| | | Arlo Technologies, Inc. Notice of shares subject to the award, the form of payout,2021 Annual Meeting and other terms and conditions of the award. RSUs result in a payment to a participant only if the vesting criteria the administrator establishes are achieved or the awards otherwise vest. Unless otherwise provided in the award agreement, RSUs subject to only time-based vesting will become fully vested upon termination of a participant’s service for retirement, disability or death.
After the grant of RSUs, the administrator, in its sole discretion, may reduce or waive any restrictions (including vesting criteria) with respect to such RSUs. A participant will forfeit any unearned RSUs as of the date set forth in the award agreement. Payment of earned RSUs will be made as soon as practicable after the date set forth in the award agreement, and, in the administrator’s sole discretion, will be settled in cash, shares of our common stock, or in a combination of both (which will have an aggregate fair market value equal to the earned RSUs).
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TABLE OF CONTENTS Performance Units and Performance Shares
Performance units and performance shares are awards that result in a payment to a participant only if specified performance objectives or other vesting provisions are achieved during a specified performance period. Each award of performance units or shares is evidenced by an award agreement specifying the performance period during which achievement of applicable performance objectives or other vesting criteria will be measured and other terms and conditions of the award. Each performance unit has an initial value established by the administrator on or before the grant date. Each performance share has an initial value equal to the fair market value of a share on the grant date.
The administrator sets performance objectives or other vesting provisions, which may be based upon achieving company-wide, divisional, business unit or individual goals (including continued employment or service), applicable federal or state securities laws, or any other basis the administrator determines in its discretion.
After the applicable performance period has ended, the holder of performance units or shares will be entitled to receive a payout of the number of performance units or shares earned by the participant over the performance period. The administrator, in its sole discretion, may reduce or waive any performance objectives or other vesting provisions for such performance units or shares. Payment of earned performance units or shares will be made as soon as practicable after the end of the applicable performance period, and, in the administrator’s sole discretion, will be made in cash, in shares of equivalent value, or any combination of both (which will have an aggregate fair market value equal to the earned performance units or shares at the close of the applicable performance period). A participant will forfeit all performance units or shares that are unearned or unvested as of the date set forth in the award agreement.
Transferability of Awards Unless otherwise determined by the administrator, awards generally are not transferable other than by will or by the laws of descent or distribution, and may be exercised during the lifetime of the participant, only by the participant. Dissolution or Liquidation In the event of our proposed dissolution or liquidation, the administrator will notify each participant as soon as practicable prior to the effective date of such proposed transaction. An award will terminate immediately prior to the completion of such proposed action to the extent the award has not been previously exercised. Change in Control The 2018 Plan provides that, in the event of a “change in control” (as defined in the 2018 Plan), each award will be treated as the administrator determines, including that: (1) awards may be assumed or substantially equivalent awards will be substituted by the acquiring or succeeding corporation (or an affiliate thereof) with appropriate adjustments to the number and kind of shares and prices; (2) upon written notice to a participant, that the participant’s awards will terminate upon or immediately before the completion of such change in control; (3) outstanding awards will vest and become exercisable, realizable, or payable, or restrictions applicable to an award will lapse, in whole or in part, before or upon completion of such change in control, and, to the extent the administrator determines, terminate upon or immediately before the effectiveness of such merger or change in control; (4) (a) awards will be terminated in exchange for an amount of cash and/or property, if any, equal to the amount that would have been attained upon the exercise of such award or realization of the participant’s rights as of the date the transaction occurs, or (b) awards will be replaced with other rights or property the administrator selects in its sole discretion; or (5) any combination of the foregoing. The administrator will not be required to treat all awards similarly in the transaction. An award will not be considered assumed or substituted for unless: (1) the replacement award is the same type as the replaced award, (2) the replacement award has a value equal to the value of the replaced award as determined by the Compensation Committee in its discretion, (3) if the replaced award was equity-based, the replacement award relates to our publicly traded securities or the publicly traded securities of the surviving entity following the change in control, (4) the replacement award contains terms relating to vesting that are substantially identical to those of the replaced award and (5) if the terms and conditions of the replacement award are not less favorable to the participant than the terms and conditions of the replaced award as of the date of the change in control. TABLE OF CONTENTS
If the successor corporation does not assume or substitute for the award, options and stock appreciation rights will become fully vested and exercisable, all restrictions on restricted stock and restricted stock units will lapse, and, for awards with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels, and all other terms and conditions will be deemed met. In addition, if an option or stock appreciation right is not assumed or substituted for, the administrator will notify the participant that the option or stock appreciation right will be exercisable for a period of time the administrator determines in its sole discretion, and the option or stock appreciation right will terminate upon the expiration of such period. With respect to awards granted to our non-employee directors, in the event of a change in control, the participant will fully vest in and have the right to exercise all of his or her outstanding options and stock appreciation rights, all restrictions on restricted stock and restricted stock units will lapse, and, for awards with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels, and all other terms and conditions met. TABLE OF CONTENTS Termination or Amendment The 2018 Plan will automatically terminate ten years from August 1, 2018, unless terminated earlier by our Board. The administrator may amend, alter, suspend or terminate the 2018 Plan at any time, provided that no amendment may be made without stockholder approval to the extent approval is necessary or desirable to comply with any applicable laws. In addition, no amendment, alteration, suspension or termination may materially impair the rights of any participant unless mutually agreed in writing otherwise between the participant and the administrator. Adjusted Awards With respect to any adjusted awards, to the extent that the terms of the 2018 Plan are inconsistent with the terms of the adjusted award, the terms of the adjusted award are governed by the applicable NETGEAR plan under which the adjusted award was granted and the award agreement pursuant to which the adjusted award was granted. 2018 Employee Stock Purchase Plan In connection with the IPO, ourOur Board has adopted and our stockholders have approved the 2018 Employee Stock Purchase Plan (the “2018 ESPP”),ESPP, which became effective upon the completion of our initial public offering in August 2018 and has terms substantially as set forth below.
