Extreme Networks DEF 14A 2016
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant x Filed by a Party other than the Registrant ¨
Check the appropriate box:
October 5, 2016
You are cordially invited to attend the 2016 Annual Meeting of Stockholders of Extreme Networks, Inc. to be held on Friday, November 18, 2016 at 8:00 a.m. Pacific Standard Time at our corporate headquarters located at 145 Rio Robles, San Jose, California 95134.
Details of business to be conducted at the Annual Meeting are described in the Notice of Annual Meeting of Stockholders and Proxy Statement. Accompanying this Proxy Statement is the Companys 2016 Annual Report to Stockholders.
We are pleased to take advantage of Securities and Exchange Commission rules that allow companies to furnish proxy materials to stockholders over the Internet. We believe these rules allow us to provide our stockholders with the information they need, while lowering the costs of delivery and reducing the environmental impact of the Annual Meeting. On or about October 5, 2016, you were provided with a Notice of Internet Availability of Proxy Materials (Notice) and provided access to our proxy materials over the Internet. The Notice also provides instructions on how to vote online or by telephone and includes instructions on how to receive a paper copy of the proxy materials by mail.
Whether or not you plan to attend our Annual Meeting, you can ensure that your shares are represented at the meeting by promptly voting and submitting your proxy by telephone, by Internet or, if you have received a paper copy of your proxy materials by mail, by completing, signing, dating and returning your proxy card in the envelope provided.
If you have any further questions concerning the Annual Meeting or any of the proposals, please contact our Investor Relations department at (408) 579-3483. We look forward to your attendance at the Annual Meeting.
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the Annual Meeting of Stockholders, we urge you to vote and submit your proxy by telephone, the Internet or by mail in order to ensure the presence of a quorum. If you attend the meeting and do not hold your shares through an account with a brokerage firm, bank or other nominee, you will have the right to revoke the proxy and vote your shares in person. If you hold your shares through an account with a brokerage firm, bank or other nominee, please follow the instructions you receive from them to vote your shares and revoke your vote, if necessary.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held November 18, 2016
TO THE STOCKHOLDERS:
Notice is hereby given that the 2016 Annual Meeting of Stockholders of Extreme Networks, Inc. will be held on Friday, November 18, 2016 at 8:00 a.m. Pacific Standard Time at our corporate headquarters located at 145 Rio Robles, San Jose, California, 95134 in order to:
Our Board of Directors recommends a vote FOR each of the nominees in Item 1 and FOR Items 2, 3, 4, 5, and 6. Stockholders of record at the close of business on September 23, 2016 are entitled to notice of, and to vote at, this meeting and any adjournment or postponement thereof. Commencing ten days prior to the meeting, a complete list of stockholders entitled to attend and vote at the meeting will be available for review by any stockholder during normal business hours at our headquarters located at 145 Rio Robles, San Jose, California 95134.
San Jose, California
October 5, 2016
YOUR VOTE IS IMPORTANT: Please vote your shares via telephone or the Internet, as described in the accompanying materials, to assure that your shares are represented at the meeting, or, if you received a paper copy of the proxy card by mail, you may mark, sign and date the proxy card and return it in the enclosed postage-paid envelope. If you attend the meeting, you may choose to vote in person even if you have previously voted your shares.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON NOVEMBER 18, 2016: This Proxy Statement and the financial and other information concerning Extreme Networks contained in our Annual Report to Stockholders for the fiscal year ended June 30, 2016 are available on the Internet and may be viewed at www.proxyvote.com, where you may also cast your vote.
TO THE PROXY STATEMENT
EXTREME NETWORKS, INC.
Our Board of Directors, or our Board, is soliciting your proxy for the 2016 Annual Meeting of Stockholders to be held on Friday, November 18, 2016, or at any postponements or adjournments of the meeting, for the purposes set forth in the accompanying Notice of Annual Meeting of Stockholders. This proxy statement and related materials are first being made available to stockholders on or about October 5, 2016. References in this proxy statement to the Company, we, our, us and Extreme Networks are to Extreme Networks, Inc., and references to the Annual Meeting are to the 2016 Annual Meeting of Stockholders. When we refer to the Companys fiscal year, we mean the annual period ending on June 30. This proxy statement covers our 2016 fiscal year, which was from July 1, 2015 through June 30, 2016 (fiscal 2016).
Who May Vote, Record Date, Admission to Meeting
Only holders of record of the Companys common stock at the close of business on September 23, 2016 (the Record Date) will be entitled to notice of, and to vote at, the meeting and any adjournment thereof. As of the Record Date, 106,776,097 shares of common stock were outstanding and entitled to vote. You are entitled to one vote for each share you hold.
You are entitled to attend the Annual Meeting if you were a stockholder of record or a beneficial owner of our common stock as of the Record Date, or if you hold a valid legal proxy for the Annual Meeting. To request a legal proxy, please follow the instructions at www.proxyvote.com or request a paper copy of the materials, which will contain the appropriate instructions.
If you are a stockholder of record, you may be asked to present valid picture identification, such as a drivers license or passport, for admission to the Annual Meeting.
If your shares are registered in the name of a broker, bank or other nominee, you may be asked to provide proof of beneficial ownership as of the Record Date, such as a brokerage account statement or voting instruction form provided by your record holder, or other similar evidence of ownership, as well as picture identification, for admission. If you wish to be able to vote in person at the Annual Meeting, you must obtain a legal proxy from your broker, bank or other nominee and present it to the inspector of elections together with your ballot at the Annual Meeting.
If you do not provide picture identification and comply with the other procedures outlined above, you may not be admitted to the Annual Meeting. We recommend that you arrive early to ensure that you are seated by the commencement of the Annual Meeting.
A broker non-vote occurs when a broker submits a proxy card with respect to shares held in a fiduciary capacity (typically referred to as being held in street name), but cannot vote on a particular matter because the broker has not received voting instructions from the beneficial owner. Under the rules that govern brokers who are voting with respect to such shares, brokers have the discretion to vote such shares on routine matters, but not on non-routine matters. Routine matters include the ratification of selection of auditors and approval of pro rata stock splits. Non-routine matters include the election of directors and amendments to or the adoption of stock plans.
Our bylaws provide that a majority of the shares of our common stock issued and outstanding and entitled to vote at the meeting as of the Record Date must be represented at the meeting, either in person or by proxy, to constitute a quorum for the transaction of business at the meeting, except to the extent that the presence of a larger number may be required by law. Your shares will be counted towards the quorum only if you submit a valid proxy, if your broker, banker or other nominee submits a proxy on your behalf, or if you vote in person at the meeting. Abstentions and broker non-votes will be counted as present for purposes of determining the presence of a quorum.
Notice and Access Model
The SECs proxy rules set forth how companies must provide proxy materials. These rules are often referred to as notice and access. Under the notice and access model, a company may select either of the following options for making proxy materials available to stockholders: (i) the full set delivery option; or (ii) the notice only option. A company may use a single method for all its stockholders, or use the full set delivery option for some stockholders and the notice only option for others.
Under the full set delivery option a company delivers all proxy materials to its stockholders by mail or, if a stockholder has previously agreed, electronically. In addition to delivering proxy materials to stockholders, the company must post all proxy materials on a publicly-accessible web site (other than the SECs web site) and provide information to stockholders about how to access that web site and the hosted materials. Under the notice only option, instead of delivering its proxy materials to stockholders, the company delivers a Notice of Internet Availability of Proxy Materials that outlines (i) information regarding the date and time of the meeting of stockholders, as well as the items to be considered at the meeting; (ii) information regarding the web site where the proxy materials are posted; and (iii) various means by which a stockholder can request printed or emailed copies of the proxy materials.
In connection with our 2016 Annual Meeting, we have elected to use the notice only option. Accordingly, you should have received a notice by mail, unless you requested a full set of materials from prior mailings, instructing you how to access proxy materials at www.proxyvote.com and providing you with a control number you can use to vote your shares. You may request that the Company also deliver to you printed or emailed copies of the proxy materials.
All shares represented by a valid proxy, timely submitted to the Company, will be voted. Where a proxy specifies a stockholders choice with respect to any matter to be acted upon, the shares will be voted in accordance with that specification. If no choice is indicated on the proxy, the shares will be voted in favor of the proposal. If your shares are registered under your own name, you may revoke your proxy at any time before the Annual Meeting by (i) delivering to the Corporate Secretary at the Companys headquarters either a written instrument revoking the proxy or a duly executed proxy with a later date, or (ii) attending the Annual Meeting and voting in person. If you hold shares in street name, through a broker, bank or other nominee, you must contact the broker, bank or other nominee to revoke your proxy.
Vote Required to Adopt Proposals
The holder of each share of the Companys common stock outstanding on the Record Date is entitled to one vote on each of the director nominees and one vote on each other matter. The director nominees who receive the highest number of For votes will be elected as directors. All other matters shall be determined by a majority of the votes cast affirmatively or negatively on the matter.
Effect of Abstentions and Broker Non-Votes
Shares not present at the meeting, shares that abstain from voting and shares voted Withhold will have no effect on the election of directors. For each of the other proposals, abstentions will have the same effect as a vote
against the proposal. If you are a beneficial owner and hold your shares in street name, it is critical that you cast your vote if you want it to count in the election of directors and with respect to the other proposals included in this proxy. The rules governing brokers, banks and other nominees who are voting with respect to shares held in street name provide such nominees the discretion to vote on routine matters, but not on non-routine matters. Routine matters to be addressed at the Annual Meeting include the ratification of auditors. Non-routine matters include the election of directors, the advisory votes on the extension of the term of our rights plan and on our executive compensation, and the approval of the amendment and restatement of our equity plan. Banks and brokers may not vote on these non-routine matters if you do not provide specific voting instructions. Accordingly, we encourage you to vote promptly, even if you plan to attend the Annual Meeting.
If you complete and submit your proxy card or the voting instruction card provided by your broker, bank or other nominee, the persons named as proxies will follow your instructions. If you do not direct how to vote on a proposal, the persons named as proxies will vote as the Board recommends on that proposal. Depending on how you hold your shares, you may vote in one of the following ways:
Stockholders of Record: You may vote by proxy, over the Internet or by telephone. Please follow the instructions provided in the Notice of Internet Availability of Proxy Materials or on the proxy card you received. You may also vote in person at the Annual Meeting.
Beneficial Stockholders: Your broker, bank or other nominee will provide you with a voting instruction card for your use in instructing it how to vote your shares. Since you are not the stockholder of record, you may not vote your shares in person at the Annual Meeting unless you request and obtain a valid proxy from your broker, bank or other nominee, or by requesting one on www.proxyvote.com.
Votes submitted by telephone or via the Internet must be received by 11:59 p.m., Eastern Standard Time, on November 17, 2016. Submitting your proxy by telephone or via the Internet will not affect your right to vote in person should you decide to attend the Annual Meeting.
If you are a stockholder of record, you may revoke your proxy and change your vote at any time before the polls close by returning a later-dated proxy card, by voting again by Internet or telephone as more fully detailed on your proxy card, or by delivering written instructions to the Corporate Secretary at the Companys headquarters before the Annual Meeting. Attendance at the Annual Meeting will not cause your previously voted proxy to be revoked unless you specifically request revocation or vote in person at the Annual Meeting. If your shares are held by a broker, bank or other nominee, you may change your vote by submitting new voting instructions to your broker, bank or other nominee in accordance with the nominees directions, or, if you have obtained a legal proxy from your broker, bank or other nominee giving you the right to vote your shares, by attending the Annual Meeting and voting in person.
Solicitation of Proxies
We will bear the entire cost of soliciting proxies. In addition to soliciting stockholders by mail, we will request banks, brokers and other intermediaries holding shares of our common stock beneficially owned by others to obtain proxies from the beneficial owners and will reimburse them for their reasonable expenses in so doing. We may use the services of our officers, directors and other employees to solicit proxies, personally or by telephone, without additional compensation. The Company has engaged Okapi Partners to assist in the solicitation of proxies and provide related advice and informational support for a services fee and the reimbursement of customary disbursements that are not expected to exceed $13,000 in the aggregate.
We will announce preliminary voting results at the Annual Meeting. We will report final results in a Current Report on Form 8-K filed with the SEC within four business days of the Annual Meeting.
ELECTION OF DIRECTORS
The terms of our current directors expire upon the election and qualification of the directors to be elected at the 2016 Annual Meeting. The Board has nominated seven persons for election at the Annual Meeting to serve until the 2017 Annual Meeting of Stockholders and until their successors are duly elected and qualified. Our Boards nominees for election at the 2016 Annual Meeting are Edward B. Meyercord, John H. Kispert, Charles Carinalli, Kathleen M. Holmgren, Raj Khanna, Edward H. Kennedy, and John C. Shoemaker, all of whom are presently directors of Extreme Networks.
Please see below under the heading Board of Directors for information concerning the nominees. If elected, each nominee will serve as a director until the Annual Meeting of stockholders in 2017 and until his or her successor is elected and qualified, or until his or her earlier resignation or removal.
Each nominee has indicated to us that he or she will serve if elected. As of the date of this Proxy Statement, the Board is not aware of any nominee who is unable or who will decline to serve as a director. However, if a nominee declines to serve or becomes unavailable for any reason, the proxies may be voted for a substitute nominee designated by the Nominating and Corporate Governance Committee or our Board.
Vote Required and Board of Directors Recommendation
The persons receiving the highest number of votes represented by outstanding shares of common stock present or represented by proxy and entitled to vote at the 2016 Annual Meeting will be elected to the Board, provided a quorum is present. Votes For, votes to Withhold authority and Broker Non-Votes will each be counted as present for purposes of determining the presence of a quorum, but broker non-votes will have no effect on the outcome of the election. If you sign and return a proxy card without giving specific voting instructions as to the election of any director, your shares will be voted in favor of the nominees recommended by our Board.
OUR BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE NOMINEES NAMED ABOVE.
BOARD OF DIRECTORS
The following table provides biographical information for each nominee to our Board of Directors.
There are no family relationships among any of our directors or executive officers.
The biography of each of our director nominees below contains information regarding the persons service as a director, business experience, other director positions held currently or at any time during the last five years, information regarding involvement in certain legal or administrative proceedings, and the experiences, qualifications, attributes or skills that caused the Nominating and Corporate Governance Committee and our Board to determine that the person should serve as a director.
Nominees for Election at 2016 Annual Meeting
Edward B. Meyercord. Mr. Meyercord has served as our President and Chief Executive Officer since April 2015. Mr. Meyercord joined our Board of Directors as an independent director in October 2009 and served as Chairman from March 2011 until August 2015. Prior to assuming his operating role at Extreme Networks in April 2015, Mr. Meyercord was Chief Executive Officer and Director at Critical Alert Systems, LLC, a privately held software-driven, healthcare information technology company that he co-founded in July 2010 and where he continues to serve on the board of directors. Prior to that, Mr. Meyercord served as Chief Executive Officer, President and Director of Cavalier Telephone, LLC, a privately held voice, video and data services company, from 2006 to 2009. He served as Chief Executive Officer, President and Director of Talk America Holdings, Inc., a publicly traded company that provided phone and internet services to consumers and small businesses throughout the United States, from 1996 to 2006. Earlier in his career, Mr. Meyercord served as a Vice President in the investment banking division of Salomon Brothers Inc. (now part of Citigroup, Inc.), a Wall Street investment bank, from 1993 to 1996. He also served on the board of Tollgrade Communications, Inc., a then publicly traded telecommunications company, from August 2009 to May 2011. Mr. Meyercord holds a B.A. in economics from Trinity College in Hartford, CT, and a M.B.A. from the Stern School of Business at New York University.
Mr. Meyercord brings to the Board his extensive executive experience in corporate finance, risk assessment and management. His background in the telecommunications industry provides our Board with valuable industry expertise in one of our key markets. Also, the Board believes it is valuable to have the Companys Chief Executive Officer serve on the board to bring in-depth perspective on the Companys current operations, strategy, financial condition and competitive position.
