Summary
Cloudflare, Inc. (NET) has filed an 8-K report detailing the grant of 10-year performance-based stock options to its Co-Founders, CEO Matthew Prince and President/COO Michelle Zatlyn. These options, totaling 3,960,000 shares each, are designed to align executive incentives with significant long-term stockholder value creation. The vesting of these options is contingent upon the achievement of ambitious stock price milestones, ranging from $156.00 to $979.00 per share, and continued service in primary leadership positions. The structure is back-weighted, with larger tranches vesting at higher stock price targets, rewarding exceptional performance.
Key Highlights
- 1Grant of 10-year performance-based stock options to CEO Matthew Prince and President/COO Michelle Zatlyn.
- 2Total of 3,960,000 shares subject to performance options for each Co-Founder.
- 3Vesting is tied to achieving significant stock price milestones, with the highest target at $979.00 per share.
- 4Options require approval from 'Disinterested Stockholders' at a 2022 shareholder meeting; failure to approve leads to forfeiture.
- 5No increase to the company's equity plan share reserve is being sought.
- 6Exercise price set at $136.81 per share, reflecting the closing price on the grant date.
- 7Performance targets are based on a 90-day volume-weighted average closing stock price.
Frequently Asked Questions
The performance awards are designed to incentivize Cloudflare's Co-Founders, CEO Matthew Prince and President/COO Michelle Zatlyn, to drive significant long-term stockholder value creation by linking a substantial portion of their potential compensation to achieving ambitious stock price targets over a 10-year period.
Vesting is contingent upon two main conditions: 1) the achievement of specific, pre-established stock price targets for eight separate tranches, ranging from $156.00 to $979.00, and 2) the Co-Founder's continued service in a primary leadership position with the company. There are also time-based vesting requirements, where 1/6th of the total shares vest annually, subject to continued service.
The Performance Awards must be approved by a majority of the voting power held by 'Disinterested Stockholders' (those excluding the Co-Founders, other executive officers, and their affiliates) at a 2022 shareholder meeting. This is a standard governance practice to ensure significant equity grants to top executives are ratified by a broader base of shareholders.
The awards generally require 'continued eligible service.' However, if a Co-Founder's service ends due to death or disability, their options can remain outstanding and eligible to vest based on stock price achievement for up to 18 months following the termination date. In the event of a change in control, time-based vesting requirements are waived, and stock price targets are measured against the change in control price.