def14a
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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Filed by the Registrant
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Filed by a Party other than the Registrant
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Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to § 240.14a-12 |
Cavium Networks, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box)
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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Title of each class of securities to which transaction applies: |
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Aggregate number of securities to which transaction applies: |
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act
Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was
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Proposed maximum aggregate value of transaction: |
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
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Form, Schedule or Registration Statement No.: |
CAVIUM NETWORKS, INC.
805 East Middlefield Road
Mountain View, CA 94043
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS
To Be Held On April 18,
2008
Dear
Stockholder:
You are cordially invited to attend the Annual Meeting of
Stockholders of
Cavium Networks, Inc., a Delaware corporation (the
Company). The meeting will be held on Friday,
April 18, 2008
at 10:00 a.m. local time at 805 East
Middlefield Road, Mountain View, CA 94043 for the following
purposes:
1. To elect two directors to hold office until the 2011
Annual Meeting of Stockholders.
2. To ratify the selection by the Audit Committee of the
Board of Directors of PricewaterhouseCoopers LLP as independent
auditors of the Company for its fiscal year ending
December 31, 2008.
3. To conduct any other business properly brought before
the meeting.
These items of business are more fully described in the Proxy
Statement accompanying this Notice.
The record date for the Annual Meeting is March 24, 2008.
Only stockholders of record at the close of business on that
date may vote at the meeting or any adjournment thereof.
By Order of the Board of Directors
Arthur D. Chadwick
Secretary
Mountain View, California
March 24, 2008
You are cordially invited to attend the meeting in person.
Whether or not you expect to attend the meeting, please
complete, date, sign and return the enclosed proxy, or vote over
the telephone or the Internet as instructed in these materials,
as promptly as possible in order to ensure your
representation at the meeting. A return envelope (which is
postage prepaid if mailed in the United States) is enclosed
for your convenience. Even if you have voted by proxy, you may
still vote in person if you attend the meeting. Please note,
however, that if your shares are held of record by a broker,
bank or other nominee and you wish to vote at the meeting, you
must obtain a proxy issued in your name from that record
holder.
The Board of Directors recommends that you vote FOR the
proposals identified above.
TABLE OF CONTENTS
CAVIUM NETWORKS, INC.
805 East Middlefield Road
Mountain View, CA 94043
PROXY STATEMENT
FOR THE 2008 ANNUAL MEETING OF
STOCKHOLDERS
April 18, 2008
QUESTIONS
AND ANSWERS ABOUT THIS PROXY MATERIAL AND VOTING
Why am I
receiving these materials?
We have sent you this proxy statement and the enclosed proxy
card because the Board of Directors of Cavium Networks,
Inc. (sometimes
referred to as the Company or Cavium) is
soliciting your proxy to vote at the 2008 Annual Meeting of
Stockholders, including at any adjournments or postponements of
the meeting. You are invited to attend the annual meeting to
vote on the proposals described in this proxy statement.
However, you do not need to attend the meeting to vote your
shares. Instead, you may simply complete, sign and return the
enclosed proxy card, or follow the instructions below to submit
your proxy over the telephone or on the Internet. The Company
intends to mail this proxy statement and accompanying proxy card
on or about April 3, 2008 to all stockholders of record
entitled to vote at the annual meeting.
Who can
vote at the annual meeting?
Only stockholders of record at the close of business on
March 24, 2008 will be entitled to vote at the annual
meeting. On this record date, there were 40,391,131 shares
of common stock outstanding and entitled to vote.
Stockholder
of Record: Shares Registered in Your Name
If on March 24, 2008 your shares were registered directly
in your name with Caviums transfer agent, BNY Mellon
Shareowner Services, then you are a stockholder of record. As a
stockholder of record, you may vote in person at the meeting or
vote by proxy. Whether or not you plan to attend the meeting, we
urge you to fill out and return the enclosed proxy card or vote
by proxy over the telephone or on the Internet as instructed
below to ensure your vote is counted.
Beneficial
Owner: Shares Registered in the Name of a Broker or
Bank
If on March 24, 2008
your shares were held, not in your name, but rather in an
account at a brokerage firm, bank, dealer, or other similar
organization, then you are the beneficial owner of shares held
in street name and these proxy materials are being
forwarded to you by that organization. The organization holding
your account is considered to be the stockholder of record for
purposes of voting at the annual meeting. As a beneficial owner,
you have the right to direct your broker or other agent
regarding how to vote the shares in your account. You are also
invited to attend the annual meeting. However, since you are not
the stockholder of record, you may not vote your shares in
person at the meeting unless you request and obtain a valid
proxy from your broker or other agent.
What am I
voting on?
There are two matters scheduled for a vote:
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Election of two directors; and
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Ratification of PricewaterhouseCoopers LLP as independent
auditors of the Company for its fiscal year ending
December 31, 2008.
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How do I
vote?
You may either vote For all the nominees to the
Board of Directors or you may Withhold your vote for
any nominee you specify. For each of the other matters to be
voted on, you may vote For or Against or
abstain from voting. The procedures for voting are fairly simple:
Stockholder
of Record: Shares Registered in Your Name
If you are a stockholder of record, you may vote in person at
the annual meeting, vote by proxy using the enclosed proxy card,
vote by proxy over the telephone, or vote by proxy on the
Internet. Whether or not you plan to attend the meeting, we urge
you to vote by proxy to ensure your vote is counted. You may
still attend the meeting and vote in person even if you have
already voted by proxy.
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To vote in person, come to the annual meeting and we will give
you a ballot when you arrive.
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To vote using the proxy card, simply complete, sign and date the
enclosed proxy card and return it promptly in the envelope
provided. If you return your signed proxy card to us before the
annual meeting, we will vote your shares as you direct.
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To vote over the telephone, dial toll-free 1-866-540-5760 using
a touch-tone phone and follow the recorded instructions. You
will be asked to provide the Company number and control number
from the enclosed proxy card. Your vote must be received by
11:59 p.m. Eastern Time on April 17, 2008 to be
counted.
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To vote on the Internet, go to
http://www.proxyvoting.com/cavm
to complete an electronic proxy card. You will be asked to
provide the Company number and control number from the enclosed
proxy card. Your vote must be received by
11:59 p.m. Eastern Time on April 17, 2008 to be
counted.
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Beneficial
Owner: Shares Registered in the Name of Broker or
Bank
If you are a beneficial owner of shares registered in the name
of your broker, bank, or other agent, you should have received a
proxy card and voting instructions with these proxy materials
from that organization rather than from Cavium. Simply complete
and mail the proxy card to ensure that your vote is counted.
Alternatively, you may vote by telephone or over the Internet as
instructed by your broker or bank. To vote in person at the
annual meeting, you must obtain a valid proxy from your broker,
bank, or other agent. Follow the instructions from your broker
or bank included with these proxy materials, or contact your
broker or bank to request a proxy form.
We provide Internet proxy voting to allow you to vote your
shares on-line, with procedures designed to ensure the
authenticity and correctness of your proxy vote instructions.
However, please be aware that you must bear any costs associated
with your Internet access, such as usage charges from Internet
access providers and telephone companies.
How many
votes do I have?
On each matter to be voted upon, you have one vote for each
share of common stock you own as of March 24, 2008.
What if I
return a proxy card but do not make specific choices?
If you return a signed and dated proxy card without marking any
voting selections, your shares will be voted For the
election of both of the two nominees for director and
For the ratification of PricewaterhouseCoopers LLP
as independent auditors of the Company for its fiscal year
ending December 31, 2008. If any other matter is properly
presented at the meeting, your proxyholder (one of the
individuals named on your proxy card) will vote your shares
using his or her best judgment.
Who is
paying for this proxy solicitation?
We will pay for the entire cost of soliciting proxies. In
addition to these mailed proxy materials, our directors and
employees may also solicit proxies in person, by telephone, or
by other means of communication. Directors and
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employees will not be paid any additional compensation for
soliciting proxies. We may also reimburse brokerage firms, banks
and other agents for the cost of forwarding proxy materials to
beneficial owners.
What does
it mean if I receive more than one proxy card?
If you receive more than one proxy card, your shares are
registered in more than one name or are registered in different
accounts. Please complete, sign and return each proxy
card to ensure that all of your shares are voted.
Can I
change my vote after submitting my proxy?
Yes. You can revoke your proxy at any time before the final vote
at the meeting. If you are the record holder of your shares, you
may revoke your proxy in any one of three ways:
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You may submit another properly completed proxy card with a
later date.
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You may send a timely written notice that you are revoking your
proxy to Caviums Secretary at 805 East Middlefield Road,
Mountain View, CA 94043.
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You may attend the annual meeting and vote in person. Simply
attending the meeting will not, by itself, revoke your proxy.
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If your shares are held by your broker or bank as a nominee or
agent, you should follow the instructions provided by your
broker or bank.
When are
stockholder proposals due for next years annual
meeting?
To be considered for inclusion in next years proxy
materials, your proposal must be submitted in writing by
December 4, 2008, to Caviums Secretary at 805 East
Middlefield Road, Mountain View, CA 94043. If you wish to submit
a proposal that is not to be included in next years proxy
materials or nominate a director, you must provide specified
information to Caviums Secretary at 805 East Middlefield
Road, Mountain View, CA 94043 between December 19, 2008 and
January 18, 2009, unless the date of our 2009 annual
meeting of stockholders is before March 19, 2009 or after
May 18, 2009, in which case such proposals shall be
submitted no earlier than 120 days prior to the 2009 annual
meeting of stockholders and no later than the later of
(i) 90 days before the 2009 annual meeting of
stockholders or (ii) ten days after notice of the date of
the 2009 annual meeting of stockholders is publicly given. You
are also advised to review our Bylaws, which contain additional
requirements regarding advance notice of stockholder proposals
and director nominations.
How are
votes counted?
Votes will be counted by the inspector of election appointed for
the meeting, who will separately count For and
Withhold and, with respect to proposals other than
the election of directors, Against votes,
abstentions and broker
non-votes.
Abstentions will be counted towards the vote total for
each proposal, and will have the same effect as
Against votes. Broker non-votes have no effect and
will not be counted towards the vote total for any proposal.
What are
broker non-votes?
Broker non-votes occur when a beneficial owner of shares held in
street name does not give instructions to the broker
or nominee holding the shares as to how to vote on matters
deemed non-routine. Generally, if shares are held in
street name, the beneficial owner of the shares is entitled to
give voting instructions to the broker or nominee holding the
shares. If the beneficial owner does not provide voting
instructions, the broker or nominee can still vote the shares
with respect to matters that are considered to be
routine, but not with respect to
non-routine matters.
How many
votes are needed to approve each proposal?
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For the election of directors, the two nominees receiving the
most For votes (form the holders of votes of shares
present in person or represented by proxy and entitled to vote
on the election of directors) will be elected. Only votes
For or Withheld will affect the outcome.
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To be approved, Proposal No. 2, the ratification of
the selection by the Board of Directors of
PricewaterhouseCoopers LLP as the independent registered public
accounting firm of the Company for the fiscal year ending
December 31, 2008, must receive For votes from
the holders of a
majority of shares present and entitled to vote either in
person or by proxy. If you Abstain from voting, it
will have the same effect as an Against vote. Broker
non-votes will have no effect.
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What is
the quorum requirement?
