MRVC Mrv Communications, Inc. (MM)

SECURITY OWNERSHIP OF CERTAI N BENEFICIAL OWNERS AND MANAGEMENT

Stock Ownership Guideline s

We encourage our directors, officers and employees to own our Common Stock, as we believe that owning Common Stock aligns their interest with the interests of our stockholders. To emphasize this point, the Board of Directors implemented stock ownership guidelines in November 2011 for our directors and officers. The guidelines require directors to hold equity in MRV with a value equal to three times their annual cash retainer prior to being able to sell shares issued upon exercise of stock options, restricted shares or other equity grants received after the date of implementation of the policy. Our Chief Executive Officer must hold equity in MRV with a value equal to five times his annual base salary, our Chief Financial Officer and our Chief Operating Officer are required to hold three times their annual base salaries, and senior vice presidents and vice presidents are required to hold equity with a value equal to two times their annual base salaries, prior to being able to sell shares issued upon exercise of stock options, restricted shares or other equity grants received after the date of implementation of the policy. After directors and officers obtain the threshold stock ownership amounts, they may sell up to 40% of their shares issued upon exercise of stock options, restricted shares and other equity grants received after the date of implementation of the policy, subject to the Company’s Insider Trading Policy. The policy includes a hardship provision for limited circumstances.

* Less than 1%

Information regarding the Company’s securities that are issuable under stockholder‑approved and non‑stockholder approved plans is set forth in Item 5 “Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of the Company’s Annual Report on Form 10‑K for the year ended December 31, 2016.

INFORMATION ABOUT THE BOARD OF DIRECTORS AND ITS COM MITTEES

The Committees Generally and Their Member s

Our system of governance practices is documented in the MRV Communications, Inc. Corporate Governance Policies (the “Governance Policies”) and the charters of the Audit Committee, Compensation Committee and Nomination and Governance Committee, all of which are available on MRV’s website at www.mrv.com . The Governance Policies and charters are intended to ensure that the Board of Directors will have the necessary authority and procedures in place to review and evaluate MRV’s business operations and to make decisions that are independent of our management. The Governance Policies also are intended to align the interests of directors and management with those of MRV’s stockholders. The Governance Policies establish the procedures the Board of Directors will follow with respect to Board composition and selection, Board meetings and involvement of senior management, committees of the Board of Directors, director compensation, and the Chief Executive Officer’s performance evaluation. Each of the committee charters addresses annual reviews of the committees and the Nomination and Governance Committee charter gives authority to that committee to recommend to the Board of Directors the process for an annual self‑evaluation of the Board of Directors’ performance and the performance of each of the committees. The Governance Policies and committee charters are reviewed from time to time and updated as necessary to reflect changes in regulatory requirements and evolving oversight practices. The Compensation Committee charter was most recently modified by the Board of Directors in December, 2013. The Audit Committee and Nomination and Governance committee charters were most recently modified by the Board of Directors in November, 2011 and the Governance Policies in October, 2009.

The Board of Directors has a standing Audit Committee, Compensation Committee and Nomination and Governance Committee. The Audit Committee, Compensation Committee and Nomination and Governance Committee hold regularly scheduled meetings, and special meetings may be held from time to time as the Board of Directors or its committees deem necessary. At regularly scheduled Board of Directors meetings, time is set aside for the independent directors to meet in an executive session without management present.

The Board of Directors met 13 times during 2016 in person or telephonically, and did not act by unanimous written consent in 2016. No director attended fewer than 75 percent of the meetings of the Board of Directors and the meetings of the committees on which they served during 2016.

In November 2009, the Board of Directors made the position of Chairman of the Board independent from the position of Chief Executive Officer. Mr. Traub is currently the Chairman of the Board and has held such role since January 2012. In such role, Mr. Traub is responsible for coordinating the activities of the directors, coordinating with the Chief Executive Officer to set the agenda for Board of Directors’ meetings, chairing meetings of the Board, and leading the Board’s review of the performance of the Chief Executive Officer.

If, in the future, the Chairman of the Board of Directors is no longer independent, the Company’s Governance Policies provide that a lead independent director shall be designated who would then assume the responsibilities set forth above.

