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Employee Compensation Plans
12 Months Ended
Oct. 29, 2016
Employee Service Share-based Compensation, Aggregate Disclosures [Abstract]  
Compensation and Employee Benefit Plans
Employee Compensation Plans
In April 2009, the stockholders of Brocade approved the Company’s 2009 Stock Plan, 2009 Director Plan, and 2009 Employee Stock Purchase Plan (“2009 ESPP”), and such plans are now part of the Company’s equity compensation plans. The Company’s 1999 Stock Plan, 1999 Director Option Plan, and 1999 Employee Stock Purchase Plan (“1999 ESPP”) each expired in March 2009.
In April 2012, the stockholders of Brocade approved an amendment and restatement of the Company’s 2009 Stock Plan and 2009 ESPP to increase the plans’ share reserves by 35.0 million and 30.0 million shares, respectively.
In January 2013, the Compensation Committee (the “Committee”) of the Board of Directors of Brocade adopted the 2013 Inducement Award Plan. The objective of the plan is to provide incentives to attract, retain, and motivate eligible persons whose potential contributions are important to promote the success of the Company. The 2013 Inducement Award Plan was amended and restated in May 2016 as discussed below.
In April 2015, the stockholders of Brocade approved an amendment and restatement of the Company’s 2009 Stock Plan and 2009 Director Plan to increase the plans’ share reserves by 29.5 million and 1.0 million shares, respectively, as well as change the fungible ratio at which RSUs are deducted from and returned to the plans. The 2009 Director Plan was also amended and restated to eliminate the fixed share initial restricted stock unit award granted in connection with an election or appointment to our Board of Directors, change the formula for calculating the pro-rata annual grant for a new director who first becomes a director other than at an annual meeting, and revise the method of computing the annual restricted stock unit award to a formula based on a set dollar value.
In April 2016, the stockholders of Brocade approved an amendment and restatement of the Company’s 2009 ESPP to increase the plan’s share reserves by 20.0 million shares.
In May 2016, the Board of Directors amended and restated the 2013 Inducement Award Plan, renaming it the “Amended and Restated Inducement Award Plan” (the “Inducement Plan”). As amended and restated, the Inducement Plan permits (i) the issuance of equity awards in connection with acquisition or merger activity that convert, replace, or adjust outstanding equity awards to reflect the acquisition or merger as permitted by Nasdaq Listing Rule 5635(c)(3), (ii) the issuance of “inducement grant” equity awards to new employees of the Company as permitted by Nasdaq Listing Rule 5635(c)(4), and (iii) the issuance of shares available under pre-existing plans acquired by the Company in acquisitions and mergers (“Assumed Shares”) as permitted by Nasdaq Listing Rule 5635(c). In May 2016, 2.4 million Assumed Shares were added to the Inducement Plan, which were assumed by Brocade from the Ruckus Wireless, Inc. Amended & Restated 2012 Equity Incentive Plan.
Inducement Plan
The Inducement Plan provides for the grant of stock options, restricted stock, RSUs, stock appreciation rights, performance units, performance shares, and other stock or cash awards to recipients as the Committee may determine. Per the terms of the plan, as amended, 14.6 million shares of the Company’s common stock are reserved for issuance under the plan, subject to adjustment for stock dividends, stock splits, or other changes in the Company’s common stock or the Company’s capital structure. In addition, the exercise price of stock options and stock appreciation rights granted under the plan must be at least equal to the fair market value of the Company’s common stock on the date of grant. The term, vesting schedule, and other conditions applicable to grants made under this plan are established by the Committee at the time of grant.
2009 Stock Plan
The 2009 Stock Plan provides for the grant of stock options, restricted stock, RSUs, including restricted stock units with market conditions, stock appreciation rights, performance units, performance shares, and other stock or cash awards to employees, directors, and consultants. Per the terms of the 2009 Stock Plan, as amended, 132.5 million shares of the Company’s common stock are reserved for issuance under the plan, plus any shares subject to stock options or similar awards granted under the Company’s 1999 Stock Plan, 1999 Nonstatutory Stock Option Plan (“1999 NSO Plan”), and 2001 McDATA Equity Incentive Plan that expire or otherwise terminate without having been exercised in full, and shares issued pursuant to awards granted under the Company’s 1999 Stock Plan, 1999 NSO Plan, and 2001 McDATA Equity Incentive Plan that are forfeited to or repurchased by the Company, with the maximum number of shares to be added to the 2009 Stock Plan pursuant to this clause equal to 40.3 million shares.