A quorum of stockholders is necessary to hold a valid meeting. A
quorum will be present if stockholders holding at least a
majority of the outstanding shares are present at the meeting in
person or represented by proxy. On the record date, there were
40,391,131 shares
outstanding and entitled to vote.
Your shares will be counted towards the quorum only if you
submit a valid proxy (or one is submitted on your behalf by your
broker, bank or other nominee) or if you vote in person at the
meeting. Abstentions and broker non-votes will be counted
towards the quorum requirement. If there is no quorum, either
the chairman of the meeting or the holders of a majority of
shares present at the meeting in person or represented by proxy
may adjourn the meeting to another date.
How can I
find out the results of the voting at the annual
meeting?
Preliminary voting results will be announced at the annual
meeting. Final voting results will be published in the
Companys quarterly report on
Form 10-Q
for the second quarter of 2008.
Proposal 1
Election
Of Directors
Caviums Board of Directors is divided into three classes.
Each class consists of one-third of the total number of
directors, and each class has a three-year term. Vacancies on
the Board may be filled only by persons elected by a majority of
the remaining directors. A director elected by the Board to fill
a vacancy in a class, including a vacancy created by an increase
in the number of directors, shall serve for the remainder of the
full term of that class and until the directors successor
is elected and qualified.
The Board of Directors presently has six members. There are
two directors in
the class whose term of office expires in 2008. Each of the
nominees listed below is currently a director of the Company who
was previously appointed by the Board of Directors. If elected
at the annual meeting, each of these nominees would serve until
the 2011 annual meeting and until his or her successor is
elected and has qualified, or, if sooner, until the
directors death, resignation or removal. It is the
Companys policy to encourage directors and nominees for
director to attend the Annual Meeting.
Directors are elected by a plurality of the votes of the holders
of shares present in person or represented by proxy and entitled
to vote on the election of directors. The
two nominees
receiving the highest number of affirmative votes will be
elected. Shares
represented by executed proxies will be voted, if authority to
do so is not withheld, for the election of the
two nominees named
below. If any nominee becomes unavailable for election as a
result of an unexpected occurrence, your shares will be voted
for the election of a substitute nominee proposed by Cavium.
Each person nominated for election has agreed to serve if
elected. Our management has no reason to believe that any
nominee will be unable to serve.
The following is a brief biography of each nominee and each
director whose term will continue after the annual meeting.
Nominees
for Election for a Three-year Term Expiring at the 2011 Annual
Meeting
Anthony
J. Pantuso
Anthony J. Pantuso, age 45, has served as a director since
2004. He has been a Managing Director at NeoCarta Ventures, a
venture capital firm, since November 1999. From November 1996 to
July 1999 he served as Senior Vice
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President for GE Equity, a division of GE Capital, a private
equity investment company. Prior to working at GE Equity,
Mr. Pantuso served in various positions at US WEST,
MediaOne and Ernst & Young. He currently serves on
several private company boards. Mr. Pantuso received a BS
in Business Administration from Colorado State University.
C.N.
Reddy
C.N. Reddy, age 52, has served as a director since 2001. He
is a co-founder of Alliance Semiconductor, which until 2006, was
a provider of semiconductor products and solutions, and has held
various positions. Since October 2000, he has served as the
Executive Vice President for Investments at Alliance, during
which time he has been responsible for Alliances
investments in private technology companies and identifying
future possible technology company acquisitions for Alliance.
From December 1997 to October 2000, he served as Executive Vice
President and Chief Operating Officer at Alliance. From May 1993
to December 1997, he served as Senior Vice-President Engineering
and Operations at Alliance. From 1985 to May 1993, he served as
Vice President Engineering at Alliance. From February 1985 to
October 2000 he also served as Secretary of Alliance.
Mr. Reddy has served as a member of the board of directors
since Alliances inception in 1985. He was a member of the
founding management team at Cypress Semiconductor. Prior to
that, he held positions at Texas Instruments and National
Semiconductor Corporation. Mr. Reddy is currently the
Executive Vice President of Investments and serves on the board
of directors at Alliance Semiconductor. He currently serves on
several private company boards. Mr. Reddy received an MSEE
from Utah State University.
The
Board Of Directors Recommends
A Vote In Favor Of Each Named Nominee.
Directors
Continuing in Office Until the 2009 Annual Meeting
Kris
Chellam
Kris Chellam, age 57, has served as a director since
December 2005. In May 2007, Mr. Chellam became Managing
Partner of Galleon Crossover Fund (a Galleon Group fund), a
venture capital firm which invests in late stage private
companies. Prior to joining the Galleon Group, Mr. Chellam
served as Senior Vice President, Global Enterprise Services at
Xilinx, Inc., a programmable logic IC company, from July 2005,
until his retirement in February 2007. Mr. Chellam joined
Xilinx in July 1998 and served as Senior Vice President of
Finance and Chief Financial Officer until July 2005. Prior to
joining Xilinx, Mr. Chellam served as Senior Vice
President, Finance and Administration, and Chief Financial
Officer at Atmel Corporation for seven years. Previously,
Mr. Chellam worked for more than 12 years as Intel
Corporation in a variety of financial management positions in
Europe and the United States. Mr. Chellam is a member of
the Institute of Chartered Accountants in England and Wales. He
completed his Cambridge Certificate of Education in Malaysia in
1968 and obtained his chartered accountancy degree in London in
1975.
John
W. Jarve
John W. Jarve, age 52, has served as a director since 2002.
Since 1985, Mr. Jarve has been employed by Menlo Ventures,
a venture capital firm, where he currently serves as a Managing
Director. Prior to joining Menlo Ventures, he worked at Intel
Corporation. Mr. Jarve is Chairman of the Stanford Graduate
School of Business Management Board, a trustee of the Crystal
Springs Uplands School, and a trustee of the Corporation of the
Massachusetts Institute of Technology. He currently serves on
several private company boards. Mr. Jarve received a BS and
MS in electrical engineering from the Massachusetts Institute of
Technology and an MBA from the Stanford University Graduate
School of Business.
Directors
Continuing in Office Until the 2010 Annual Meeting
Syed
B. Ali
Syed B. Ali, age 49, is one of our founders and has served
as our President, Chief Executive Officer and Chairman of the
Board of Directors since the inception of the Company in 2000.
From 1998 to 2000, Mr. Ali was Vice President of Marketing
and Sales at Malleable Technologies, a communication chip
company of which he was a founding management team member.
Malleable Technologies was acquired by PMC Sierra, a
communication IC
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company in 2000. From 1994 to 1998, Mr. Ali was an
Executive Director at Samsung Electronics. Prior to that, he had
various positions at Wafer Scale Integration, a division of
SGS-Thompson, Tandem Computer, and American Microsystems. He
received a BSEE from Osmania University, in Hyderabad, India and
an MSEE from the University of Michigan.
Anthony
S. Thornley
Anthony S. Thornley, age 61, has served as a director since
September 2006. Mr. Thornley currently serves as the Chief
Financial Officer of KMF Audio Inc., a microphone company. From
February 2002 to June 2005 he served as President and Chief
Operating Officer of Qualcomm Inc., a wireless communication
technology and integrated circuit company. From July 2001 to
February 2002 he served as Chief Financial and Operating Officer
of Qualcomm and from March 1994 to February 2002 as Chief
Financial Officer of Qualcomm. Prior to joining Qualcomm, he was
with Nortel Networks, a telecommunications equipment
manufacturer, for sixteen years in various financial and
information systems management positions, including Vice
President Finance and IS, Public Networks, Vice President
Finance NT World Trade and Corporate Controller Nortel Limited.
He has also worked for Coopers and Lybrand in public accounting.
Mr. Thornley is a director of Callaway Golf Company, a
golfing equipment manufacturer, Airvana, Inc., a wireless
equipment company, Proximetry, a network software company and
Transdel Pharmaceuticals, Inc., a development stage
pharmaceutical company. Mr. Thornley received his BS degree
in Chemistry from the University of Manchester, England.
INFORMATION
REGARDING THE BOARD OF DIRECTORS AND CORPORATE
GOVERNANCE
Independence
of The Board of Directors
As required under the Nasdaq Stock Market (Nasdaq)
listing standards, a majority of the members of a listed
companys Board of Directors must qualify as
independent, as affirmatively determined by the
Board of Directors. The Board of Directors consults with the
Companys counsel to ensure that the Board of
Directors determinations are consistent with relevant
securities and other laws and regulations regarding the
definition of independent, including those set forth
in pertinent listing standards of the Nasdaq, as in effect from
time to time.
Consistent with these considerations, after review of all
relevant transactions or relationships between each director, or
any of his or her family members, and the Company, its senior
management and its independent auditors, the Board of Directors
has affirmatively determined that the following five directors
are independent directors within the meaning of the applicable
Nasdaq
listing standards: Messrs. Chellam, Jarve,
Pantuso, Reddy and Thornley. In making this determination, the
Board of Directors found that none of the these directors or
nominees for director had a material or other disqualifying
relationship with the Company. Mr. Ali, the Companys
President and Chief Executive Officer is not an independent
director by virtue of his employment with the Company.
MEETINGS
OF THE BOARD OF DIRECTORS
The Board of Directors met five times during the last fiscal
year. Each Board member attended 75% or more of the aggregate of
the meetings of the Board of Directors and of the committees on
which he served, held during the period for which he was a
director or committee member.
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Information
Regarding Committees of the Board of Directors
The Board has three
committees:
an Audit Committee, a Compensation Committee and a
Nominating and Corporate Governance Committee. The following
table provides membership and meeting information for fiscal
2007 for each of the committees:
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Nominating and
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Corporate
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Name
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Audit
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Compensation
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Governance
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Syed B. Ali
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Kris Chellam
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X
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John W. Jarve
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X
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*
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X
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Anthony J. Pantuso
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X
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X
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C.N. Reddy
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X
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X
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Anthony S. Thornley
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X
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*
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X
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Total meetings in fiscal 2007
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4
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6
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Below is a description of each committee of the Board of
Directors. Each of the committees has authority to engage legal
counsel or other experts or consultants, as it deems appropriate
to carry out its responsibilities. The Board of Directors has
determined that each member of each committee meets the
applicable Nasdaq rules and regulations regarding
independence and that each member is free of any
relationship that would impair his or her individual exercise of
independent judgment with regard to the Company.
Audit
Committee
The Audit Committee of the Board of Directors was established in
accordance with Section 3(a)(58)(A) of the Securities
Exchange Act of 1934 to oversee the Companys corporate
accounting and financial reporting processes and audits of its
financial statements. For this purpose, the Audit Committee
performs several functions. The Audit Committee evaluates the
performance of and assesses the qualifications of the
independent auditors; determines and approves the engagement of
the independent auditors; determines whether to retain or
terminate the existing independent auditors or to appoint and
engage new independent auditors; reviews and approves the
retention of the independent auditors to perform any proposed
permissible non-audit services; monitors the rotation of
partners of the independent auditors on the Companys audit
engagement team as required by law; review and approves or
rejects transactions between the Company and any related
persons; confers with management and the independent auditors
regarding the effectiveness of internal controls over financial
reporting; establishes procedures, as required under applicable
law, for the receipt, retention and treatment of complaints
received by the Company regarding accounting, internal
accounting controls or auditing matters and the confidential and
anonymous submission by employees of concerns regarding
questionable accounting or auditing matters; and meets to review
the companys annual audited financial statements and
quarterly financial statements with management and the
independent auditor, including reviewing the Companys
disclosures under Managements Discussion and
Analysis of Financial Condition and Results of Operations.