As a general matter, the Board of Directors has oversight responsibility with respect to risk management and is not responsible for the day‑to‑day management of risk issues, which is the responsibility of management. However, the Board of Directors directed that an analysis be conducted to identify key enterprise risks and mitigation strategies, and that an enterprise risk management plan be developed for the Company. The review and plan was completed and presented to the Board in 2010, and further review is expected to occur in the future from time to time. The Board retains oversight of implementation and maintenance of the plan. Further, the Board of Directors approved a Transactional Authority Matrix for the Company in 2010, which is amended from time to time, that identifies in detail certain transactions or actions that require various members of management, the committees of the Board and/or the Board itself to review and approve. The Board also focuses on and discusses certain key areas of risk related to the Company’s annual operating plan and these areas of risk are periodically addressed and reviewed on an on‑going basis.

The current members of the Board of Directors, and the main committees of the Board of Directors on which they serve, are identified below:

Audit Committe e

The Audit Committee assists the Board of Directors in its oversight of the quality and integrity of MRV’s accounting, auditing, and financial reporting practices. The Audit Committee’s role includes overseeing MRV’s system of internal controls and disclosure controls, accounting and auditing processes and discussing with management our processes to manage business and financial risk, and compliance with applicable legal, ethical and regulatory requirements. The Audit Committee is responsible for the appointment, compensation, retention, and oversight of the independent registered public accounting firm engaged to issue audit reports on our financial statements. The Audit Committee relies on the expertise and knowledge of management and the independent registered public accounting firm in carrying out its oversight responsibilities. The Audit Committee met 5 times in 2016, and did not act by unanimous written consent during 2016. A current copy of the Audit Committee Charter is available on MRV’s website at www.mrv.com . For additional information concerning the Audit Committee, see “Report of the Audit Committee” on page 38 of this proxy statement.

The Audit Committee is currently comprised of Mr. Tuder (Chair), Mr. Pons and Ms. Diefenderfer, each of whom qualifies as an “independent director” as defined in the rules of the Nasdaq Stock Market, LLC and meets the criteria for independence set forth in Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Board of Directors has determined that each of the current committee members has sufficient knowledge in financial and auditing matters to serve on the Audit Committee. The Board of Directors has further determined that Mr. Tuder is an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K, promulgated under the Exchange Act, and meets the standards of independence under our Governance Policies and under the rules of the NASDAQ Stock Market, LLC.

Compensation Committe e

The primary responsibilities of the Compensation Committee are: (a) to make recommendations to the Board of Directors as to our general compensation philosophy and to oversee the development and implementation of compensation programs; (b) to evaluate the performance of the Chief Executive Officer based on Board‑approved goals and objectives, and based on this evaluation, recommend to the Board of Directors the Chief Executive Officer’s annual compensation level; (c) to evaluate the performance of other senior management and make recommendations to the Board of Directors regarding annual compensation levels; (d) to review and make recommendations to the Board of Directors with respect to the Company’s incentive compensation plans and equity‑based plans; and (e) to grant awards under the Company’s equity incentive plans to employees, not including executive officers. The Board of Directors retains the authority to grant awards under the Company’s equity incentive plans to executive officers and directors. The Compensation Committee’s role includes producing the report on executive compensation required by SEC rules and regulations. The Compensation Committee may, in its discretion, delegate all or a portion of its duties and responsibilities to a subcommittee of the Compensation Committee, consisting of one or more members. The Compensation Committee has the authority, to the extent it deems necessary or appropriate, to select and retain special counsel or other experts or consultants, including sole authority to approve the fees and retention terms of such advisors, to assist in the discharge of its duties and responsibilities. The Compensation Committee met two times in 2016, and acted by unanimous written consent once in 2016. A current copy of the Compensation Committee Charter is available on MRV’s website at www.mrv.com . For additional information concerning the Compensation Committee, see “Compensation Committee Report” on page 27 of this proxy statement.

