e424b3
Filed
Pursuant to Rule 424(b)(3)
Registration No. 333-164282
PROSPECTUS
1,467,612 Shares
Common Stock
This prospectus relates to the disposition from time to time of up to 1,467,612 shares of
our common stock, which are held by the selling stockholders named in this prospectus. The selling
stockholders acquired these shares in connection with our acquisition of MontaVista Software, Inc.,
a privately held Delaware corporation, pursuant to an Agreement and Plan of Merger and
Reorganization, dated November 6, 2009. We are registering the shares as required by a
Registration Rights Agreement, dated December 14, 2009, we entered into with each of the selling
stockholders (the Registration Rights Agreement), but the registration of the shares does not
necessarily mean that any of such shares will be offered or sold by the selling stockholders. We
are not selling any common stock under this prospectus and will not receive any of the proceeds
from the sale of shares by the selling stockholders.
The selling stockholders may sell the shares of common stock described in this prospectus in a
number of different ways and at varying prices. We provide more information about how the selling
stockholders may sell their shares of common stock in the section entitled Plan of Distribution
on page 23. We will not be paying any underwriting discounts or commissions in this offering.
The
common stock is traded on The NASDAQ Global Market under the symbol
CAVM. On January 19,
2010, the reported closing price of the common stock was $23.38 per share.
An investment in the shares offered hereby involves a high degree of risk. See Risk Factors
beginning on page 3 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal offense.
The
date of this prospectus is January 21, 2010.
TABLE OF CONTENTS
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ABOUT THIS PROSPECTUS
You should rely only on the information contained or incorporated by reference in this
prospectus. We have not, and the selling stockholders have not, authorized anyone to provide you
with information different from that contained in this prospectus. The selling stockholders are
offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where
it is lawful to do so. The information in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or any sale of our common stock.
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere or incorporated by reference
into this prospectus. Because it is a summary, it does not contain all of the information
that you should consider before investing in our securities. You should read this entire
prospectus carefully, including the section entitled Risk Factors and the documents that
we incorporate by reference into this prospectus, including our condensed consolidated
financial statements and the related notes, before making an investment decision.
Cavium Networks, Inc.
We are a provider of highly integrated semiconductor products that enable intelligent
processing for networking, communications, storage, wireless, video and security
applications. We market and sell our products to providers of networking equipment that sell
their products into the enterprise network, data center, broadband and consumer, and access
and service provider markets. Our products are used in a broad array of networking
equipment, including routers, switches, content-aware switches, unified threat management,
or UTM, and other security appliances, application-aware gateways, voice/video/data, or
triple-play, gateways, wireless local area network, or WLAN, and third-generation, or 3G,
access and aggregation devices, storage networking equipment, servers and intelligent
network interface cards. We focus our resources on the design, sales and marketing of our
products, and outsource the manufacturing of our products.
From our incorporation in 2000 through 2003, we were primarily engaged in the design
and development of our first processor family, NITROX, which we began shipping commercially
in 2003. In 2004, we introduced and commenced commercial shipments of NITROX Soho. In 2006,
we commenced our first commercial shipments of our OCTEON family of multi-core MIPS64®
processors. We introduced a number of new products within all three of these product
families in 2006. In 2007, we introduced our new line of OCTEON based storage services
processors designed to address the specific needs in the storage market, as well as other
new products in the OCTEON and NITROX families. In 2008, we expanded our OCTEON and NITROX
product families with new products including wireless services processors to address the
needs for wireless infrastructure equipment. In 2009, we announced the next generation
OCTEON II Internet Application Processor, or IAP, family multi-core MIPS64® processors, with
one to 32 cores to address next generation networking applications support converged voice,
video, data mobile traffic and services. We expect to begin shipments of OCTEON II
processors in 2010. In the third quarter of 2009, we expanded our NITROX product family
offering to include the NITROX DPI processor, which facilitates several significant
enhancements and increased performance.
We acquired W&W Communications, Inc. in the fourth quarter of 2008. This acquisition
launched us into the high growth video processor market with a broad product line called
PureVu. The PureVu family of video processors and modules incorporate proprietary and
patent pending video technology that produces perceptual lossless video quality and delivers
practically zero latency with extremely low power and cost. Through the acquisition of
substantially all of the assets of Star Semiconductor Corporation in the third quarter of
2008, we also added the Star ARM-based processors to our portfolio to address connected home
and office applications.
We were incorporated in California in November 2000 and reincorporated in Delaware in
February 2007. Our principal executive offices are located at 805 East Middlefield Road,
Mountain View, California 94043, and our telephone number is (650) 623-7000. Our web site
address is www.caviumnetworks.com. The information on, or accessible through, our web site
is not part of this prospectus. Unless the context requires otherwise, references in this
prospectus to Cavium Networks, company, we, us and our refer to Cavium Networks,
Inc. and its wholly-owned subsidiaries on a consolidated basis.
Cavium Networks and the Cavium Networks logo are trademarks of Cavium Networks, Inc.
This prospectus also includes other trademarks of Cavium Networks, Inc. and trademarks of
other persons.
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The Offering
The following is a brief summary of the offering. You should read the entire prospectus carefully,
including Risk Factors and the information, including financial information relating to Cavium
Networks included in our filings with the Securities and Exchange Commission, or SEC, and
incorporated in this document by reference.
