additional One Million Six Hundred Thousand (1,600,000) shares. The 1998 Amendment was approved by the shareholders at the 1998 Annual Meeting.
C. On August 17, 1999, the Board amended the Plan to (i) increase the maximum number of shares of Common Stock authorized for issuance under
the Plan by an additional One Million (1,000,000) shares and (ii) make amendments to certain administrative provisions of the Plan (the 1999 Amendment). The 1999 Amendment was approved by the shareholders on October 26,
1999.
D. The 2001 Restatement was adopted by the Board on August 9, 2001 and effects the following changes to the Plan: (i) increase the
number of shares authorized for issuance under the Plan by an additional Three Million (3,000,000) shares, (ii) implement a series of overlapping twenty-four (24)-month offering periods beginning at semi-annual intervals each year,
(iii) establish a series of semi-annual purchase dates within each such offering period, (iv) reduce the maximum number of shares of Common Stock purchasable per Participant on any one Purchase Date after November 30, 2001 from Twelve
Thousand (12,000) shares to One Thousand Five Hundred (1,500) shares, (v) limit the number of shares of Common Stock purchasable in total by all Participants on any one Purchase Date after November 30, 2001 to One Million
(1,000,000) shares, (vi) extend the maximum term of the Plan until the last business day in May 2011 and (vii) revise certain provisions of the Plan document in order to facilitate the administration of the Plan. No purchase rights
were exercised under the Plan, and no shares of Common Stock were issued, on the basis of the 3,000,000-share increase authorized by the 2001 Restatement, until the 2001 Restatement was approved by the shareholders at the 2001 Annual Stockholders
Meeting.
E. The Plan was amended by the Board on July 2, 2002 (the 2002 Restatement) to increase the number of shares authorized
for issuance under the Plan by an additional Two Million Four Hundred Thousand (2,400,000) shares. The 2002 Restatement was approved by the shareholders on August 29, 2002.
F. The Plan was amended by the Board on June 12, 2003 (the 2003 Restatement) to increase the number of shares authorized for issuance
under the Plan by an additional One Million (1,000,000) shares. The 2003 Restatement was approved by the shareholders at the 2003 Annual Meeting.
G. The Plan was amended by the Board on July 7, 2004 (the 2004 Restatement) to increase the number of shares authorized for issuance
under the Plan by an additional One Million Three Hundred Thousand (1,300,000) shares. The 2004 Restatement was approved by the shareholders at the 2004 Annual Meeting.
H. The Plan was amended by the Board on July 1, 2005 (the 2005 Restatement) to increase the number of shares authorized for issuance
under the Plan by an additional One Million Five Hundred Thousand (1,500,000) shares. The 2005 Restatement was approved by the shareholders at the 2005 Annual Meeting.
I. The Plan was amended by the Board on July 10, 2006 (the 2006 Restatement) to increase the number of shares authorized for issuance
under the Plan by an additional One Million Six Hundred Thousand (1,600,000) shares. The 2006 Restatement was approved by the shareholders at the 2006 Annual Meeting.
J. The Plan was amended by the Board on July 13, 2007 (the 2007 Restatement) to increase the number of shares authorized for issuance
under the Plan by an additional One Million Six Hundred Thousand (1,600,000) shares. The 2007 Restatement was approved by the shareholders at the 2007 Annual Meeting. The Plan was amended by the Boards Compensation Committee on
November 28, 2007 to limit the number of shares of Common Stock purchasable in total by all Participants on any one Purchase Date to One Million Five Hundred Thousand (1,500,000) shares.
K. The Plan was amended by the Boards Compensation Committee on May 23, 2008 to remove the limitation on the maximum number of shares of
Common Stock purchasable in total by all Participants on any one Purchase Date.
B-8
L. The Plan was amended by the Board on July 11, 2008 (the 2008 Restatement) to increase
the number of shares authorized for issuance under the Plan by an additional Two Million Nine Hundred Thousand (2,900,000) shares. The 2008 Restatement was approved by the shareholders at the 2008 Annual Meeting.
M. The Plan was amended by the Board on August 17, 2009 (the 2009 Restatement) to increase the number of shares authorized for issuance
under the Plan by an additional Six Million Seven Hundred Thousand (6,700,000) shares. The 2009 Restatement was approved by shareholders at the 2009 Annual Meeting.
N. The Plan was amended by the Board on July 13, 2010 (the 2010 Restatement) to increase the number of shares authorized for issuance
under the Plan by an additional Five Million (5,000,000) shares, to revise the eligibility requirements and to remove the Plans fixed-term expiration date. The 2010 Restatement was approved by shareholders at the 2010 Annual Meeting.