John H. Kispert. Mr. Kispert has served as our Chairman of the Board since August 2015 and has served as one of our directors since May 2009. Currently, he is a Managing Partner at Black Diamond Ventures, which he joined in March 2016. Mr. Kispert previously served as President and Chief Executive Officer of Spansion, Inc., a publicly traded provider of flash memory products, from February 2009 until March 2015, when Spansion merged with Cypress Semiconductor Corporation, a publicly traded semiconductor company. Spansion filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in March 2009 and emerged from
bankruptcy in May of 2010, during Mr. Kisperts tenure. From 1995 to January 2009, Mr. Kispert held various executive management positions at KLA-Tencor Corporation, a publicly traded capital equipment company, including President and Chief Operating Officer, Executive Vice President and Chief Financial Officer, and Vice President, Finance and Accounting. Prior to KLA-Tencor, Mr. Kispert served in a number of positions with IBM Corporation, a publicly traded information technology company, from 1989 to 1995. Mr. Kispert currently serves on the boards of Gigamon Inc., a publicly traded network visibility solutions provider, where he has served since December 2013; TriNet Group, Inc., a publicly traded cloud-based HR solutions provider, where he has served since May 2014 and serves on the compensation committee; and Barracuda Networks, Inc., a publicly traded provider of cloud-enabled security and data protection solutions, where he has served since August 2016 and serves on the audit committee. Mr. Kispert served on the board of Cypress Semiconductor Corporation from March 2015 to May 2016, and on the board of Spansion, Inc. from February 2009 to March 2015, prior to its merger with Cypress Semiconductor Corporation. Mr. Kispert is on the Board of Trustees of Grinnell College. Mr. Kispert holds a B.A. in political science from Grinnell College and a M.B.A. from the University of California, Los Angeles
Mr. Kispert brings to the Board his extensive management and leadership experience, and provides our Board with technology, leadership and financial expertise that aids our Board in understanding corporate needs and strategic opportunities.
Charles P. Carinalli. Mr. Carinalli has served as one of our directors since October 1996. Mr. Carinalli has been a Principal of Carinalli Ventures since January 2002. From 1999 to May 2002, Mr. Carinalli was Chief Executive Officer and a director of Adaptive Silicon, Inc., a privately held developer of semiconductor products. From November 2000 to November 2001, Mr. Carinalli served as Chairman of Clearwater Communications, Inc., a privately held telecommunications company. From December 1996 to July 1999, Mr. Carinalli served as President, Chief Executive Officer and a director of WaveSpan Corporation, a developer of wireless broadband access systems until the company was acquired by Proxim, Inc., a broadband wireless networking systems company. From 1970 to 1996, Mr. Carinalli served in various positions at National Semiconductor Corporation, a publicly traded semiconductor company that developed and sold analog-based semiconductor and integrated communication products, most recently serving as Senior Vice President and Chief Technical Officer. Mr. Carinalli has served on the board of directors of Fairchild Semiconductor International, Inc., a publicly traded semiconductor company, since February 2002 and has served as a member of its nominating and governance and compensation committees, since 2005. He also is a member of the board of directors of various privately held companies. Mr. Carinalli formerly served on the board of directors of Atmel Corporation, a publicly traded semiconductor company, from February 2008 until its acquisition by Microchip Technology Incorporated, a publicly traded semiconductor company, in April 2016. Mr. Carinalli holds a B.S. in electrical engineering from the University of California, Berkeley and a M.S. in electrical engineering from Santa Clara University.
Mr. Carinalli brings to the Board extensive engineering and engineering management expertise, as well as general management expertise and technology expertise, which aids our Board in understanding product development, engineering management and strategic planning, as well as risk assessment and planning.
Kathleen M. Holmgren. Ms. Holmgren has served as one of our directors since November 2015. Ms. Holmgren currently serves on the Board of Directors and as the Chief Officer, Future Workforce at Automation Anywhere, Inc., a privately held developer of robotic process automation and testing software, which she joined as Chief Operating Officer in 2013. Since 2008, Ms. Holmgren has served as a Principal at Sage Advice Partners, a management consulting firm specializing in the high-tech and green-tech markets, and, since October 2009, she has served as a director at the Alliance of Chief Executives, LLC, an organization for chief executives. Ms. Holmgren served as President and Chief Executive Officer of Mendocino Software, a privately held enterprise-class application data developer, from November 2007 to March 2008. Prior to November 2007, Ms. Holmgren spent over 20 years at Sun Microsystems, Inc., a publicly held enterprise software company acquired by Oracle Corporation in 2010, where she held increasingly senior roles, culminating in Senior Vice President, Storage Systems. Ms. Holmgren is a member of the board of Group Delphi, a private
design and media production company, where she has served since July 2014. Ms. Holmgren holds a B.S. in Industrial Engineering from California Polytechnic State University, where she is a member of the Deans Advisory Board, and a M.B.A from the Stanford Graduate School of Business.
Ms. Holmgren brings to the Board her knowledge and expertise in executive leadership in the storage, computer systems, enterprise software and management consulting industries, and provides expertise in operations, strategic planning and risk assessment and planning.
Edward H. Kennedy. Mr. Kennedy has served as one of our directors since April 2011. Since June 2010, Mr. Kennedy has served as the Chief Executive Officer and President of Tollgrade Communications, Inc., a publicly traded company subsequently acquired by private equity in April 2011. Mr. Kennedy previously served as the Chief Executive Officer and President of Rivulet Communications, Inc., a medical video networking company, from 2007 until it was acquired by NDS Surgical Imaging, LLC, a medical imaging and informatics systems company, in 2010. He also previously served as President of Tellabs North American Operations, an optical network technology company, and as Executive Vice President of Tellabs, Inc. from 2002 to 2004. Mr. Kennedy co-founded Ocular Networks, Inc., a provider of optical networking technologies, in 1999 and served as its Chief Executive Officer and President until it was sold to Tellabs, Inc. in 2002. He has also held various executive positions at several telecommunications equipment companies, including Alcatel-Lucent S.A. (previously Alcatel Data Network), a publicly traded French global telecommunications equipment company, and Newbridge Networks Corporation, a then publicly traded Canadian digital networking equipment company. Mr. Kennedy was also a Venture Partner at Columbia Capital, a private equity investment firm, from 2005 to 2007, where he advised regarding investments into new and existing portfolio companies. He previously served as a director of Visual Networks, Inc., a publicly traded network and performance management solutions provider, from 2002 until it was acquired by Fluke Electronic Corporation, an electronic test tools and software company, in 2006. He currently serves of the board of directors of Avizia, Inc. and Gridwise Alliance, Inc., each of which is privately held, as well on the Board of Trustees of Flint Hill School and as an Executive Parent Board of Villanova University. Mr. Kennedy holds a B.S. in electrical engineering from the Virginia Polytechnic Institute and State University.
Mr. Kennedy brings to the Board his extensive financial and executive leadership experience in technology companies, including networking companies, and provides management and financial expertise to our Board.
Raj Khanna. Mr. Khanna has served as one of our directors since December 2014. Since 2012, Mr. Khanna has served as an independent consultant, assisting companies with finance and internal audit issues. From 2004 to 2011, Mr. Khanna served as Vice President of Corporate Audit at Qualcomm, Inc., a publicly traded semiconductor company. Prior to Qualcomm, Mr. Khanna held various finance roles at Sun Microsystems, Inc., from 1991 to 2004, including International Controller, Vice President Finance for Global Services Business and Senior Director of Finance for Strategic Business Units, and at Xerox Corporation, a provider of document management technology and services, from 1974 to 1991. Mr. Khanna holds a B. Tech in mechanical engineering from the Indian Institute of Technology and a M.B.A. from the University of Rochester, New York.
Mr. Khanna brings to the Board his extensive experience leading finance and internal audit teams, including the establishment of financial controls and processes, delivering financial investment and M&A guidance, and providing strategic advice and direction regarding business model changes.
John C. Shoemaker. Mr. Shoemaker has served as one of our directors since October 2007. He currently serves as a consultant to the high technology industry and also serves as a mentor to corporate executives. From 1990 to June 2004, Mr. Shoemaker held various executive management positions at Sun Microsystems, Inc., including serving as Executive Vice President, Worldwide Operations Organizations and as Executive Vice President, and General Manager for its Computer Systems Division. Mr. Shoemaker previously served in a
number of senior executive positions with the Xerox Corporation, a provider of document management technology and services, including as Senior Vice President, World Wide Marketing. Mr. Shoemaker served as a director of Altera Corporation, a publicly traded provider of programmable logic solutions, from 2007 until it was acquired by Intel Corporation, a publicly traded semiconductor company, in December 2015. Mr. Shoemaker holds a B.A. in political science and business administration from Hanover College, where he currently is on the Board of Trustees, and a M.B.A. from Indiana Universitys Kelley School of Business, where he is a member of the School of Business Deans Advisory Council, the IT Advisory Council, and the Johnson Center for Entrepreneurship Board.
Mr. Shoemaker brings to the Board his extensive executive experience in senior level management positions in the technology industry, particularly in hardware systems, and provides strong operational, management and financial expertise to our Board.
Arrangements Regarding Appointment of Directors
None of our directors are appointed pursuant to any arrangement with the Company. Pursuant to the offer letter between the Company and Mr. Meyercord respecting his employment, Mr. Meyercord must immediately resign as a director of the Board when his employment with the Company terminates.
Our Board currently consists of seven directors. Our Board has reviewed the criteria for determining the independence of the Companys directors under NASDAQ Rule 5605, Item 407(a) of Regulation S-K of the Securities Exchange Act of 1934, as amended (the Exchange Act) and the Companys Corporate Governance Guidelines. It has affirmatively determined that, other than Mr. Meyercord, each member of our Board is independent under such criteria. The Board has determined that as of the date of this Proxy Statement the Board is comprised of a majority of directors who qualify under the rules adopted by the SEC and NASDAQ, as supplemented by the Companys Corporate Governance Guidelines.
Directors to be elected at the 2016 Annual Meeting are to hold office until the 2017 Annual Meeting and until their respective successors are elected and qualified.
Board and Leadership Structure
Our current leadership structure separates the roles of the Chief Executive Officer and the Chairman of our Board. Mr. Kispert has served as the Independent Chairman of our Board since August 2015, replacing Mr. Meyercord who was appointed as our President and Chief Executive Officer in April 2015. While our bylaws and Corporate Governance Guidelines do not require that the Chairman of our Board and Chief Executive Officer positions be separate, our Board believes that separating these positions is the appropriate leadership structure for us at this time and results in an effective balancing of responsibilities, experience and independent perspective to meet the current corporate governance needs and oversight responsibilities of our Board. Separating these positions allows our Chief Executive Officer to focus on setting our strategic direction and overseeing our day-to-day leadership and performance, while allowing the Chairman of our Board to lead our Board in its fundamental role of providing advice to, and independent oversight of, management.
Mr. Kisperts duties as Independent Chairman include:
Our Board appoints our President and Chief Executive Officer, Chief Financial Officer, Corporate Secretary and all executive officers. All executive officers serve at the discretion of our Board. Each of our executive officers devotes his or her full time to our affairs. Our directors devote time to our affairs as is necessary to discharge their duties. In addition, our Board has the authority to retain its own advisers, at the Companys expense, to assist it in the discharge of its duties.
Boards Role in Risk Oversight
Our Board has an active role in overseeing management of the risks we face. This role is one of informed oversight rather than direct management of risk. Our Board regularly reviews and consults with management on the Companys strategic direction and the challenges and risks we face. Our Board also reviews and discusses with management on a quarterly basis its financial results and forecasts. The Audit Committee of our Board oversees management of the Companys financial risks, and oversees and reviews our risk management policies, including the Companys investment policies and anti-fraud program. The Compensation Committee of our Board oversees our management of risks relating to and arising from our compensation plans and arrangements. These committees periodically report on these matters to the full Board.
Management is tasked with the direct management and oversight of legal, financial, and commercial compliance matters, which includes identification and mitigation of associated areas of risk. Our Chief Administrative Officer provides regular reports of legal risks and developments to the Audit Committee and to our full Board. Our Chief Financial Officer and our Corporate Controller provide regular reports to the Audit Committee concerning financial, tax and audit related risks. In addition, the Audit Committee receives periodic reports from management on our compliance programs and efforts, our investment policies and practices, and the results of various internal audit projects. The Compensation Committees compensation consultant, together with members of management, provides analysis of risks related to our compensation programs and practices to the Compensation Committee.
Meetings of the Board of Directors
Our Board held seven meetings during the fiscal year ended June 30, 2016. No director serving on our Board in fiscal 2016 attended fewer than 75 percent of the aggregate of the meetings of our Board held during the period for which he or she has been a director during fiscal 2016 and the meetings of the committees on which he or she served which were held during the periods in fiscal 2016 that he or she served on such committees.
Director Attendance at Annual Meetings
We encourage director attendance at the Annual Meeting and we use reasonable efforts to schedule our Annual Meeting of stockholders at a time and date to maximize attendance by directors, taking into account our directors schedules. Of our current directors, Messrs. Carinalli, Kennedy, Kispert, Khanna, Meyercord and Shoemaker and Ms. Holmgren attended our 2015 Annual Meeting of stockholders.
The independent members of our Board meet regularly in executive session (without the presence or participation of non-independent directors), generally before or after a regularly scheduled Board meeting or at such other times as determined by our independent directors or our Chairman. Executive sessions of the independent directors are chaired by our Chairman. The executive sessions include discussions regarding guidance to be provided to the Chief Executive Officer and such other topics as the independent directors determine.
Committees of the Board of Directors
In fiscal 2016, our Board had the following three standing committees: Audit Committee; Compensation Committee; and Nominating and Corporate Governance Committee. Our Board has adopted a written charter for each of these committees, which are available on the Corporate Governance section of the Investor Relations page of our website at www.ExtremeNetworks.com.
Fiscal 2016 Committee Membership
The members and Chairmen of our standing committees in fiscal 2016 were as follows:
Audit Committee. The current members of the Audit Committee are Messrs. Khanna, Kennedy and Kispert and Ms. Holmgren. Mr. Khanna serves as Chairman. Our Board has determined that each member of the Audit Committee (i) is independent as defined in applicable NASDAQ rules; (ii) meets the criteria for independence set forth in Rule 10A-3(b)(1) under the Exchange Act; (iii) has not participated in the preparation of financial statements of the Company or any current subsidiary of the Company at any time during the past three years; and (iv) is able to read and understand fundamental financial statements, including a companys balance sheet, income statement and cash flow statement. Our Board further has determined that Mr. Khanna is an audit committee financial expert, as defined by Item 407(d)(5) of Regulation S-K of the Exchange Act. Additionally, our Board has determined that Mr. Khanna has past employment experience in finance or accounting, requisite professional certification in accounting or other comparable experience or background that results in his financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities.
The Audit Committee: retains our independent auditors; approves the planned scope, proposed fee arrangements and terms of engagement of the independent auditors; reviews the results of the annual audit of our financial statements and the interim reviews of our unaudited financial statements; evaluates the adequacy of accounting and financial controls; reviews the independence of our auditors; and oversees our financial reporting on behalf of the Board. The Audit Committee is also responsible for establishing procedures for the receipt, retention and treatment of complaints received by us regarding questionable accounting or auditing matters, including anonymous submission by our employees of concerns regarding accounting or auditing matters that
may be submitted through our Whistleblower Hotline. In addition, the Audit Committee reviews with our independent auditors the scope and timing of their audit services and any other services they are asked to perform, the independent auditors report on our consolidated financial statements following completion of their audit, and our critical accounting policies and procedures and policies with respect to our internal accounting and financial controls. The Audit Committee also assists our Board in fulfilling its oversight responsibilities with respect to financial risks, including risk management in the areas of financial reporting, internal controls, investments and compliance with legal and regulatory requirements. The Audit Committee annually reviews and reassesses the adequacy of its Audit Committee Charter. The Audit Committee held eight meetings during fiscal 2016.
Compensation Committee. The current members of the Compensation Committee are Messrs. Carinalli, Kennedy, and Shoemaker. Mr. Carinalli serves as Chairman. All members of the Compensation Committee are independent for purposes of the NASDAQ Marketplace Rules, and are non-employee directors for purposes of Rule 16b-3 under the Securities Exchange Act of 1934 and outside directors for purposes of Section 162(m) of the Internal Revenue Code. The Compensation Committee is responsible for discharging our Boards responsibilities relating to compensation and benefits of our executive officers, and evaluates and reports to our Board on matters concerning management performance, officer compensation and benefits plans and programs. In carrying out its responsibilities, the Compensation Committee reviews all components of executive officer compensation for consistency with our compensation philosophy. The Compensation Committee also administers our stock option plans and stock incentive plans. The Compensation Committee assists our Board in fulfilling its oversight responsibilities with respect to the management of risks arising from our compensation policies and programs. Our President and Chief Executive Officer and our Executive Vice President, Chief Administrative Officer assist the Compensation Committee in its deliberations with respect to the compensation of our executive officers; provided, however, that neither individual participates in the Compensation Committees deliberations or voting regarding his or her own compensation. In connection with the Companys annual compensation review, each executive officer discusses his or her individual performance with our Chief Executive Officer, who addresses such performance with the Compensation Committee, and the Chief Executive Officer discusses his individual performance directly with the Compensation Committee. The Compensation Committee annually reviews and reassesses the adequacy of its Compensation Committee Charter. The Compensation Committee held seven meetings during fiscal 2016.