The Audit Committee is composed of three directors: Messrs.
Chellam, Pantuso and Thornley.The Audit Committee met four times
during the fiscal year. The Audit Committee has adopted a
written charter that is available to stockholders on the
Companys website at http://investor.caviumnetworks.com.
The Board of Directors reviews the Nasdaq listing standards
definition of independence for Audit Committee members on an
annual basis and has determined that all members of the
Companys Audit Committee are independent (as independence
is currently defined in Rule 4350(d)(2)(A)(i) and
(ii) of the Nasdaq
listing standards). The Board of Directors has also
determined that Messrs. Chellam and Thornley qualify as an
audit committee financial expert, as defined in
applicable SEC rules. The Board of Directors made a qualitative
assessment of Mr. Chellams and
Mr. Thornleys level of knowledge and experience based
on a number of factors, including their formal education and
experiences as Chief Financial Officers for public reporting
companies.
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Report of
the Audit Committee of the Board of
Directors1
The Audit Committee has reviewed and discussed the audited
financial statements for the fiscal year ended December 31,
2007 with management of the Company. The Audit Committee has
discussed with the independent auditors the matters required to
be discussed by the Statement on Auditing Standards No. 61,
as amended (AICPA, Professional Standards, Vol. 1. AU
section 380), as adopted by the Public Company Accounting
Oversight Board (PCAOB) in Rule 3200T. The
Audit Committee has also received the written disclosures and
the letter from the independent accountants required by the
Independence Standards Board Standard No. 1,
(Independence Discussions with Audit Committees), as
adopted by the PCAOB in Rule 3600T and has discussed with
the independent accountants the independent accountants
independence. Based on the foregoing, the Audit Committee has
recommended to the Board of Directors that the audited financial
statements be included in the Companys Annual Report in
Form 10-K
for the fiscal year ended December 31, 2007.
Mr. Kris Chellam
Mr. Anthony J. Pantuso
Mr. Anthony S. Thornley
Compensation
Committee
The Compensation Committee is composed of
three
directors: Messrs. Jarve, Pantuso and Reddy. All
members of the Companys Compensation Committee are
independent (as independence is currently defined in
Rule 4200(a)(15) of the Nasdaq listing standards.
The Compensation
Committee met six times during the fiscal
year. The
Compensation Committee has adopted a written charter that is
available to stockholders on the Companys website at
http://investor.caviumnetworks.com.
The Compensation Committee of the Board of Directors acts on
behalf of the Board to review, adopt and oversee the
Companys compensation strategy, policies, plans and
programs, including:
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establishment of corporate and individual performance objectives
relevant to the compensation of the Companys executive
officers, directors and other senior management and evaluation
of performance in
light of these stated objectives;
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review and approval of the compensation and other terms of
employment or service, including severance and
change-in-control
arrangements, of the Companys Chief Executive Officer,
other executive officers and senior management; and
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administration of
the Companys equity compensation plans, pension and
profit-sharing plans,
deferred compensation plans and other similar plan and
programs.
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The Compensation Committee also reviews with management the
Companys Compensation Discussion and Analysis and to
consider whether to recommend that it be included
in proxy
statements and other filings.
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Under its charter, the Compensation Committee may form, and
delegate authority to, subcommittees, as appropriate.
Compensation
Committee Processes and Procedures
Typically, the Compensation Committee meets at least four times
annually, with greater frequency if necessary. In July
2007 the Compensation Committee established a policy for
generally meeting on the third Monday of each of the last two
months of each quarter for the purpose of granting equity awards
to new employees and, on occasion, existing employees. The
agenda for each meeting is usually developed by the Chair of the
Compensation Committee, in consultation with chief executive
officers. The Compensation Committee meets regularly in
executive session. However, from time to time, various members
of management and other employees
1 The
material in this report is not soliciting material,
is not deemed filed with the Securities and Exchange
Commission and is not to be incorporated by reference in any
filing of the Company under the Securities Act of 1933, as
amended, or the Exchange Act of 1934, as amended, whether made
before or after the date hereof and irrespective of any general
incorporation language in any such filing.
8
as well as outside advisors or consultants may be invited by the
Compensation Committee to make presentations, provide financial
or other background information or advice or otherwise
participate in Compensation Committee meetings. The Chief
Executive Officer may not participate in or be present during
any deliberations or determinations of the Compensation
Committee regarding his compensation. The charter of the
Compensation Committee grants the Compensation Committee full
access to all books, records, facilities and personnel of the
Company, as well as authority to obtain, at the expense of the
Company, advice and assistance from internal and external legal,
accounting or other advisors and consultants and other external
resources that the Compensation Committee considers necessary or
appropriate in the performance of its duties. In particular, the
Compensation Committee has the sole authority to retain
compensation consultants to assist in its evaluation of
executive and director compensation, including the authority to
approve the consultants reasonable fees and other
retention terms.
Under its charter, the Compensation Committee may form, and
delegate authority to, subcommittees, as appropriate.
Historically, the Compensation Committee has made most
significant adjustments to annual compensation, determined bonus
and equity awards and established new performance objectives at
one or more meetings held during the first half of the year.
However, the Compensation Committee also considers matters
related to individual compensation, such as compensation for new
executive hires, as well as high-level strategic issues, such as
the efficacy of the Companys compensation strategy,
potential modifications to that strategy and new trends, plans
or approaches to compensation, at various meetings throughout
the year. Generally, the Compensation Committees process
comprises two related elements: the determination of
compensation levels and the establishment of performance
objectives for the current year. For executives other than the
Chief Executive Officer, the Compensation Committee solicits and
considers evaluations and recommendations submitted to the
Committee by the Chief Executive Officer. In the case of the
Chief Executive Officer, the evaluation of his performance is
conducted by the Compensation Committee, which determines any
adjustments to his compensation as well as awards to be granted.
For all executive officers and senior management, as part
of its deliberations, the Compensation Committee may review and
consider, as appropriate, materials such as financial reports
and projections, operational data, tax and accounting
information, executive and director stock ownership information,
company stock performance data, analyses of historical executive
compensation levels and current Company-wide compensation
levels, and recommendations of a compensation consultant,
including analyses of executive officers and senior
managements compensation paid at other companies
identified by the consultant.
The specific determinations of the Compensation Committee with
respect to executive compensation for fiscal year 2007 are
described in greater detail in the Compensation Discussion and
Analysis section of this proxy statement.
Compensation
Committee Interlocks and Insider Participation
None of the members of our Compensation Committee is one of our
officers or employees. No member of our Compensation Committee
serves as a member of the Board of Directors or Compensation
Committee of any entity that has one or more executive officers
serving as a member of our Board of Directors.
Compensation
Committee
Report2
The Compensation Committee has reviewed and discussed with
management the Compensation Discussion and Analysis
(CD&A) contained in this proxy statement. Based
on this review and discussion, the Compensation
2 The
material in this report is not soliciting material,
is not deemed filed with the Securities and Exchange
Commission and is not to be incorporated by reference in any
filing of the Company under the Securities Act of 1933, as
amended, or the Exchange Act of 1934, as amended, whether made
before or after the date hereof and irrespective of any general
incorporation language in any such filing.
9
Committee has recommended to the Board of Directors that the
CD&A be included in this proxy statement and incorporated
into our Annual Report on
Form 10-K
for the fiscal year ended December 31,
2007.
Mr. John W. Jarve
Mr. Anthony J. Pantuso
Mr. C.N. Reddy
Nominating
and Corporate Governance Committee
The Nominating and Corporate Governance Committee of the Board
of Directors is responsible for identifying, reviewing and
evaluating candidates to serve as directors of the Company
(consistent with criteria approved by the Board of Directors),
reviewing and evaluating incumbent directors, recommending to
the Board of Directors for
selection
candidates for election to the Board of Directors,
making recommendations to the Board of Directors regarding the
membership of the committees of the Board of Directors,
considering nominations and proposals submitted by Caviums
stockholders, assessing the performance and independence of the
Board of Directors, and developing a set of corporate governance
principles for the Company. The Nominating and Corporate
Governance Committee is composed of three directors:
Messrs. Thornley, Jarve and Reddy. All members of the
Nominating and Corporate Governance Committee are independent
(as independence is currently defined in Rule 4200(a)(15)
of the Nasdaq
listing standards). The Nominating and Corporate
Governance Committee met
one time
during the fiscal year. The Nominating and Corporate Governance
Committee has adopted a written charter that is available to
stockholders on the Companys website at
http://investor.caviumnetworks.com.
The Nominating and Corporate Governance Committee believes that
candidates for director should have certain minimum
qualifications, including the ability to read and understand
basic financial statements, having extensive business and
industry experience, understanding of public company
responsibilities, as well as possessing high personal integrity
and ethical standards. The Nominating and Corporate Governance
Committee also intends to consider such factors as possessing
relevant expertise upon which to be able to offer advice and
guidance to management, having sufficient time to devote to the
affairs of the Company, demonstrated excellence in his or her
field, having the ability to exercise sound business judgment
and having the commitment to rigorously represent the long-term
interests of the Companys stockholders. However, the
Nominating and Corporate Governance Committee retains the right
to modify these qualifications from time to time. Candidates for
director nominees are reviewed in the context of the current
composition of the Board, the operating requirements of the
Company and the long-term interests of stockholders. In
conducting this assessment, the Nominating and Corporate
Governance Committee considers diversity, age, skills, and such
other factors as it deems appropriate given the current needs of
the Board of Directors and the Company, to maintain a balance of
knowledge, experience and capability. In the case of incumbent
directors whose terms of office are set to expire, the
Nominating and Corporate Governance Committee reviews these
directors overall service to the Company during their
terms, including the number of meetings attended, level of
participation, quality of performance, and any other
relationships and transactions that might impair the
directors independence. In the case of new director
candidates, the Nominating and Corporate Governance Committee
also determines whether the nominee is independent for
Nasdaq
purposes, which determination is based upon
applicable Nasdaq
listing standards, applicable SEC rules and
regulations and the advice of counsel, if necessary. The
Nominating and Corporate Governance Committee then uses its
network of contacts to compile a list of potential candidates,
but may also engage, if it deems appropriate, a professional
search firm. The Nominating and Corporate Governance Committee
conducts any appropriate and necessary inquiries into the
backgrounds and qualifications of possible candidates after
considering the function and needs of the Board of Directors.
The Nominating and Corporate Governance Committee meets to
discuss and consider the candidates qualifications and
then selects a nominee for recommendation to the Boardby
majority vote.
The Nominating and Corporate Governance Committee will consider
director candidates recommended by stockholders. The Nominating
and Corporate Governance Committee does not intend to alter the
manner in which it evaluates candidates, including the minimum
criteria set forth above, based on whether or not the candidate
was recommended by a stockholder. Stockholders who wish to
recommend individuals for consideration by the Nominating and
Corporate Governance Committee to become nominees for election
to the Board may do so by delivering a written recommendation to
the Nominating and Corporate Governance Committee at the
following address: 805 East Middlefield Road, Mountain View, CA
94043, at least
120 days prior to the anniversary date of the
10
mailing of the Companys proxy statement for the last
Annual Meeting of
Stockholders.
