UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
CURRENT REPORT
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| Item 5.02 | Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. |
As previously disclosed, on September 20, 2023, Splunk Inc. (the “Company”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, Cisco Systems, Inc., a Delaware corporation (“Parent”), and Spirit Merger Corp., a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”). Pursuant to the Merger Agreement and subject to the terms and conditions set forth therein, Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly-owned subsidiary of Parent.
CFO Retention Bonus
On December 19, 2023, the Talent and Compensation Committee (“Compensation Committee”) of the Board of Directors of the Company approved a cash retention bonus of $4,000,000 (the “Retention Bonus”) for Brian Roberts, the Senior Vice President and Chief Financial Officer of the Company, and, as of the same date, entered into a bonus agreement with Mr. Roberts (the “Retention Bonus Agreement”).
The Retention Bonus Agreement provides that Mr. Roberts will receive the Retention Bonus, and the Company will deposit the after-tax portion of the Retention Bonus in accordance with the terms of the Section 280G Acknowledgement (as defined and discussed below) on or within one week following December 19, 2023. The Retention Bonus Agreement provides that the net after-tax amount of the Retention Bonus will be subject to forfeiture in the event that Mr. Roberts’ employment with the Company and its subsidiaries terminates prior to the second anniversary of the date on which the Retention Bonus is paid. Subject to Mr. Roberts’ execution of a release of claims in favor of the Company and its subsidiaries, the Retention Bonus Agreement further provides for the lapse of the forfeiture obligation in the event that Mr. Roberts’ employment or service with the Company and its subsidiaries terminates in a manner that would give rise to severance benefits under Section 7 of the Employment Offer Letter between the Company and Mr. Roberts, dated as of January 11, 2023, which is filed as Exhibit 10.19 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2023.
The description of the Retention Bonus Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Retention Bonus Agreement, a copy of which is to be filed as an exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2024.
Compensatory Arrangements of Certain Officers
In connection with certain consequences of the Merger, certain employees of the Company (including the named executive officers and other executive officers) may become entitled to payments and benefits that may be treated as “excess parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (“Section 280G” and the “Code”, respectively). To mitigate the potential impact of Section 280G and Section 4999 of the Code on the Company and its named executive officers, among others, the Compensation Committee on December 19, 2023, approved the acceleration into December 2023 of the vesting and payments of certain annual cash incentive bonuses and equity awards, and other compensation, as applicable, that otherwise would have been payable to each of Gary Steele, Brian Roberts, and Scott Morgan (collectively, the “Executives”) on or prior to the closing of the Merger, as described further below, subject to execution by each of the Executives of a 280G Mitigation Acknowledgement (“280G Acknowledgement”). These actions are intended to benefit the Company by preserving compensation-related corporate income tax deductions for the Company that otherwise might be disallowed through the operation of Section 280G and to mitigate or eliminate the amount of excise tax that may be payable by the Executives pursuant to Section 4999 of the Code in connection with Section 280G in certain circumstances.
In approving the accelerated vesting and payments of certain annual cash incentive bonuses, equity awards and other compensation, the Compensation Committee considered, among other things, the projected value of the compensation-related corporate income tax deductions that otherwise might be lost as a result of the effect of Section 280G and the benefits to the Company of reducing the potential tax burden on the Executives.
The approved accelerated vesting and payments took one or more of the following forms, to the extent applicable to each Executive as outlined here: (a) accelerated vesting and payment of an annual cash incentive bonus for fiscal year 2024 at the target level of performance that would be paid to each applicable Executive in the ordinary course, less any mid-year annual cash incentive bonuses previously paid to the applicable Executive (the “Accelerated Annual Bonus”); (b) accelerated vesting and settlement of (i) all outstanding time-based restricted stock units held by each Executive (the “Accelerated RSUs”), (ii) all outstanding and earned performance-based restricted stock units granted in fiscal years 2021 and 2022 of the Company that were subject only to time-based vesting for each Executive who holds such awards (the “Accelerated FY21-22 PSUs”), (iii) the second tranche of the performance-based restricted stock units that were granted in fiscal year 2023 of the Company at the target level of performance, which would have been eligible to vest in the ordinary course of business on March 10, 2024, for each Executive who holds such awards (the “Accelerated FY23 Tranche 2 PSUs”), (iv) the first tranche of the performance-based restricted stock units that were granted in fiscal year 2024 of the Company at the target level of performance, which would have been eligible to vest in the ordinary course of business on March 10, 2025, for each Executive other than Mr. Roberts (the “Accelerated FY24 Tranche 1 PSUs”), and (v) the first and the second tranche of the performance-based restricted stock units that were granted in fiscal year 2024 of the Company, which would have been eligible to vest in the ordinary course of business on March 10, 2024 and March 10, 2025, respectively, for Mr. Roberts (the “Accelerated FY24 Tranche 1 and 2 PSUs”); and (c) for Mr. Roberts, the accelerated vesting and payment of the Retention Bonus (collectively, the “Accelerated Amounts”). All Accelerated Amounts will be reduced by applicable tax withholdings and are subject to the terms and conditions of the 280G Acknowledgement.