In fiscal 2016, as permitted by its Charter and the Boards Governance Guidelines, and subject to the provisions of Section 152 of the Delaware General Corporation Law, the Compensation Committee delegated to management the ability to award time based restricted stock units under the Companys 2013 Equity Incentive Plan to employees of the Company below the level of Vice President for the remainder of the fiscal year. The delegation provided for limitations on the number of shares covered by the individual and aggregate awards, annual vesting over three years, and quarterly reporting to the Compensation Committee. The Compensation Committee has made a similar delegation for fiscal year 2017. The Companys Chief Executive Officer presently approves such awards, with additional approval by the Companys Chief Financial Officer and Chief Administrative Officer given before the effective date of grant.
The Compensation Committee may retain, at the Companys expense, one or more independent compensation consultants. As described in the Compensation Disclosure & Analysis, the Compensation Committee was advised by Compensia, Inc., a national compensation consulting firm, with respect to various compensation matters during fiscal 2016. Compensia has served as the Compensation Committees compensation consultant since fiscal year 2013. The Compensation Committee has reviewed and is satisfied with the qualifications, performance and independence of Compensia. Compensia provides no services to the Company, other than services for the Compensation Committee.
For more information about the Compensation Committees role and practices regarding executive compensation, see the discussion below under the heading Executive Compensation.
Nominating and Corporate Governance Committee. The current members of the Nominating and Corporate Governance Committee are Messrs. Shoemaker, Carinalli, and Kispert. Mr. Shoemaker serves as
Chairman. Each member of the Nominating and Corporate Governance Committee is independent for purposes of the NASDAQ Marketplace Rules. The Nominating and Corporate Governance Committee identifies, reviews, evaluates and nominates candidates to serve on our Board; recommends and approves corporate governance principles, codes of conduct and compliance mechanisms applicable to us, including our Corporate Governance Guidelines; and assists our Board in its annual reviews of the performance of our Board and each committee of the Board. The Nominating and Corporate Governance Committee assists our Board in fulfilling its oversight responsibilities with respect to the management of risks associated with board organization, membership and structure, succession planning for our directors and executive officers, and corporate governance. The Nominating and Corporate Committee periodically reviews and reassesses the adequacy of its Nominating and Corporate Governance Committee Charter. The Nominating and Corporate Governance Committee held four meetings during fiscal 2016.
Compensation Committee Interlocks and Insider Participation
None of our executive officers has served on the board of directors or compensation committee of any other entity that has, or has had, one or more executive officers who served as a member of our Board or Compensation Committee during fiscal 2016. No member of the Compensation Committee was, during fiscal 2016 or any prior period, an officer or employee of the Company.
Director Qualifications. In fulfilling its responsibilities, the Nominating and Corporate Governance Committee considers numerous factors in reviewing possible candidates for nomination as director, including:
While we do not have a formal diversity policy for membership on the Board, the Nominating and Corporate Governance Committee considers many factors, including character, judgment, independence, age, education, expertise, diversity of experience, length of service, other commitments and ability to serve on committees of our Board, in evaluating potential candidates. It also considers individual attributes that contribute to board heterogeneity, including race, gender, and national origin. The Nominating and Corporate Governance Committee does not assign any particular weighting or priority to any of these factors or attributes.
There are no stated minimum criteria for director nominees, although the factors and attributes discussed above will pay a material role in the recommendation of a candidate by the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee also believes it appropriate for one or more key members of management to participate as members of our Board.
Identifying and Evaluating Candidates for Nomination as Director. The Nominating and Corporate Governance Committee annually evaluates the current members of our Board whose terms are expiring and who are willing to continue in service to determine whether to recommend to the full Board that these directors be submitted to the stockholders for re-election.
Candidates for nomination as director come to the attention of the Nominating and Corporate Governance Committee from time to time through incumbent directors, management, stockholders or third parties. These candidates may be considered at meetings of the Nominating and Corporate Governance Committee at any point during the year. Additionally, the Nominating and Corporate Governance Committee may poll directors and management for suggestions or conduct research to identify possible candidates if it believes that our Board requires additional members or nominees, or should add additional skills or experience. The Nominating and Corporate Governance Committee may engage a third party search firm to assist in identifying qualified candidates, as it deems appropriate.
The Nominating and Corporate Governance Committee will consider candidates for directors proposed by its stockholders. In order to be evaluated in connection with the Nominating and Corporate Governance Committees established procedures for evaluating potential director nominees, any recommendation for director nominee submitted by a stockholder must be sent in writing to the Corporate Secretary at our corporate headquarters and must be received at our principal executive offices not less than 120 days nor more than 150 calendar days in advance of the date that our proxy statement was released to stockholders in connection with the previous years Annual Meeting of stockholders, except that if no Annual Meeting was held in the previous year or the date of the Annual Meeting has been changed by more than 30 calendar days from the date contemplated at the time of the previous years proxy statement, notice by the stockholders to be timely must be received not later than the close of business on the tenth day following the day on which public announcement of the date of such meeting is first made. For purposes of the foregoing, public announcement shall mean disclosure in a broadly disseminated press release or in a document publicly filed by us with the SEC. The recommendation for director nominee submitted by a stockholder must contain the information required by our bylaws. You may contact our Corporate Secretary at our principal executive offices for a copy of the relevant bylaw provisions regarding the requirements for making stockholder proposals and nominating director candidates. Candidates recommended by our stockholders will be evaluated against the same factors as are applicable to candidates proposed by directors or management.
All directors and director nominees must submit a completed directors and officers questionnaire as part of the nominating process. The evaluation process may also include interviews and additional background and reference checks for non-incumbent nominees, at the discretion of the Nominating and Corporate Governance Committee.
Communications with Directors
John H. Kispert, our Independent Chairman, is responsible for receiving, distributing and arranging responses to communications from our stockholders to our Board. Stockholders may communicate with our Board by transmitting correspondence by mail, facsimile or email, addressed as follows:
Chairman of the Board (or individually named director(s))
Extreme Networks, Inc.
145 Rio Robles
San Jose, California 95134
The Chairman transmits each communication as soon as practicable to the identified director addressee(s), unless (i) there are safety or security concerns that mitigate against further transmission of the communication; or (ii) the communication contains commercial matters not related to the stockholders stock ownership, as determined by the Chairman in consultation with legal counsel. Our Board or individual directors are advised of
any communication withheld for safety or security reasons as soon as practicable. Our directors have requested that the Chairman not forward to them advertisements, solicitations for periodicals or other subscriptions, and other similar communications.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, requires our executive officers, directors and persons who beneficially own more than 10 percent of our common stock to file initial reports of beneficial ownership and reports of changes in beneficial ownership with the SEC. These persons are required by SEC regulations to furnish us with copies of all Section 16(a) forms filed by such person. Based solely on our review of the forms furnished to us and written representations from certain reporting persons, we believe that all filing requirements applicable to our executive officers, directors and persons who beneficially own more than 10 percent of our common stock were complied with in the fiscal year ended June 30, 2016 except: (i) a Form 4 was filed on September 28, 2015 for an open market purchase transaction of 20,000 shares by Mr. Khanna that occurred on August 31, 2015; and (ii) information required on a Form 4 for a restricted stock unit grant made on November 12, 2015 to Ms. Holmgren was inadvertently filed on a Form 3 on November 19, 2015.
Code of Ethics and Corporate Governance Materials
Our Board has adopted charters for its Audit, Compensation and Nominating and Corporate Governance Committees, which are available on the Corporate Governance section of our Investor Relations page of our website at www.ExtremeNetworks.com. Our Board has also adopted a Code of Business Conduct and Ethics that applies to all of our employees, officers and directors. The Code of Business Conduct and Ethics can be found on our website on the Corporate Governance section of our Investor Relations page of our website at www.ExtremeNetworks.com. We intend to satisfy the disclosure requirements under the Securities and Exchange Act of 1934, as amended, regarding an amendment to or waiver from a provision of our Code of Ethics by posting such information on our website.
During fiscal 2016, the compensation policies for service on our Board and its committees were revised following consultation with Compensia, Inc., the independent compensation consultant to the Compensation Committee. For fiscal 2016, the compensation paid to our non-employee directors was as set forth below. Mr. Meyercord, who serves as our President and Chief Executive Officer, does not receive any additional compensation for his service on our Board.
During fiscal year 2016, non-employee directors received (a) $50,000 in cash compensation annually for Board service; and (b) the applicable compensation set forth below for serving either as a chair or as a member of one or more of the committees of our Board. Fees payable to directors who join the Board during the fiscal year, or who change Board assignments, are pro-rated to reflect the period of service. Each director further received reimbursement of expenses related to attendance of meetings of our Board and its committees, but no separate meeting fees are paid.
Fees for Fiscal Year 2016:
The Compensation Committee periodically reviews the director compensation program with its compensation consultant. On May 5, 2016, after consultation with Compensia, and to align with our peer group, the Compensation Committee increased the compensation for the Chairman of the Board by $5,000 per year, effective beginning in fiscal year 2017.
On the date of each Annual Meeting of our stockholders, each non-employee director continuing service with the Company after the meeting is granted an annual award of restricted stock units, or RSUs. The number of RSUs is determined by dividing $120,000 by the price of the Companys common stock at the close of business on the NASDAQ Global Select Market on the date of the Annual Meeting, rounded down to the nearest whole RSU. Each RSU represents the right to receive one share of our common stock upon vesting and settlement. These annual RSU awards vest upon the earliest of the first anniversary of the date of grant, the date of next Annual Meeting of stockholders of the Company or a change in control of our company, in each case, subject to the directors continued service with the Company through such date. On the date of the Annual Meeting of stockholders of the Company held on November 12, 2015, each non-employee director was granted 31,662 RSUs. Equity grants provided to directors who join the Board after the Annual Meeting of our stockholders, are pro-rated to reflect the period of service.
Stock Ownership Guidelines
Our Corporate Governance Guidelines provide that each non-employee director should own a minimum of the lesser of: 40,000 shares, or shares valued at three times (3x) the Companys annual Board service retainer (which currently would be shares valued at $150,000). Each non-employee director has 5 years from his or her respective date of appointment to attain the minimum ownership level. All of our non-employee directors have met the minimum requirements of the share ownership guidelines or are not yet required to be in compliance with the requirements of the guidelines as they have not yet served for five years. We have not established any minimum equity ownership requirements for our executive officers.
2016 Director Compensation
The compensation information for our non-employee directors who served during fiscal 2016 is set forth below:
ADVISORY VOTE ON EXECUTIVE COMPENSATION
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, our stockholders are entitled to vote to approve, on an advisory non-binding basis, the compensation of our named executive officers as disclosed in this proxy statement in accordance with SEC rules. This is frequently referred to as a Say on Pay vote. The Board currently has adopted a policy providing for annual Say on Pay advisory votes. Unless the Board modifies this policy, the next Say on Pay advisory vote will be held at our 2017 Annual Meeting. This vote is intended to address the overall compensation of the Companys named executive officers and the philosophy, policies and practices described in this proxy statement with respect to their compensation, and not any specific item of compensation.
The Compensation Committee believes that our 2016 executive compensation program has been appropriately designed to advance stockholder interests through effective performance-based incentives with multi-year retention features. The last stockholder advisory vote on executive compensation was held in November 2015, and approximately 78 percent of votes cast were voted in favor of the Companys compensation for its named executive officers (NEOs).
As described in further detail under the heading Executive Compensation and Other MattersCompensation Discussion and Analysis, our executive compensation philosophy is designed to attract high quality candidates for senior leadership positions, to retain these employees, and to establish a total compensation program that motivates and rewards individual and team performance in a highly competitive industry. Our compensation programs are designed to align our executive officers performance with our goals and to create stockholder value.
We are asking our stockholders to indicate their support for our compensation arrangements with our named executive officers as described in this proxy statement.
Vote Required and Board of Directors Recommendation
This proposal requires the affirmative vote of a majority of the votes cast for or against the proposal at the 2016 Annual Meeting, as well as the presence of a quorum representing a majority of the shares of our common stock entitled to vote at the 2016 Annual Meeting, present in person or represented by proxy. Abstentions and broker non-votes will each be counted as present for purposes of determining a quorum but will not have any effect on the outcome of the proposal.
This Say on Pay vote is advisory, and therefore is not binding on us, the Compensation Committee or our Board. However, our Board and our Compensation Committee value the opinions of our stockholders in their vote on this proposal, and will consider the outcome of this vote when making future decisions regarding the compensation of our named executive officers.
OUR BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT.
RATIFY THE APPOINTMENT OF INDEPENDENT AUDITORS
FOR THE FISCAL YEAR ENDING JUNE 30, 2017
The Audit Committee has appointed KPMG LLP (KPMG) as the Companys independent registered public accounting firm for the fiscal year ending June 30, 2017. KPMG has served as the Companys independent registered public accounting firm since November 2010. A representative of KPMG is expected to be present at the 2016 Annual Meeting, will have an opportunity to make a statement if desired and will be available to respond to appropriate questions.
Representatives of our independent auditors normally attend most meetings of the Audit Committee. The Audit Committees policy is to pre-approve all audit and permissible non-audit services provided by our independent auditors. These services may include audit services, audit-related services, tax services and other services. Any pre-approval is detailed as to the particular service or category of services. Our independent auditors and management are required to periodically report to the Audit Committee regarding the extent of services provided by our independent auditors in accordance with this pre-approval policy. For fiscal 2016 and 2015, all fees paid to our independent auditors were pre-approved in accordance with this policy.
The Audit Committee on an annual basis reviews the services performed by the independent registered public accounting firm, and reviews and approves the fees charged by the accounting firm. As such, all services provided by the accounting firm as set forth in the table below under Principal Accounting Fees and Services were approved by the Audit Committee. The Audit Committee has considered the role of the independent registered public accounting firm in providing tax and other non-audit services to us and has concluded that these services are compatible with the accounting firms independence as our independent auditors.
Principal Accounting Fees and Services
The following table sets forth the fees accrued or paid to the Companys independent registered public accounting firms for the fiscal years ended June 30, 2016 and June 30, 2015.
Vote Required and Board of Directors Recommendation
Stockholder ratification of the appointment of KPMG as our independent registered public accounting firm is not required by our bylaws or otherwise by law. Our Board, however, is submitting the appointment of KPMG to stockholders for ratification as a matter of good corporate practice. If stockholders fail to ratify the appointment, the Audit Committee will reconsider the selection. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of a different independent registered accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and its stockholders.
Approval of this proposal requires the affirmative vote of a majority of the votes cast on the proposal, assuming a quorum is present. Votes for or against this proposal, and abstentions and broker non-votes will each be counted as present for purposes of determining the presence of a quorum, but abstentions and broker non-votes will not have any effect on the outcome of the vote on this proposal. If you sign and return a proxy card without giving specific voting instructions on this proposal, your shares will be voted in favor of the proposal.
OUR BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE RATIFICATION OF THE SELECTION OF KPMG LLP TO SERVE AS THE COMPANYS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING JUNE 30, 2017.
RATIFY AMENDMENT NO. 4 TO THE COMPANYS AMENDED AND RESTATED
RIGHTS AGREEMENT TO EXTEND THE AGREEMENT UNTIL MAY 31, 2017
Our Board is inviting stockholders to vote to ratify, on a nonbinding advisory basis, Amendment No. 4 to the Companys Amended and Restated Rights Agreement, between the Company and Computershare Inc. as the rights agent (the Amended and Restated Rights Agreement, including as amended by Amendment No. 4 is referred to herein as the Restated Rights Plan) to extend the term of the Amended and Restated Rights Agreement until May 31, 2017. The Restated Rights Plan governs the terms of each right (Right) that has been issued with respect to each share of common stock of the Company. Each Right initially represents the right to purchase one one-thousandth of a share of Series A Preferred Stock (Preferred Stock) of the Company.