Submissions must include the full name of the proposed
nominee, a description of the proposed nominees business
experience for at least the previous five years, complete
biographical information, a description of the proposed
nominees qualifications as a director and a representation
that the nominating stockholder is a beneficial or record holder
of the Companys stock and has been a holder for at least
one year. Any such submission must be accompanied by the written
consent of the proposed nominee to be named as a nominee and to
serve as a director if elected.
Stockholder
Communications With The Board Of Directors
Historically, the Company has not provided a formal process
related to stockholder communications with the Board of
Directors. Nevertheless, every effort has been made to ensure
that the views of stockholders are heard by the Board of
Directors or individual directors, as applicable, and that
appropriate responses are provided to stockholders in a timely
manner. We believe our responsiveness to stockholder
communications to the Board of Directors has been excellent.
Nevertheless, during the upcoming year the Nominating and
Corporate Governance Committee will give full consideration to
the adoption of a formal process for stockholder communications
with the Board of Directors and, if adopted, publish it promptly
and post it to the Companys website.
Code
Of Ethics
The Company
has adopted the Cavium Networks, Inc. Code of Conduct that
applies to all officers, directors, employees and consultants.
The Code of Conduct is available on our website at
http://investor.caviumnetworks.com.
If
the Company makes any substantive amendments to the Code of
Conduct or grants any waiver from a provision of the Code of
Conduct to any executive officer or director, the Company will
promptly disclose the nature of the amendment or waiver on its
website.
Proposal 2
Ratification
Of Selection Of Independent Auditors
The Audit Committee of the Board of Directors has selected
PricewaterhouseCoopers LLP as the Companys independent
auditors for the fiscal year ending December 31, 2008 and
has further directed that management submit the selection of
independent auditors for ratification by the stockholders at the
Annual Meeting. PricewaterhouseCoopers LLP has audited the
Companys financial statements since 2000. Representatives
of PricewaterhouseCoopers LLP are expected to be present at the
Annual Meeting. They will have an opportunity to make a
statement if they so desire and will be available to respond to
appropriate questions.
Neither the Companys Bylaws nor other governing documents
or law require stockholder ratification of the selection of
PricewaterhouseCoopers LLP as the Companys independent
auditors. However, the Audit Committee of the Board of Directors
is submitting the selection of PricewaterhouseCoopers LLP to the
stockholders for ratification as a matter of good corporate
practice. If the stockholders fail to ratify the selection, the
Audit Committee of the Board of Directors will reconsider
whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee of the Board of Directors in its
discretion may direct the appointment of different independent
auditors at any time during the year if they determine that such
a change would be in the best interests of the Company and its
stockholders.
The affirmative vote of the holders of a majority of the shares
present in person or represented by proxy and entitled to vote
at the annual meeting will be required to ratify the selection
of PricewaterhouseCoopers LLP. Abstentions will be counted
toward the tabulation of votes cast on proposals presented to
the stockholders and will have the same effect as negative
votes. Broker non-votes are counted towards a quorum, but are
not counted for any purpose in determining whether this matter
has been approved.
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
In connection with the audit of the 2007 financial statements,
the Company entered into an engagement agreement with
PricewaterhouseCoopers LLP which sets forth the terms by which
PricewaterhouseCoopers LLP will perform audit services for the
Company.
11
The following table represents aggregate fees billed to the
Company for the fiscal years ended 2006 and 2007, by
PricewaterhouseCoopers LLP, the Companys principal
accountant.
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Fiscal Year Ended December 31,
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2006
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2007
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($)
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($)
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(In thousands)
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Audit Fees
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175.0
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1,771.7
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(1)
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Audit-related Fees (specifically describe audit-related fees
incurred)
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Tax Fees (specifically describe tax fees incurred)
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10.6
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50.3
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All Other Fees (specifically describe all other fees incurred)
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Total Fees
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185.6
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1,822.0
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(1) |
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Audit Fees consist of fees incurred for professional services
rendered for the audit of our annual consolidated financial
statements and review of the quarterly consolidated financial
statements that are normally provided by PricewaterhouseCoopers
LLP in connection with regulatory filings or engagements. In
2007, this amount included services rendered related to our
initial public offering. |
Tax Fees for the years ended December 31, 2006 and
December 31, 2007 were for services related to tax
compliance.
All fees described above were approved by the Audit Committee.
Pre-Approval
Policies and
Procedures.
The Audit Committee has adopted a policy and procedures for the
pre-approval of audit and non-audit services rendered by our
independent auditor, PricewaterhouseCoopers LLP. The policy
generally pre-approves specified services in the defined
categories of audit services, audit-related services, and tax
services up to specified amounts. Pre-approval may also be given
as part of the Audit Committees approval of the scope of
the engagement of the independent auditor or on an individual
explicit
case-by-case
basis before the independent auditor is engaged to provide each
service. The pre-approval of services may be delegated to one or
more of the Audit Committees members, but the decision
must be reported to the full Audit Committee at its next
scheduled meeting.
The Audit Committee has determined that the rendering of the
services other than audit services by PricewaterhouseCoopers LLP
is compatible with maintaining the principal accountants
independence.
The Board Of Directors
Recommends
A Vote In Favor Of
Proposal 2.
12
Security
Ownership Of
Certain Beneficial Owners And Management
The following table sets forth certain information regarding the
ownership of the Companys common stock as of
March 18, 2008 by: (i) each director and nominee for
director; (ii) each of the executive officers named in the
Summary Compensation Table; (iii) all executive officers
and directors of the Company as a group; and (iv) all those
known by the Company to be beneficial owners of more than five
percent of its common stock.
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Beneficial Ownership(1)
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Beneficial Owner
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Number of Shares
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Percent of Total
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Entities affiliated with AVM Capital Partners LLC(2)
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4,407,352
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10.9
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%
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Entities affiliated with Turner Investment Partners, Inc.(3)
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2,074,492
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5.1
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%
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FMR LLC(4)
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5,163,628
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12.8
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%
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Syed B. Ali(5)
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2,501,250
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6.2
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%
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Arthur D. Chadwick(6)
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405,800
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1.0
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%
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Anil J. Jain(7)
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744,000
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1.8
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%
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Rajiv Khemani(8)
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328,500
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*
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C.N. Reddy(9)
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462,780
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1.1
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%
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John W. Jarve(10)
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465,488
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1.2
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%
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Anthony Pantuso(11)
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1,733,488
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4.3
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%
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Kris Chellam(12)
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83,250
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*
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Anthony Thornley(13)
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28,125
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*
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All executive officers and directors as a group
(9 persons)(14)
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6,752,681
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16.7
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%
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* |
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Less than one percent. |
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(1) |
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This table is based upon information supplied by officers,
directors and principal stockholders and Schedules 13G filed
with the Securities and Exchange Commission (the
SEC). Unless otherwise indicated in the footnotes to
this table and subject to community property laws where
applicable, the Company believes that each of the stockholders
named in this table has sole voting and investment power with
respect to the shares indicated as beneficially owned.
Applicable percentages are based on 40,391,131 shares
outstanding on March 18, 2008, adjusted as required by
rules promulgated by the SEC. |
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(2) |
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Consists of (a) 4,129,575 shares held by Alliance
Ventures, IV, L.P. and (b) 277,777 shares held by
Alliance Ventures III, L.P. AVM Capital Partners LLC is the
general partner of Alliance Ventures IV, L.P. and Alliance
Ventures III, L.P. (together, the Alliance
Entities). The address for the Alliance Entities is 12930
Saratoga Avenue,
Suite D-8,
Saratoga, CA 95070. |
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(3) |
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Consists of shares owned by record clients of Turner Investment
Partners, Inc., in its capacity as an investment advisor. Turner
Investment Partners, Inc. has sole voting power over
1,676,042 shares and sole investment power over
2,074,492 shares. The address for Turner Investment
Partners, Inc. is 1205 Westlake Drive, Suite 100,
Berwyn, PA 19312. |
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(4) |
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Consists of (a) 5,146,928 shares owned by Fidelity
Management and Research Company (Fidelity), which is
a wholly owned subsidiary of FMR LLC and
(b) 16,700 shares owned by Pyramis Global Advisors
Trust Company (Pyramis), which is an indirect
wholly owned subsidiary of FMR LLC. Edward C. Johnson 3rd is the
Chairman of FMR LLC and as Chairman has (a) sole investment
power over the 5,146,928 shares held by Fidelity,
(b) sole investment power over the 16,700 shares held
by Pyramis, and (c) sole voting power over the
16,700 shares held by Pyramis. The address for FMR LLC is
82 Devonshire Street, Boston, MA 02109. |
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(5) |
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Includes 700,000 shares that Mr. Ali has a right to
acquire within 60 days of March 18, 2008 pursuant to
outstanding options. |
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(6) |
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Consists of (a) 137,293 shares held by Arthur D.
Chadwick, (b) 87,495 shares held by Arthur D. Chadwick
Living Trust, dated 5/24/2000 for which Mr. Chadwick is the
sole beneficiary and sole trustee, (c) 118,507 shares
held by The Chadwick Living Trust, Arthur D. Chadwick and Farah
Subedar, Trustees, U.A DTD 05/24/2000,
(d) 62,505 shares held by Farah J. Subedar Living
Trust, dated 5/24/2000 for which Mr. Chadwicks spouse
is the sole beneficiary and sole trustee. |
13
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(7) |
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Includes (a) 95,000 shares held by the Jain Family
Trust Dated 2/27/07, a trust for the benefit of
Mr. Jains children, and (b) 197,500 shares
that Mr. Jain has a right to acquire within 60 days of
March 18, 2008 pursuant to outstanding options. |
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(8) |
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Includes 57,293 shares that Mr. Khemani has a right to
acquire within 60 days of March 18, 2008 pursuant to
outstanding options. |
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(9) |
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Consists of (a) 30,872 shares held by Solar Venture
Partners, LP, (b) 342,968 shares held by Scenic
Investments L.P., (c) 86,207 shares held by Scenic
Capital, and (d) 2,733 shares held directly by
C.N. Reddy. C.N. Reddy, one of our directors, is one of the
general partners of Solar Venture Partners, LP, one of the
general partners of Scenic Investments, L.P. and the general
partner of Scenic Capital. Mr. Reddy may be deemed to share
voting and investment power over these shares. Mr. Reddy
disclaims beneficial ownership of these shares except to the
extent of his proportionate pecuniary interest in them. |
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(10) |
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Consists of (a) 1,906 shares owned directly by Menlo
Entrepreneurs Fund IX(A), L.P., (b) 12,789 shares
owned directly by Menlo Entrepreneurs Fund IX, L.P.,
(c) 387,690 shares owned directly by Menlo
Ventures IX, L.P., (d) 8,418 shares owned
directly by MMEF IX, L.P., (e) 51,569 shares owned
directly by the Jarve Family Trust dated 4/25/95, and
(f) 3,116 shares owned directly by Linden Partners II,
L.P. John Jarve, one of our directors, is a managing member of
MV Management IX, L.L.C., the general partner of Menlo Ventures,
IX, L.P., Menlo Entrepreneurs Fund IX, L.P., Menlo
Entrepreneurs Fund IX(A), L.P. and MMEF IX, L.P. and has
shared voting and investment power over the shares held by these
entities. Mr. Jarve is a trustee and beneficiary of the
Jarve Family Trust dated 4/25/95 and a general partner of Linden
Partners II, L.P. and has shared voting and investment power
over the shares held by these entities. Mr. Jarve disclaims
beneficial ownership of all shares except to the extent of his
proportionate pecuniary interest in them. |
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(11) |
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Consists of (a) 1,560,141 shares held by NeoCarta
Ventures, L.P. and (b) 173,347 shares held by NeoCarta
Scout Fund, L.L.C. Anthony Pantuso, one of our directors, is a
managing director of NeoCarta Associates, LLC, which is the
general partner of NeoCarta Ventures, L.P. and the manager of
NeoCarta Scout Fund, L.L.C. Mr. Pantuso may be deemed to
share dispositive and voting power over these shares, which are,
or may be, deemed to be beneficially owned by NeoCarta Ventures,
L.P. and NeoCarta Scout Fund, L.L.C. Mr. Pantuso may be
deemed to have an indirect pecuniary interest in an
indeterminate portion of the shares held by NeoCarta Ventures,
L.P. and NeoCarta Scout Fund, L.L.C. Mr. Pantuso disclaims
beneficial ownership of these shares, except to the extent of
his pecuniary interest therein. |
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(12) |
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Includes (a) 77,000 shares held by The Chellam Family
Trust dtd 1/28/88, of which Mr. Chellam is a co-trustee,
and (b) 6,250 shares that Mr. Chellam has a right
to acquire within 60 days of March 18, 2008 pursuant
to outstanding options. |
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(13) |
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Includes 3,125 shares that Mr. Thornley has a right to
acquire within 60 days of March 18, 2008 pursuant to
outstanding options. |
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(14) |
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Includes an aggregate of 964,168 shares that our directors
and named executive officers have a right to acquire within
60 days of March 18, 2008 pursuant to outstanding
options. |
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the
1934 Act) requires the Companys directors
and executive officers, and persons who own more than ten
percent of a registered class of the Companys equity
securities, 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. Officers, directors and
greater than ten percent stockholders are required by SEC
regulation to furnish the Company with copies of all
Section 16(a) forms they file.