O. The Plan was amended by the Board on July 14, 2011 (the 2011 Restatement) to increase the number of shares authorized for issuance
under the Plan by an additional Three Million Five Hundred Thousand (3,500,000) shares. The 2011 Restatement was approved by shareholders at the 2011 Annual Meeting.
P. The Plan was amended by the Board on July 18, 2012 (the 2012 Restatement) to increase the number of shares authorized for issuance
under the Plan by an additional Five Million (5,000,000) shares. The 2012 Restatement was approved by the shareholders at the 2012 Annual Meeting.
Q. The Plan was amended by the Boards Compensation Committee on April 16, 2013 to make administrative changes relating to the timing of
enrollment and withdrawal from the Plan and the ability to suspend participation in the Plan.
R. The Plan was amended by the Boards
Compensation Committee on July 31, 2013 (pursuant to authority delegated by the Board) (the 2013 Restatement) to increase the number of shares authorized for issuance under the Plan by an additional Five Million
(5,000,000) shares. The 2013 Restatement was approved by the shareholders at the 2013 Annual Meeting.
S. The Plan was amended by the
Boards Compensation Committee on June 26, 2014 to refund contributions not used to purchase whole shares on each Purchase Date to Participants instead of retaining contributions for purchasing shares on the following Purchase Date. The
Plan was amended by the Board on July 23, 2014 (the 2014 Restatement) to increase the number of shares authorized for issuance under the Plan by an additional Five Million (5,000,000) shares. The 2014 Restatement was approved
by the shareholders at the 2014 Annual Meeting.
T. The Plan was amended by the Board on July 17, 2015 to clarify the termination provisions
relating to purchase rights. The Plan was amended by the Boards Compensation Committee (pursuant to authority delegated by the Board) on July 24, 2015 (the 2015 Restatement) to increase the number of shares authorized for
issuance under the Plan by an additional Five Million (5,000,000) shares. The 2015 Restatement was approved by the shareholders at the 2015 Annual Meeting.
U. The Plan was amended by the Board, pursuant to a recommendation by the Boards Compensation Committee, on July 30, 2016 (the 2016
Restatement) to increase the number of shares authorized for issuance under the Plan by an additional Two Million Five Hundred Thousand (2,500,000) shares. The 2016 Restatement was approved by the shareholders at the 2016 Annual Meeting.
V. The Plan was amended by the Board on July 17, 2017 (the 2017 Restatement) to increase the number of shares authorized for
issuance under the Plan by an additional Two Million Five Hundred Thousand (2,500,000) shares. The 2017 Restatement was approved by the shareholders at the 2017 Annual Meeting.
B-9
W. The Corporation shall comply with all applicable requirements of the 1933 Act (including the
registration of such additional shares of Common Stock issuable under the Plan on a Form S-8 registration statement filed with the Securities and Exchange Commission), all applicable listing requirements of the Nasdaq National Market with
respect to those shares, and all other applicable requirements established by law or regulation.
X. Unless sooner terminated by the Board, the Plan
shall terminate upon the earliest of (i) the date on which all shares available for issuance under the Plan shall have been sold pursuant to purchase rights exercised under the Plan or (ii) the date on which all purchase rights are
exercised in connection with a Change in Control. No further purchase rights shall be granted or exercised, and no further payroll deductions shall be collected, under the Plan following such termination.
X. AMENDMENT OF THE PLAN
A. The
Board may alter, amend, suspend, terminate or discontinue the Plan at any time to become effective immediately following the close of any Purchase Interval. 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 Corporation shall obtain shareholder approval in such a manner and to such a degree as required. However, the Plan may be amended or terminated immediately upon Board
action, if and to the extent necessary to assure that the Corporation will not recognize, for financial reporting purposes, any compensation expense in connection with the shares of Common Stock offered for purchase under the Plan, should the
financial accounting rules applicable to the Plan at the Effective Time be subsequently revised so as to require the recognition of compensation expense in the absence of such amendment or termination.
XI. GENERAL PROVISIONS
A. All
costs and expenses incurred in the administration of the Plan shall be paid by the Corporation; however, each Plan Participant shall bear all costs and expenses incurred by such individual in the sale or other disposition of any shares purchased
under the Plan.
B. Nothing in the Plan shall confer upon the Participant any right to continue in the employ of the Corporation or any Corporate
Affiliate for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Corporate Affiliate employing such person) or of the Participant, which rights are hereby expressly reserved by
each, to terminate such persons employment at any time for any reason, with or without cause.
C. The provisions of the Plan shall be governed
by the laws of the State of California without resort to that States conflict-of-laws rules.