The Board believed it to be in the best interests of the Company to enter into and to extend the Restated Rights Plan to preserve the value of the Companys deferred tax assets, including its net operating loss carry forwards, with respect to its ability to fully use its tax benefits to offset future income. The Restated Rights Plan was adopted in part in an effort to preserve stockholder value by attempting to protect against a possible limitation on our ability to use our net operating loss carry-forwards and other tax attributes (the Tax Benefits) to reduce potential future federal income tax obligations. As of June 30, 2016, the Company had net operating loss carry-forwards for U.S. federal and state tax purposes of $334.0 million and $144.7 million, respectively. The U.S. federal net operating loss carry-forwards of $334.0 million will begin to expire in the fiscal year ending June 30, 2021 and state net operating losses of $144.7 million continued to expire during the fiscal year ending June 30, 2016.
The unexpired balance of our Tax Benefits can generally be used to offset taxable income or income taxes (if any). Utilization of Tax Benefits to offset taxable income can, however, be limited if there is an ownership change, as discussed below. Because the amount and timing of our future taxable income cannot be accurately predicted, we cannot predict to what extent our Tax Benefits may ultimately be used to reduce our income tax liability. Although we are unable to quantify an exact value, we believe that the Tax Benefits are a very valuable asset. The Restated Rights Plan was adopted because the Board believed it to be in the Companys and the stockholders best interests to attempt to prevent the imposition of limitations on use of the Tax Benefits.
The ability to use the Tax Benefits could be significantly impaired if there were an ownership change of the Company as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the Code). Determining whether an ownership change has occurred and the effect of an ownership change is complex. In general, to determine whether an ownership change has occurred on a testing date, the Company must compare the percentage of shares owned by each stockholder or groups of stockholders who own or are deemed to own directly or indirectly at least 5-percent of our stock (a 5-percent shareholder) immediately after the close of the testing date to the lowest percentage of shares owned by such 5-percent shareholder at any time during the testing period (which is generally a three-year rolling period). The amount of the increase in the percentage of Company shares owned by each 5-percent shareholder whose share ownership percentage has increased is added together with increases in share ownership of other 5-percent shareholders, and an ownership change occurs if the aggregate increase in ownership by all such 5-percent shareholders exceeds 50 percent.
If an ownership change occurs, there is an annual limit on use of Tax Benefits (the 382 Limitation) equal to (i) the aggregate value of our outstanding equity immediately prior to the ownership change (reduced by certain capital contributions made during the immediately preceding two years and certain other items) multiplied by (ii) the federal long-term tax-exempt interest rate in effect for the month of the ownership change. In calculating the 382 Limitation, numerous special rules and limitations apply, including provisions dealing with built-in gains and losses. If the Company were to have taxable income in excess of the 382 Limitation following an ownership change, the Company would not be able to offset tax on the excess income with the net
operating losses. Although any loss carry forwards not used as a result of any Section 382 Limitation would remain available to offset income in future years (again, subject to the Section 382 Limitation in such future years) until the net operating losses expire, an ownership change could significantly defer the utilization of the net operating loss carry forwards, accelerate payment of federal income tax and could cause some of the net operating losses to expire unused. Because the aggregate value of our outstanding stock and the federal long-term tax-exempt interest rate fluctuate, it is impossible to predict with any accuracy the Section 382 Limitation upon the amount of our taxable income that could be offset by such loss carry forwards and credits if an ownership change were to occur in the future. Such limitation could, however, be material.
The Restated Rights Plan is designed to reduce the likelihood that the Company will experience an ownership change by discouraging any person (together with such persons affiliates and associates), without the approval of the Board, from acquiring 4.95 percent or more of the outstanding common stock, or, if any person (together with such persons affiliates and associates) already beneficially owns in excess of 4.95 percent or more of the outstanding common stock, from acquiring more shares of common stock, other than by exercise or conversion of currently existing warrants or as a result of a redemption of shares of common stock by the Company. There is no guarantee that the Restated Rights Plan will prevent the Company from experiencing an ownership change.
The following description of the Restated Rights Plan is qualified in its entirety by reference to the text of the Restated Rights Plan and thus should be read together with the full text of the Restated Rights Plan. The text of Amendment No. 4 was filed with the SEC on a Current Report on Form 8-K as Exhibit 4.1 on May 9, 2016. The material terms of the Amended and Restated Rights Agreement were incorporated by reference into the May 9 filing from Exhibit 4.1 of the Current Report on Form 8-K filed on April 30, 2012. We urge you to read carefully the Restated Rights Plan in its entirety, as the description below is only a summary.
Although none of the Restated Rights Plan, our certificate of incorporation, our bylaws or applicable law require stockholder approval or ratification of the Restated Rights Plan, our Board has decided to request the stockholders ratify, on a nonbinding advisory basis, the extension of the Restated Rights Plan to May 31, 2017. If the extension of the Restated Rights Plan is not ratified by our stockholders as proposed, the Board will consider whether to terminate the Restated Rights Plan following the Annual Meeting or to permit the Restated Rights Plan to expire per its terms on May 31, 2017. Regardless, the Board may elect to extend the Restated Rights Plan or adopt a new stockholder rights plan at a future date if it determines that the adoption of a stockholder rights plan is in the stockholders best interests at that time.
While intended to reduce the risk of an ownership change within the meaning of Section 382 of the Code, and thereby preserve the current ability of the Company to utilize the Tax Benefits, the Rights could have certain anti-takeover effects. The Rights will cause substantial dilution to a person or group who becomes an Acquiring Person on terms not approved by the Companys Board. The Rights should not interfere with any merger or other business combination approved by the Board since the Board may exempt such merger or business combination from the Restated Rights Plan. In addition, the Rights may be redeemed by the Company at any time as described above.
Vote Required and Board of Directors Recommendation
Approval of this proposal requires the affirmative vote of a majority of the shares present or represented by proxy and entitled to vote on this proposal. Abstentions will have the same effect as votes against the proposal. Broker non-votes will have no effect on the outcome of this vote.
OUR BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE RATIFICATION OF THE EXTENSION OF THE TERM OF THE AMENDED AND RESTATED SHAREHOLDER RIGHTS PLAN TO MAY 31, 2017.
APPROVAL OF AMENDMENT AND RESTATEMENT OF THE EXTREME
NETWORKS, INC. 2013 EQUITY INCENTIVE PLAN
The Companys stockholders are being asked to approve the amendment and restatement of the 2013 Plan (which we refer to in this Proposal as the Amended Equity Plan), which would increase the number of shares issuable under the current 2013 Plan (which we refer to in this Proposal as the Current Equity Plan) by 8,300,000 shares that could be issued as stock options and/or stock appreciation rights (but if awards are granted only in the form of restricted stock units or other full value awards, this increase in shares would allow for the issuance of only up to approximately 5,533,333 shares).
As of September 15, 2016, the Current Equity Plan had approximately 2,349,969 shares remaining available for issuance pursuant to awards granted under the plan. We consider the addition of 8,300,000 shares to the Amended Equity Plan to be very important to the future of the Company. We believe that the current share reserves in the Current Equity Plan will not be sufficient to provide meaningful equity incentives to our employees so that we may continue to compete successfully for talent and to achieve our corporate goals.
Our Board is requesting this vote by the stockholders to approve the increase of 8,300,000 shares available for issuance under the Amended Equity Plan and satisfy the stockholder approval requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code. In addition, we are asking you to approve other amendments to the Current Equity Plan as described in more detail below. If the stockholders do not approve the Amended Equity Plan, the Amended Equity Plan will not become effective, the Current Equity Plan will continue in effect pursuant to its current terms and conditions, and we may continue to grant awards under the Current Equity Plan, subject to its terms, conditions and limitations. Stockholders should carefully read this proxy statement in its entirety for more detailed information concerning the proposal to approve the Amended Equity Plan. Additionally, stockholders are directed to the full Amended Equity Plan, which is attached as Exhibit A to this proxy statement. Any summary of the Amended Equity Plan is qualified in its entirety by reference to the Amended Equity Plan.
We operate in a challenging marketplace in which our success depends to a great extent on our ability to attract and retain employees, directors and other service providers of the highest caliber. One of the tools our Board regards as essential in addressing these challenges is a competitive equity incentive program. Our stock incentive program provides a range of incentive tools and sufficient flexibility to permit the Compensation Committee of the Board to implement them in ways that will make the most effective use of the shares our stockholders authorize for incentive purposes. We intend to use these incentives to attract new key employees and to continue to retain existing key employees, directors and other service providers for the long-term benefit of the Company and its stockholders.
The Current Equity Plan allows the Company to grant equity compensation awards to employees (including officers), consultants and non-employee directors of the Company and the employees and consultants of its parent or subsidiaries. The Current Equity Plan permits the Company to grant service-based awards and performance-based awards. The Current Equity Plan provides that 15,628,643 shares may be issued under the plan (which includes 6,628,463 shares under the Predecessor Plan (as defined in the Current Equity Plan)), and the plan includes a fungible share reserve whereby each share subject to a full-value award, such as restricted stock units (which we refer to as RSUs), granted under the Current Equity Plan results in decreasing the Current Equity Plan share reserve by 1.5 shares.
As of September 15, 2016, the Current Equity Plan had approximately 2,349,969 shares remaining available for issuance pursuant to awards granted under the plan. The Company is asking its stockholders to approve adding 8,300,000 shares of our common stock to those reserved for issuance under the Current Equity Plan, which would be reduced to 5,533,333 shares of our common stock if all were issued pursuant to full-value awards.
If the Companys stockholders do not approve this proposal, the Company may not be able to continue to offer competitive equity packages to retain current employees and employees hired in fiscal year 2017 and later. We would also lose a major tool in aligning the interests of our executives and employees with those of the Companys stockholders. In the event the Companys stockholders do not approve the Amended Equity Plan to increase the share reserve, the proposed amendment will not take effect and the Current Equity Plan will continue to be administered in its current form without any increase in the Current Equity Plans share reserve and without implementation of the other terms described above.
Proposed Amendments to the Current Equity Plan
The only amendments proposed to be made to the plan since the last stockholder approval in 2013 are as follows:
Why the Company Stockholders Should Vote for the Amended Company Stock Plan
The following summarizes some of the reasons why we believe the Companys stockholders should approve this proposal.
Equity Compensation Awards Allow the Company to Implement its Philosophy of Pay for Performance
The Company uses a mix of service-based awards and performance based awards for its executive officers and other employees as discussed in more detail in the Compensation Discussion and Analysis (CD&A). The performance-based awards are eligible to vest only if certain performance milestones are achieved. If the Companys stockholders approve the Amended Equity Plan, the Company will be able to continue to use equity awards to emphasize the achievement of important business objectives of the Company and, consistent with its pay-for-performance compensation philosophy, directly link executive pay with performance.
In addition, approval of the Amended Equity Plan by our stockholders will extend the period of time during which we may grant awards under the Amended Equity Plan qualifying as performance-based compensation under Section 162(m) of the Code through the first to occur of a change in the material terms of the potential performance goals under the Amended Equity Plan or our 2021 Annual Meeting of stockholders.
The Companys Stock Plan is a Critical Element of its Compensation Policy
We believe that our employees are the Companys most valuable asset. Accordingly, the approval of the Amended Equity Plan is in the best interest of our stockholders, as equity awards granted under the Amended Equity Plan will help the Company to:
If the Companys stockholders do not approve the Amended Equity Plan, the Companys growth could be significantly hampered and its ability to operate its business could be adversely affected. If we do not have sufficient shares in the plan to provide meaningful equity incentives, the Company may be compelled to instead
offer additional cash-based incentives to compete for talent, which could have a significant effect upon its quarterly results of operations, its cash flow, and its balance sheet. Moreover, this would not be competitive with most other technology companies where equity compensation is an integral part of the compensation offered by these firms. The Companys success over the next few years will depend heavily on its ability to attract and retain high caliber employees, consultants and board members. The ability to grant equity awards is a necessary and powerful recruiting and retention tool for the Company to hire and motivate the quality personnel it needs to move its business forward.
The Amended Equity Plan Conforms to Best Practices
The Amended Equity Plan is designed to conform to best practices in equity incentive plans. For example, the Amended Equity Plan:
We Manage Our Equity Incentive Program Thoughtfully
We manage our long-term stockholder dilution by limiting the number of equity awards granted annually and limiting what we grant to what we believe is an appropriate amount of equity necessary to attract, reward and retain employees.
As of September 15, 2016, equity awards outstanding under all of the Companys equity plans (including the Current Equity Plan) were approximately: 5,649,037 stock options, no unvested restricted stock, 4,842,749 RSUs and 1,125,363 PSUs (including our market-based performance awards (MSUs)). As of September 15, 2016, we had 106,765,827 shares outstanding. Accordingly, our approximately 11,617,149 outstanding awards (not including awards under our employee stock purchase plan) plus 2,349,969 shares available for future grant under the Companys equity plans (not including under our employee stock purchase plan) as of September 15, 2016 represented approximately 13.08% of our Common Stock outstanding (commonly referred to as the overhang).
As of September 15, 2016, the average weighted per share exercise price of all outstanding stock options (whether granted under the Current Equity Plan, under equity plans assumed in connection with corporate transactions or under our previous equity plans) was $4.1369 and the weighted average remaining contractual term was 3.42 years.
Stock Compensation Metrics
Dilution is a concept that may be used to measure the long-term effect of a companys equity compensation programs. There are various methods to calculate and determine dilution. This discussion is based on the methodology employed by Institutional Shareholder Services, or ISS, an independent proxy advisory firm. Dilution has been calculated by dividing the total shares underlying all outstanding equity-based compensation
(including 5,401,052 shares, as of June 30, 2016, which are available for grant but not outstanding) by the Companys total number of shares outstanding. This calculation includes all outstanding options (whether or not in the money) and full value awards that may or may not vest because they are not yet earned or because performance criteria may not be achieved. As of June 30, 2016, the Company had approximately 6,385,007 shares of our common stock issuable upon exercise of stock options outstanding and approximately 4,224,020 unvested full-value awards outstanding, of which approximately 399,853 are unvested performance-based awards. Using the foregoing calculation, the Companys dilution as of June 30, 2016 was approximately 13.37%, a 41.61% change over the three-year period. The dilution for each of the three-years ended with fiscal year 2016 is set forth below.
Burn rate measures the effect of equity compensation on a company over a specified time. To monitor the Companys burn rate, the Company uses various independent burn rate calculation methodologies including those developed and employed by ISS. ISS has set industry standard burn rates for our global industry classification standard at 6.19% for shareholder meetings occurring after February 1, 2016. The annual burn rate is determined by dividing the sum of the number of stock options granted and full value shares awarded (restricted stock units and delivered performance-based restricted stock units) during a given year by the Companys weighted average common shares outstanding. This methodology ignores the impact of cancellations, which is usually significant. Under this methodology, we applied a 2x multiplier to make an adjustment to account for full value awards. Using this methodology, the Companys one year burn rate for fiscal year 2016 was 6.67% and its average burn rate for the three-year fiscal periods 2014 through 2016 was 8.43%. The Companys burn rates for the three-year period ended with fiscal year 2016 are set forth below.
The Company also considers the net burn rate. Net burn rate adds an additional perspective in that it allows direct insight into the real impact the Companys stock compensation programs have on dilution by considering the rate at which cancellations impact the true burn rate. Cancellations usually occur when an employee terminates or a performance target is not met. At termination, any unvested RSU, PSU and MSU awards are returned to the share reserve pool and are eligible for re-granting. The Companys one year net burn rate for 2016 was 5.18% and its average net burn rate for the three-year period 2014 through 2016 was 3.62%, both of which are below the ISS industry standard burn rate discussed above. The Company is committed to managing the Companys net burn rate. The Companys net burn rates for the three-year period ended with fiscal year 2016 are set forth below.
Performance-Based Full Value Award Activity(1)
Performance-Based Option Award Activity(1)
Service-Based Full Value Award Activity(1)
Service-Based Option Award Activity(1)
The Company anticipates that the proposed share increase to the plan, based on currently projected share use, will be sufficient for the granting of equity awards through approximately fiscal year 2018. As a result, the Company anticipates that the Company will be requesting additional shares under the plan in fiscal 2019. Despite the projected share use described above, future circumstances and business needs may dictate a different result.
The currently requested share increase is expected to result in the following three year average burn rates using the above methodology:
After considering the above factors, including the fact that Companys expected three-year average burn rate (as we believe would be calculated at the end of the next three years) is expected to meet the ISS standard Industry Burn Rate of 6.19%, the Companys Board approved the share increase.