Purpose The purpose of our 2018 ESPP is to provide our eligible employees with an opportunity to purchase shares of our common stock through accumulated payroll deductions. We believe that allowing our employees to participate in the 2018 ESPP provides them with a further incentive to ensure our success and accomplish our corporate goals. Shares Available for Issuance On August 1, 2018, in connection with the IPO, we reserved a total of 1,500,000 shares of common stock for issuance under the 2018 ESPP. As of December 31, 2019, 1,475,8502020, 1,124,476 shares of common stock were available for issuance under the 2018 ESPP and on January 1, 2020, pursuant to an “evergreen” provision contained in the 2018 ESPP, a total of 757,751 shares of common stock were automatically added to our 2018 ESPP. The number of shares of our common stock available for issuance under our 2018 ESPP also includes an annual increase on the first day of each fiscal year beginning on January 1, 2019, in an amount equal to the least of: (1) 1,000,000 shares, (2) one percent (1%) of the outstanding shares of our common stock on the last day of the immediately preceding fiscal year and (3) such number of shares as our board of directors may determine; provided, however, that such determination under clause (3) will be made no later than the last day of the immediately preceding fiscal year. On January 1, 2021, a total of 793,294 shares of common stock were automatically added to our 2018 ESPP. Administration Our Board or a committee designated by our Board (referred to herein as the “administrator”) administers the 2018 ESPP. All questions of interpretation or application of the 2018 ESPP are determined by the administrator and its decisions are final and binding upon all participants. | | | Arlo Technologies, Inc. Notice of 2020 Annual Meeting and Proxy Statement 37
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Eligibility Generally, each of our common law employees whose customary employment with us is at least twenty (20) hours per week and more than five (5) months in a calendar year is eligible to participate in the 2018 ESPP; except that no employee will be granted an option under the 2018 ESPP (1) to the extent that, immediately after the grant, such employee would own or have the right to purchase five percent (5%) or more of the total combined voting power or value of all classes of our capital stock or any of our parents or subsidiaries, or (2) to the extent that his or her rights to purchase stock under all of our 2018 ESPP accrues at a rate which exceeds twenty-five thousand dollars ($25,000) worth of stock (determined at the fair market value of the shares at the time such option is granted) for each calendar year in which such option is outstanding at any time. Offering Period Unless the administrator determines otherwise, each offering period during which an option granted pursuant to the 2018 ESPP may be exercised will have a duration of approximately six (6) months. No offering period will commence prior to the date of the distribution. | | | Arlo Technologies, Inc. Notice of 2021 Annual Meeting and Proxy Statement 35 |
TABLE OF CONTENTS Purchase Price Unless and until the administrator determines otherwise, the per share purchase price is eighty-five percent (85%) of the fair market value of a share of common stock on the offering date or the exercise date, whichever is lower; provided, however, that the purchase price may be adjusted by the administrator. Exercise and Payment of the Purchase Right; Payroll Deductions The number of whole shares of common stock that a participant may purchase in each offering period is determined by dividing the total amount of payroll deductions withheld from the participant’s compensation during that offering period by the purchase price. Non-Transferability Neither payroll deductions credited to a participant’s account nor any rights with regard to the exercise of an option or to receive shares under the 2018 ESPP may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or by designation of a beneficiary) by the participant. Withdrawal Generally, a participant may withdraw all but not less than all of his or her payroll deductions credited to his or her account and not yet used to exercise his or her option under the 2018 ESPP for an offering period at any time by written notice prior to the last trading day of the offering period without affecting his or her eligibility to participate in future offering periods. Once a participant withdraws from an offering period, however, that participant may not participate again in the same offering period. To participate in a subsequent offering period, the participant must deliver a new subscription agreement to us. Termination of Employment Upon termination of a participant’s employment for any reason, including death or disability, he or she shall be deemed to have elected to withdraw from the 2018 ESPP and any payroll deductions credited to the participant’s account (to the extent not yet used to purchase shares of our common stock) shall be returned to the participant or, in the case of death, to the person or persons entitled thereto as provided in the 2018 ESPP, and such participant’s option will automatically be terminated. Adjustments upon Changes in Capitalization, Dissolution or Liquidation, or Change in Control Changes in Capitalization. Subject to any required action by our stockholders, in the event of any stock split, reverse stock split, stock dividend, combination or reclassification of our common stock, or any other change in the number of shares of our common stock effected without receipt of consideration by us (provided, however, that conversion of any of our convertible securities shall not be deemed to have been “effected without receipt of consideration”), proportionate adjustments will be made to the purchase price per share and the number and kind of shares of TABLE OF CONTENTS
common stock covered by each option under the 2018 ESPP (which has not yet been exercised), as well as to the number and kind of the shares available for purchase under the 2018 ESPP and the per-person numerical limits on the number of shares that may be purchased under the 2018 ESPP. Dissolution or Liquidation. In the event of our proposed dissolution or liquidation, the offering period then in progress will be shortened by setting a new exercise date on which such offering period will end, unless provided otherwise by the administrator. The new exercise date will be prior to the dissolution or liquidation. If the administrator shortens any offering period then in progress, the administrator will notify each participant in writing, at least ten (10) business days prior to the new exercise date, that the exercise date has been changed to the new exercise date and that the participant’s option will be exercised automatically on the new exercise date, unless the participant has already withdrawn from the offering period. Change in Control. In the event of a “change in control,” as defined in the 2018 ESPP, each option under the 2018 ESPP will be assumed or an equivalent option will be substituted by the