To the Companys knowledge, based solely on a review of the
copies of such reports furnished to the Company and written
representations that no other reports were required, during the
fiscal year ended December 31, 2007, all Section 16(a)
filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with;
except, however, for the unintended omission to file a
Form 4 in connection with the conversion of preferred stock
beneficially owned by Mr. Chellam and Mr. Reddy to
common stock in connection with our initial public offering.
14
Equity
Compensation Plan Information
The following table provides certain information with respect to
all of the Companys equity compensation plans in effect as
of December 31, 2007:
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Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available
|
|
|
|
|
|
|
|
|
|
for Future Issuance
|
|
|
|
Number of Securities
|
|
|
Weighted Average
|
|
|
Under Equity
|
|
|
|
to be Issued Upon
|
|
|
Exercise Price of
|
|
|
Compensation Plans
|
|
|
|
Exercise of Outstanding
|
|
|
Outstanding Options,
|
|
|
(Excluding Securities
|
|
|
|
Options, Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Reflected in Column(a))
|
|
Plan Category
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Equity compensation plans approved by security holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 Stock Incentive Plan(1)
|
|
|
3,735,301
|
|
|
$
|
2.64
|
|
|
|
348,698
|
|
2007 Equity Incentive Plan(2)
|
|
|
196,700
|
|
|
$
|
28.57
|
|
|
|
4,802,800
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,932,700
|
|
|
$
|
3.85
|
|
|
|
5,151,498
|
|
|
|
|
(1) |
|
In February 2001, we adopted the 2001 Stock Incentive Plan, or
2001 Plan. A total of 10,345,979 shares of common stock are
reserved for issuance under the 2001 Plan. As a result of our
initial public offering and the adoption of the 2007 Equity
Incentive Plan, the Company no longer grants awards under the
2001 Plan; however, all outstanding options continue to be
governed by their existing terms. |
|
(2) |
|
In February 2007, we adopted the 2007 Equity Incentive Plan, or
2007 Plan, which became effective in May 2007 in connection with
our initial public offering. A total of 5,000,000 shares of
common stock were initially authorized for issuance under the
2007 Incentive Plan. Our board of directors may increase the
share reserve as of each January 1, from January 1,
2008 through January 1, 2017 (each such day a
Calculation Date), by an amount determined by our
board; provided, however that the increase for any year may not
exceed the lesser of (1) 5% of the total number of shares
of our common stock outstanding on the Calculation Date or
(2) 5,000,000 shares. |
Executive
Compensation
Compensation
Discussion and Analysis
The following discussion and analysis of compensation
arrangements of our named executive officers for 2007 should be
read together with the compensation tables and related
disclosures set forth below. This discussion contains
forward-looking statements that are based on our current plans,
considerations, expectations and determinations regarding future
compensation programs. Actual compensation programs that we
adopt may differ materially from currently planned programs as
summarized in this discussion.
The primary objectives of the Compensation Committee of our
Board of Directors with respect to executive compensation are to
attract and retain the best possible executive talent, to tie
annual and long-term cash and stock incentives to achievement of
measurable corporate, business unit and individual performance
objectives, to align executives incentives with
stockholder value creation, to be affordable within the context
of our operating expense model, to be fairly and equitably
administered and to reflect our values. To achieve these
objectives, our Compensation Committee implements and maintains
compensation plans that tie a substantial portion of our
executives overall compensation to our financial
performance and common stock price. Overall, the total
compensation opportunity is intended to create an executive
compensation program that is based on comparable public
companies.
As we administer our compensation programs, we plan to:
|
|
|
|
|
evolve and modify our programs to reflect the competitive
environment and our changing business needs;
|
|
|
|
focus on simplicity, flexibility and choice wherever possible;
|
15
|
|
|
|
|
openly communicate the details of our programs with our
employees and managers to ensure that our programs and their
goals are understood;
|
|
|
|
provide our managers and employees with the tools they need to
administer our compensation programs; and
|
|
|
|
consistently apply our compensation philosophy to all our
locations, although our specific programs may vary from country
to country.
|
The Compensation Committee meets regularly in executive session.
However, from time to time, various members of management and
other employees as well as outside advisors or consultants may
be invited by the Compensation Committee to make presentations,
provide financial or other background information or advice or
otherwise participate in Compensation Committee meetings. The
chief executive officer may not participate in or be present
during any deliberations or determinations of the Compensation
Committee regarding his compensation. The charter of the
Compensation Committee grants the Compensation Committee full
access to all books, records, facilities and personnel of the
Company, as well as authority to obtain, at the expense of the
Company, advice and assistance from internal and external legal,
accounting or other advisors and consultants and other external
resources that the Compensation Committee considers necessary or
appropriate in the performance of its duties. In particular, the
Compensation Committee has the sole authority to retain
compensation consultants to assist in its evaluation of
executive and director compensation, including the authority to
approve the consultants reasonable fees and other
retention terms. In July 2007 our Compensation Committee
established a policy for generally meeting on the third Monday
of each of the last two months of each quarter for the purpose
of granting equity awards to new employees, including any new
executive officers, and, on occasion, to existing employees.
Historically, the Compensation Committee has made most
significant adjustments to annual compensation, determined bonus
and equity awards and established new performance objectives at
one or more meetings held during the first quarter of the year.
However, the Compensation Committee also considers matters
related to individual compensation, such as compensation for new
executive hires, as well as high-level strategic issues, such as
the efficacy of the Companys compensation strategy,
potential modifications to that strategy and new trends, plans
or approaches to compensation, at various meetings throughout
the year. For executives other than the chief executive officer,
the Compensation Committee solicits and considers evaluations
and recommendations submitted to the Committee by the chief
executive officer. In the case of the chief executive officer,
the evaluation of his performance is conducted by the
Compensation Committee, which determines any adjustments to his
compensation as well as awards to be granted. For all executive
officers, as part of its deliberations, the Compensation
Committee may review and consider, as appropriate, materials
such as financial reports and projections, operational data, tax
and accounting information, executive and director stock
ownership information, Company stock performance data, analyses
of historical executive compensation levels and current
Company-wide compensation levels, and recommendations of the
Compensation Committees compensation consultant, including
analyses of executive officers compensation paid at other
companies identified by the consultant.
The Compensation Committee has not established any formal
policies or guidelines for allocating compensation between
current and long-term incentive compensation, or between cash
and non-cash compensation. In determining the amount and mix of
compensation elements and whether each element provides the
correct incentives and rewards for performance consistent with
our short and long-term goals and objective, the Compensation
Committee relies on its judgment about each individual rather
than adopting a formulaic approach to compensatory decisions.
In January 2008 the Compensation Committee engaged an
independent compensation consultant, Compensia, Inc., to provide
the committee with an analysis of our salaries and stock
incentive awards for executive officers. At the request of the
Compensation Committee, Compensia held discussions with members
of the Compensation Committee and senior management to learn
more about our business operations and strategy, key performance
metrics and strategic goals, as well as the labor markets in
which the we compete.
16
Compensation
Components
Base Salary. Base salaries for our named
executive officers are established based on the scope of their
responsibilities, taking into account competitive market
compensation paid by other companies for similar positions.
Generally, we believe that executive base salaries should be in
the range of salaries for executives in similar positions and
with similar responsibilities at comparable companies in line
with our compensation philosophy. Base salaries are reviewed by
our Compensation Committee annually, and adjusted from time to
time to realign salaries with market levels after taking into
account individual responsibilities, performance, experience and
cost of living adjustments, as appropriate. The Compensation
Committee neither bases its consideration on any single factor
nor does it specifically assign relative weights to factors, but
rather considers a mix of factors. The salaries paid to our
executive officers did not change in 2007 because the
Compensation Committee believed that the salaries continued to
achieve our executive compensation objectives. Although 2007
salaries did not change, Mr. Chadwicks base salary
compensation, as reflected in the Summary Compensation Table
below, was lower in 2007 due to an increase in unpaid time-off
in 2007. The Compensation Committee performed its annual review
of the named executive officer salaries for 2008 and decided to
adjust the base salary amounts and to eliminate the officer
bonus program. The named executive officers salaries will
be increased, effective April 1, 2008, such that
Mr. Alis yearly salary will be $295,000,
Mr. Chadwicks yearly salary will be $240,000,
Mr. Jains yearly salary will be $240,000 and
Mr. Khemanis yearly salary will be $275,000.
Annual Bonus. In addition to base salaries, we
believe performance-based cash bonuses can be important in
providing incentives to achieve corporate goals. Cash bonuses
are intended to reward individual performance during the year
and can therefore be highly variable from year to year. In 2007,
the Compensation Committee established the 2007 Executive Bonus
Plan, or the 2007 Bonus Plan. The 2007 Bonus Plan provides for
the payment of cash bonuses biannually, if approved by the
Compensation Committee. The Board of Directors set the target
bonus amounts for the first half of 2007 at $25,000 for
Mr. Ali and $10,000 for each of Messrs. Chadwick, Jain
and Khemani. The Compensation Committee set the target bonus
amounts for the second half of 2007 at $25,000 for
Messrs. Ali and Khemani and $10,000 for each of
Messrs. Chadwick and Jain. The Compensation Committee
increased Mr. Khemanis target bonus amount for the
second half of 2007 due to an increase in his responsibilities.
The payment of these cash bonus target amounts in each half of
2007 were based solely on the achievement of certain corporate
financial goals set by the Board of Directors and the
Compensation Committee. Pursuant to the 2007 Bonus Plan, bonus
amounts could range from zero to all of the target bonus amount.