New Plan Benefits/Company Awards to be Granted to Certain Individuals and Groups
The actual number of awards (if any) that an executive officer, employee or consultant of the Company or its parent or subsidiaries or a non-employee director of the Company may receive under the Amended Equity Plan is at the discretion of the Compensation Committee and therefore cannot be determined in advance. The following table sets forth certain information relating to awards granted in fiscal year 2016 under the Current Equity Plan to the listed persons and groups. As of June 30, 2016, the closing price of a share of the Companys common was $3.39 per share.
Grants under Current Equity Plan Made in FY16
Summary Description of the Amended Equity Plan
The following summary of the Amended Equity Plan is qualified in its entirety by the specific language of the Amended Equity Plan, a copy of which is attached to this proxy statement as Exhibit A.
General. The purpose of the Amended Equity Plan is to advance the interests of the Company and its stockholders by providing an incentive program that will enable the Company to attract and retain employees, consultants and directors and to provide them with an equity interest in the growth and profitability of the Company. These incentives may be provided through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, other stock-based awards and cash-based awards.
Authorized Shares. The maximum aggregate number of shares authorized for issuance under the Amended Equity Plan is the sum of 17,300,000 shares plus up to 6,628,643 additional shares, comprised of the number of shares remaining available for grant under the Predecessor Plan as of June 30, 2016 and the number of shares subject to any option or other award outstanding under the Predecessor Plan that expires or is forfeited for any reason. As of June 30, 2016, there were 5,401,052 shares remaining available for grant under the Predecessor Plan and 10,609,027 shares subject to unexercised options and other awards remaining unvested and subject to potential forfeiture under the Predecessor Plans.
Share Counting. Each share subject to a stock option, stock appreciation right, or other award that requires the participant to purchase shares for their fair market value determined at the time of grant will reduce the number of shares remaining available for grant under the Amended Equity Plan by one share. However, each share subject to a full value award (i.e., an award settled in stock, other than an option, stock appreciation right, or other award that requires the participant to purchase shares for their fair market value determined at grant) will reduce the number of shares remaining available for grant under the Amended Equity Plan by 1.5 shares.
If any award granted under the Amended Equity Plan expires or otherwise terminates for any reason without having been exercised or settled in full, or if shares subject to forfeiture or repurchase are forfeited or repurchased by the Company for not more than the participants purchase price, any such shares reacquired or subject to a terminated award will again become available for issuance under the Amended Equity Plan.
Shares will not be treated as having been issued under the Amended Equity Plan and will therefore not reduce the number of shares available for issuance to the extent an award is settled in cash. Shares that are withheld or reacquired by the Company in satisfaction of a tax withholding obligation in connection with an option or a stock appreciation right or that are tendered in payment of the exercise price of an option will not be made available for new awards under the Amended Equity Plan. Upon the exercise of a stock appreciation right or net-exercise of an option, the number of shares available under the Amended Equity Plan will be reduced by the gross number of shares for which the award is exercised.
Adjustments for Capital Structure Changes. Appropriate and proportionate adjustments will be made to the number of shares authorized under the Amended Equity Plan, to the numerical limits on certain types of awards described below, and to outstanding awards in the event of any change in our common stock through merger, consolidation, reorganization, reincorporation, recapitalization, reclassification, stock dividend, stock split, reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of shares or similar change in our capital structure, or if we make a distribution to our stockholders in a form other than common stock (excluding regular, periodic cash dividends) that has a material effect on the fair market value of our common stock. In such circumstances, the Compensation Committee also has the discretion under the Amended Equity Plan to adjust other terms of outstanding awards as it deems appropriate.
Nonemployee Director Award Limits. A nonemployee director may not be granted awards under the Amended Equity Plan for more than 200,000 shares in any fiscal year.
Other Award Limits. To enable compensation provided in connection with certain types of awards intended to qualify as performance-based within the meaning of Section 162(m) of the Code, the Amended Equity Plan establishes a limit on the maximum aggregate number of shares or dollar value for which such awards may be granted to an employee in any fiscal year, as follows:
In addition, to comply with applicable tax rules, the Amended Equity Plan also limits to 9,000,000 the number of shares that may be issued upon the exercise of incentive stock options granted under the Amended Equity Plan.
Administration. The Amended Equity Plan generally will be administered by the Compensation Committee, although the Board retains the right to appoint another of its committees to administer the Amended Equity Plan or to administer the Amended Equity Plan directly. In the case of awards intended to qualify for the performance-based compensation exemption under Section 162(m) of the Code, administration of the Amended Equity Plan must be by a compensation committee comprised solely of two or more outside directors within the meaning of Section 162(m). For purposes of this summary, the term Compensation Committee will refer to either such duly appointed committee or the Board of Directors. Subject to the provisions of the Amended Equity Plan, the Compensation Committee determines in its discretion the persons to whom and the times at which awards are granted, the types and sizes of awards, and all of their terms and conditions. The Compensation Committee may, subject to certain limitations on the exercise of its discretion required by Section 162(m) or otherwise provided by the Amended Equity Plan, amend, cancel or renew any award, waive any restrictions or conditions applicable to any award, and accelerate, continue, extend or defer the vesting of any award.
The Amended Equity Plan provides, subject to certain limitations, for indemnification by the Company of any director, officer or employee against all reasonable expenses, including attorneys fees, incurred in connection with any legal action arising from such persons action or failure to act in administering the Amended Equity Plan. All awards granted under the Amended Equity Plan will be evidenced by a written or digitally signed agreement between the Company and the participant specifying the terms and conditions of the award, consistent with the requirements of the Amended Equity Plan. The Compensation Committee will interpret the Amended Equity Plan and awards granted under it, and all determinations of the Compensation Committee generally will be final and binding on all persons having an interest in the Amended Equity Plan or any award.
Prohibition of Option and SAR Repricing. The Amended Equity Plan expressly provides that, without the approval of a majority of the votes cast in person or by proxy at a meeting of our stockholders, the Compensation Committee may not provide for any of the following with respect to underwater options or stock appreciation rights: (1) either the cancellation of such outstanding options or stock appreciation rights in exchange for the grant of new options or stock appreciation rights at a lower exercise price or the amendment of outstanding options or stock appreciation rights to reduce the exercise price, (2) the issuance of new full value awards in exchange for the cancellation of such outstanding options or stock appreciation rights, or (3) the cancellation of such outstanding options or stock appreciation rights in exchange for payments in cash.
Eligibility. Awards may be granted to employees, directors and consultants of the Company or any present or future parent or subsidiary corporation or other affiliated entity of the Company. Incentive stock options may be granted only to employees who, as of the time of grant, are employees of the Company or any parent or subsidiary corporation of the Company. As of June 30, 2016, we had approximately 1,378 employees worldwide (including three current executive officers) and six non-employee directors who would be eligible to receive awards under the Amended Equity Plan. Upon the closing of our acquisition of certain business assets from Zebra Technologies, Inc., announced in September 2016 and expected to close before the end of calendar year 2016, approximately 1,651 employees worldwide will be eligible to receive awards under the Amended Equity Plan.
The following table sets forth, as of September 15, 2016, the equity award grants made under the 2013 Plan since its adoption:
Vesting. Awards under the Amended Equity Plan will vest over not less than one year following the date the award is made, or in the case of vesting based upon the attainment of performance goals or other performance-based objectives, over a period of not less than one year measured from the commencement of the performance period. The Compensation Committee may provide that such vesting restrictions lapse or are waived upon the participants death, disability, retirement or other specified termination or upon a change of control. The Compensation Committee may grant awards that will result in the issuance of up to 5% of the shares reserved for issuance under the Amended Equity Plan without regard to the minimum vesting provisions.
Stock Options. The Compensation Committee may grant nonstatutory stock options, incentive stock options within the meaning of Section 422 of the Code, or any combination of these. The exercise price of each option may not be less than 100% of the fair market value of a share of our common stock on the date of grant. However, any incentive stock option granted to a person who at the time of grant owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company (a 10% Stockholder) must have an exercise price equal to at least 110% of the fair market value of a share of common stock on the date of grant.
The Amended Equity Plan provides that the option exercise price may be paid in cash, by check, or cash equivalent; by means of a broker-assisted cashless exercise; by means of a net-exercise procedure; to the extent legally permitted, by tender to the Company of shares of common stock owned by the participant having a fair market value not less than the exercise price; by such other lawful consideration as approved by the
Compensation Committee; or by any combination of these. Nevertheless, the Compensation Committee may restrict the forms of payment permitted in connection with any option grant. No option may be exercised unless the participant has made adequate provision for federal, state, local and foreign taxes, if any, relating to the exercise of the option, including, if permitted or required by the Company, through the participants surrender of a portion of the option shares to the Company.
Options will become vested and exercisable at such times or upon such events and subject to such terms, conditions, performance criteria or restrictions as specified by the Compensation Committee. The maximum term of any option granted under the Amended Equity Plan is seven years, provided that an incentive stock option granted to a 10% Stockholder must have a term not exceeding five years. Unless otherwise permitted by the Compensation Committee, an option generally will remain exercisable for three months following the participants termination of service, provided that if service terminates as a result of the participants death or disability, the option generally will remain exercisable for 12 months, but in any event the option must be exercised no later than its expiration date, and provided further that an option will terminate immediately upon a participants termination for cause (as defined by the Amended Equity Plan).
Options are nontransferable by the participant other than by will or by the laws of descent and distribution, and are exercisable during the participants lifetime only by the participant. However, an option may be assigned or transferred to certain family members or trusts for their benefit to the extent permitted by the Compensation Committee and, in the case of an incentive stock option, only to the extent that the transfer will not terminate its tax qualification.
Stock Appreciation Rights. The Compensation Committee may grant stock appreciation rights either in tandem with a related option (a Tandem SAR) or independently of any option (a Freestanding SAR). A Tandem SAR requires the option holder to elect between the exercise of the underlying option for shares of common stock or the surrender of the option and the exercise of the related stock appreciation right. A Tandem SAR is exercisable only at the time and only to the extent that the related stock option is exercisable, while a Freestanding SAR is exercisable at such times or upon such events and subject to such terms, conditions, performance criteria or restrictions as specified by the Compensation Committee. The exercise price of each stock appreciation right may not be less than 100% of the fair market value of a share of our common stock on the date of grant.
Upon the exercise of any stock appreciation right, the participant is entitled to receive an amount equal to the excess of the fair market value of the underlying shares of common stock as to which the right is exercised over the aggregate exercise price for such shares. Payment of this amount upon the exercise of a Tandem SAR may be made only in shares of common stock whose fair market value on the exercise date equals the payment amount. At the Compensation Committees discretion, payment of this amount upon the exercise of a Freestanding SAR may be made in cash or shares of common stock. The maximum term of any stock appreciation right granted under the Amended Equity Plan is seven years.
Stock appreciation rights are generally nontransferable by the participant other than by will or by the laws of descent and distribution, and are generally exercisable during the participants lifetime only by the participant. If permitted by the Compensation Committee, a Tandem SAR related to a nonstatutory stock option and a Freestanding SAR may be assigned or transferred to certain family members or trusts for their benefit to the extent permitted by the Compensation Committee. Other terms of stock appreciation rights are generally similar to the terms of comparable stock options.
Restricted Stock Awards. The Compensation Committee may grant restricted stock awards under the Amended Equity Plan either in the form of a restricted stock purchase right, giving a participant an immediate right to purchase common stock, or in the form of a restricted stock bonus, in which stock is issued in consideration for services to the Company rendered by the participant. The Compensation Committee determines the purchase price payable under restricted stock purchase awards, which may be less than the then current fair market value of our common stock. Restricted stock awards may be subject to vesting conditions based on such
service or performance criteria as the Compensation Committee specifies, including the attainment of one or more performance goals similar to those described below in connection with performance awards. Shares acquired pursuant to a restricted stock award may not be transferred by the participant until vested. Unless otherwise provided by the Compensation Committee, a participant will forfeit any shares of restricted stock as to which the vesting restrictions have not lapsed prior to the participants termination of service. Unless otherwise determined by the Compensation Committee, participants holding restricted stock will have the right to vote the shares and to receive any dividends paid, except that dividends or other distributions paid in shares will be subject to the same restrictions as the original award and dividends paid in cash may be subject to such restrictions.
Restricted Stock Units. The Compensation Committee may grant restricted stock units under the Amended Equity Plan, which represent rights to receive shares of our common stock at a future date determined in accordance with the participants award agreement. No monetary payment is required for receipt of restricted stock units or the shares issued in settlement of the award, the consideration for which is furnished in the form of the participants services to the Company. The Compensation Committee may grant restricted stock unit awards subject to the attainment of one or more performance goals similar to those described below in connection with performance awards, or may make the awards subject to vesting conditions similar to those applicable to restricted stock awards. Unless otherwise provided by the Compensation Committee, a participant will forfeit any restricted stock units which have not vested prior to the participants termination of service. Participants have no voting rights or rights to receive cash dividends with respect to restricted stock unit awards until shares of common stock are issued in settlement of such awards. However, the Compensation Committee may grant restricted stock units that entitle their holders to dividend equivalent rights, which are rights to receive cash or additional restricted stock units whose value is equal to any cash dividends the Company pays.
Performance Awards. The Compensation Committee may grant performance awards subject to such conditions and the attainment of such performance goals over such periods as the Compensation Committee determines in writing and sets forth in a written agreement between the Company and the participant. These awards may be designated as performance shares or performance units, which consist of unfunded bookkeeping entries generally having initial values equal to the fair market value determined on the grant date of a share of common stock in the case of performance shares and a monetary value established by the Compensation Committee at the time of grant in the case of performance units. Performance awards will specify a predetermined amount of performance shares or performance units that may be earned by the participant to the extent that one or more performance goals are attained within a predetermined performance period. To the extent earned, performance awards may be settled in cash, shares of common stock (including shares of restricted stock that are subject to additional vesting) or any combination of these.
Prior to the beginning of the applicable performance period or such later date as permitted under Section 162(m) of the Code, the Compensation Committee will establish one or more performance goals applicable to the award. Performance goals will be based on the attainment of specified target levels with respect to one or more measures of business or financial performance of the Company and each subsidiary corporation consolidated with the Company for financial reporting purposes, or such division or business unit of the Company as may be selected by the Compensation Committee. The Compensation Committee, in its discretion, may base performance goals on one or more of the following measures: revenue; sales; expenses; operating income; gross margin; operating margin; earnings before any one or more of: stock-based compensation expense, interest, taxes, depreciation and amortization; pre-tax profit; net operating income; net income; economic value added; free cash flow; operating cash flow; balance of cash, cash equivalents and marketable securities; stock price; earnings per share; return on stockholder equity; return on capital; return on assets; return on investment; total stockholder return, employee satisfaction; employee retention; market share; customer satisfaction; product development; research and development expense; completion of an identified special project; completion of a joint venture or other corporate transaction and new customer acquisition.
The target levels with respect to these performance measures may be expressed on an absolute basis or relative to an index, budget or other standard specified by the Compensation Committee. The degree of
attainment of performance measures will be calculated in accordance with generally accepted accounting principles, if applicable, but prior to the accrual or payment of any performance award for the same performance period, and, according to criteria established by the Compensation Committee, excluding the effect (whether positive or negative) of changes in accounting standards or any extraordinary, unusual or nonrecurring item occurring after the establishment of the performance goals applicable to a performance award.
Following completion of the applicable performance period, the Compensation Committee will certify in writing the extent to which the applicable performance goals have been attained and the resulting value to be paid to the participant. The Compensation Committee retains the discretion to eliminate or reduce, but not increase, the amount that would otherwise be payable on the basis of the performance goals attained to a participant who is a covered employee within the meaning of Section 162(m) of the Code. However, no such reduction may increase the amount paid to any other participant. The Compensation Committee may make positive or negative adjustments to performance award payments to participants other than covered employees to reflect the participants individual job performance or other factors determined by the Compensation Committee. In its discretion, the Compensation Committee may provide for a participant awarded performance shares to receive dividend equivalent rights with respect to cash dividends paid on our common stock to the extent of the performance shares that become nonforfeitable. The Compensation Committee may provide for performance award payments in lump sums or installments.