successor corporation or a parent or subsidiary of such successor corporation. In the event the successor corporation refuses to assume or substitute for the options, any offering periods then in progress will be shortened by setting a new exercise date on which such offering period will end. The new exercise date will occur prior to the change of control. Further, the administrator TABLE OF CONTENTS will notify each participant in writing, at least ten (10) business days prior to the new exercise date, that the exercise date has been changed to the new exercise date and that the participant’s option will be exercised automatically on the new exercise date, unless the participant has already withdrawn from the offering period. Amendment or Termination of the 2018 ESPP. Our 2018 ESPP will automatically terminate ten years from August 1, 2018, unless terminated earlier by the administrator. The administrator may, at any time and for any reason, terminate, amend or suspend the 2018 ESPP, including the term of any offering period then in progress. Generally, no such termination or amendment can adversely affect options previously granted and stockholder approval will be sought for certain changes as required by applicable law. Participation in 2018 ESPP Arlo employees have participated into NETGEAR’s ESPP in 2018 and completed their participation by the end of the second quarter of fiscal 2018. Shares were purchased under the 2018 ESPP by Arlo employees beginning in 2019, as the program was suspended until the completion of the spin-off.
Participation in Arlo’s 2018 ESPP is voluntary and dependent on each eligible employee’s election to participate and his or her determination as to the level of payroll deductions. An eligible employee can participate in the 2018 ESPP by completing a subscription agreement authorizing payroll deductions and filing it with our payroll office prior to the applicable offering date. Director Compensation Under our non-employee director compensation policy (the “Director Compensation Policy”), which was adopted in August 2018 and amended in October 2018, our non-employee directors are entitled to receive the following compensation components, subject to the terms of the Cooperation Agreement noted below which reduced non-employee director compensation during the term of the Cooperation Agreement.components. Cash Retainer. Our non-employee directors are entitled to receive a $32,000 annual retainer (which was reduced from $40,000 annual retainer.in April 2020). The Chair of the Board and members and Chairs of each committee of the Board also receive the additional annual retainers described below: Chair. The Chair of the Board will receive an additional annual retainer of $50,000. Audit Committee. Each member (including the Chair) of the Audit Committee will receive an annual retainer of $10,000, and the Chair will receive an additional annual retainer of $12,000. Compensation Committee. Each member (including the Chair) of the Compensation Committee will receive an annual retainer of $7,500, and the Chair will receive an additional annual retainer of $7,500. Nominating and Corporate Governance Committee. Each member (including the Chair) of the Nominating and Corporate Governance Committee will receive an annual retainer of $5,000, and the Chair will receive an additional annual retainer of $5,000. | | | Arlo Technologies, Inc. Notice of 2020 Annual Meeting and Proxy Statement 39
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Cybersecurity Committee. Each member (including the Chair) of the Cybersecurity Committee will receive an annual retainer of $10,000, and the Chair will receive an additional annual retainer of $10,000. Pursuant to the Cooperation Agreement, the Company agreed to reduce all such cash retainers by 20% during the term of the Cooperation Agreement. The Cooperation Agreement became effective in May 2019 and terminated in February 2020.
All retainers will beare paid on a quarterly basis following the end of each quarter and beare prorated, as needed, for partial service during such period. Annual Grant. In addition, on an annual basis, each non-employee director who has served oncontinues to serve as a non-employee director following each annual meeting of stockholders of the Board for at least six months at the time of our annual stockholder meetingCompany will be eligible to receive an annual grant of a number of RSUs equal to $180,000 divided by the NYSE closing price of our common stock on the date of thesuch annual stockholder meeting (rounded down to the nearest whole share), which will become fully vested on the date of the following year’s annual stockholder meeting. Pursuant to the Cooperation Agreement, the Company agreed to not issue such annual grants to non-employee directors during the term of the Cooperation Agreement, thus no annual awards were granted in 2019. Initial RSU Grant. Upon joining the Board, each non-employee director will be eligible to receive an initial grant of RSUs (the “Initial Grant”) equal to $180,000 (which was reduced from $360,000 in April 2020), with such dollar amount pro-rated for the date of such initial election or appointment in relation to the date of the previous annual meeting of stockholders, divided by the NYSE closing price of our common stock on the date of grant (rounded down to the nearest whole share), which will vest in three equal annual installments. Pursuant tobecome fully vested on the Cooperation Agreement, the Company agreed that during the termdate of the Cooperation Agreement, in lieu of the aforementioned initial RSUs grant, each non-employee director joining the Board will receive an option to purchase 10,000 shares of the Company’s common stock.next annual stockholder meeting. Continuing Education. In order to encourage continuing director education, we will also establish a budget for external director education of $7,000 over a two-year period for each director. Directors serving on multiple boards | | | Arlo Technologies, Inc. Notice of 2021 Annual Meeting and Proxy Statement 37 |
TABLE OF CONTENTS will be encouraged to obtain pro rata reimbursement of their director education expenses from each corporation that they serve. Biennially, we will arrange a continuing education session for the Board, as a whole, to attend in connection with one of its regularly scheduled meetings. Travel Expenses. Our non-employee directors will be entitled to reimbursement for travel (first-class domestic and business-class international airfare) and other related expenses incurred in connection with their attendance at meetings of our Board and the committees thereof. 2020 Amendment. In April 2020, the Board amended the Director Compensation Policy (the “April 2020 Amendment”). Pursuant to the April 2020 Amendment, the annual cash retainer for general Board service was reduced from $40,000 per year to $32,000 per year (the amount in effect during the term of the Cooperation Agreement), and the Initial Grant was revised to equal the value of the Annual Grant, provided that such Initial Grant will be prorated based on the date that the director is appointed in the calendar year.