Schedule A
Corporations Participating in Employee Stock Purchase Plan
As of July 13, 2010
The Corporation and its Corporate
Affiliates (other than Corporate Affiliates located in the Peoples Republic of China) are designated as Participating Corporations in the Plan, unless the Plan Administrator (or its delegate) determines otherwise.
B-10
APPENDIX
The following definitions shall be in effect under the Plan:
A.
Base Salary
shall mean the regular base salary paid to a Participant by one or more Participating Companies during such individuals
period of participation in one or more offering periods under the Plan. Such Base Salary shall be calculated before deduction of (A) any income or employment tax withholdings or (B) any pre-tax contributions made by the Participant to any
Code Section 401(k) salary deferral plan or any Code Section 125 cafeteria benefit program now or hereafter established by the Corporation or any Corporate Affiliate. The following items of compensation shall
not
be included in Base
Salary: (i) all overtime payments, bonuses, commissions (other than those functioning as base salary equivalents), profit-sharing distributions and other incentive-type payments and (ii) any and all contributions (other than Code
Section 401(k) or Code Section 125 contributions) made on the Participants behalf by the Corporation or any Corporate Affiliate under any employee benefit or welfare plan now or hereafter established.
B.
Board
shall mean the Corporations Board of Directors.
C.
Cash Earnings
shall mean the (i) base salary payable to a Participant by one or more Participating Companies during such
individuals period of participation in one or more offering periods under the Plan plus (ii) all overtime payments, bonuses, commissions, current profit-sharing distributions and other incentive-type payments received during such period.
Such Cash Earnings shall be calculated before deduction of (A) any income or employment tax withholdings or (B) any pre-tax contributions made by the Participant to any Code Section 401(k) salary deferral plan or any Code
Section 125 cafeteria benefit program now or hereafter established by the Corporation or any Corporate Affiliate. However, Cash Earnings shall
not
include any contributions (other than Code Section 401(k) or Code Section 125
contributions deducted from such Cash Earnings) made by the Corporation or any Corporate Affiliate on the Participants behalf to any employee benefit or welfare plan now or hereafter established.
D.
Change in Control
shall mean a change in ownership or control of the Corporation effected through any of the following transactions:
(i) a merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of
the Corporations outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction,
(ii) the sale, transfer or other disposition of all or substantially all of the assets of the Corporation in complete liquidation or
dissolution of the Corporation; or
(iii) the acquisition, directly or indirectly by any person or related group of persons (other
than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporations outstanding securities pursuant to a tender or exchange offer made directly to the Corporations shareholders.
E.
Code
shall mean the Internal Revenue Code of 1986, as amended.
F.
Common Stock
shall mean the Corporations common stock.
G.
Corporate Affiliate
shall mean any parent or subsidiary corporation of the Corporation (as determined in accordance with Code
Section 424), whether now existing or subsequently established.
H.
Corporation
shall mean NetApp, Inc., a Delaware corporation, and any
corporate successor to all or substantially all of the assets or voting stock of NetApp, Inc. which shall by appropriate action adopt the Plan.
B-B-1
I.
Effective Time
shall mean the time at which the underwriting agreement for the Corporations
initial public offering of the Common Stock was executed and finally priced. Any Corporate Affiliate which becomes a Participating Corporation after such Effective Time shall designate a subsequent Effective Time with respect to its
employee-Participants.
J.
Eligible Employee
shall mean any person who is employed by a Participating Company on a basis under which he or
she is regularly expected to render more than twenty (20) hours of service per week for more than five (5) months per calendar year for earnings considered wages under Code Section 3401(a), or any lesser number of hours per week
and/or number of months in any calendar year established by the Plan Administrator (if required under applicable local law) for purposes of any separate Offering.
K.
Fair Market Value
per share of Common Stock on any relevant date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is reported by the National Association of Securities Dealers on the Nasdaq National Market or any successor system and published in The Wall Street Journal. If there is no
closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange
and published in The Wall Street Journal. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value
shall be the closing selling price on the last preceding date for which such quotation exists.
L.
1933 Act
shall mean the Securities Act of
1933, as amended.
M.
Offering
means an offer under the Plan of a purchase right that may be exercised during an offering period as further
described in Section VII. For purposes of the Plan, the Plan Administrator may designate separate Offerings under the Plan (the terms of which need not be identical) in which Eligible Employees will participate, even if the dates of the applicable
offering periods of each such Offering are identical.
N.
Participant
shall mean any Eligible Employee of a Participating Corporation who is
actively participating in the Plan
O.