Specifically, the Compensation Committee approved for each Executive the following accelerated vesting and payments:
| ● | For Mr. Steele, a total of $570,600 and 205,285 shares, consisting of: (a) an Accelerated Annual Bonus in the amount of $570,600; (b) 122,852 Accelerated RSUs; (c) 48,017 Accelerated FY23 Tranche 2 PSUs; and (d) 34,416 Accelerated FY24 Tranche 1 PSUs. |
| ● | For Mr. Roberts, a total of $4,291,640 and 147,512 shares, consisting of: (a) an Accelerated Annual Bonus in the amount of $291,640; (b) the Retention Bonus; (c) 59,802 Accelerated RSUs; and (d) 87,710 Accelerated FY24 Tranche 1 and 2 PSUs. |
| ● | For Mr. Morgan, a total of $213,024 and 52,365 shares, consisting of: (a) an Accelerated Annual Bonus in the amount of $213,024; (b) 28,367 Accelerated RSUs; (c) 4,926 Accelerated FY21-22 PSUs; (d) 10,223 Accelerated FY23 Tranche 2 PSUs; and (e) 8,849 Accelerated FY24 Tranche 1 PSUs. |
In connection with the accelerated vesting and payments described above, on December 19, 2023, the Company and each Executive executed a 280G Acknowledgement providing that the Company will deposit the after-tax portion of the Accelerated Amounts with an escrow agent and with such Executive’s after-tax portion of the Accelerated Amounts subject to certain release and forfeiture conditions, as described below.
The 280G Acknowledgement provides that the after-tax portion of the Accelerated Amounts will be released to the applicable Executive on or as soon as administratively practicable following the date(s) on which the applicable portion of the amounts would have vested and been paid to the Executive in accordance with the terms applicable to the Accelerated Amounts absent the mitigation actions described herein. Accordingly, the 280G Acknowledgement further provides that if an Executive’s employment with the Company and its subsidiaries terminates prior to the date on which the applicable portion of the Accelerated Payments would have vested and been paid to the Executive and such termination of employment would have otherwise resulted in the accelerated vesting of the applicable portion of the Accelerated Payments in accordance with the terms applicable to such Accelerated Payments prior to the mitigation actions described herein, then the Accelerated Payments will be released to the Executive. In the event that such termination of employment would not have otherwise resulted in the accelerated vesting of the applicable portion of the Accelerated Payments in accordance with the terms applicable to such Accelerated Payments prior to the mitigation actions described herein, then the Accelerated Payments will be forfeited by the Executive and released to the Company.
The description of the 280G Acknowledgement does not purport to be complete and is qualified in its entirety by reference to the full text of the Form of Section 280G Mitigation Acknowledgement, a copy of which is filed as Exhibit 10.1 herewith and is incorporated by reference herein.
Following the accelerated vesting and payments detailed above, the Company expects to record an expense related to the modification of stock-based compensation arrangements in its fiscal fourth quarter.
| Item 9.01 | Financial Statements and Exhibits. |
(d) Exhibits
| Exhibit No. | Description of Exhibit | |
| 10.1 | Form of Section 280G Mitigation Acknowledgement | |
| 104 | Cover Page Interactive Data File – the cover page XBRL tags are embedded within the Inline XBRL document |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: December 21, 2023
| Splunk Inc. | ||
| By: | /s/ Brian Roberts | |
| Name: | Brian Roberts | |
| Title: | Senior Vice President and Chief Financial Officer | |
Exhibit 10.1
Form of Section 280G Mitigation Acknowledgement
December [●], 2023
As you are aware, on September 20, 2023, Splunk Inc., a Delaware corporation (the “Company”), Cisco Systems, Inc., a Delaware corporation (“Parent”), and Spirit Merger Corp., a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”) entered into an Agreement and Plan of Merger (as may be amended from time to time, the “Merger Agreement”), pursuant to which Merger Sub shall merge with and into the Company (the “Merger”), with the Company surviving the Merger and becoming a wholly-owned subsidiary of Parent, on the terms and subject to the conditions set forth in the Merger Agreement (the “Transactions”).