Unless otherwise provided by the Compensation Committee, if a participants service terminates due to the participants death or disability prior to completion of the applicable performance period, the final award value will be determined at the end of the performance period on the basis of the performance goals attained during the entire performance period but will be prorated for the number of months of the participants service during the performance period. If a participants service terminates prior to completion of the applicable performance period for any other reason, the Amended Equity Plan provides that, unless otherwise determined by the Compensation Committee, the performance award will be forfeited. No performance award may be sold or transferred other than by will or the laws of descent and distribution prior to the end of the applicable performance period.
Cash-Based Awards and Other Stock-Based Awards. The Compensation Committee may grant cash-based awards or other stock-based awards in such amounts and subject to such terms and conditions as the Compensation Committee determines. Cash-based awards will specify a monetary payment or range of payments, while other stock-based awards will specify a number of shares or units based on shares or other equity-related awards. Such awards may be subject to vesting conditions based on continued performance of service or subject to the attainment of one or more performance goals similar to those described above in connection with performance awards. Settlement of awards may be in cash or shares of common stock, as determined by the Compensation Committee. A participant will have no voting rights with respect to any such award unless and until shares are issued pursuant to the award. The Compensation Committee may grant dividend equivalent rights with respect to other stock-based awards. The effect on such awards of the participants termination of service will be determined by the Compensation Committee and set forth in the participants award agreement.
Change in Control. Unless otherwise defined in a participants award or other agreement with the Company, the Amended Equity Plan provides that a Change in Control occurs upon (a) a person or entity (with certain exceptions described in the Amended Equity Plan) becoming the direct or indirect beneficial owner of more than 50% of the Companys voting stock; (b) stockholder approval of a liquidation or dissolution of the Company; or (c) the occurrence of any of the following events upon which the stockholders of the Company immediately before the event do not retain immediately after the event direct or indirect beneficial ownership of more than 50% of the voting securities of the Company, its successor or the entity to which the assets of the company were transferred: (i) a sale or exchange by the stockholders in a single transaction or series of related transactions of more than 50% of the Companys voting stock; (ii) a merger or consolidation in which the Company is a party; or (iii) the sale, exchange or transfer of all or substantially all of the assets of the Company (other than a sale, exchange or transfer to one or more subsidiaries of the Company).
The Amended Equity Plan does not provide for any automatic single trigger acceleration upon a Change in Control. Instead, if a Change in Control occurs, the surviving, continuing, successor or purchasing entity or its parent may, without the consent of any participant, either assume or continue outstanding awards or substitute substantially equivalent awards for its stock. If so determined by the Compensation Committee, stock-based awards will be deemed assumed if, for each share subject to the award prior to the Change in Control, its holder is given the right to receive the same amount of consideration that a stockholder would receive as a result of the Change in Control. Any awards which are not assumed or continued in connection with a Change in Control or exercised or settled prior to the Change in Control will terminate effective as of the time of the Change in Control. Subject to the restrictions of Section 409A of the Code, the Compensation Committee may provide for the acceleration of vesting or settlement of any or all outstanding awards upon such terms and to such extent as it determines. The Amended Equity Plan also authorizes the Compensation Committee, in its discretion and without the consent of any participant, to cancel each or any award denominated in shares of stock upon a Change in Control in exchange for a payment to the participant with respect each vested share (and each unvested share if so determined by the Compensation Committee) subject to the cancelled award of an amount equal to the excess of the consideration to be paid per share of common stock in the Change in Control transaction over the exercise price per share, if any, under the award. The vesting of all awards held by non-employee directors will be accelerated in full upon a Change in Control.
Awards Subject to Section 409A of the Code. Certain awards granted under the Amended Equity Plan may be deemed to constitute deferred compensation within the meaning of Section 409A of the Code, providing rules regarding the taxation of nonqualified deferred compensation plans, and the regulations and other administrative guidance issued pursuant to Section 409A. Any such awards will be required to comply with the requirements of Section 409A. Notwithstanding any provision of the Amended Equity Plan to the contrary, the Compensation Committee is authorized, in its sole discretion and without the consent of any participant, to amend the Amended Equity Plan or any award agreement as it deems necessary or advisable to comply with Section 409A.
Amendment, Suspension or Termination. The Amended Equity Plan will continue in effect until its termination by the Compensation Committee, provided that no awards may be granted under the Amended Equity Plan following the tenth anniversary of the Amended Equity Plans effective date, which will be the date on which it is approved by the stockholders. The Compensation Committee may amend, suspend or terminate the Amended Equity Plan at any time, provided that no amendment may be made without stockholder approval that would increase the maximum aggregate number of shares of stock authorized for issuance under the Amended Equity Plan, change the class of persons eligible to receive incentive stock options or require stockholder approval under any applicable law. No amendment, suspension or termination of the Amended Equity Plan may affect any outstanding award unless expressly provided by the Compensation Committee, and, in any event, may not have a materially adverse effect on an outstanding award without the consent of the participant unless necessary to comply with any applicable law, regulation or rule, including, but not limited to, Section 409A of the Code.
Summary of U.S. Federal Income Tax Consequences. The following summary is intended only as a general guide to the U.S. federal income tax consequences of participation in the Amended Equity Plan and does not attempt to describe all possible federal or other tax consequences of such participation or tax consequences based on particular circumstances.
Incentive Stock Options. A participant recognizes no taxable income for regular income tax purposes as a result of the grant or exercise of an incentive stock option qualifying under Section 422 of the Code. Participants who neither dispose of their shares within two years following the date the option was granted nor within one year following the exercise of the option will normally recognize a capital gain or loss upon the sale of the shares equal to the difference, if any, between the sale price and the purchase price of the shares. If a participant satisfies such holding periods upon a sale of the shares, we will not be entitled to any deduction for federal income tax purposes. If a participant disposes of shares within two years after the date of grant or within
one year after the date of exercise (a disqualifying disposition), the difference between the fair market value of the shares on the option exercise date and the exercise price (not to exceed the gain realized on the sale if the disposition is a transaction with respect to which a loss, if sustained, would be recognized) will be taxed as ordinary income at the time of disposition. Any gain in excess of that amount will be a capital gain. If a loss is recognized, there will be no ordinary income, and such loss will be a capital loss. Any ordinary income recognized by the participant upon the disqualifying disposition of the shares generally should be deductible by us for federal income tax purposes, except to the extent such deduction is limited by applicable provisions of the Code.
In general, the difference between the option exercise price and the fair market value of the shares on the date of exercise of an incentive stock option is treated as an adjustment in computing the participants alternative minimum taxable income and may be subject to an alternative minimum tax which is paid if such tax exceeds the regular tax for the year. Special rules may apply with respect to certain subsequent sales of the shares in a disqualifying disposition, certain basis adjustments for purposes of computing the alternative minimum taxable income on a subsequent sale of the shares and certain tax credits which may arise with respect to participants subject to the alternative minimum tax.
Nonstatutory Stock Options. Options not designated or qualifying as incentive stock options are nonstatutory stock options having no special tax status. A participant generally recognizes no taxable income upon receipt of such an option. Upon exercising a nonstatutory stock option, the participant normally recognizes ordinary income equal to the difference between the exercise price paid and the fair market value of the shares on the date when the option is exercised. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. Upon the sale of stock acquired by the exercise of a nonstatutory stock option, any gain or loss, based on the difference between the sale price and the fair market value of the shares on the exercise date, will be taxed as capital gain or loss. We generally should be entitled to a tax deduction equal to the amount of ordinary income recognized by the participant as a result of the exercise of a nonstatutory stock option, except to the extent such deduction is limited by applicable provisions of the Code.
Stock Appreciation Rights. A Participant recognizes no taxable income upon the receipt of a stock appreciation right. Upon the exercise of a stock appreciation right, the participant generally will recognize ordinary income in an amount equal to the excess of the fair market value of the underlying shares of common stock on the exercise date over the exercise price. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. We generally should be entitled to a deduction equal to the amount of ordinary income recognized by the participant in connection with the exercise of the stock appreciation right, except to the extent such deduction is limited by applicable provisions of the Code.
Restricted Stock. A participant acquiring restricted stock generally will recognize ordinary income equal to the excess of the fair market value of the shares on the determination date over the price paid, if any, for such shares. The determination date is the date on which the participant acquires the shares unless the shares are subject to a substantial risk of forfeiture and are not transferable, in which case the determination date is the earlier of (i) the date on which the shares become transferable or (ii) the date on which the shares are no longer subject to a substantial risk of forfeiture (e.g., when they become vested). If the determination date follows the date on which the participant acquires the shares, the participant may elect, pursuant to Section 83(b) of the Code, to designate the date of acquisition as the determination date by filing an election with the Internal Revenue Service no later than 30 days after the date on which the shares are acquired. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. Upon the sale of shares acquired pursuant to a restricted stock award, any gain or loss, based on the difference between the sale price and the fair market value of the shares on the determination date, will be taxed as capital gain or loss. We generally should be entitled to a deduction equal to the amount of ordinary income recognized by the participant on the determination date, except to the extent such deduction is limited by applicable provisions of the Code.
Restricted Stock Unit, Performance, Cash-Based and Other Stock-Based Awards. A participant generally will recognize no income upon the grant of a restricted stock unit, performance share, performance unit, cash-based or other stock-based award. Upon the settlement of such awards, participants normally will recognize ordinary income in the year of settlement in an amount equal to the cash received and the fair market value of any substantially vested shares of stock received. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. If the participant receives shares of restricted stock upon settlement, the participant generally will be taxed in the same manner as described above under Restricted Stock. Upon the sale of any shares received, any gain or loss, based on the difference between the sale price and the fair market value of the shares on the determination date (as defined above under Restricted Stock), will be taxed as capital gain or loss. We generally should be entitled to a deduction equal to the amount of ordinary income recognized by the participant on the determination date, except to the extent such deduction is limited by applicable provisions of the Code.
Section 162(m) of the Code. In general, under Section 162(m) of the Code, income tax deductions of publicly-held corporations may be limited to the extent total compensation (including base salary, annual bonus, stock option exercises and non-qualified benefits) for certain executive officers exceeds $1.0 million (less the amount of any excess parachute payments as defined in Section 280G of the Code) in any taxable year of the corporation. However, under Section 162(m) of the Code, the deduction limit does not apply to certain qualified performance-based compensation. In order to qualify for the exemption for qualified performance-based compensation, Section 162(m) of the Code generally requires that:
Pursuant to a special rule under Section 162(m), stock options and SARs will satisfy the qualified performance-based compensation exception if (i) the awards are made by a qualifying compensation committee, (ii) the plan sets the maximum number of shares that can be granted to any person within a specified period and (iii) the compensation is based solely on an increase in the stock price after the grant date. The Amended Equity Plan has been designed to permit us to grant stock options and SARs which will are intended to qualify as qualified performance-based compensation.
Tax Consequences to the Company. The Company should be entitled to a deduction when a participant has compensation income. Any such deduction will be subject to the limitations of Section 162(m) of the Code.
Required Vote and Board of Directors Recommendation
Approval of this proposal requires the affirmative vote of a majority of the shares present or represented by proxy and entitled to vote on this proposal. Votes for, against, abstentions and broker non-votes will each be counted as present for purposes of determining the presence of a quorum. Abstentions will have the same effect as a negative vote on this proposal. Broker non-votes will not have any effect on the outcome of the vote on this proposal. If you sign and return a proxy card without giving specific voting instructions on this proposal, your shares will be voted in favor of the proposal.
The Board believes that the proposed adoption of the Amended Equity Plan is in the best interests of the Company and its stockholders for the reasons stated above.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDED AND RESTATED 2013 PLAN.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 1, 2016, certain information with respect to the beneficial ownership of our common stock by: (i) each stockholder known by us to be the beneficial owner of more than five percent of our common stock, (ii) each named executive officer, (iii) each of our directors and director nominees, and (iv) all executive officers and directors as a group.
Except as otherwise indicated, the address of each beneficial owner is c/o Extreme Networks, Inc., 145 Rio Robles, San Jose, California 95134.
2016 Compensation Decisions
For the fiscal year ended June 30, 2016, our named executive officers and their respective titles were as follows:
Set forth below are the name, age, position of and biographical information about each of the Companys executive officers, as of the date of this proxy statement.
Edward B. Meyercord
Mr. Meyercords biography is included with the other members of the Board of Directors above.
Benjamin Drew Davies
Mr. Davies, age 50, joined Extreme in June 2016 and serves as our Executive Vice President and Chief Financial Officer starting June 1, 2016. Most recently, Mr. Davies held the position of Vice President, Controller at Marvell Semiconductor, Inc., a publicly traded semiconductor company, from December 2015 until May 2016. Prior to that, Mr. Davies was the Senior Vice President, Corporate Controller at Spansion, Inc., from August 2012 to December 2015. Prior to Spansion, Mr. Davies was corporate controller at Intersil Corporation, a publicly traded semiconductor company, from April 2009 to August 2012, and served as operations controller at Intersil from March 2008 to April 2009. He also served as Chief Financial Officer of Nanoconduction, Inc. from March 2007 to March 2008, and as Director Finance and Administration for STATSChipPac from September 1999 to March 2007. Mr. Davies held various finance roles at Micron Custom Manufacturing Services from November 1992 to September 1999. Mr. Davies has a B.S. in business accounting from the University of Idaho and a M.B.A. from Santa Clara University.
Mr. Gault, age 53, joined the Company in December 2014 as Vice President, Worldwide Partner Organization and was promoted to serve as our Executive Vice President, Worldwide Sales, Services and Channels in April 2015. Prior to joining the Company, Mr. Gault served as Vice President, Cloud and Managed Services at Cisco Systems, Inc., a publicly traded networking solutions company, from July 2009 to December 2014. Prior to that, he served as Vice President, U.S. Service Provider Channels at Cisco from June 2005 to June
2009, and as Operations Director at Cisco from June 2000 to June 2005. Mr. Gault also served as Global Account Manager for Sprint from June 1987 to November 1996. Mr. Gault holds a B.S. degree in business from West Chester University.
This Compensation Discussion and Analysis explains the objectives and operation of the Companys executive compensation program in fiscal 2016, particularly with respect to the Companys NEOs identified below. The Compensation Committee oversees the Companys compensation programs and has the sole authority to establish the compensation paid to the Companys NEOs.
Compensation Philosophy and Objectives
Our guiding compensation principle in establishing executive compensation is to align compensation with the creation of stockholder value while achieving the Companys strategic objectives and financial goals. To accomplish these goals, we seek to provide a competitive total compensation package that allows us to attract high quality candidates for senior leadership positions, to retain these employees, and to establish a total compensation program which motivates and rewards individual and team performance in alignment with our long-term business strategies and objectives. Our compensation program is designed to provide accountability at both the individual and team level with respect to both absolute and relative competitive performance. We also align the interests of our executives and our stockholders by providing variable compensation to our executives that is directly linked to the performance of the Company and to our stock price. We believe it is in our stockholders interests to attract, motivate and retain highly qualified individuals in critical positions by providing competitive compensation opportunities. We establish market competitive target levels of total compensation, focusing on both short and long-term compensation. Annual compensation for a given executive is determined with reference to competitive market data, as well as the individuals experience, knowledge, skills, education, performance and importance to the success of our business.
Compensation Best Practices
The Companys executive compensation program includes a number of features intended to reflect best practices in the market and to help ensure that the program reinforces stockholder interests. Consistent with our compensation philosophy and best practices in the industry, our executive compensation framework emphasized the following features in fiscal 2016:
2015 Say on Pay Advisory Vote on Executive Compensation
The Company provided stockholders with an advisory vote on executive compensation at the 2015 Annual Meeting. During that meeting, approximately 78 percent of the votes cast in the say on pay advisory vote were FOR approval of our executive compensation. The Committee considered the results of our 2015 advisory vote on executive compensation in determining whether modifications to our executive compensation programs were appropriate. In addition, as a result of the vote last year, we have increased our institutional shareholder outreach efforts and continue to adopt compensation policies that align our executive compensation with shareholder interests.
Our Compensation Committee, in consultation with the Board and the Companys human resources group, designs and oversees the Companys compensation programs and compensation philosophy. Throughout the year, the Chair of our Compensation Committee meets with our Chief Administrative Officer and other members of our human resources and legal groups to monitor issues relating to executive compensation. At the end of the fiscal year, our Chief Executive Officer conducts a qualitative and quantitative assessment of each senior officers performance for the past fiscal year based upon the officers individual and corporate goals and objectives, and reports to the Compensation Committee regarding his proposals regarding compensation adjustments for the NEOs (other than with respect to himself). The Compensation Committee independently assesses the performance and compensation of our Chief Executive Officer and our Chief Executive Officer is not present in meetings when his compensation is discussed. As set forth in additional detail below, in connection with its compensation oversight and approvals, the Compensation Committee reviews:
Additional details regarding the operation and duties of the Compensation Committee are also set forth in the Compensation Committee section above.