Participating Corporation
shall mean the Corporation and such Corporate Affiliate or Affiliates as may
be authorized from time to time by the Board to extend the benefits of the Plan to their Eligible Employees. The Participating Corporations in the Plan as of July 2, 2002 are listed in attached Schedule A.
P.
Plan
shall mean the Corporations Employee Stock Purchase Plan, as set forth in this document.
Q.
Plan Administrator
shall mean the committee of two (2) or more Board members appointed by the Board to administer the Plan.
R.
Purchase Date
shall mean the last business day of each Purchase Interval.
S.
Purchase Interval
shall mean each successive six (6)-month period within the offering period at the end of which there shall be purchased
shares of Common Stock on behalf of each Participant.
T.
Stock Exchange
shall mean either the American Stock Exchange or the New York Stock
Exchange.
B-B-2
COMPUTERSHARE C/O NETAPP, INC.2 NORTH LASALLE STREET, 3RD FLOORCHICAGO, IL 60602VOTE BY INTERNETwww.proxyvote.comUse
the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Time the day before the
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PHONE1-800-690-6903Use
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cut-off
date or
meeting date. Have your proxy card in hand when you call and then follow the instructions.VOTE BY MAILMark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51
Mercedes Way, Edgewood, NY 11717.TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:E31785-P96704KEEP THIS PORTION FOR YOUR RECORDSTHIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLYNETAPP, INC.The Board
of Directors unanimously recommends a vote FOR each of the nominees named in proposal 1.1. Election of Directors Nominees: 1a. T. Michael Nevens 1b. Alan L. Earhart 1c. Gerald Held 1d. Kathryn M. Hill 1e. George Kurian 1f. George T. Shaheen 1g.
Stephen M. Smith 1h. Richard P. WallaceThe Board of Directors unanimously recommends a vote FOR proposals 2, 3, 4 and 6 and 1 YEAR on proposal 5.2. To approve an amendment to NetApps Amended and Restated 1999 Stock Option Plan to increase the
share reserve by an additional 8,500,000 shares of common stock.For Against Abstain3. To approve an amendment to NetApps Employee Stock Purchase Plan to increase the share reserve by an additional 2,500,000 shares of common stock.4. To hold an
advisory vote to approve Named Executive Of?cer compensation.For Against Abstain1 Year 2 Years 3 Years Abstain5. To hold an advisory vote to approve the frequency of future advisory votes on Named Executive Of?cer compensation.For Against Abstain6.
To ratify the appointment of Deloitte & Touche LLP as NetApps independent registered public accounting ?rm for the ?scal year ending April 27, 2018.The Board of Directors unanimously recommends a vote AGAINST proposal 7.7. To
approve a stockholder proposal requesting the preparation of an annual diversity report.The Board of Directors makes no recommendation on proposal 8.8. To approve a stockholder proposal requesting the adoption of proxy access.Please sign exactly as
your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other ?duciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in
full corporate or partnership name by authorized of?cer.Signature [PLEASE SIGN WITHIN BOX] DateSignature (Joint Owners) Date
Important
Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be Held on September 14, 2017: The Notice and Proxy Statement, Form
10-K
and Shareholder Letter are available at
www.proxyvote.com.E31786-P96704NETAPP, INC.Annual Meeting of Stockholders September 14, 2017This Proxy Is Solicited On Behalf Of The Board Of DirectorsGeorge Kurian and Ronald J. Pasek, or either of them, are hereby appointed as the lawful
agents and proxies of the undersigned (with all powers the undersigned would possess if personally present, including full power of substitution) to represent and to vote all shares of the common stock of NetApp, Inc. (NetApp) that the
undersigned is entitled to vote at NetApps Annual Meeting of Stockholders to be held on September 14, 2017, at 3:30 p.m. Paci?c Time and at any adjournments or postponements thereof (the Stockholder Meeting). The Stockholder
Meeting will be held at NetApps headquarters, 495 East Java Drive, Sunnyvale, California 94089. This proxy will be voted as directed, or, if no direction is indicated, will be voted FOR the election of each of the nominees named in proposal 1,
FOR proposals 2, 3, 4 and 6, for EVERY YEAR on proposal 5, AGAINST proposal 7, ABSTAIN on proposal 8, and in the discretion of the persons named above as proxies upon such other matters as may properly come before the Stockholder Meeting. This proxy
may be revoked at any time before it is voted. PLEASE VOTE PROMPTLY BY USING THE TELEPHONE OR INTERNET VOTING OPTIONS OR SIGN, DATE AND RETURN THIS CARD USING THE ENCLOSED POSTAGE-PREPAID ENVELOPE. (Continued and to be signed on reverse side)