In connection with the Transactions, certain employees of the Company, including yourself, may become entitled to receive payments that may be considered “excess parachute payments” under Section 280G of the Internal Revenue Code of 1986, as amended (“Section 280G”), which may result in the imposition of an excise tax on such employees, but for mitigation there. On December [●], 2023, the Talent & Compensation Committee of the Board of Directors of the Company approved certain actions to mitigate the potential adverse impact of Section 280G on certain impacted employees, including accelerating the payment of certain compensation to December [●], 2023 that could otherwise have been paid to you in subsequent years.
As described in Section 4 below, the acceleration of your payments is conditioned upon your timely execution of this Section 280G mitigation acknowledgement (this “Acknowledgment”).
| 1. | Accelerated Payment of Certain Compensation |
If you sign this Acknowledgement, the Company agrees to accelerate the vesting and settlement of the following payments to December [●], 2023 (collectively, the “Accelerated Payments”):
| (i) | Payment of your annual cash incentive bonus for fiscal year 2024 of the Company at the target level of performance (which, for the avoidance of doubt, will be trued up and paid directly to you in the ordinary course of business of the Company in the event that the actual level of performance exceeds the target level of performance), less any mid-year annual cash incentive bonus previously paid to you; |
| (ii) | Accelerated vesting and settlement of certain of your outstanding performance-based restricted stock units granted that would have otherwise vested following calendar year 2023 at the target level of performance, as listed on Exhibit A (the “Accelerated PSUs”); [and] |
| (iii) | Accelerated vesting and settlement of certain of your time-based restricted stock units that would have otherwise vested following calendar year 2023, as listed on Exhibit B (the “Accelerated RSUs”)[;and]. |
| (iv) | [Payment of a retention bonus in the amount of $[●].] |
The Accelerated Payments shall offset the corresponding payments, vesting, settlement and/or amounts that you would have otherwise become entitled to receive in the future (whether prior to, upon consummation of, or following the Transactions) so there shall in no event be any duplication of payments, vesting, settlement and/or amounts, provided that there shall be no offset against any amount subject to Section 409A of Internal Revenue Code of 1986, as amended (“Section 409A”) unless such offset is permitted without adverse tax consequences to you under Section 409A of the Code.
| 2. | Escrow Agreement |
(a) As of or immediately following the date of this Acknowledgment, (i) the Company shall deposit the after-tax portion of the Accelerated Payments with PNC Bank, National Association, a national banking association (the “Escrow Agent”) and in accordance with the terms of the escrow agreement (the “Escrow Agreement”), dated as of December [●], 2023, by and between the Escrow Agent and the Company, and (ii) you shall be granted an interest in the property held in escrow (the “Property”). Your interest in the Property consists of the Accelerated Payments, net of applicable tax withholding (which shall be calculated, with respect to the Accelerated PSUs and Accelerated RSUs, in the manner consistent with the Company’s standard past practice applicable to the settlement of restricted stock units), as described in Exhibit A to the Escrow Agreement. For Federal income tax purposes, you shall be treated as the owner of your interest in the Property.
(b) Pursuant to section 83(b) of the Internal Revenue Code of 1986, as amended, you may, on or before January [●], 2024, make an election (an “83(b) Election”) to report the value of your interest in the Property in the form attached hereto as Exhibit C.
(c) If you choose to file an 83(b) Election, (i) it is your sole responsibility, and not the responsibility of the Company or any of its affiliates, to timely file the 83(b) Election even if you request that the Company or any of its affiliates or any of their respective managers, directors, officers, employees, agents or authorized representatives (including attorneys, accountants, consultants, bankers, lenders, prospective lenders or financial representatives) assist in making such filing, and (ii) you shall provide to the Company, on or before January [●], 2024, proof that such election has been timely filed.
| 3. | Release and/or Forfeiture of Accelerated Payment |
(a) Except as provided in this Section 3, a portion of the Property shall be released to you by the Escrow Agent on or as soon as administratively practicable following the date(s) on which the applicable portion of the Accelerated Payments would have been made to you in accordance with the applicable Compensatory Agreement (as defined below) but for the accelerated vesting and settlement provided under this Acknowledgment.
(b) In the event that (i) your employment with the Company and its subsidiaries (and, after the Closing, the Parent and its subsidiaries) terminates prior to the date on which the applicable portion of the Accelerated Payments would have been made to you but for the accelerated vesting and settlement provided under this Acknowledgement and (ii) such termination would have otherwise resulted in accelerated vesting of the applicable portion of the Accelerated Payments in accordance with the terms of the Compensatory Agreements (e.g., you terminate employment with “good reason” or your employment is terminated without “cause”, in either case, in accordance with the terms of the applicable Compensatory Agreement), the Escrow Agent shall release the full corresponding portion of the Property to you in accordance with the terms of the Escrow Agreement.