Nomination and Governance Committe e

The principal responsibilities of the Nomination and Governance Committee are to: (a) lead the search for qualified director candidates for election to the Board of Directors, ensuring the Board of Directors has the appropriate mix of skills and expertise; (b) retain and terminate search firms used to identify director candidates; (c) solicit the views of the Chief Executive Officer, members of our senior management, and members of the Board of Directors regarding the qualifications and suitability of director candidates; (d) establish policies and procedures for the evaluation of director candidates put forth by our stockholders; (e) review and recommend to the Board of Directors a set of corporate governance principles, code of business conduct and ethics applicable to the Board of Directors and the Company; and (f) oversee and evaluate compliance by the Board of Directors and senior management with those corporate governance principles, ethics standards and code of conduct. The Nomination and Governance Committee’s role includes periodically reviewing the compensation paid to non-employee directors, and making recommendations to the Board of Directors for any adjustments. The Nomination and Governance Committee met three times in 2016, and did not act by unanimous written consent in 2016. A current copy of the Nomination and Governance Committee Charter is available on MRV’s website at   www.mrv.com .

Nominees for the Board of Directors should be committed to enhancing long‑term stockholder value and must possess a high level of personal and professional ethics, sound business judgment and integrity. The Nomination and Governance Committee annually reviews with the Board of Directors the applicable skills and characteristics required of Board of Directors nominees in the context of the current Board of Directors composition and Company circumstances. The Nomination and Governance Committee works with the Board of Directors to determine the appropriate characteristics, skills and experiences for the Board of Directors as a whole and its individual members with the objective of having a Board of Directors with business experience, diversity and personal skills in technology, finance, marketing, international business, financial reporting and other areas that are expected to contribute to an effective Board of Directors. In evaluating the suitability of individual Board members, the Board of Directors takes into account many factors, including a general understanding of corporate governance, marketing, finance, and other disciplines relevant to the success of a publicly‑traded company in today’s business environment; an understanding of the Company’s business and technology; educational and professional background; and personal accomplishment. The Board of Directors evaluates each individual in the context of the Board of Directors as a whole, with the objective of recommending a group that can best contribute to the success of our business and represent stockholder interests through the exercise of sound judgment, using its diversity of experience and skill sets. In determining whether to recommend a director for re‑election, the Nomination and Governance Committee also considers the director’s past attendance at meetings, independence and participation in and contributions to the activities of the Board of Directors.

The Nominating and Governance Committee does not currently pay a fee to a third party to identify or evaluate nominees, but may consider engaging such a firm in the future.

Although the Board does not have a separate policy regarding diversity, it believes it is benefitted by a diversity of viewpoints, backgrounds and experience among its members, as reflected in the criteria for Board membership. The Board of Directors believes it is important that its members represent diverse viewpoints that, when considered as a group, provide a sufficient mix of perspectives to allow the Board to best fulfill its responsibilities to the Company’s stockholders.

Our Board has nominated six directors for re-election at the Annual Meeting.

The committee will consider stockholder recommendations for candidates for the Board of Directors in the same manner as other candidates. All stockholder recommendations must be in writing, addressed to MRV Communications, Inc., 20520 Nordhoff Street, Chatsworth, California 91311, Attention: Secretary. Submissions must be made by certified mail or commercial courier service (i.e., Federal Express). Hand delivered or emailed submissions will not be considered.

Section 16(a) Beneficial Ownershi p Reporting Compliance

Under Section 16(a) of the Exchange Act, our directors, executive officers and stockholders who own more than 10% of a registered class of the Company’s equity securities are required to file with the SEC initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Directors, executive officers and 10% or greater stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. We believe, based on filings we have made on behalf of directors and officers, and on a review of copies of such reports furnished to us, that the reports required of our executive officers, directors and 10% or greater stockholders were timely filed during the year ended December 31, 2016.