2009 Director Plan
The 2009 Director Plan provides for the grant of stock options and RSUs to non-employee directors of the Company. Per the terms of the 2009 Director Plan, as amended, 3.0 million shares of the Company’s common stock are reserved for issuance under the plan, plus any shares subject to stock options or similar awards granted under the Company’s 1999 Director Option Plan that expire or otherwise terminate without having been exercised in full, and shares issued pursuant to awards granted under the Company’s 1999 Director Option Plan that are forfeited to or repurchased by the Company, with the maximum number of shares to be added to the 2009 Director Plan pursuant to this clause equal to 0.9 million shares.
2009 Employee Stock Purchase Plan
The 2009 ESPP permits eligible employees to purchase shares of the Company’s common stock through payroll deductions for up to 15% of qualified compensation during the offering period. In addition, eligible employees may purchase at a discount of up to 15% of the lesser of the fair market value of the Company’s common stock on (i) the first trading day of the offering period, or (ii) the last day of each purchase period; provided, however, that the purchase price for subsequent offering periods may be determined by the administrator, subject to compliance with the terms of the 2009 ESPP. A total of 85.0 million shares of the Company’s common stock are reserved for issuance under the 2009 ESPP, as amended. The 2009 ESPP is implemented through consecutive, overlapping offering periods. The offering periods generally start with the first trading day on or after June 1 and December 1 each year and end approximately 24 months later, unless the fair market value of the Company’s common stock on the last day of a purchase period is lower than the fair market value of the Company’s common stock on the first trading day of the offering period, in which case the offering period will end early, immediately after the purchase period, and a new offering period will commence on or about such date. Each offering period is divided into four purchase periods of approximately six months in length. Eligible employees may purchase no more than 3,750 shares of the Company’s common stock during each purchase period. As of October 29, 2016, 24.5 million shares were available for issuance under the 2009 ESPP. Employee participation in the 2009 ESPP was suspended effective December 1, 2016, and the 2009 ESPP will terminate upon the completion of the proposed acquisition of the Company by Broadcom. See Note 17, “Subsequent Events,” of the Notes to Consolidated Financial Statements.
Summary of Equity Compensation Plans
The Company may grant stock options, restricted stock awards, and RSUs, including restricted stock units with market conditions, for shares of the Company’s common stock and other types of equity compensation awards to its employees and directors under the various equity compensation plans described above. Effective in April 2015, in accordance with the terms of the 2009 Stock Plan and the 2009 Director Plan, as amended, each award granted other than stock options or stock appreciation rights will count against the applicable plan’s share reserve as 2.03 shares for every one share subject to such award. In addition, the exercise price of stock options and stock appreciation rights granted under the 2009 Stock Plan must be at least equal to the fair market value of the Company’s common stock on the date of grant and the exercise price of incentive stock options granted to any participant who owns more than 10% of the total voting power of all classes of the Company’s outstanding stock must be at least 110% of the fair market value of the Company’s common stock on the date of grant.
The term of a stock option and a stock appreciation right may not exceed seven years, except that, with respect to any participant who owns 10% of the voting power of all classes of the Company’s outstanding capital stock, the term of an incentive stock option may not exceed five years. The majority of the stock options, restricted stock awards, and RSUs granted under the Company’s equity compensation plans vest over a period of three to four years. Certain options and awards granted under the 2009 Stock Plan and the 2009 Director Plan vest over shorter or longer periods.
As of October 29, 2016, and October 31, 2015, approximately 72.4 million and 63.4 million shares, respectively, were authorized for future issuance under the Company’s equity compensation plans, which include stock options, shares to be issued pursuant to the 2009 ESPP, RSUs, and other awards. A total of 39.8 million and 36.8 million shares of common stock were available for grant under the Company’s equity compensation plans as of October 29, 2016, and October 31, 2015, respectively. Awards that expire, or are cancelled without delivery of shares, generally become available for issuance under the Company’s equity compensation plans.
Employee 401(k) Plan
The Company sponsors the Brocade Communications Systems, Inc. 401(k) Plan (“401(k) Plan”), which qualifies under Section 401(k) of the Internal Revenue Code and is designed to provide retirement benefits for its eligible employees through tax-deferred salary deductions.
Employees may elect to contribute up to 60% of their eligible compensation to the 401(k) Plan. Employee contributions are limited to a maximum annual amount as set periodically by the Internal Revenue Service (“IRS”). The Company matches employee contributions dollar for dollar up to a maximum of $3,000 per calendar year per person. All matching contributions vest immediately. The Company’s matching contributions to the 401(k) Plan totaled $9.5 million, $8.7 million, and $8.2 million for the fiscal years ended October 29, 2016October 31, 2015, and November 1, 2014, respectively.