In setting the target bonus amounts, the Compensation Committee
believed such amounts achieved our goals of providing incentives
for each of the named executive officers to achieve the
corporate financial goals set by the committee as well as
motivating and rewarding each of the named executive officers
for their performance. In July 2007 and January 2008 the
Compensation Committee approved the payment of the full target
bonus amounts to each of the named executive officers due to the
full achievement of the financial goals. Our Compensation
Committee has determined that for 2008 we will not maintain a
bonus program. The Compensation Committee believes that base
salaries and equity compensation are sufficient to achieve our
compensation goals and provide both short and long-term
incentives for our named executive officers.
Long-Term Incentive Program. We believe that
long-term performance is achieved through an ownership culture
that encourages long-term performance by our named executive
officers through our grants of stock-based awards. Our long-term
equity incentive compensation is currently exclusively in the
form of stock options to acquire our common stock. In 2007 our
Board of Directors adopted the Cavium Networks, Inc. 2007 Equity
Incentive Plan, the 2007 Plan, which permits the grant of stock
options, stock appreciation rights, restricted stock grants or
awards, performance shares, and other stock-based awards. The
2007 Plan was established to provide our employees, including
our named executive officers, with incentives to help align
those employees incentives with the interests of our
stockholders. Our Compensation Committee does not apply a rigid
formula in allocating stock options to named executive officers
as a group or to any particular named executive officer.
Instead, our Compensation Committee exercises its judgment and
discretion and considers, among other things, the role and
responsibility of the named executive officer, competitive
factors, the amount of stock-based equity compensation already
held by the named executive officer, the non-equity compensation
received by the named executive officer and the total number of
options to be granted to all employees during the year. Our
Compensation Committee also considers each executive
officers unvested stock options, as we believe the vesting
of stock options
17
over time is important to the future performance of our named
executive officers. In the past, our practice has been to review
annually equity awards to our named executive officers, and make
additional awards if appropriate. Like our other compensation
components, we intend that the annual aggregate value of
long-term incentive awards will be set in line with that of
comparable companies.
None of our named executive officers received stock option
grants in 2007. In 2006 our Board of Directors granted stock
options to each named executive officer, including an option
with a four year vesting schedule and an option with a five year
vesting schedule. In 2007 the Compensation Committee determined
that the stock options granted to the named executive officers
in 2006 continued to satisfy our goals of encouraging long-term
performance and aligning the named executive officers
interests with stockholders due to the size of the stock option
grants as well as the vesting schedules of such grants. On
March 17, 2008, the Compensation Committee granted equity
incentive plan awards, including the following grants to the
named executive officers: 175,000 stock options to Mr. Ali,
50,000 stock options to Mr. Chadwick, 50,000 stock options
to Mr. Jain and 60,000 stock options to Mr. Khemani.
Each of these option grants vests as to 12.5% on the date six
months from the vesting commencement date and 1/48th of the
shares subject to the stock option vest monthly thereafter.
Our Compensation Committee has established a policy for meeting
on the third Monday of each of the last two months in each
quarter for the purpose of granting equity awards to new
employees, including any new executive officers, and, on
occasion, to existing employees. We do not time the granting of
our stock options with any favorable or unfavorable news
released by us and the proximity of the grant of any awards to
an earnings announcement or other market event is coincidental.
The exercise price of options is set at the closing price of our
common stock on the date of grant.
Stock Appreciation Rights. Our 2007 Plan
authorizes us to grant stock appreciation rights. To date no
stock appreciation rights have been awarded to any of our
executive officers. However, our Compensation Committee, in its
discretion, may in the future elect to make such grants to our
executive officers if it deems it advisable.
Restricted Stock Grants or Awards. Our
Compensation Committee did not grant restricted stock or
restricted stock awards to any of our executive officers in the
year ended December 31, 2007. However, our 2007 Plan
authorizes restricted stock and restricted stock awards and our
Compensation Committee, in its discretion, may in the future
elect to make such grants to our executive officers if it deems
it advisable.
Stock Ownership Guidelines. While we encourage
our executive officers to hold a significant equity interest in
the Company, we do not have specific share retention and
ownership guidelines for our executive officers. We may
implement guidelines regarding the issuance of new stock option
awards in the future in order to assure that our officers are
appropriately incentivized.
All of our full-time employees in the U.S., including our
executive officers, may participate in our health programs, such
as medical, dental and vision care coverage, and our 401(k) and
life insurance programs.
Accounting
and Tax Considerations
Effective January 1, 2006, we adopted the fair value
provisions of Financial Accounting Standards Board Statement
No. 123(R) (revised 2004), Share-Based Payment,
or SFAS 123R. Under SFAS 123R, we are required to
estimate and record an expense for each award of equity
compensation (including stock options) over the vesting period
of the award. The Compensation Committee has determined to
retain for the foreseeable future its stock option program as
the sole component of its long-term compensation program, and,
therefore, to record this expense on an ongoing basis according
to SFAS 123R. The Compensation Committee has considered,
and may in the future consider, the grant of restricted stock to
our named executive officers in lieu of stock option grants in
light of the accounting impact of SFAS 123R with respect to
stock option grants and other considerations.
Section 162(m) of the Internal Revenue Code of 1986 limits
our deduction for federal income tax purposes to not more than
$1.0 million of compensation paid to certain executive
officers in a calendar year. Compensation above
$1.0 million may be deducted if it is
performance-based compensation within the meaning of
the Code. The Compensation Committee has not yet established a
policy for determining which forms of incentive compensation
awarded to our executive officers shall be designed to qualify
as performance-based compensation. The Compensation
Committee intends to continue to evaluate the effects of the
compensation limits of
18
Section 162(m) on any compensation it proposes to grant,
and the Compensation Committee intends to provide future
compensation in a manner consistent with the best interests of
the Company and those of our stockholders.
Summary
Compensation Table
The following table shows for the fiscal years ended
December 31, 2007 and 2006, compensation awarded to, paid
to or earned by the Companys chief executive officer,
Chief Financial Officer and its two other most highly
compensated executive officers at December 31, 2007:
Summary
Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
Non-Equity Incentive
|
|
|
|
|
|
|
|
|
Salary
|
|
Bonus(1)
|
|
Awards(2)
|
|
Plan Compensation
|
|
All Other
|
|
|
Name and Principal Position
|
|
Year
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
Compensation ($)
|
|
Total ($)
|
|
Syed B. Ali,
|
|
|
2007
|
|
|
|
194,480
|
|
|
|
50,000
|
|
|
|
154,996
|
|
|
|
|
|
|
|
11,114
|
(3)
|
|
|
410,590
|
|
President and chief executive officer
|
|
|
2006
|
|
|
|
194,480
|
|
|
|
45,650
|
|
|
|
120,599
|
|
|
|
|
|
|
|
10,640
|
(3)
|
|
|
371,369
|
|
Arthur D. Chadwick,
|
|
|
2007
|
|
|
|
182,250
|
|
|
|
20,000
|
|
|
|
44,284
|
|
|
|
|
|
|
|
11,284
|
(3)
|
|
|
257,818
|
|
Vice President of Finance and Administration and Chief Financial
Officer
|
|
|
2006
|
|
|
|
188,625
|
|
|
|
18,260
|
|
|
|
34,457
|
|
|
|
|
|
|
|
10,780
|
(3)
|
|
|
252,122
|
|
Anil K. Jain,
|
|
|
2007
|
|
|
|
194,480
|
|
|
|
20,000
|
|
|
|
47,606
|
|
|
|
|
|
|
|
11,283
|
(3)
|
|
|
273,369
|
|
Vice President of IC Engineering
|
|
|
2006
|
|
|
|
194,480
|
|
|
|
18,260
|
|
|
|
37,041
|
|
|
|
|
|
|
|
10,779
|
(3)
|
|
|
260,560
|
|
Rajiv Khemani,
|
|
|
2007
|
|
|
|
187,200
|
|
|
|
35,000
|
|
|
|
95,729
|
|
|
|
|
|
|
|
11,049
|
(3)
|
|
|
328,978
|
|
Vice President of Marketing and Sales
|
|
|
2006
|
|
|
|
187,200
|
|
|
|
18,260
|
|
|
|
42,060
|
|
|
|
|
|
|
|
10,528
|
(3)
|
|
|
258,048
|
|
|
|
|
(1) |
|
Bonuses listed on this table reflects the performance of the
chief executive officer, Chief Financial Officer and each of the
named executive officers. However, a portion of the bonuses are
actually paid in the following calendar year. |
|
(2) |
|
The dollar amounts in this column represent the expensed fair
value of stock options granted in the fiscal years ended
December 31, 2007 and 2006, calculated in accordance with
SFAS No. 123(R). See Note 8 of our financial
statements included in our Annual Report on
Form 10-K
for the year ended December 31, 2007, as filed with the SEC
on March 10, 2008, for a discussion of assumptions made in
determining the grant date and fair market value and
compensation expense of our stock options. |
|
(3) |
|
Includes the following payments we paid on behalf of the
executives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health Care
|
|
Life
|
|
|
|
|
|
|
Contribution
|
|
Insurance
|
|
Total
|
Name
|
|
Year
|
|
($)
|
|
Premiums ($)
|
|
($)
|
|
Syed B. Ali
|
|
|
2007
|
|
|
|
10,884
|
|
|
|
260
|
|
|
|
11,144
|
|
|
|
|
2006
|
|
|
|
10,380
|
|
|
|
260
|
|
|
|
10,640
|
|
Arthur D. Chadwick
|
|
|
2007
|
|
|
|
10,884
|
|
|
|
400
|
|
|
|
11,284
|
|
|
|
|
2006
|
|
|
|
10,380
|
|
|
|
400
|
|
|
|
10,780
|
|
Anil K. Jain
|
|
|
2007
|
|
|
|
10,884
|
|
|
|
399
|
|
|
|
11,283
|
|
|
|
|
2006
|
|
|
|
10,380
|
|
|
|
399
|
|
|
|
10,779
|
|
Rajiv Khemani
|
|
|
2007
|
|
|
|
10,884
|
|
|
|
165
|
|
|
|
11,049
|
|
|
|
|
2006
|
|
|
|
10,380
|
|
|
|
148
|
|
|
|
10,528
|
|
Grants of
Plan Based Awards
No grants of plan-based awards were made to our named executive
officers for the fiscal year ended December 31, 2007.
19
Outstanding
Equity Awards At 2007 Fiscal Year-End
The following table shows for the fiscal year ended
December 31, 2007, certain information regarding
outstanding equity awards at fiscal year end for the named
executive officers.