Relationships of Officers and Director s

Pursuant to the Audit Committee Charter, it is the responsibility of the Audit Committee to review and approve all related party transactions. While there is no formal policy regarding the standards to be applied by the Audit Committee in determining whether to approve or disapprove related party transactions, in determining whether a proposed related party transaction is in the best interests of the Company and whether to approve or disapprove the transaction, the Audit Committee will generally consider, among other factors, the terms that it believes would be available to the Company in an arm’s length transaction with an unrelated third party. In particular, the Audit Committee has historically required that the terms of the transaction be no less favorable to the Company than those available from an unaffiliated third party and that the Company would be expected to obtain a consistent or more favorable result than it would in an arm’s length transaction with an unrelated third party. In applying this standard, the Committee also considers whether the transaction would be conducted differently than it would be with an unrelated third party. Other factors that may be considered by the Audit Committee in making such determination include the benefit of the transaction to the Company (including the cost, nature, quantity and quality of the goods or services involved), and the terms, conditions and circumstances of the transaction. In making such determination, the Audit Committee relies on information provided to it by Company management as well as the general knowledge and experience of Audit Committee members.

There were no transactions or series of transactions in 2016, or subsequently, in excess of $120,000 regarding related persons as defined by the rules and regulations promulgated under the Exchange Act.

Communications with the Board of Director s

The Board of Directors maintains a process by which stockholders and other interested parties may communicate with members of the Board of Directors. Any stockholder or other interested party who desires to communicate with the Board of Directors, individually or as a group, may do so by writing to the intended member or members of the Board of Directors, c/o Secretary, 20520 Nordhoff Street, Chatsworth, California 91311.

All communications received in accordance with this procedure will be reviewed initially by our Chief Financial Officer to determine that the communication is a message to our directors and will be relayed to the appropriate director or directors unless the officer determines that the communication is an advertisement or otherwise constitutes inappropriate material. The director or directors who receive any such communication will have discretion to determine whether the subject matter of the communication should be brought to the attention of the full Board of Directors or one or more of its committees and whether any response to the person sending the communication is appropriate.

Code of Business Conduct and Corporate Governanc e

We have adopted a Code of Business Conduct and Corporate Governance that applies to all of our directors, officers and employees. In compliance with the applicable rules of the SEC, special ethics obligations of the Chief Executive Officer, Chief Financial Officer, and other employees who perform financial or accounting functions are set forth in the section of the Code of Business Conduct and Corporate Governance entitled “Special Ethics Obligations of Employees with Financial Reporting Responsibilities.” The Code is available through our website at www.mrv.com. Printed copies are available free of charge and may be requested by contacting the Investor Relations Department either by mail at corporate headquarters, by telephone at (818) 773‑0900 or by e‑mail at ir@mrv.com .

We intend to satisfy the disclosure requirements under the Exchange Act regarding an amendment to, or a waiver from, the Code of Business Conduct and Corporate Governance by posting such information on our website at www.mrv.com.

EXECUTIVE OFFICERS OF THE COMPAN Y

A biography of Mr. Bonney, our current President and Chief Executive Officer, is set forth in the “Director Nominees” section of “Election of Directors (Proposal No. 1)”, above. The biographies of Mr. Krulik and Mr. Scheer, our other current executive officers, is set forth below.

Stephen G. Krulik , age 44, Chief Financial Officer, Treasurer and Corporate Secretary

Mr. Krulik joined MRV as the Vice President, Finance in May 2014 and was named Chief Financial Officer in December 2014. From 2007 to 2014, Mr. Krulik served as VP of Worldwide FP&A at Technicolor Creative Services, a role that included responsibility for planning several restructuring programs, Internal Control compliance and financial responsibility for a number of Technicolor’s businesses including Digital Cinema, Post Production & Sound, Film & Distribution, and Digital Productions. Prior to Technicolor, Mr. Krulik served in several financial leadership roles in the dotcom world. Mr. Krulik is a Certified Public Accountant. He received his BA in Mathematics from the University of California, Berkeley, and his MBA from the University of California, Los Angeles, Anderson School of Business, Executive Program.

There are no arrangements or understandings between Mr. Krulik and any other persons pursuant to which he was selected as Chief Financial Officer, Treasurer and Corporate Secretary. There are also no family relationships between Mr. Krulik and any director or executive officer of the Company and he has no direct or indirect material interest in any transaction required to be disclosed pursuant to Item 404(a) of Regulation S‑K.

