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NETFLIX INC 8-K Report, Material Agreement (Dec 30, 2013)

Filed December 30, 2013For Securities:NFLX

Summary

Netflix, Inc. (NFLX) filed an 8-K on December 30, 2013, primarily to announce the early termination of its Preferred Shares Rights Agreement. This agreement, originally established in November 2012 and set to expire in November 2015, involved preferred share purchase rights that are now expiring on December 30, 2013. This action effectively dissolves the "poison pill" mechanism that was in place. Additionally, the filing disclosed the established annual salaries and stock option allowances for its Named Executive Officers for 2014. This includes significant compensation packages for key executives like Reed Hastings and Ted Sarandos, with provisions for employees to elect to receive up to 50% of their annualized compensation in stock options. The company also noted its intention to file a Certificate of Elimination to remove the Series A Participating Preferred Stock associated with the expired Rights Agreement.

Key Highlights

  • 1Netflix terminated its Preferred Shares Rights Agreement early, with the associated preferred share purchase rights expiring on December 30, 2013.
  • 2The termination of the Rights Agreement effectively removes a "poison pill" provision from the company's capital structure.
  • 3Compensation for Named Executive Officers for 2014 was disclosed, including base salaries and substantial stock option allowances.
  • 4CEO Reed Hastings's 2014 compensation includes a $3 million salary and a $3 million stock option allowance ($250,000 monthly).
  • 5Chief Content Officer Ted Sarandos and Chief Financial Officer David Wells also have notable salary and stock option packages.
  • 6Employees, including Named Executive Officers, have the option to receive up to 50% of their annualized compensation in stock options, which are fully vested upon grant.
  • 7Netflix plans to file a Certificate of Elimination to remove the Series A Participating Preferred Stock.

Frequently Asked Questions

The 8-K filing indicates an amendment to the Rights Agreement that accelerates the expiration of the preferred share purchase rights. While the specific strategic reasons are not detailed in this filing, early termination of such agreements often suggests management's belief that the "poison pill" is no longer necessary or may hinder future strategic flexibility or shareholder actions.

The termination means that the "poison pill" provision, which was designed to prevent hostile takeovers by diluting the acquirer's stake, is no longer in effect. For shareholders, this could potentially make the company a more attractive takeover target in the future, depending on market conditions and the company's valuation.

In 2014, Named Executive Officers will receive annual salaries and monthly stock option allowances. For example, CEO Reed Hastings has a $3,000,000 annual salary and a $3,000,000 annual stock option allowance. All Named Executive Officers can elect to receive up to 50% of their annualized total compensation in stock options, which are fully vested upon grant and exercisable for 10 years.

No, the company intends to file a Certificate of Elimination to eliminate the Series A Participating Preferred Stock promptly following the expiration of the Rights and termination of the Rights Agreement. This will return these shares to authorized but undesignated preferred stock.