The following table details the compensation of our non-employee directors for the 20192020 fiscal year. | Name | | Fees Earned or Paid in Cash ($)(1) | | Stock Awards ($) | | Option Awards Granted ($)(2) | | Total ($) | | Name | | Fees Earned or
Paid in Cash ($)(1) | | Stock Awards
($)(2) | | Option Awards
($) | | Total ($) | | | Ralph E. Faison | | $101,871 | | $— | | — | | $101,871 | | Ralph E. Faison(3) | | $107,259 | | $180,000 | | — | | $287,259 | | | Jocelyn E. Carter-Miller | | $56,354 | | $— | | — | | $56,354 | | Jocelyn E. Carter-Miller(3) | | $56,262 | | $180,000 | | — | | $236,262 | | | Grady K. Summers | | $60,689 | | $— | | — | | $60,689 | | Grady K. Summers(3) | | $61,119 | | $180,000 | | — | | $241,119 | | | Mike Pope | | $58,088 | | $— | | — | | $58,088 | | Mike Pope(3) | | $53,688 | | $180,000 | | — | | $233,688 | | | Prashant Aggarwal | | $54,187 | | $— | | — | | $54,187 | | Prashant Aggarwal(3) | | $60,724 | | $180,000 | | — | | $240,724 | | | Amy M. Rothstein | | $21,173 | | $— | | 25,880 | | $47,053 | | Amy M. Rothstein(3) | | $36,495 | | $180,000 | | — | | $216,495 | |
(1)
| Our non-employee director compensation policy was adopted in August 2018 and amended in October 2018 and April 2020. As discussed above, the fees were reduced by 20% during the term of the Cooperation Agreement. The fees earned by our non-employee directors in 20192020 represent the annual cash retainers discussed above, a portion of which were paid in 2020.2021. |
(2)
| The amounts included in the “Option Awards Granted”“Stock Awards” column represent the full grant date value of optionsawards granted in 20192020 calculated utilizing the provisions of the authoritative guidance for stock compensation FASB ASC718 (without regards to estimates for forfeitures). For a discussion68,965 shares subject to RSUs were granted to each of our non-employee directors in July 2020. Refer to Note 13 in the Notes to Consolidated Financial Statements in Item 8 of Part II of the valuation assumptions, see Note 13Annual Report on the Form 10-K for the year ended December 31, 2019 included in our Annual Report.2020 for the assumptions used to estimate fair value at the grant date. |
(3)
| As of December 31, 2020, 78,429 shares subject to RSUs that were granted to Messrs. Aggarwal and Pope, respectively, were outstanding, 75,289 shares subject to RSUs that were granted to Ms. Cater-Miller and Messrs. Faison and Summers, respectively, were outstanding, and 10,000 shares subject to a stock option and 68,965 shares subject to RSUs that were granted to Ms. Rothstein were outstanding. |
TABLE OF CONTENTS | | | | | | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS | | | | | |
Below we describe transactions since January 1, 20182019 to which we were or will be a participant and in which the amounts involved exceeded or will exceed $120,000, and any of our directors, executive officers, or holders of more than 5% of our capital stock, or any member of the immediate family of, or person sharing the household with, the foregoing persons, had or will have a direct or indirect material interest. We believe that all of these transactions were on terms as favorable as could have been obtained from unrelated third parties. Relationship with NETGEARPrior to the consummation of our initial public offering in August 2018, we operated as an operating segment of NETGEAR. On December 31, 2018, NETGEAR completed the spin-off of our company by means of a special stock dividend of 62,500,000 shares of our common stock that had been owned by NETGEAR to NETGEAR stockholders of record as of the close of business on December 17, 2018. The distribution of the special stock dividend was made on December 31, 2018. Prior to the Distribution, NETGEAR owned approximately 84.2% of the outstanding shares of our common stock. Following the completion of the Distribution, NETGEAR no longer owns any shares of our common stock and is no longer considered a related party.
Arlo and NETGEAR have entered into certain agreements to effect the separation of our business from NETGEAR, provide a framework for our relationship with NETGEAR after the separation and provide for the allocation between us and NETGEAR of NETGEAR’s assets, employees, liabilities and obligations (including its investments, property and employee benefits assets and liabilities) attributable to periods prior to, at and after our separation from NETGEAR.