Adam L. A. Scheer , age 45, Chief Operating Officer.

Mr. Scheer joined MRV as the Senior Vice President of Product Line Management & Corporate Development in October 2015, and was named its Chief Operating Officer in December 2016. Mr. Scheer leads a team that is responsible for MRV’s strategy, product line management, program management, marketing, communications, investor relations and corporate development functions.

Prior to joining MRV, Mr. Scheer served as the Vice President of Marketing and Product Management for the Optical Security and Performance Products group of Viavi Solutions (formerly JDSU). During nearly 15 years of service with Viavi Solutions and its predecessor companies (which included American Bank Note Holographics, Inc.), Mr. Scheer contributed to that business’ growth in senior marketing, strategy, sales and product management roles. In those roles, he developed and led high-performing global teams with a strong record of achievement of driving profitable growth and award-winning technical innovation serving the needs of global customers. Prior to Viavi Solutions, Mr. Scheer held executive corporate development, strategy and finance roles in the technology and chemical industries after starting his career in investment banking. Mr. Scheer earned a BA in history, cum laude from Williams College and an MBA in Management with distinction from New York University’s Stern School of Business, where he was named a Stern Scholar.

There are no arrangements or understandings between Mr. Scheer and any other persons pursuant to which he was selected as Chief Operating Officer. There are also no family relationships between Mr. Scheer and any director or executive officer of the Company and he has no direct or indirect material interest in any transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K.

COMPENSATION DISCUSSION AND ANALYSI S

This compensation discussion and analysis explains our strategy, design and decision‑making around our compensation programs and practices as they relate to our Named Executive Officers as defined by the rules promulgated under the Exchange Act. The Compensation Committee has the responsibility for evaluating, approving and recommending to the Board of Directors MRV compensation programs. The Compensation Committee is also responsible for reviewing and evaluating the performance of our Chief Executive Officer and his direct reports, including all of the Named Executive Officers, relative to meeting corporate goals and objectives, and determining compensation levels for these officers based on this evaluation.

Philosoph y

In 2016, the Company’s objectives included improving the market position of its Network Equipment business by completing major new product releases and improving its financial reporting and product line management (“PLM”) processes. As a result, the Company identified a mix of financial and non‑financial objectives for the business, and tied certain executive compensation incentives to the achievement of those objectives. Additionally the Compensation Committee continues to believe that the compensation mix should include longer‑term equity incentive compensation, in addition to base salary and short‑term performance‑based bonuses. The Compensation Committee determined that such long‑term equity awards could attract and motivate its executive team and create a strong connection between executive compensation and long‑term stockholder value. Accordingly, the compensation mix for the Chief Executive Officer, Chief Financial Officer and Chief Operating Officer were designed to provide a balanced mix of annual and longer‑term incentives.

Risk Oversight and Controls. As a general matter, the Board of Directors has oversight responsibility with respect to risk management and is not responsible for day‑to‑day management of risk issues, which is the responsibility of management. The Board of Directors has approved a Transactional Authority Matrix, as amended from time to time, to address approval controls required for various types of actions. Areas of risk that are focused on at quarterly Board of Directors meetings are the review of contingent liabilities and significant litigation matters. With respect to compensation plans rewarding risk‑taking, the Compensation Committee has reviewed our compensation policies and practices for all employees, including executive and non‑executive officers, and determined that our compensation programs do not give rise to risks reasonably likely to have a material adverse effect on MRV. The Compensation Committee noted several design features of MRV’s incentive programs for all executive officers in particular that reduce the likelihood of excessive risk‑taking and instead encourage behaviors that support enhancing stockholder value. For example:

Annual Compensation Methodolog y

The Compensation Committee annually reviews the salary, bonus and equity‑based compensation given to the Named Executive Officers and other highly compensated employees, and otherwise meets from time to time related to executive new hires, promotions and terminations. The Compensation Committee also reviews and adopts the annual incentive opportunities for each of our subsidiaries and business segments. In addition, the Management Incentive Compensation Plan (the “Plan”) has provided for bonuses based on corporate and business unit performance, as applicable, and each year the Compensation Committee will adjust targets pursuant to the Plan. For Named Executive Officers, the Compensation Committee determines whether the officers’ performance justifies adjustments to base salaries, bonuses and granting of share‑based compensation. The Compensation Committee then recommends its overall compensation plan to the full Board of Directors for its approval. The full Board of Directors also approves the annual operating plan of the Company for the year on which the financial targets of the Plan are based. In addition, the Compensation Committee may consider discretionary bonuses for performance exceeding expectations and uses its discretion in review of Plan targets and performance.

