This excerpt taken from the NFLX DEF 14A filed Mar 31, 2006.
APPROVAL OF THE AMENDED AND RESTATED 2002 STOCK PLAN
Stockholders are being asked to approve the amendment and restatement of the Companys 2002 Stock Plan (the Plan) so that the Company can use it to achieve its goals of attracting and retaining the best available personnel for positions of substantial responsibility, providing additional incentive to our employees, directors and consultants, and promoting the success of the Companys business, as well as to provide the Company with the ability to grant certain performance-based awards that are fully deductible for federal income tax purposes. The primary purposes of the changes to the Plan are (i) to remove the Plan provisions that provide for automatic annual increases in the number of shares available, (ii) to prohibit the repricing of stock options without stockholder approval, (iii) to increase the limitation on the number of options that can be granted annually to any individual from 1,000,000 to 1,500,000 or in connection with his or her initial service from 333,333 to 500,000, and (iv) to allow the Plan to qualify for purposes of Section 162(m) of the Internal Revenue Code, as amended (the Code). Under the proposed amendments, the Company is not seeking any additional shares with which awards may be made nor is it seeking to extend the term of the Plan. While there are a number of factors impacting the rate at which awards are granted under the Plan, including fluctuations in the fair market value of the stock price, the Company believes the number of shares available under the Plan will be adequate to meet its needs for the next three to five years. The Company will request stockholder approval if and when additional shares are needed. The Companys executive officers and directors have an interest in this proposal because they are eligible to receive options and stock purchase rights under the Plan.
Awards granted under the Plan may be designated to qualify as performance based compensation within the meaning of Section 162(m). Under Section 162(m), the Company may not receive a federal income tax deduction for compensation paid to the Companys Chief Executive Officer or any of the four next most highly compensated executive officers to the extent that any of these persons receives more than $1 million in any one year. However, the Company can preserve the deductibility of compensation over $1 million if the conditions of Section 162(m) are met. These conditions include stockholder approval of the Plan and setting limits on the number of options that any individual may receive. The Plan has been designed to satisfy the conditions of Section 162(m) with respect to options. The Board approved these changes to the prior version of the Plan, subject to approval from our stockholders at the Annual Meeting. If the stockholders approve the amended and restated Plan, it will replace the current version of the Plan. Otherwise, the current version of the Plan will remain in effect.
The Plan is attached as Appendix A to this proxy statement. The following summary of the Plan does not contain all of the terms and conditions of the Plan and is qualified in its entirety by reference to the Plan. You should refer to Appendix A for the complete terms and conditions of the Plan.