The material terms of each of these agreements are summarized below. These summaries are qualified in their entirety by reference to the full text of such agreements, which are filed as exhibits to the Annual Report. When used in this section, “separation date” refers to the date on which NETGEAR contributed the Arlo business to us.
Master Separation Agreement
On August 2, 2018, we entered into the Master Separation Agreement with NETGEAR (the “Master Separation Agreement”), which sets forth the agreements between us and NETGEAR regarding the principal corporate transactions required to effect our separation from NETGEAR, our initial public offering, and the Distribution, and other agreements governing the relationship between NETGEAR and us.
The Separation
The Master Separation Agreement identifies assets to be transferred, liabilities to be assumed and contracts to be assigned to each of us and NETGEAR as part of the separation of NETGEAR into two companies, and provides for when and how these transfers, assumptions and assignments will occur. In particular, the Master Separation Agreement provides, among other things, that, subject to certain exceptions and the terms and conditions contained therein:
the assets exclusively related to the businesses and operations of NETGEAR’s Arlo business as well as certain other assets mutually agreed upon by NETGEAR and Arlo, which we collectively refer to as the “Arlo Assets,” will be transferred to Arlo or one of our subsidiaries;
certain liabilities (including whether accrued, contingent or otherwise) arising out of or resulting from the Arlo Assets, and other liabilities related to the businesses and operations of NETGEAR’s Arlo business, which we collectively refer to as the “Arlo Liabilities,” will be retained by or transferred to us or one of our subsidiaries;
all of the assets and liabilities (including whether accrued, contingent or otherwise) other than the Arlo Assets and Arlo Liabilities (such assets and liabilities, other than the Arlo Assets and the Arlo Liabilities, are referred to as the “NETGEAR Assets” and “NETGEAR Liabilities,” respectively) will be retained by or transferred to NETGEAR or one of its subsidiaries; and
certain shared contracts will be assigned in part to us or our applicable subsidiaries or be appropriately amended.
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Except as may expressly be set forth in the Master Separation Agreement or any other transaction agreements, all assets will be transferred on an “as is,” “where is” basis, and the respective transferees will bear the economic and legal risks that (1) any conveyance will prove to be insufficient to vest in the transferee good title, free and clear of any security interest, and (2) any necessary consents or governmental approvals are not obtained or that any requirements of laws or judgments are not complied with.
Claims
In general, each party to the Master Separation Agreement assumes liability for all pending, threatened and unasserted legal matters related to its own business or its assumed or retained liabilities and is obligated to indemnify the other party for any liability to the extent arising out of or resulting from such assumed or retained legal matters.
Intercompany Accounts
Pursuant to the Master Separation Agreement, at or prior to the separation from NETGEAR, all intercompany accounts between NETGEAR and its subsidiaries, on the one hand, and Arlo and its subsidiaries, on the other hand, were settled.
Further Assurances
To the extent that any transfers or assignments contemplated by the Master Separation Agreement have not been consummated on or prior to the date of the separation, the parties will agree to cooperate to effect such transfers as promptly as practicable following the date of the separation. In addition, each of the parties will agree to cooperate with the other party and use commercially reasonable efforts to take or to cause to be taken all actions, and to do, or to cause to be done, all things reasonably necessary under applicable law or contractual obligations to consummate and make effective the transactions contemplated by the Master Separation Agreement and the other transaction agreements.
Initial Public Offering
The consummation of our initial public offering was subject to the satisfaction (or waiver by NETGEAR in its sole discretion) of certain conditions, each of which was met or validly waived by NETGEAR. We consummated our initial public offering in August 2018.
The Distribution
NETGEAR’s obligation to complete the Distribution was subject to several conditions that must be satisfied (or waived by NETGEAR in its sole discretion), each of which was met or validly waived by NETGEAR. On December 31, 2018, NETGEAR announced that it had completed the Distribution.
Releases
The Master Separation Agreement provides that, except as otherwise provided in the Master Separation Agreement or any other transaction agreements, each party will release and forever discharge the other party and its respective subsidiaries and affiliates from all liabilities existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the separation from NETGEAR. The releases will not extend to obligations or liabilities under any agreements between the parties that remain in effect following the separation, which agreements include, but are not limited to, the Master Separation Agreement, the Transition Services Agreement, the Tax Sharing Agreement, and the transfer documents in connection with the separation.
Financial Covenants; Auditors and Audits; Annual Financial Statements and Accounting
We agreed that, while NETGEAR was required to consolidate our results of operations and financial position or account for its investment in our company under the equity method of accounting, we would comply with certain financial covenants.
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Intellectual Property Matters
We and NETGEAR continued collaborating on certain technology projects during the period between August 2018 and December 2018, which resulted in the creation of new intellectual property rights. At the end of this collaboration period, we met and determined in good faith what newly created intellectual property rights owned by each party arose from the collaboration, and such newly created intellectual property rights will be licensed under the license agreement.
Indemnification
In addition, the Master Separation Agreement provides for cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of our business with us and financial responsibility for the obligations and liabilities of NETGEAR’s business with NETGEAR. Specifically, each party will indemnify, defend and hold harmless the other party, its affiliates and subsidiaries and their respective officers, directors, employees and agents (collectively, the “indemnified parties”) for any losses arising out of or otherwise in connection with:
the liabilities that each such party assumed or retained pursuant to the master separation agreement (which, in our case, would include the Arlo Liabilities and, in the case of NETGEAR, would include the NETGEAR Liabilities) and the other transaction agreements;
the failure of NETGEAR or us to pay, perform or otherwise promptly discharge any of the NETGEAR Liabilities or the Arlo Liabilities, respectively, in accordance with their terms, whether prior to, at or after the separation;
any breach by such party of the master separation agreement or the other transaction agreements (other than the intellectual property rights cross-license agreement, which specifies the parties’ obligations therein); and
except to the extent relating to an Arlo Liability, in the case of NETGEAR, or a NETGEAR Liability, in our case, any guarantee, indemnification or contribution obligation, surety bond or other credit support agreement or arrangement for the benefit of NETGEAR or us, respectively.