In 2014, the Board of Director’s approved long‑term equity incentives as part of its compensation mix, a compensation strategy that continued into 2016 under the LTIP. The Compensation Committee believes that Common Stock‑based awards are viewed as an important component of total executive pay, aligning compensation with increasing stockholder value and, thus, providing an important benefit to stockholders. Stock options provide a financial reward only in the event that stockholder value is increased. Restricted stock and restricted stock unit awards allow for employees to have an ownership stake in the Company regardless of the current stock price. Generally, within compensation programs, equity grants are viewed as a cost‑effective method for providing long‑term incentive compensation.

On December 12, 2014, MRV appointed Mark J. Bonney, who had been serving as its Chief Financial Officer, as its President and Chief Executive Officer, effective December 15, 2014. In connection with Mr. Bonney’s appointment as President and Chief Executive Officer, MRV entered into an Amended and Restated Employment Agreement with Mr. Bonney on December 12, 2014. In March 2016, MRV entered into a new Amended and Restated Employment Agreement (the “Bonney Employment Agreement”) with Mr. Bonney. The Bonney Employment Agreement sets forth Mr. Bonney’s duties and responsibilities as Chief Executive Officer, the terms of his compensation, the effect of a potential future termination event, and other customary provisions regarding release of claims and covenants related to confidentiality, non‑solicitation, non‑competition, non‑disparagement and claw back requirements. Under the Bonney Employment Agreement, Mr. Bonney receives a base salary at the annual rate of $400,155. Mr. Bonney received an initial annual target bonus opportunity equal to 80% of his annual base salary, which was increased to 100% of his base salary for 2017.

If Mr. Bonney is terminated by the Company without “cause” or by him for “good reason” (as those terms are defined in the Bonney Employment Agreement), he will receive up to 12 months’ payment of COBRA premiums and severance consisting of salary continuation of twelve months’ base salary, unless the termination occurs after a change in control, in which case the severance will be a lump sum payment equal to 24 months’ base salary, payment of COBRA premiums will be for 24 months and vesting of unvested Company equity awards assumed as part of the change in control will be accelerated.

The Role of Peer Groups and Benchmarkin g

As part of the competitive analysis of market pay practices for our Named Executive Officers, the Compensation Committee ratified a competition peer group that the Compensation Committee believed to be similar to us based on product and customer profile. The companies selected as “primary peers” are listed below:

Incentive Compensation Plan and Bonus Target s

In May 2016, the Board of Directors, upon recommendation by the Compensation Committee, approved amended performance targets to the Plan, our annual cash incentive plan, and bonus percentage targets for management and other participants under the Plan. In approving the targets for performance‑based cash bonus compensation, the Compensation Committee and Board of Directors took the peer group selected into consideration and the committee’s philosophy of weighting performance‑based compensation. The Board of Directors, upon recommendation by the Compensation Committee, approved the following 2016 target bonus amounts for the Named Executive Officers. The targets were calculated as percentages of annual base pay, and are set forth below for the listed Named Executive Officers.

The Plan, which set forth the terms for which an annual bonus was earned, provided that a participant’s bonus was based on the revenues and EBITDA of the business operating unit to which the participant of the Plan belonged. The targets were set above the prior year’s achievements, and were intended to incentivize the participants to push their teams to reach their goals. The Plan provided for over-achievement of the revenue goals of up to 110% and EBITDA goals of up to 120% of the target Bonus at 105% of revenue goal or 115% of the EBITDA goal, and a minimum of 75% of target bonus at 90% achievement of the revenue or EBITDA goals. The bonuses were not earned unless the participant was employed as of the end of the Plan year, regardless of the reason for termination (unless otherwise set forth in a severance agreement).