Outstanding
Equity Awards At December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Option
|
|
|
Option
|
|
|
|
Options
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Expiration
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
($)(1)
|
|
|
Date
|
|
|
Syed B. Ali
|
|
|
350,000
|
(2)
|
|
|
|
|
|
|
1.02
|
|
|
|
8/2/2015
|
|
|
|
|
175,000
|
(2)
|
|
|
|
|
|
|
3.04
|
|
|
|
3/22/2016
|
|
|
|
|
175,000
|
(3)
|
|
|
|
|
|
|
3.04
|
|
|
|
3/22/2016
|
|
Arthur D. Chadwick
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anil K. Jain
|
|
|
90,000
|
(2)
|
|
|
|
|
|
|
1.02
|
|
|
|
8/2/2015
|
|
|
|
|
53,750
|
(2)
|
|
|
|
|
|
|
3.04
|
|
|
|
3/22/2016
|
|
|
|
|
53,750
|
(3)
|
|
|
|
|
|
|
3.04
|
|
|
|
3/22/2016
|
|
Rajiv Khemani
|
|
|
26,042
|
(2)
|
|
|
|
|
|
|
3.04
|
|
|
|
3/22/2016
|
|
|
|
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30,834
|
(3)
|
|
|
|
|
|
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3.04
|
|
|
|
3/22/2016
|
|
|
|
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417
|
(4)
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|
|
|
|
|
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5.42
|
|
|
|
11/14/2016
|
|
|
|
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(1) |
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Represents the per share fair market value of our common stock,
as determined by our Board of Directors in good faith on the
grant date. |
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(2) |
|
Each option vests as to 12.5% on the date six months from the
vesting commencement date and 1/48th of the shares subject to
the stock option vest monthly thereafter. |
|
(3) |
|
Each option vests as to 20% on the one year anniversary of the
vesting commencement date and 1/60th of the shares subject to
the stock option vest monthly thereafter. |
|
(4) |
|
15,000 shares vested on the date of grant and
1/48th
of the shares subject to the stock option vest monthly over
12 months after the vesting commencement date. |
Option
Exercises and Stock Vested
The following table shows for the fiscal year ended
December 31, 2007, certain information regarding option
exercises and stock vested during the last fiscal year with
respect to the Named Executive Officers:
Option
Exercises and Stock Vested in Fiscal 2007
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Option Awards
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Number of
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Shares
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Acquired
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Value Realized
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on Exercise
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on Exercise
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Name
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(#)
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($)
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Syed B. Ali
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Arthur D. Chadwick
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Anil K. Jain(1)
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25,000
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$
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205,500
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Rajiv Khemani
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57,082
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$
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1,252,935
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(1) |
|
Mr. Jain exercised the option on March 29, 2007, prior
to the Companys initial public offering. The Value
Realized on Exercise is calculated based on the fair market
value of the Companys common stock on the date of exercise. |
20
Pension
Benefits
We do not currently maintain qualified or non-qualified defined
benefit plans.
Nonqualified
Deferred Compensation
We do not currently maintain non-qualified defined contribution
plans or other deferred compensation plans.
Employee
Agreements and Potential Payments Upon Termination or Change in
Control
The following summaries set forth the employment agreements and
potential payments payable to our named executive officers upon
termination of employment or a change in control of us under
their current employment agreements and our other compensation
programs. The Compensation Committee may in its discretion
revise, amend or add to the benefits if it deems advisable. We
believe that the severance benefits are appropriate,
particularly with respect to a termination without cause since
in that scenario, we and the executive officer have a mutually
agreed upon severance package that is in place prior to any
termination event which provides us with more flexibility to
make a change in our executive management if such a change is in
the stockholders best interest. In addition to the
potential payments set forth below, each of the named executive
officers, as employees, may be entitled to certain benefits
under the 2007 Equity Incentive Plan relating to a change in
control or other corporate transaction.
Syed B. Ali. In January 2001, we entered into
an employment agreement with Mr. Ali, our President and
chief executive officer. The base annual salary paid to
Mr. Ali in 2007 was $194,480. Mr. Alis agreement
provides that he is an at-will employee and his employment may
be terminated at any time by us or Mr. Ali. If we terminate
Mr. Alis employment without cause or Mr. Ali is
constructively terminated, and Mr. Ali executes a release
of claims against the Company, Mr. Ali will be entitled to
receive $14,583 (less applicable withholding taxes) per month
for a period of twelve months and reimbursement for health care
continuation coverage for the same period. If, during the
twelve-month period, Mr. Ali obtains full time employment
(or its equivalent), then Mr. Alis severance payments
will be decreased by the salary or fees paid for such work (but
not decreased by more than $50,000) and his health care
continuation reimbursements will cease if he has been provided
with substantially similar coverage. For a period of eighteen
months after his termination of employment, Mr. Ali will be
subject to certain restrictions on competition with the Company
and on the solicitation of employees, customers and clients.
Mr. Ali is also eligible to participate in our general
employee benefit plans in accordance with the terms and
conditions of such plans.
Arthur D. Chadwick. In December 2004, we
entered into an employment offer letter with Mr. Chadwick,
our Vice President of Finance & Administration and
Chief Financial Officer. The base annual salary for
Mr. Chadwick in 2007 was $188,625. Mr. Chadwicks
offer letter provides that he is an at-will employee and his
employment may be terminated at any time by us or
Mr. Chadwick. If we terminate Mr. Chadwicks
employment without cause or Mr. Chadwick resigns for good
reason, one half of his unvested Company stock and stock options
issued pursuant to his offer letter will become vested.
Mr. Chadwicks unvested Company stock and stock
options issued pursuant to his offer letter will vest if we
terminate Mr. Chadwicks employment or
Mr. Chadwick resigns for good reason within three months
prior to or 12 months following a change in control (as
defined in his offer letter) or Mr. Chadwick is not offered
the position of chief financial officer of the surviving or
continuing entity within three months following the change in
control. In addition, in the event of a change in control,
Mr. Chadwick has agreed to assist the Company with the
transition following such a transaction for up to 6 months.
Mr. Chadwick is also eligible to participate in our general
employee benefit plans in accordance with the terms and
conditions of such plans.
Anil K. Jain. In January 2001, we entered into
an employment offer letter with Mr. Jain, our Vice
President of IC Engineering. The base annual salary paid to
Mr. Jain in 2007 was $194,480. Mr. Jains offer
letter provides that Mr. Jain is an at-will employee and
his employment may be terminated at any time by us or
Mr. Jain. If we terminate Mr. Jains employment
for any reason, Mr. Jain is entitled to receive his base
salary as well as benefits for three months after termination.
Mr. Jain is also eligible to participate in our general
employee benefit plans in accordance with the terms and
conditions of such plans.
Rajiv Khemani. In May 2003, we entered into an
employment offer letter with Mr. Khemani, our Vice
President of Marketing and Sales. The base annual salary paid to
Mr. Khemani in 2007 was $187,200.
21
Mr. Khemanis offer letter provides that
Mr. Khemani is an at-will employee and his employment may
be terminated at any time by us or Mr. Khemani. The offer
letter does not provide Mr. Khemani with any severance or
change in control benefits. Mr. Khemani is eligible to
participate in our general employee benefit plans in accordance
with the terms and conditions of such plans.
Stock
Option Awards
We currently grant stock awards to executive officers under our
2007 Equity Incentive Plan, of the 2007 Plan. The 2007 Plan was
established to provide our employees with an opportunity to
participate in our long-term performance. The following is a
brief description of certain permissible terms of stock options
under the 2007 Plan:
Exercise Price. Incentive and nonstatutory
stock options are granted pursuant to stock option agreements
adopted by the plan administrator. The plan administrator
determines the exercise price for a stock option, within the
terms and conditions of the 2007 Plan, provided that the
exercise price of a stock option cannot be less than 100% of the
fair market value of our common stock on the date of grant
except in the case of certain incentive stock options.
Term. The plan administrator determines the
term of stock options granted under the 2007 Plan, up to a
maximum of ten years (except in the case of certain incentive
stock options). Unless the terms of an optionees stock
option agreement provide otherwise, if an optionees
relationship with us, or any of our affiliates, ceases for any
reason other than disability or death, the optionee may exercise
any vested stock options for a period of three months following
the cessation of service. If an optionees service
relationship with us, or any of our affiliates, ceases due to
disability or death (or an optionee dies within a certain period
following cessation of service), the optionee or a beneficiary
may exercise any vested stock options for a period of
12 months following such cessation of service in the event
of disability and 18 months following the date of death.
The stock option term may be extended in the event that exercise
of the stock option following termination of service is
prohibited by applicable securities laws. In no event, however,
may a stock option be exercised beyond the expiration of its
term.
Consideration. Acceptable consideration for
the purchase of common stock issued upon the exercise of a stock
option will be determined by the plan administrator and may
include (a) cash, check, bank draft or money order,
(b) a broker- assisted cashless exercise, (c) the
tender of common stock owned by the optionee, (d) a net
exercise arrangement, and (e) other legal consideration
approved by the plan administrator.
Restriction on Transfer. Unless the plan
administrator provides otherwise, stock options generally are
not transferable except by will, the laws of descent and
distribution, or pursuant to a domestic relations order. An
optionee may designate a beneficiary, however, who may exercise
the stock option following the optionees death.
Corporate Transactions. In the event of
certain significant corporate transactions, our Board of
Directors has the discretion to take one or more of the
following actions with respect to a stock award:
(i) arrange for the surviving or acquiring corporation (or
its parent) to assume or continue the stock award or to
substitute a similar stock award for the stock award;
(ii) arrange for the assignment of any reacquisition or
repurchase rights held by us for any shares issued pursuant to
the stock award to the surviving or acquiring corporation (or
its parent); (iii) accelerate the vesting and
exercisability of the stock award, if applicable, with such
stock award terminating if not exercised (if applicable) prior
to the corporate transaction; (iv) arrange for the lapse of
any reacquisition or repurchase rights held by us with respect
to the stock award; or (v) cancel the stock award, to the
extent not vested or not exercised prior to the corporate
transaction, in exchange for such cash consideration as our
Board of Directors, in its discretion, may consider appropriate.
Our Board of Directors does not need to take the same action
with respect to all stock awards or with respect to all
participants. Other terms may be provided in individual stock
award agreements.
For purposes of the 2007 Plan, a corporate transaction will be
deemed to occur in the event of (i) a sale of all or
substantially all of our consolidated assets and the
consolidated assets of our subsidiaries; (ii) a sale of at
least 90% of our outstanding securities; (iii) the
consummation of a merger or consolidation in which we are not
the surviving
22
corporation; or (iv) the consummation of a merger or
consolidation in which we are the surviving corporation but the
shares of our outstanding common stock are converted into other
property by virtue of the transaction.
Prior to May 2007, we granted options under our 2001 Stock
Incentive Plan. The 2001 Stock Incentive Plan was terminated in
connection with our initial public offering so that no further
awards may be granted under the plan. Although the 2001 Stock
Incentive Plan has terminated, all outstanding options will
continue to be governed by their existing terms.