We will also indemnify, defend and hold harmless the NETGEAR indemnified parties for any losses arising out of or otherwise in connection with any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, with respect to all information (1) contained in our registration statement on Form S-1 (File No. 333-226088), or any prospectus (other than information provided by NETGEAR to us specifically for inclusion in our registration statement on Form S-1 (File No. 333-226088), or any prospectus), (2) contained in any of our public filings with the SEC, or (3) provided by us to NETGEAR specifically for inclusion in NETGEAR’s annual or quarterly or current reports following our initial public offering to the extent (A) such information pertains to us or the Arlo business or (B) NETGEAR has provided prior written notice to us that such information will be included in one or more annual or quarterly or current reports, specifying how such information will be presented, and the information is included in such annual or quarterly or current reports (except, in the case of clause (B), for liabilities arising out of or resulting from, or in connection with, any action or inaction of any member of NETGEAR, including as a result of any misstatement or omission of any information by NETGEAR to us).
NETGEAR will also indemnify, defend and hold harmless the Arlo indemnified parties for any losses arising out of or otherwise in connection with any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, with respect to all information (1) contained in our registration statement on Form S-1 (File No. 333-226088), or any prospectus provided by NETGEAR specifically for inclusion therein to the extent such information pertains to (A) NETGEAR or (B) NETGEAR’s business (for the avoidance of doubt, other than the Arlo business) or (2) provided by NETGEAR to us specifically for inclusion in our annual or quarterly or current reports following our initial public offering to the extent (A) such information pertains to (x) NETGEAR or (y) NETGEAR’s business (for the avoidance of doubt, other than the Arlo business) or (B) we have provided written notice to NETGEAR that such information will be included in one or more annual or quarterly or current reports, specifying how such information will be presented, and the information is included in such annual or quarterly or current reports (except, in the case of clause (B), for liabilities arising out of or resulting from, or in connection with, any action or inaction of ours, including as a result of any misstatement or omission of any information by us to NETGEAR.
The Master Separation Agreement also specifies procedures with respect to claims subject to indemnification and related matters.
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Other Provisions
The Master Separation Agreement also governs the provision and retention of records, access to information, confidentiality, cooperation with respect to governmental filings and third-party consents and insurance.
Termination
The Master Separation Agreement may be terminated by NETGEAR. The Master Separation Agreement provides that, in the event of a termination of the Master Separation Agreement on or after the completion of our initial public offering, (1) only the provisions of the Master Separation Agreement that obligate the parties to pursue the distribution will terminate and (2) the other provisions of the Master Separation Agreement and the other transaction agreements that NETGEAR and we enter into will remain in full force and effect.
Transition Services Agreement
In August 2018, we entered into a Transition Services Agreement with NETGEAR (the “Transition Services Agreement”) pursuant to which NETGEAR provides us, and we provide NETGEAR, with specified services for a limited time to help ensure an orderly transition following the separation. The Transition Services Agreement specifies the calculation of our costs for these services. The cost of these services will be negotiated between us and NETGEAR.
In general, the services began in August 2018 and will cover a period generally not expected to exceed 12 months following the Distribution. We and NETGEAR have agreed to perform our respective services with substantially the same nature, quality, standard of care and service levels at which the same or similar services were performed by or on behalf of us or NETGEAR, as applicable, prior to the separation or, if not so previously provided, then substantially similar to those which are applicable to similar services provided to the affiliates or other business components of us or NETGEAR, as applicable.
The Transition Services Agreement generally provides that the applicable service recipient indemnifies the applicable service provider for liabilities that such service provider incurs arising from the provision of services other than liabilities arising from such service provider’s gross negligence, bad faith or willful misconduct or material breach of the transition services agreement, and that the applicable service provider indemnifies the applicable service recipient for liabilities that such service recipient incurs arising from such service provider’s gross negligence, bad faith or willful misconduct or material breach of the transition services agreement.
Tax Matters Agreement
In August 2018, we entered into a Tax Matters Agreement with NETGEAR (the “Tax Matters Agreement”) that governs our respective rights, responsibilities and obligations with respect to tax matters (including responsibility for taxes attributable to us and our subsidiaries, entitlement to refunds, allocation of tax attributes, preparation of tax returns, control of tax contests and other matters).
We agree in the Tax Matters Agreement to be responsible for and to indemnify NETGEAR for: (i) all income taxes imposed with respect to any consolidated, combined, or unitary tax return of NETGEAR or any of its subsidiaries that includes us or any of our subsidiaries to the extent attributable to us or any of our subsidiaries, as determined under the tax matters agreement, and (ii) all taxes imposed with respect to any of our subsidiaries’ consolidated, combined, unitary, or separate tax returns, in each case, for any taxable period (or portion thereof) beginning after July 2, 2018.