In January 2017, the Compensation Committee reviewed the financial performance of the Company as well as that of Mr. Bonney relative to his individual performance objectives for 2016. The Committee determined that the Company had not achieved the revenue or EBITDA components of the 2016 objectives and that no bonus would be paid with respect to the 2016 financial objectives. In addition to the financial objectives, Mr. Bonney was assigned certain individual performance objectives. The Committee determined that Mr. Bonney achieved 16.5% of the 50% of his target bonus for his individual performance objectives. Accordingly, Mr. Bonney was awarded a bonus in the amount of $26,410, or 8.25% of his total target bonus.

The Compensation Committee reviewed the financial performance of the Company as well as that of Mr. Krulik relative to his individual performance objectives for 2016. The Committee determined that the Company had not achieved the revenue or EBITDA components of the 2016 objectives and that no bonus would be paid with respect to the 2016 financial objectives. In addition to the financial objectives, Mr. Krulik was assigned certain individual performance objectives. In total, the Committee determined that Mr. Krulik had achieved 35% of the 50% of his target bonus for his individual performance objectives. Accordingly, Mr. Krulik was awarded a bonus in the amount of $16,706, or 17.5% of his total target bonus.

Mr. Scheer’s bonus percentage target and financial and individual performance objectives for fiscal 2016 were set when Mr. Scheer was serving in the Company’s OCS operating unit as the Senior Vice President of Product Line Management & Corporate Development. The Compensation Committee reviewed the financial performance of the Company’s OCS operating unit as well as that of Mr. Scheer relative to his individual performance objectives for 2016. The Committee determined that the Company’s OCS operating unit had not achieved the revenue or EBITDA components of the 2016 objectives and that no bonus would be paid with respect to the 2016 financial objectives. In addition to the financial objectives, Mr. Scheer was assigned certain individual performance objectives. The Committee determined that Mr. Scheer had achieved 50% of the 50% of his target bonus for his individual performance objectives. Accordingly, Mr. Scheer was awarded a bonus in the amount of $32,500, or 25% of his total target bonus.

Fiscal 2017 Bonus Targets.     In January 2017, in connection with Mr. Bonney’s position as Chief Executive Officer, Mr. Krulik’s position as Chief Financial Officer, and Mr. Scheer’s position as Chief Operating Officer, the Board of Directors, upon recommendation by the Compensation Committee, approved the following 2017 target bonus amounts for the Named Executive Officers, expressed as percentages of annual base pay:

Fiscal Year 2016 and First Quarter of 2017 Compensation Decisions  

Chief Executive Officer

Effective March 16, 2016, MRV and Mr. Bonney entered into the Bonney Employment Agreement, under which Mr. Bonney receives a base salary at the annual rate of $400,155. Mr. Bonney received an initial annual target bonus opportunity equal to 80% of his annual base salary, which was increased to 100% of his annual base salary for 2017. The terms of this agreement are discussed below under the subheading “Bonney Amended and Restated Employment Agreement.”

Chief Financial Officer

On December 12, 2014, following Mr. Bonney’s appointment as Chief Executive Officer, MRV promoted Stephen G. Krulik to Chief Financial Officer and Chief Accounting Officer. In connection with Mr. Krulik’s promotion to Chief Financial Officer, the Company entered into a letter agreement (the “Krulik Letter Agreement”) with Mr. Krulik dated December 12, 2014. The terms of these agreements are discussed below under the subheading “Krulik Letter Agreement and Change in Control Agreement.” Under the Krulik Letter Agreement, Mr. Krulik received a base salary at an initial annual rate of $215,000, which was increased to $238,500 annually on February 16, 2016. He also receives an annual target bonus opportunity, which was increased to 50% of his annual base salary for 2017.

Resignation of Chief Legal Officer

On March 15, 2016, in connection with her resignation from her position as the Company’s Chief Legal Officer and Secretary, Ms. Barnett entered into a Separation Agreement (the “Barnett Separation Agreement”) with the Company. Pursuant to the Barnett Separation Agreement, the Company agreed to pay Ms. Barnett’s bonus under the 2015 Management Incentive Compensation Plan in the amount of $35,000 on March 31, 2016, and Ms. Barnett signed a general release of claims. No other severance or bonus payments were owed to Ms. Barnett in connection with her resignation.