(c) In the event that (i) your employment with the Company and its subsidiaries (and, after the Closing, the Parent and its subsidiaries) terminates prior to the date on which the applicable payment would have otherwise been made to you but for this Acknowledgment and (ii) such termination would have otherwise resulted in forfeiture of any portion of the Accelerated Payments (or would not otherwise have resulted in accelerated vesting of the applicable portion of the Accelerated Payments) in accordance with the terms of the Compensatory Agreements (e.g., you voluntarily terminate employment without “good reason” or your employment is terminated for “cause”, in either case, in accordance with the terms of the applicable Compensatory Agreement), you shall forfeit the corresponding portion of the Property in accordance with the terms of the Escrow Agreement. If, on or following such forfeiture you make a claim of loss for payment with the Internal Revenue Service (or other similar governmental body), then all amounts of tax recovered upon such claim related to the forfeited Property shall be repaid to the Company within thirty (30) days following receipt of such funds.
2
| 4. | Acknowledgement |
(a) You hereby acknowledge and agree that the Accelerated Payments in Section 1 above shall be subject in all respects to the terms, conditions and requirements described in Section 2 and Section 3 above.
(b) You hereby acknowledge and agree that the plans, arrangements and agreements governing the Accelerated Payments are listed on Exhibit D hereto (collectively, the “Compensatory Agreements”).
(c) You hereby acknowledge that any subsequent changes to Exhibit A to the Escrow Agreement impacting the quantity or timing of release of your Property from the Escrow Account (and only if such change impacts your Property) will require your written consent, and that you may not unreasonably withhold delay, or condition your consent (and, for the avoidance of doubt, it will not be unreasonable to withhold consent in the event that such subsequent changes diminish your existing rights).
(d) This Acknowledgement shall be governed by and construed in accordance with the laws of the State of California without reference to such state’s principles of conflicts of law that would cause the laws of any other jurisdiction to apply.
This Acknowledgement does not constitute legal or tax advice and may not cover all of the factors that any particular individual should or would consider relevant to his or her individual situation. Each individual must evaluate his or her unique situation and make his or her own decisions related to the payments described above and the terms and conditions thereof. This Acknowledgement does not guarantee that no excise tax will be imposed on you. You should seek advice based on your particular circumstances from an independent tax advisor.
[Signature Page Follows]
3
By execution of this Acknowledgement below, the parties agree to the terms and conditions contained herein, as of the date first above written.
| SPLUNK INC. | ||
| By: | [●] | |
| Title: | [●] | |
| EXECUTIVE | ||
| Name: | [●] | |
[Signature Page to Section 280G Mitigation Acknowledgment]
EXHIBIT A
Accelerated PSUs
| Grant ID | Award | Number of PSUs and Level of Performance |
Vesting Date |
5
EXHIBIT B
Accelerated RSUs
| Grant ID | Type of Award | Grant Date | Number of RSUs | Vesting Dates |
6
EXHIBIT C
SECTION 83(b) ELECTION FORM
| CERTIFIED MAIL | ______________, 2023 |
RETURN RECEIPT REQUESTED
Internal Revenue Service Center
Re: Election Under §83(b) of the Internal Revenue Code
Dear Sir or Madam:
The undersigned hereby elects under Section 83(b) of the Internal Revenue Code to include in the taxpayer’s gross income for the taxable year in which the property described below was transferred, the excess (if any), of the fair market value of such property at the time of its transfer, over the amount (if any) paid for such property. Pursuant to Treas. Reg. § 1.83-2(e), the following information is submitted:
| 1. | Name of taxpayer: _________________ |
| 2. | Address of taxpayer: _________________ |
| 3. | Social Security Number: _________________ |
| 4. | Property with respect to which the election is being made: Interest in escrow account consisting of future payments to be received pursuant to plans, arrangements or agreements. |
| 5. | Date Interest Acquired: December [●], 2023 |
| 6. | Taxable Year for which election is being made: calendar year 2023 |
| 7. | Nature of the Restriction or restrictions to which the property is subject: The interest in the escrow account is subject to forfeiture in the even certain service conditions are not satisfied. In addition, the interest in the escrow account is non-transferable. |
| 8. | Fair Market Value of the property at the time of transfer/acquisition, determined without regard to any restriction other than a nonlapse restriction defined in Treasury Regulation Section 1.83-3(h), is: $[●] |
| 9. | Amount paid for the property: $[●] |
Pursuant to Treas. Reg. § 1.83-2(e), a copy of this election has been furnished to the person for whom the undersigned’s services are performed.
| Very truly yours, | |
| [●] |
7
EXHIBIT D
Compensatory Agreements
8
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