In connection with our desire to make our executive compensation competitive, to more closely tie future compensation to performance and to further align executive compensation with stockholder value, the Compensation Committee engaged Compensia, Inc., a national compensation consulting firm with expertise in the technology sector, to assist it in the performance of its duties and to advise it with respect to compensation matters for fiscal 2016. In its role as independent compensation consultant and at the request of the Compensation Committee, Compensia participated in Compensation Committee meetings and provided compensation advice to the Committee on:
Although the Company pays Compensias fees for its engagement by the Compensation Committee, the Compensation Committee has sole discretion with respect to Compensias continued engagement and assignments. Additional details regarding the Compensation Committees relationship and review of Compensia are also set forth in the Compensation Committee section above.
Peer Group Selection and Review
The Compensation Committee looks at a variety of factors when setting pay including competitive market data, as well as the individuals experience, knowledge, skills, education, performance and importance to the success of our business. The Compensation Committee evaluates pay competitiveness on an element-by-element basis, as well as on a total compensation basis. The peer group data reviewed includes a range of pay levels including the 25th, 50th and 75th percentile of the members of the peer group to reflect a range of pay to be considered when determining individual pay elements. The Compensation Committee reviews the practices of members of the peer group to better understand and assess the competitiveness of the compensation that the Company pays to its executives, both with respect to each compensation element and the overall compensation package.
On October 27, 2014, following consultation with Compensia, the Compensation Committee approved our peer group for fiscal year 2016 compensation decisions. The peer group included the following companies:
The peer group for fiscal 2016 was comprised of computer networking and communication equipment companies and other high-tech companies with $300 million to $1.5 billion in revenue and market capitalizations of $250 million to $3.2 billion at the time selected for inclusion in the peer group.
Compensation Program Elements
The main elements of our compensation program and their respective purposes are as follows:
Our operations and financial performance during fiscal 2016, achieved the following results:
This performance was reflected in the compensation of our NEOs in a number of ways:
The base salary for each NEO initially is set at the time the NEO commences employment with the Company, and is reviewed annually. The base salaries for Ms. Motiey and Mr. Davies were determined by the Compensation Committee, after consultation with Compensia and after recommendation by the Chief Executive Officer after his arms-length negotiations with those individuals to induce them to join the Company.
In its annual review of NEO base salaries, the Compensation Committee considers the recommendations of the Chief Executive Officer, the performance of each NEO (as evaluated by the Chief Executive Officer, except with respect to his own performance), and data provided by Compensia from the Companys peer group with respect to base salary, total target cash compensation and total direct compensation (which includes equity awards).
Our Compensation Committee determined not to provide continuing NEOs, other than Mr. Rice, who was promoted, with base salary increases during fiscal 2016 in light of our financial performance. In connection with his promotion on August 16, 2015, Mr. Rice received an 8.33 percent increase in annual base salary to $325,000.
The base salaries for the NEOs for fiscal 2016 and fiscal 2015, as applicable, were as follows:
For additional information regarding the Compensation Committees decisions with respect to NEO base salaries, including a summary of any applicable separation arrangements, see the discussion below under the heading Summary of Employment and Other Agreements.
Performance-Based Cash Incentive PlanAnnual Short-Term Cash Incentives
Our Compensation Committee establishes a cash incentive plan each year under our Performance-Based Cash Incentive Plan, which is applicable to our employees (other than sales personnel on commission), including the NEOs. The Performance-Based Cash Incentive Plan is designed to reward individual and overall Company performance relative to our current plans and objectives, particularly in the short term. The structure and elements of the plan are reviewed and modified annually based upon expectations for our business derived from our annual operating plan. The Compensation Committee does not adhere to a strict formula in determining performance goals. Instead, considering peer group data and the Companys recent and anticipated performance, the Compensation Committee employs a flexible approach that enables it to choose performance metrics that are designed to allow the Company to adjust to evolving market conditions.
The Performance-Based Cash Incentive Plan for fiscal 2016 approved by the Compensation Committee provided for semi-annual payouts, which were funded and earned based on the achievement of a pre-established non-GAAP operating income goals and our Compensation Committees assessment of overall individual performance. The Committee adopted semi-annual bonus targets after considering the volatility of the industry and the Companys business because this timing provided the Committee with the ability to adjust the targets mid-year, if necessary. The mix between corporate and individual components for the NEOs was 80% non-GAAP operating income performance and 20% individual performance. No awards would be earned unless the semi-annual non-GAAP operating income goals were achieved at a minimum 85% of target level, at which point bonuses were to be paid at 50% of target for the non-GAAP operating income component. For non-GAAP operating income target performance exceeding 100%, bonuses would be paid at 100% up to 150% for Company performance exceeding the non-GAAP operating income target. The semi-annual targets for the Performance-Based Cash Incentive Plan disclosed in the table below were based on projections of non-GAAP operating income derived from the Companys annual operating plan. Non-GAAP operating income constitutes operating income, calculated in accordance with U.S. generally accepted accounting principles (GAAP), but excluding the impact of share-based compensation, acquisition and integration costs, purchase accounting adjustments, amortization of acquired intangibles, restructuring charges, litigation expenses, executive severance costs and overhead adjustments. The Compensation Committee believed that the adjustments to operating income used in calculating this metric are appropriate because the charges and adjustments are not items that can be influenced by most of the Companys employees and such charges and adjustments may have multi-year impacts.
The semi-annual Company performance period goals for fiscal 2016 and the results achieved are as follows:
The table below reflects the incentive compensation paid to each of the NEOs in fiscal 2016, as well as the bonus targets (as a percentage of base salary) for each NEO. We believe the at risk portion of the NEOs compensation package, such as the short term incentives, should increase with the ability to affect Company performance, the role of the NEO and other market factors. This philosophy is reflected in the bonus as a percent of base salary that was approved by the Compensation Committee and is set forth below.
As shown by the tables above, the performance target for non-GAAP operating income was exceeded for the first payout due in February 2016, and payout was made at 116.7% for that period. The performance target for non-GAAP operating income was not met for the second payout due in August 2016, although the Companys non-GAAP operating income did achieve 92.5% of the target for that six month period. Although a 73.3% payout would have been due based upon the Companys achievement of the performance target for the second semi-annual performance period, the Compensation Committee exercised its discretion to reduce the payout level to 20% of target because the financial performance of the Company was lower than expected.
A GAAP to non-GAAP reconciliation for operating income for fiscal years 2015 and 2016 is attached as Exhibit B to this proxy statement.
Long-Term Equity Incentive Compensation
We provide equity awards under the Companys 2013 Equity Incentive Plan (the 2013 Plan) to our NEOs in order to promote the achievement of longer-term financial and strategic objectives, to encourage employee retention and to align the interests of our officers and of our stockholders. As appropriate, these awards may include both time-based equity awards, which are tied to retention of the executive with the Company, and performance-based equity awards, which in fiscal 2016 were tied to Company performance in meeting certain objectives with respect to its share price. In fiscal 2016, the Company awarded time-based restricted stock units (RSUs) and performance-based restricted stock units (PSUs). In addition, certain performance-based restricted stock units (MSUs) awarded under the 2013 Plan to designated NEOs in fiscal 2015 became earned and vested in fiscal 2016. Each RSU and PSU represents the right to receive one share of the Companys common stock and each MSU represents the right to receive up to 1.5 shares of the Companys common stock, in each case, subject to the fulfillment of the vesting conditions attached to the award. From time to time, the Company may also award stock options, as it did with respect to the performance-based stock option granted to Mr. Meyercord in fiscal 2015, which is discussed under Agreements with our President and Chief Executive Officer.
Our RSUs generally vest over three years (other than the initial RSU grant to our Chief Executive Officer, which vests over four years), subject to continued service to the Company. We believe that they are an effective retention and compensatory tool because they retain value even during a challenging economic environment, while still providing an incentive to enhance stockholder value since they become more valuable when the market price of our stock increases.
Our PSUs are earned based upon the Companys attainment of a target stock price over a sustained period of time (generally 30 days). Once earned, the PSUs are subject to a three year vesting schedule and, like RSUs, require continued service to the Company.
The MSUs are earned and vest based upon the Companys share performance as compared to the NASDAQ Composite Index during the applicable performance period. The performance calculation to determine the number of shares to be issued upon vesting of the MSUs is based on the percentage increase or decrease in (i) the average adjusted closing price per share of our common stock for the last sixty market trading days prior to the commencement of a Performance Period over (ii) the average adjusted closing price of our common stock for the last sixty market trading days prior to each of three annual vesting dates post-grant (the Companys Performance) as compared to the percentage increase or decrease in the adjusted value of the Index over the same periods (the Index Performance), with 100 percent of the target shares awarded for equal Company Performance versus Index Performance for any Performance Period and a linear 2-to-1 scaling above target and 3-to-1 scaling below target. i.e., the number of shares earned will increase by 2 percent of target for each 1 percent of positive Company Performance as compared to Index Performance, capped at 150 percent, and will decrease by 3 percent for each 1 percent of negative Company Performance as compared to Index Performance.
There are three Performance Periods under the MSUs awarded in fiscal 2015, each commencing on January 1, 2015 and ending on December 31, 2015, 2016 and 2017. On December 31, 2017, up to the maximum 150 percent of the total target number of target shares can be earned, offset by any shares earned based on results during the previously completed 1-year and 2-year Performance Periods. 0% to 150% of one-third of the target shares could be earned in each of the periods ending December 31, 2015 and December 31, 2016.
Upon the completion of the 1-year Performance Period on December 31, 2015, our Compensation Committee certified performance achievement of 100.5% based on Company Performance versus Index Performance, and, as a result, 12,077 shares underlying MSUs were issued to Mr. Arola and 4,477 shares underlying MSUs were issued to Mr. Rice. Mr. Arola forfeited the remainder of his MSUs when he terminated employment on June 30, 2016. Mr. Rice continues to hold 8,900 MSUs that are subject to ongoing Performance Periods.
New Hire Awards
Generally, we grant equity awards to our new employees, including our NEOs, in connection with the commencement of their employment to induce them to join us and to tie their long term compensation to future increases in our stock price. The type of grants, the aggregate amounts, and the vesting terms of the new-hire grants to NEOs are negotiated by our Chief Executive Officer and the Chairman of the Compensation Committee with the NEOs, and reviewed and approved by our Compensation Committee in consideration of such NEOs ability to influence Company performance and such NEOs prior experience. Our new hire awards typically are larger than the annual awards made to executives during their continued period of employment.
The following table sets forth information on new hire grants to NEOs in fiscal 2016:
We typically grant our NEOs equity awards on an annual basis, with the goal of more closely aligning the interests of management and our stockholders by providing continued incentives to our NEOs in order to retain strong executives and improve corporate performance. Awards to NEOs other than the Chief Executive Officer, including both the size and type of the award, are recommended to the Compensation Committee by our Chief Executive Officer. Compensia provides peer group data and analysis in connection with this annual review and advises the Compensation Committee in connection with its review. Compensia also advises the Compensation Committee on the size and type of the award to be granted to our Chief Executive Officer.
In August 2015, the Compensation Committee approved grants of RSUs and PSUs for Messrs. Arola, Gault and Rice. As Mr. Meyercord had recently received equity awards in connection with the commencement of his employment, he was not provided an annual grant during fiscal 2016. Mr. Davies and Ms. Motiey had not joined the Company at the time of the annual grants and instead received the new hire grants discussed above. The RSUs awarded to Messrs. Arola, Gault and Rice vest over 3 years, with 1/3 of the shares vesting on the annual anniversary of the grant date, subject to continued employment. On August 15, 2016, the first 1/3 of the shares covered by the RSUs vested. The PSUs granted to Messrs. Arola, Gault and Rice become earned based upon the achievement of thirty consecutive trading days on which the closing trading price of our common stock equals or exceeds $3.50 per share, representing a 19.5% increase over the closing trading price of $2.93 of our common stock on the day prior to the date of grant. When these PSUs are earned they immediately vest in respect to 1/3rd of the shares and the remainder vest in two equal installments on each of August 15, 2017 and 2018, subject to continued service through the vesting date. If the PSUs were not earned by February 15, 2017, they would automatically forfeit.
On December 11, 2015 our common stock closed for the 30th consecutive day with a closing trading price above $3.50, and 1/3rd of the PSUs held by Messrs. Arola, Gault and Rice vested and 1/3rd of the performance-based stock options granted to Mr. Meyercord in fiscal 2015 became earned. Mr. Arola forfeited his remaining PSUs when his employment terminated on June 30, 2016. The remaining shares covered by the PSUs held by Messrs. Gault and Rice vest in equal installments on each of August 15, 2017 and August 15, 2018, subject to continued employment. The portion of Mr. Meyercords performance-based stock options that became earned vests in 24 equal monthly installments based on Mr. Meyercords continued employment. The remaining performance-based stock options held by Mr. Meyercord remain subject to the achievement of a per share closing trading price for 30 consecutive trading days of $4.50 and $5.50, as well as continued employment after achievement. The remaining targets for Mr. Meyercord have not yet been met.
The following table sets forth information on the grants of equity awards made to Messrs. Arola, Rice and Gault in fiscal 2016:
Review of Available Shares
We monitor the number of shares that we utilize for all of our equity compensation programs, including new hire grants, promotional grants and annual grants, in order to prudently manage compensation expense and potential dilution of stockholder ownership. For more information on our 2013 Plan and our share usage under the 2013 Plan, see Proposal Number 5.
Change in Control and Severance Agreements
Each of our NEOs is employed at-will. However, from time to time, we implement plans or enter into agreements that would provide benefits payable to certain employees, including the NEOs, in connection with the termination of their employment without cause, or resulting from a change in control or other situations. These benefits assist us in our recruiting efforts and are competitive compared to our peer group. Additionally, without change in control benefits, NEOs may be distracted by the transaction process or may terminate their employment prior to the closing of the change in control, particularly if they do not wish to remain with, or believe they will not be retained by, the remaining entity after the transaction closes. Such departures could jeopardize the consummation of a potential transaction or our interests should the transaction not close. The Compensation Committee believes that these benefits therefore serve to enhance stockholder value, and align the NEOs interest with those of our stockholder.
Our agreements with NEOs are described under Summary of Employment and Other Agreements below. The potential payments that each NEO would have received if a change in control or termination of employment had occurred on June 30, 2016, are set forth under Potential Payments Upon Termination or Change in Control below.
Perquisites. Generally, the Company does not provide perquisites or other personal benefits to our executive officers, including the NEOs, except in situations where we believe it is appropriate to assist an individual in the performance of his or her duties, to make our executive officers more efficient and effective, and for recruitment and retention purposes.
During fiscal 2016, the Company paid for spousal travel and personal expenses for Messrs. Meyercord and Gault, in connection with an annual award trip to recognize top sales performers, as well as other Company events where spouses were invited for all participants. We also provided our NEOs with one of our newly introduced products, which has a value of $258, without cost, so that they could better understand our technology and to provide feedback on such product to our engineering team. Since we do not maintain an office near Mr. Meyercords residence, we paid for annual dues at a local business club, to provide him access to a suitable facility to meet with customers, vendors and other business partners. The Company bought a nominal holiday gift for our Chief Executive Officer and provided the appropriate tax gross up on the dollar value of the gift.
Other Personal Benefits. We do not provide a fixed vacation allowance for NEOs and other senior level employees, as they may be required to travel extensively and are required to be available to us even while vacationing. We provide our NEOs who joined the Company before May 4, 2016 with a special benefit in the event of their death or disability which includes a cash payout, full vesting of any outstanding RSU awards, and accelerated vesting of their MSUs (at this time only Mr. Rice has an outstanding MSU grant) with the number of shares vesting under the MSU determined as if such person were terminated in connection with a change in control. See Summary of Employment and Other Agreements for more information on this death and disability benefit. We provided our NEOs in fiscal 2016 (other than Mr. Davies) with an executive disability insurance top-up program, which provides additional disability benefits to such NEO in addition to the Companys basic long-term disability plan. This additional benefit is intended to make sure that the income provided to an NEO in the event of their disability is representative of their pre-disability earnings at the same percentage as other employees. We do not provide a defined benefit retirement pension plan, deferred compensation plan, or the use of company vehicles to our NEOs.