Director
Compensation
The following table shows for the fiscal year ended
December 31, 2007 certain information with respect to the
compensation of all non-employee directors of the Company:
Director
Compensation for Fiscal 2007
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Change in
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Pension
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Fees
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Value and
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Earned or
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Non-Equity
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Nonqualified
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Paid in
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Stock
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Option
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Incentive Plan
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Deferred
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All Other
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Cash
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Awards
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Awards
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Compensation
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Compensation
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Compensation
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Total
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Name
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($)
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($)
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($)(1)
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($)
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Earnings
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($)
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($)
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Kris Chellam(2)
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24,734
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24,734
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John W. Jarve(3)
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Anthony J. Pantuso(4)
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C.N. Reddy(5)
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Anthony S. Thornley(6)
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19,761
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19,761
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(1) |
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The dollar amounts in this column represent the expensed fair
value of stock options granted in the fiscal year ended
December 31, 2007, calculated in accordance with
SFAS No. 123(R). See Note 8 of our financial
statements included in our Annual Report on
Form 10-K
for the year ended December 31, 2007, as filed with the SEC
on March 10, 2008, for a discussion of assumptions made in
determining the grant date and fair market value and
compensation expense of our stock options. |
|
(2) |
|
Mr. Chellam owned options to purchase up to
6,250 shares of our common stock as of December 31,
2007, all of which were vested as of December 31, 2007. The
grant date fair value of these options is $33,875. |
|
(3) |
|
Mr. Jarve did not own any outstanding options as of
December 31, 2007. |
|
(4) |
|
Mr. Pantuso did not own any outstanding options as of
December 31, 2007. |
|
(5) |
|
Mr. Reddy did not own any outstanding options as of
December 31, 2007. |
|
(6) |
|
Mr. Thornley owned options to purchase up to
3,125 shares of our common stock as of December 31,
2007, 650 shares of which were vested as of
December 31, 2007. The grant date fair value of these
options is $26,625. |
Our directors have not received any cash compensation for their
services as members of our Board of Directors or any committee
of our Board of Directors in 2007. However, we have a policy of
reimbursing directors for travel, lodging and other reasonable
expenses incurred in connection with their attendance at Board
or committee meetings.
Non-employee directors will receive cash compensation for their
services as non-employee members of the Board of Directors in
the following amounts: $12,000 per year for service on the Board
of Directors, plus $6,000 per year for service on the audit
committee and $6,000 per year for service on the Compensation
Committee. In addition, the chairperson of the audit committee
will receive an additional $6,000 per year. This cash
compensation will be paid annually, with the first payment to be
made on the date of our 2008 annual stockholders meeting.
In February 2007, based upon a review of the stock options held
by each non-employee director, the Board of Directors granted a
stock option to purchase 3,125 shares of common stock at an
exercise price of $8.52 per share to Mr. Thornley. This
option has a four-year vesting schedule. In the event of certain
change in control transactions,
23
including our merger with or into another corporation or the
sale of substantially all of our assets, the vesting of all
shares subject to each option granted to the non-employee
directors will accelerate fully.
Each individual who is elected or appointed as a non-employee
director of the Board of Directors will automatically be granted
a stock option to purchase 50,000 shares of our common
stock. All of the shares subject to each such grant vest in
equal monthly installments over four years. The vesting
commencement date of these stock options will occur when the
director first takes office. At the time of each of our annual
stockholders meetings, beginning in 2008, each
non-employee director who has served for at least the preceding
six months and who will continue to be a director after that
meeting will automatically be granted a nonstatutory stock
option on such date to purchase 12,500 shares of our common
stock that will vest in equal monthly installments over four
years. All these stock options will be granted with an exercise
price equal to the fair market value of our common stock on the
date of the grant.
401(k)
Plan
We maintain a defined contribution employee retirement plan, or
401(k) plan, for our employees. Our named executive officers are
also eligible to participate in the 401(k) plan on the same
basis as our other employees. The 401(k) plan is intended to
qualify as a tax-qualified plan under Section 401(k) of the
Internal Revenue Code. The 401(k) plan provides that each
participant may contribute up to 15% of his or her pre-tax
compensation, up to the statutory limit, which is $15,500 for
calendar year 2007. Participants that are 50 years or older
can also make
catch-up
contributions, which in calendar year 2007 may be up to an
additional $5,000 above the statutory limit.
Under the 401(k) plan, each participant is fully vested in his
or her deferred salary contributions, when contributed. We do
not make matching contributions. Participant contributions are
held and invested by the plans trustee.
Transactions
With Related Persons
Code
of Conduct policy and Procedures
In 2007, the
Company adopted a written Code of Conduct that sets forth the
Companys policies and procedures regarding the
identification, review, consideration and approval or
ratification of transactions with employees, officers, directors
and consultants. Pursuant to our written Code of Conduct, our
executive officers and directors are not permitted to enter into
such transactions with us without the approval of either our
audit committee or our board of directors. Our audit committee
and/or board
of directors shall approve only those transactions that, in
light of known circumstances, are in, or are not inconsistent
with, our best interests, as our audit committee or board of
directors determines in the good faith exercise of its
discretion. Our Code of Conduct also prohibits employees from
entering into transactions that are a conflict of
interest, such as those in which a persons private
interest interferes in any way with the Companys
interests, without the approval of our designated Compliance
Officer.
Certain
Related-Person Transactions
In March 2007, Mr. Jain exercised options to purchase
25,000 shares of the Companys common stock at $0.30
per share, with a net value realized (the difference between the
exercise price and the fair market value of such shares on the
date of exercise) of $205,500.
In November and December 2007, Mr. Khemani exercised
options to purchase 37,499 shares of the Companys
common stock at $3.04 per share, with a net value realized (the
difference between the exercise price and the fair market value
of such shares, based on the closing sales prices reported on
The Nasdaq Global Market for the date of exercise) of $852,465.
In November 2007, Mr. Khemani exercised options to purchase
19,583 shares of the Companys common stock at $5.42
per share, with a net value realized (the difference between the
exercise price and the fair market value of such shares, based
on the closing sales prices reported on The Nasdaq Global Market
for the date of exercise) of $400,472.
24
The Company has entered into indemnity agreements with certain
officers and directors which provide, among other things, that
the Company will indemnify such officer or director, under the
circumstances and to the extent provided for therein, for
expenses, damages, judgments, fines and settlements he or she
may be required to pay in actions or proceedings which he or she
is or may be made a party by reason of his or her position as a
director, officer or other agent of the Company, and otherwise
to the fullest extent permitted under Delaware law and the
Companys Bylaws.
Householding
of Proxy Materials
The SEC has adopted rules that permit companies and
intermediaries (e.g., brokers) to satisfy the delivery
requirements for proxy statements and annual reports and Notices
of Internet Availability of Proxy Materials with respect to two
or more stockholders sharing the same address by delivering a
single proxy statement or Notice of Internet Availability of
Proxy Materials addressed to those stockholders. This process,
which is commonly referred to as householding,
potentially means extra convenience for stockholders and cost
savings for companies.
This year, a number of brokers with account holders who are
Cavium stockholders will be householding our proxy
materials. A single proxy statement or Notice of Internet
Availability of Proxy Materials will be delivered to multiple
stockholders sharing an address unless contrary instructions
have been received from the affected stockholders. Once you have
received notice from your broker that they will be
householding communications to your address,
householding will continue until you are notified
otherwise or until you revoke your consent. If, at any time, you
no longer wish to participate in householding and
would prefer to receive a separate proxy statement and annual
report and Notice of Internet Availability of Proxy Materials,
please notify your broker. Direct your written request to Cavium
Networks, Inc., Arthur D. Chadwick, Chief Financial Officer,
Cavium Networks, Inc., 805 East Middlefield Road, Mountain View,
CA 94043.
Stockholders who currently receive multiple copies of
the proxy statement or Notice of Internet Availability of Proxy
Materials at their addresses and would like to request
householding of their communications should contact
their brokers.
Other
Matters
The Board of Directors knows of no other matters that will be
presented for consideration at the Annual Meeting. If any other
matters are properly brought before the meeting, it is the
intention of the persons named in the accompanying proxy to vote
on such matters in accordance with their best judgment.
By Order of the Board of Directors
Arthur D. Chadwick
Secretary
March 24, 2008
A copy of the Companys Annual Report to the Securities and
Exchange Commission on
Form 10-K
for the fiscal year ended December 31, 2007 is available
without charge upon written request to: Corporate Secretary,
Cavium Networks, Inc.,
805 East
Middlefield Road, Mountain View, CA 94043.
25
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THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE VOTED
FOR THE PROPOSALS
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Mark Here for Address
Change or
Comments
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
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PLEASE SEE REVERSE SIDE |
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FOR |
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WITHHELD |
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The Board of Directors recommends a vote FOR Items 1 and 2. |
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FOR ALL |
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FOR |
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AGAINST |
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ABSTAIN |
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ITEM
1-Election of Directors for a three-year term expiring at the
2011 Annual Meeting: |
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ITEM 2-To ratify the appointment of PricewaterhouseCoopers
LLP as the independent registered public accounting firm of Cavium Networks, Inc. for its fiscal year ending December 31, 2008. |
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Nominees: 01 Anthony J. Pantuso |
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02 C. N. Reddy |
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Withheld for the nominees you list above: (Write that nominees name in the space provided below.) |
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WILL ATTEND |
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If you plan to attend the Annual Meeting,
please mark the WILL ATTEND box |
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NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such
5 FOLD AND DETACH HERE 5
WE ENCOURAGE YOU TO TAKE ADVANTAGE OF INTERNET OR TELEPHONE VOTING,
BOTH ARE AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK.
Internet and telephone voting is available through 11:59 PM Eastern Time
the day prior to the Annual Meeting day.
Your Internet or telephone vote authorizes the named proxies to vote your shares in the same manner
as if you marked, signed and returned your proxy card.
| | | | | | | |
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INTERNET http://www.proxyvoting.com/cavm | | |
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| TELEPHONE 1-866-540-5760 |
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Use the internet
to vote your proxy. Have your proxy card in hand when you access the web site.
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OR |
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Use any touch-tone telephone to vote your proxy. Have your proxy card in hand when
you call.
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| | |
If you vote your proxy by Internet or by telephone, you do NOT need to mail back your proxy card.
To vote by mail, mark, sign and date your proxy card and return it in the enclosed postage-paid envelope.
Choose MLinkSM for fast, easy and secure 24/7 online access to your future proxy materials, investment plan statements, tax documents and more. Simply log on to Investor ServiceDirect® at www.bnymellon.com/shareowner/isd where step-by-step instructions will prompt you through enrollment.
PROXY
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
CAVIUM NETWORKS, INC.
ANNUAL MEETING OF STOCKHOLDERS - APRIL 18, 2008
The undersigned hereby
appoints Syed B. Ali and Arthur D. Chadwick, and each of them, with power to act without the other and with power of substitution, as proxies and
attorneys-in-fact and hereby authorizes them to represent and vote, as provided on the other side, all the shares of Cavium Networks, Inc. Common
Stock that the undersigned is entitled to vote, and, in their discretion, to
vote upon such other business as may properly come before the Annual Meeting of Stockholders of the Company to be held April 18, 2008 (the Annual Meeting) or any adjournment thereof, with all powers that the undersigned would possess if present at the Annual Meeting.
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(Continued, and to be marked, dated and signed, on the other side) |
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Address
Change/Comments (Mark the
corresponding box on the reverse side) |
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5FOLD AND DETACH HERE5
You can now access your Cavium Networks, Inc. account online.
Access your Cavium Networks, Inc. stockholder account online via Investor ServiceDirect® (ISD).
The transfer agent for Cavium Networks, Inc., now makes it easy and convenient to get current information on your stockholder account.
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View account status
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View payment history for dividends
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View certificate history
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Make address changes |
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View book-entry information
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Obtain a duplicate 1099 tax form
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Establish/change your PIN |
Visit us on the web at http://www.bnymellon.com/shareowner
For Technical Assistance Call 1-877-978-7778 between 9am-7pm
Monday-Friday Eastern Time
****TRY IT OUT****
www.bnymellon.com/shareowner/isd
Investor ServiceDirect®
Available 24 hours per day, 7 days per week
TOLL FREE NUMBER: 1-800-311-3759