Chief Operating Officer

Mr. Scheer was named MRV’s Chief Operating Officer effective December 20, 2016. Mr. Scheer is party to a letter agreement with the Company dated October 1, 2015 (the “Scheer Letter Agreement”), which was amended on September 27, 2016 (the “Scheer Amendment,” and the Letter Agreement as so amended, the “Scheer Amended Letter Agreement”). The terms of these agreements are discussed below under the subheading “Scheer Letter Agreement and Scheer Amended Letter Agreement.” Mr. Scheer received a base salary at an initial annual rate of $260,000, which was increased to $284,000 annually effective January 1, 2017.  He also receives an annual target bonus opportunity, which was increased to 65% of his annual base salary for 2017.

The equity grants occurred on June 1, 2016, and the shares of restricted stock for Messrs. Bonney, Krulik and Scheer will vest in three equal annual installments commencing on the first anniversary of the grant date, subject in each case to the executive’s continuing employment. The stock options have an exercise price equal to the fair market value per share on the option grant date, which was $10.95 per share. The options will vest in three equal annual installments commencing on the first anniversary of the grant date.

The foregoing description of the terms of the restricted stock and stock option grants is not complete and is qualified in its entirety by reference to the Form of MRV Communications, Inc. 2015 Long‑Term Incentive Plan Restricted Stock Agreement and the Form of MRV Communications, Inc. 2015 Long‑Term Incentive Plan Stock Option Agreement, which are included in the Company’s Form 8‑K filed on June 4, 2015.

Policy Governing Grant of Stock Option s

We adopted a written stock option policy, updated in January 2013, to supplement the provisions of our equity compensation plans and to govern the timing of stock option grants to employees generally and to officers and directors in particular. The goal in adopting the policy was to seek to ensure that equity‑based awards were made in a manner consistent with the terms of the governing plans and at prices and times that are determinable, and only upon approval by the Compensation Committee, and the Board of Directors for certain executives including the Named Executive Officers.

Compensation Recoupment Polic y

In the event of a material restatement of our annual financial statement included in a report on Form 10‑K, the Chief Executive Officer and Chief Financial Officer must each deposit or cause to be deposited into an escrow account the difference between (i) the amount of any incentive compensation received for each of the applicable years covered by such restated financial statements, and (ii) the amount of such cash bonus or incentive compensation that would have been earned based on the information contained in the restated financial statements.

The amount deposited into escrow by an executive officer will be returned to the executive officer if a majority of the independent members of the Board determines that the financial restatement was not due to the recklessness of such executive officer. Otherwise, the escrowed amount will be paid to us.

Employee Benefit s

Executives are generally entitled only to qualified plan benefits consistent with those offered to our other employees. We offer group life, disability, medical, dental and vision insurance and a 401(k) plan.

Effect of Section 162(m) of the Cod e

In general, under Section 162(m) of the Code, a publicly held corporation may not deduct as an expense for federal income tax purposes total compensation in excess of $1 million paid in any taxable year to each of its chief executive officer and other Named Executive Officers (other than the Chief Financial Officer). The deduction limitation does not apply, however, to qualifying “performance‑based” compensation. Our LTIP, which was approved by our shareholders at the 2015 shareholders meeting, contains provisions allowing us to make performance‑based equity and cash incentive awards that are intended to qualify for the “performance‑based” compensation exemption.

The Compensation Committee is mindful of the limit on deductibility of certain non‑performance‑based compensation under Section 162(m) of the Code; however, the Committee is not constrained from authorizing the payment of compensation that is subject to the deduction limit and may do so, as and when it deems appropriate, and in our best interest, under the circumstances. Although the Compensation Committee considers the net cost to us in making its compensation decisions (including the potential limitation on deductibility of executive compensation), there is no assurance that we will be allowed to deduct all of the compensation paid to our executives.