We provide other customary benefits to our NEOs that we provide to all of our full-time U.S. based employees. Those benefits include: medical, dental, vision and prescription drug insurance coverage; flexible spending contribution plan; disability insurance; life insurance; business travel insurance; 401(k) savings plan with employer match up to a predetermined percentage; educational assistance; employee assistance program; employee stock purchase plan (ESPP); and paid holidays.
All future practices with respect to perquisites or other personal benefits will be subject to review and approval by our compensation committee.
See the Summary Compensation Table for more information on the benefits described above.
The Compensation Committee has considered the provisions of Section 162(m) of the Internal Revenue Code, and related Treasury Department regulations, which restrict deductibility of executive compensation paid to certain of our NEOs holding office at the end of any year to the extent such compensation exceeds $1,000,000 for any of these officers and does not qualify for an exception under the statute or regulations. Options, PSUs and MSUs granted under our 2013 Plan may qualify for an exemption from these restrictions, provided that they are granted by a committee whose members are outside directors (as defined by Section 162(m)) and meet other requirement of the tax rules. We expect that the Compensation Committee will continue to be comprised solely of outside directors, and that certain types of equity granted to our NEOs will be approved by the Compensation Committee. Other components of our executive compensation program may not qualify for exemptions from Section 162(m). The Compensation Committee expects to continue evaluating the advisability of qualifying our
executive compensation for deductibility. The Compensation Committees policy is to consider deductibility of executive compensation under applicable tax laws, but the Compensation Committee retains the discretion to award compensation that will not be deductible when it determines appropriate in light of the Companys compensation goals and objectives.
Compensation Risk Evaluation
The Compensation Committee has reviewed compensation-related risks and does not believe the Companys compensation programs encourage excessive or inappropriate risk-taking or create risks that are reasonably likely to have a material adverse effect on the Company for the following reasons:
Hedging and Pledging
Under our insider trading policy, we prohibit certain employees deemed to be insiders under the policy, including all executive officers and directors from hedging the economic risk of ownership of our stock. In addition, employees and directors may not hold our stock in a margin account, or pledge our stock securities as collateral.
Recoupment Policy or Claw-Back Policy
The Compensation Committee has adopted the Extreme Networks, Inc. Recoupment Policy that applies to all of our current and former executive officers within the meaning of the Securities Exchange Act. Under this policy, in the event of a restatement of financial results (other than a voluntary restatement due to a change in
applicable accounting rules or interpretations) due to the material noncompliance of the Company with any financial reporting requirement under the U.S. federal securities laws due to fraud during the one-year period following the date of the first public issuance or filing with the SEC (whichever first occurs), the Compensation Committee will have the right to use reasonable efforts to recover any incentive-based compensation in excess of the amount of such incentive based compensation that would have been earned and paid to the executive officer under the restated financial results. Incentive based compensation includes (a) cash-based and share-based compensation earned or paid after October 1, 2013, the earning or vesting of which was based on the attainment of a financial measure affected by the restatement of financial results and (b) any profits realized from the sale of securities of the Company during the recovery period.
The Compensation Committee will have the discretion to determine the manner in which a clawback or recovery of excess incentive based compensation will be effected, for example, by reducing the future payment of excess incentive based compensation earned on the basis of an erroneous financial measure but not yet paid or by reducing payment of other future compensation to offset excess incentive-based compensation previously paid. The Compensation Committee will amend the policy, as necessary, to comply with the final SEC rules regarding the recoupment policies of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Summary Compensation Table
The following table sets forth information for fiscal 2016 concerning the compensation of our named executive officers:
SUMMARY COMPENSATION TABLE
For the PSUs awarded in fiscal year 2016, the amount reported represents the grant date fair value based upon the probable outcome of the performance goals. The table below sets forth the grant date fair value determined in accordance with ASC Topic 718 principles established for the performance-related component of these PSUs based upon the probable and the maximum possible outcome of the performance-related component as of the grant date. See Compensation Discussion and Analysis above for more details about the PSUs.
Agreements with our President and Chief Executive Officer
In April 2015, we entered into an offer letter of employment with Mr. Meyercord for service as our President and Chief Executive Officer, which we amended and restated on August 31, 2016. Pursuant to the offer
letter of employment, Mr. Meyercord is to receive an annual salary of $600,000, and is eligible to participate in our standard employee benefits plans, including, commencing in fiscal 2016, our Performance-Based Cash Incentive Plan with an annual target equal to 120 percent of his annual base salary. In addition, in April 2015, Mr. Meyercord was granted 450,000 RSUs that vest over four years based on his continued service and an option to acquire 900,000 shares of our common stock subject to certain performance thresholds. Mr. Meyercord was also awarded a sign-on bonus in the amount of $125,000, less applicable withholdings and deductions, which was paid in a lump sum in August 2015, when other Company employee bonuses were paid.
Pursuant to the terms of Mr. Meyercords offer letter, Mr. Meyercord is entitled to receive certain severance benefits in the event of a termination of his employment in certain situations. The receipt of these severance benefits is subject to Mr. Meyercords timely execution and delivery of a general release of claims in the prescribed form.
In the event of a termination other than for cause and which is not in connection with a change in control of the Company, Mr. Meyercord is entitled to receive a severance payment equal to 12 months of his then base salary, together with a pro-rated portion of his annual cash bonus at the established target, provided that the Board-approved Company performance targets were achieved in the quarter immediately preceding the termination. In addition, the vesting of any then outstanding equity awards, including shares subject to the performance awards that have satisfied their performance targets but have not satisfied their time-based components (but excluding unearned shares subject to performance awards where the performance targets have not yet been satisfied, unless otherwise set forth in the applicable grant agreement), will be accelerated by 12 months, and the Company will pay his premiums for COBRA coverage for a period of up to 12 months.
In the event of his death or permanent disability, Mr. Meyercord or his heirs will be entitled to receive (in addition to any other benefits to which they are entitled): (i) a cash severance payment of 12 months of salary or, should the termination occur during the Change in Control Period (as defined below under the Companys Executive Change in Control Severance Plan description), that amount which would have been due as a consequence of termination of his employment due to a change in control (which is 24 months of base salary and 200% of his target bonus); (ii) the acceleration of vesting of all then outstanding equity awards, including shares subject to the performance awards that have satisfied their performance targets but have not satisfied their time-based components (but excluding unearned shares subject to performance awards where the performance targets have not yet been satisfied, unless otherwise set forth in the applicable grant agreement); and (iii) the acceleration of vesting of a certain number of shares under any MSU granted to the Mr. Meyercord prior to the Event. As of the date of this Proxy Statement, Mr. Meyercord has not been awarded any MSUs.
Mr. Meyercords offer letter also provides for the following severance benefits in the event of the termination of his employment other than for cause or with good reason within a Change in Control Period (the definitions of such terms are provided in his offer letter and are substantially similar to those in the Executive Change in Control Severance Plan discussed below): (i) a cash severance payment of 24 months of base salary; (ii) a payment of 200% of his target bonus; (iii) the acceleration of vesting of all then outstanding equity awards, including shares subject to the performance awards that have satisfied their performance targets but have not satisfied their time-based components (but excluding unearned shares subject to performance awards where the performance targets have not yet been satisfied, unless otherwise set forth in the applicable grant agreement); (iv) the Companys payment of his COBRA premiums for two months; and (v) the provision of outplacement services for one month.
The calculation of potential payments to Mr. Meyercord upon termination other than for cause or upon change in control is provided in the table under the heading Estimated Payments upon Termination Without Cause or Upon Change in Control.
Severance Agreement with Mr. Arola
In connection with his resignation of employment effective June 30, 2016 (although he ceased serving as an executive officer as of May 31, 2016), Mr. Arola entered into a Separation Agreement and General Release of
Claims (the Severance Agreement), under which, in exchange for his general release of claims against the Company, he received or will receive: (i) a lump sum cash payment of $390,000 to be paid on or around January 1, 2017, (ii) reimbursement of COBRA premiums for 2 months, (iii) bonus compensation for the 2nd half payout of fiscal year 2016, if and to the extent earned as determined by the Compensation Committee of the Board (which amount earned was $25,901), and (iv) accelerated vesting of each equity award then held by Mr. Arola that would have vested had he continued to be employed with the Company through August 31, 2016, which consisted of options to purchase 5,583 shares of common stock at an exercise price per share of $5.21 and 20,400 RSUs.
Agreements with other NEOs
Extreme entered into employment offer letters with the NEOs (other than our CEO) setting forth their initial salary and target bonus opportunity and entitling them to benefits and, subject to Board approval, certain initial equity awards. Mr. Arolas offer letter was superseded by his Severance Agreement in May 2016. In addition, the NEOs are entitled to certain change in control benefits, death and disability severance benefits and general severance benefits as described below.
Executive Change in Control Plan
On February 8, 2006, the independent members of our Board, upon the recommendation of the Compensation Committee, approved the terms of an Executive Change in Control Severance Plan in order to ensure retention of key personnel and continuity of the business in the event of a change in control of the Company, which was most recently amended in June 2016. We refer to this plan, as amended and restated, as the CiC Plan.
For purposes of the benefits available under the CiC Plan and the Executive Death and Disability Benefits and Executive Severance Policy, discussed below, a Change in Control is deemed to occur upon any of the following:
Mr. Meyercord receives the severance benefits under his offer letter described above and is not a participant in the CiC Plan. The receipt of severance benefits under the CiC Plan is subject to the participants execution and delivery of a general release of claims in the prescribed form.
Cash Compensation and Benefits
Under the CiC Plan, severance benefits, health insurance and outplacement services are provided to a CiC Plan participant if the participant is terminated without Cause or resigns for Good Reason (each as defined in the CiC Plan), during the period commencing three months prior to a Change in Control and ending 12 months after a Change in Control (the Change in Control Period). The amount of severance compensation that would be provided to a participant is equal to that participants then current base salary for a designated period, as well as a percentage of the participants cash bonus at target. Under the CiC Plan, executive vice presidents (including our NEOs except for Mr. Meyercord) are eligible to receive 13 months of base salary. Under the CiC Plan, executive vice presidents (including our NEOs except for Mr. Meyercord) are eligible to receive 100% of target bonus. In addition, the Company will provide to the participant and his or her dependents two months of substantially similar health insurance benefits and at the same premium cost to the participant as in effect on the date of termination. The Company will also make available outplacement support for a period of one month.
The CiC Plan provides that, unless otherwise determined by the Compensation Committee at the time of grant, the vesting, exercisability and settlement of equity awards held by participants that are time-based vesting and are not assumed or otherwise continued by an acquirer, shall be accelerated by crediting the participant with additional service immediately prior to (and contingent upon) the Change in Control. The number of months service that will be credited is 13 months for executive vice presidents (including our NEOs except for Mr. Meyercord). Any performance-based equity awards will be governed by the terms of those award agreements and will not be subject to this acceleration.
In the event the acquirer assumes or otherwise continues a participants time-based equity awards and the participants employment is terminated without Cause or the participant resigns for Good Reason during the Change in Control Period, each of the participants time-based equity awards shall be accelerated in full as of the date of the participants separation from service.
In the event that any payment or benefit received or to be received by a participant under the CiC Plan or otherwise would subject the participant to any excise tax pursuant to Section 4999 of the Code due to the characterization of such payments as an excess parachute payment under Section 280G of the Code, the amount of such payments shall be reduced to that the amount which produces the greatest after-tax benefit to the participant. The CiC Plan does not provide for payment of any applicable excise tax by us or other gross-up payments to offset the impact of any applicable excise tax.
The estimated potential amounts payable to our NEOs are described in Estimated Payments Upon Termination Without Cause or Related to a Change in Control below.
Executive Death and Disability Benefits
On February 10, 2015, the Compensation Committee approved a policy providing for a death and disability benefit for the Companys executives, including our NEOs. The Compensation Committee subsequently determined to discontinue this benefit for executives hired after May 4, 2016. Other than Messrs. Davies and Arola, all NEOS who served during fiscal 2016 and all current executive officers of the Company, are entitled to this benefit; provided, however, that Mr. Meyercords death and disability benefit is as set forth in his offer letter described above. This policy provides that, in the event of an executives death or permanent disability (Event), the executive or his or her estate will receive (in addition to any other benefits to which they are entitled): (i) a cash severance payment of 12 months of base salary (6.5 months if the Event occurs after June 30,
2016) or, should the Event occur during a Change in Control Period, 13 months of salary plus 100% of the executives target bonus; (ii) the acceleration of vesting of outstanding time-based unvested equity awards; and (iii) the acceleration of vesting of a certain number of MSU shares granted to the NEO prior to the Event. The number of MSU shares for which vesting shall be accelerated shall be calculated as if the executives employment was terminated in connection with a Change in Control of the Company, as described below. In fiscal 2016, only Messrs. Arola and Rice held MSUs. Mr. Arola forfeited his MSUs when he terminated employment on June 30, 2016. As of the date of this Proxy Statement, Mr. Rice holds 8,900 MSUs.
Executive Severance Policy
On February 11, 2014, the Compensation Committee adopted resolutions to provide the Companys executives (except for Mr. Meyercord who has the severance benefits under his offer letter described above) with certain severance benefits upon a termination of their employment for convenience and other than in connection with a Change in Control of the Company, consisting of severance pay based upon base salary and continuation of certain benefits. On February 10, 2015, the Compensation Committee approved amendments to that severance policy and increased the cash severance payment to be made in the event of a termination for convenience to 12 months of base salary (from 6 months of base salary) through June 30, 2016. On May 4, 2016, the Compensation Committee approved further amendments to the executive severance policy and reduced the severance payment to 6.5 months base salary for employment terminations occurring after June 30, 2016. In addition to the severance payment, the Company currently provides: (i) provision of two months (or up to 6 months for Messrs. Gault and Rice and Ms. Motiey) of substantially similar health insurance benefits and at the same premium cost to the participant as in effect on the date of termination; and (ii) one month of outplacement services. All NEOs are entitled to this benefit as set forth in their offer letters. The Company conditions the receipt of the severance benefits described above on the executives execution and delivery of a general release of claims in the prescribed form.
The terms of certain equity awards made to NEOs may include provisions regarding acceleration of vesting, exercisability and settlement in the event of a Change in Control. Currently, no PSUs are subject to any accelerated vesting and the time-based equity awards are subject to the acceleration as described under the various arrangements above. With respect to the MSUs, in accordance with their award agreement, in the event of a Change in Control (i) the performance achievement and the number of earned shares subject to the MSUs for each Performance Period that has ended on or before the day immediately preceding the Change in Control will be certified by the Compensation Committee and settled prior to the effective time, to the extent the Compensation Committee has not already certified performance and settlement and (ii) each Performance Period that has not ended prior to the day immediately preceding the Change in Control will be shortened to end on the day immediately preceding the Change in Control and the number of earned shares subject to the MSUs will be determined as follows:
In addition, if a NEO is terminated without Cause or resigns for Good Reason during a Change in Control Period (all terms as defined above), then the vesting of each earned share determined in accordance with the third bullet above shall be accelerated (provided that any MSUs that were not earned will not be accelerated pursuant to this sentence).
We have entered into indemnification agreements with our executive officers and directors. These indemnification agreements require us to indemnify these individuals to the fullest extent permitted by law.
Grants of Plan-Based Awards
The following table sets forth certain information with respect to stock and option awards and other plan-based awards, including non-equity incentive awards (cash bonuses), granted to our named executive officers during fiscal 2016. For a narrative description of the various plan-based awards set forth in the following table, see the discussion above under the heading Compensation Discussion and Analysis.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth certain information regarding each unexercised option and all unvested stock awards held by each of our named executive officers as of June 30, 2016:
Option Exercises and Stock Vested During Last Fiscal Year
The following table sets forth certain information concerning vesting of common stock awards (either RSUs, PSUs or MSUs) held by our NEOs during the fiscal year ended June 30, 2016. No options were exercised by our NEOs during fiscal 2016.
Pension Benefits and Nonqualified Deferred Compensation Plans
We do not have any plans with any of our named executive officers that provide for payments or other benefits at, following, or in connection with retirement. We also do not have any defined contribution or other plan with any of our named executive officers that provides for the deferral of compensation on a basis that is not tax-qualified.
Estimated Payments Upon Termination Without Cause or Upon Change in Control
We have entered into agreements and maintain certain plans and policies that entitle our NEOs to certain benefits in the event of (i) a