The Tax Matters Agreement provides special rules that allocate tax liabilities in the event the Distribution, together with certain related transactions, fails to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code. We agree that each party will be responsible for any taxes and related amounts imposed on us or NETGEAR as a result of the failure to so qualify, to the extent that the failure to so qualify is attributable to actions, events or transactions relating to such party’s respective stock, assets or business, or a breach of the relevant representations or covenants made by that party in the tax matters agreement.
In addition, we agree that we and our subsidiaries will be subject to certain restrictions during the two-year period following the Distribution that are intended to prevent the Distribution, together with certain related transactions, from failing to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code. Specifically, during such period, except in specific circumstances or unless NETGEAR waives our obligation to comply with such restrictions, we expect that we and our subsidiaries will
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generally be prohibited from: (i) ceasing to conduct certain businesses, (ii) entering into certain transactions or series of transactions pursuant to which all or a portion of our common stock would be acquired or all or a portion of certain of our and our subsidiaries’ assets would be acquired, (iii) liquidating, merging or consolidating with any other person, (iv) issuing equity securities beyond certain thresholds, (v) repurchasing our stock other than in certain open-market transactions or (vi) taking or failing to take any other action that would cause the distribution, together with certain related transactions, to fail to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Section 355 and 368(a)(1)(D) of the Code.
Employee Matters Agreement
In August 2018, we entered into an Employee Matters Agreement with NETGEAR that addresses employment, compensation and benefits matters, including the allocation and treatment of assets and liabilities relating to employees and compensation and benefit plans and programs in which our employees participated in prior to the Distribution, as well as other human resources, employment and employee benefit matters.
The Employee Matters Agreement generally provides, unless otherwise specified, that following July 2, 2018: (1) NETGEAR will be responsible for liabilities associated with employees employed by NETGEAR on and following July 2, 2018 and all former employees of NETGEAR (including former employees of the Arlo business) who terminated employment prior to July 2, 2018 and (2) Arlo will be responsible for liabilities associated with employees employed by Arlo on and following July 2, 2018 and all former employees of Arlo who terminate employment on or following July 2, 2018. Between July 2, 2018 and the date of the Distribution, Arlo employees continued to participate in the NETGEAR health, welfare and retirement benefit plans and the cost of the participation of Arlo employees in such plans will be borne by Arlo.
Generally, subject to limited exceptions, following the effective time of the Distribution Arlo employees participate in Arlo’s health, welfare and retirement plans and Arlo is responsible for all liabilities relating to such plans.
The Employee Matters Agreement also describes how NETGEAR equity-based compensation awards were adjusted in connection with the Distribution.
Intellectual Property Rights Cross-License Agreement
In August 2018, we entered into an Intellectual Property Rights Cross-License Agreement with NETGEAR (the “Cross-License Agreement”), which governs our and NETGEAR’s respective rights, responsibilities and obligations with respect to certain patents, copyrights, trade secret and intellectual property rights (other than trademarks).
Pursuant to the Cross-License Agreement, NETGEAR and Arlo, as the case may be (in such capacity, a “licensor”), granted the other party and its subsidiaries (in such capacity, the “licensee”), subject to certain limitations with respect to patents and certain core software described below, a non-exclusive, royalty free, irrevocable, worldwide license to licensor’s intellectual property rights to permit the licensee to continue the current and future operation of the licensee’s business, including to make, sell and otherwise produce and commercialize its products. The license to the licensor’s intellectual property rights (other than to patents and core software) may be sub-licensed to third parties by the licensee in the ordinary course of licensee’s business.
Our license to NETGEAR and its subsidiaries includes a license to all of our patents and patents arising from our applications that exist at the time of the separation, and NETGEAR’s license to us includes a license to any NETGEAR patent practiced by our business or products and any patent arising from a NETGEAR application related to our business or products as of the time of the separation. The license to a licensor’s patents includes a limitation that the licensee may not sub-license its license to third parties. The license to certain identified software of each party which is core to such party’s products (“core software”) includes the limitation that the licensee may not redistribute or sub-license the source code for such core software to a third party.
The Cross-License Agreement is transferable by a party in a change of control, provided that the licenses to patents and the core software will not extend to the acquiring party’s products or services.
All licenses granted to a licensee extend to any entity that is a subsidiary of the licensee for so long as such entity is a subsidiary. If a subsidiary that is actively engaged in a line of business ceases to be a subsidiary of the licensee (NETGEAR or Arlo, as the case may be), such entity may retain the licenses granted to it, but only with respect to the line of business in which it is engaged at the effective time of it ceasing to be a subsidiary, and provided that such
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entity and its acquiror (in the event it ceases to be a subsidiary as a result of being acquired by a third party), agree in writing to be bound by the terms of the intellectual property rights cross-license agreement. If the entity is acquired by a third party, the sub-license will not extend to the acquiror’s products, business or operations.
The licenses are granted by the licensor on an as-is basis and without any warranty. The Cross-License Agreement also provides that each party, in its capacity as a licensee, will indemnify the other party, in its capacity as a licensor, and its directors, officers, agents, successors and subsidiaries against any losses suffered by such indemnified party as a result of the indemnifying party’s practice of the intellectual property licensed to such indemnifying party under the intellectual property rights cross-license agreement.
Registration Rights Agreement
In August 2018, we entered into a Registration Rights Agreement with NETGEAR (the “Registration Rights Agreement”), containing customary representations, warranties and covenants, pursuant to which we granted NETGEAR and its affiliates certain registration rights with respect to our common stock owned by them. We refer to these shares as “registrable securities,” and we refer to the holders of these registrable securities as “holders.”
The Registration Rights Agreement provides that each holder is entitled to unlimited piggyback registration rights with respect to its registrable securities, such that each holder can include its registrable securities in registration statements filed by us, including registration effected by us for security holders other than holders, subject to certain limitations. The Registration Rights Agreement also grants NETGEAR and its subsidiaries that hold registrable securities demand registration rights requiring that we register registrable securities held by holders and take all actions reasonably necessary or desirable to expedite or facilitate the disposition of registrable securities. NETGEAR and its subsidiaries that hold registrable securities may request up to two registrations in any 12-month period, subject to certain limitations. Our obligation to effect demand registration rights will not be relieved to the extent we effect piggyback registration rights.
We will pay the costs incident to our compliance with the registration rights agreement but the holders will pay for any underwriting discounts or commissions or transfer taxes associated with all such registrations.
Pursuant to the Registration Rights Agreement, we will indemnify NETGEAR and its subsidiaries that hold registrable securities (and their directors, officers, agents and, if applicable, each other person who controls such holder under Section 15 of the Securities Act of 1933, as amended (the “Securities Act”) registering shares pursuant to the Registration Rights Agreement) against certain losses, expenses and liabilities under the Securities Act, common law or otherwise. Holders will similarly indemnify us but such indemnification will be limited to an amount equal to the net proceeds received by such holder under the sale of registrable securities giving rise to the indemnification obligation.
Employment Arrangements We currently have written confirmatory employment letters with our executive officers. For information about our employment agreements with our named executive officers, refer to “Executive Compensation - Agreements with our Named Executive Officers.” Equity Awards Granted to Executive Officers and Directors We have granted stock options and RSUs to our executive officers and directors. For information about our stock option and RSU awards to our named executive officers and our directors, refer to “Executive Compensation-Outstanding Equity Awards at Fiscal Year-End” and “Executive Compensation-Non-Employee Director Compensation.” Indemnification Agreements We have entered, and intend to continue to enter, into separate indemnification agreements with our directors and executive officers, in addition to the indemnification provided for in our amended and restated certificate of incorporation and amended and restated bylaws. These agreements, among other things, require us to indemnify our directors and executive officers for certain expenses, including attorneys’ fees, judgments, fines and settlement amounts incurred by a director or executive officer in any action or proceeding arising out of their services as one of TABLE OF CONTENTS
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our directors or executive officers or as a director or executive officer of any other company or enterprise to which the person provides services at our request. We believe that these provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might benefit us and our stockholders. A stockholder’s investment may decline in value to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. Policies and Procedures for Related Person Transactions We have a general policy that all material transactions with a related party, as well as all material transactions in which there is an actual, or in some cases, perceived, conflict of interest, will be subject to prior review and approval by our Audit Committee and its independent members, who will determine whether such transactions or proposals are fair and reasonable to our company and our stockholders. In general, potential related-party transactions will be identified by our management and discussed with our Audit Committee at its meetings. Detailed proposals, including, where applicable, financial and legal analyses, alternatives and management recommendations, will be provided to our Audit Committee with respect to each issue under consideration, and decisions will be made by our Audit Committee with respect to the foregoing related-party transactions after opportunity for discussion and review of materials. When applicable, our Audit Committee will request further information and, from time to time, will request guidance or confirmation from internal or external counsel or auditors. As of December 31, 2019, NETGEAR was no longer considered to be a related party to Arlo.
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TABLE OF CONTENTS | | | | | | HOUSEHOLDING OF PROXY MATERIALS | | | | | |
The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for Notices of Internet Availability of Proxy Materials or other Annual Meeting materials with respect to two or more stockholders sharing the same address by delivering a single setNotice of Internet Availability of Proxy Materials or other Annual Meeting materials addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost savings for companies. This year, a number of brokers with account holders who are Arlo stockholders will be “householding” the Company’s proxy materials. A single setNotice of Annual Meeting materialsInternet Availability of Proxy Materials will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker that they will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in “householding” and would prefer to receive a separate setNotice of Annual Meeting materials,Internet Availability of Proxy Materials, please notify your broker or Arlo. Direct your written request to Arlo Technologies, Inc., Attn: Secretary, 3030 Orchard Parkway, San Jose, California 95134 or call us at (408) 890-3900 and we will promptly deliver the requested documents or notice. Stockholders who currently receive multiple copies of the Annual Meeting materialsNotice of Internet Availability of Proxy Materials at their addresses and would like to request “householding” of their communications should contact their brokers. TABLE OF CONTENTS The Board knows of no other matters that will be presented for consideration at the Annual Meeting. If any other matters are properly brought before the meeting, it is the intention of the persons named in the accompanying proxy to vote on such matters in accordance with their best judgment. | | | | By Order of the Board of Directors, | | | | | | | | /s/ Matthew McRae | | | | Matthew McRae | | | | Chief Executive Officer and Director | | | |
May 19, 2020April 29, 2021
A copy of the Company’s Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended December 31, 20192020 is available without charge upon written request to: Arlo Technologies, Inc., Attn: Secretary, 3030 Orchard Parkway, San Jose, California 95134. | | | Arlo Technologies, Inc. Notice of 20202021 Annual Meeting and Proxy Statement 4941 |
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