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Common stock to be offered by the selling stockholders
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1,467,612 shares |
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Use of proceeds
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We will not receive any proceeds from
the sale of the shares of common stock
covered by this prospectus. |
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NASDAQ Global Market Symbol
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CAVM |
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Risk Factors
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See Risk Factors and other information
included in this prospectus for a discussion
of the factors you should consider before deciding to
invest in shares of our common stock. |
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RISK FACTORS
An investment in our common stock is highly risky. You should carefully consider the
following risks, as well as the other information contained or incorporated by reference in this
prospectus, before you decide whether to buy our common stock. We believe the risks and
uncertainties described below are the most significant risks we face. If any of the following
events actually occurs, our business, business prospects, financial condition, cash flow and
results of operations would likely be materially and adversely affected. In these circumstances,
the trading price of our common stock would likely decline, and you could lose all or part of your
investment. Additional risks not presently known to us or that we currently believe are immaterial
may also significantly impair our business operations.
Risks Related to Our Business and Industry
We have a limited history of profitability, and we may not achieve or sustain profitability in the
future, on a quarterly or annual basis.
We were established in 2000. Our first quarter of profitability since then was the quarter ended
September 30, 2007 and we remained profitable until the quarter ended December 31, 2008. As of
September 30, 2009, our accumulated deficit was
$74.1 million and we had incurred losses of $16.9 million for
the nine months ended September 30, 2009. We expect to make significant
expenditures related to the development of our products and expansion of our business, including
research and development and sales and administrative expenses. As a public company, we also incur
significant legal, accounting and other expenses. Additionally, we may encounter unforeseen
difficulties, complications, product delays and other unknown factors that require additional
expenditures. As a result of these increased expenditures, we may have to generate and sustain
substantially increased revenue to achieve profitability. Our revenue growth trends in prior
periods may not be sustainable. Accordingly, we may not be able to achieve or maintain
profitability and we may continue to incur losses in the future.
We face intense competition and expect competition to increase in the future, which could reduce
our revenue and customer base.
The market for our products is highly competitive and we expect competition to intensify in the
future. This competition could make it more difficult for us to sell our products, and result in
increased pricing pressure, reduced profit margins, increased sales and marketing expenses and
failure to increase, or the loss of, market share or expected market share, any of which would
likely seriously harm our business, operating results and financial condition. For instance,
semiconductor products have a history of declining prices as the cost of production is reduced.
However, if market prices decrease faster than product costs, gross and operating margins can be
adversely affected. Currently, we face competition from a number of established companies,
including Broadcom Corporation, Freescale Semiconductor, Inc., Intel Corporation, Marvell
Technology Group Ltd., PMC-Sierra, Inc., Netlogic Microsystems, Inc.,
Exar Corporation and others. In addition, in the video capture, process and display market segments we consider our
competition to be companies that provide video encode and decode solutions, including Texas
Instruments digital signal processors and SOCs for H.264 encoding and Amimon for wireless
replacement of HDMI cables and wireless video displays.
A few of our current competitors operate their own fabrication facilities and have, and some of our
potential competitors could have, longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical, sales, marketing and other resources
than we have. Potential customers may prefer to purchase from their existing suppliers rather than
a new supplier regardless of product performance or features.
We expect increased competition from other established and emerging companies both domestically and
internationally. Our current and potential competitors may also establish cooperative relationships
among themselves or with third parties. If so, new competitors or alliances that include our
competitors may emerge that could acquire significant market share. We expect these trends to
continue as companies attempt to strengthen or maintain their market positions in an evolving
industry. In the future, further development by our competitors could cause our products to become
obsolete. We expect continued competition from incumbents as well as from new entrants into the
markets we serve. Our ability to compete depends on a number of factors, including:
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our success in identifying new and emerging markets, applications and technologies; |
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our products performance and cost effectiveness relative to that of our competitors products; |
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our ability to deliver products in large volume on a timely basis at a competitive price; |
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our success in utilizing new and proprietary technologies to offer products and features
previously not available in the marketplace; |
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our ability to recruit design and application engineers and sales and marketing personnel; and |
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our ability to protect our intellectual property. |
In addition, we cannot assure you that existing customers or potential customers will not develop
their own products, purchase competitive products or acquire companies that use alternative methods
to enable networking, communication or security applications to facilitate network-aware processing
in their systems. Any of these competitive threats, alone or in combination with others, could
seriously harm our business, operating results and financial condition.
Our customers may cancel their orders, change production quantities or delay production, and if we
fail to forecast demand for our products accurately, we may incur product shortages, delays in
product shipments or excess or insufficient product inventory.
We generally do not obtain firm, long-term purchase commitments from our customers. Because
production lead times often exceed the amount of time required to fulfill orders, we often must
build in advance of orders, relying on an imperfect demand forecast to project volumes and product
mix. Our demand forecast accuracy can be adversely affected by a number of factors, including
inaccurate forecasting by our customers, changes in market conditions, adverse changes in our
product order mix and demand for our customers products. Even after an order is received, our
customers may cancel these orders or request a decrease in production quantities. Any such
cancellation or decrease subjects us to a number of risks, most notably that our projected sales
will not materialize on schedule or at all, leading to unanticipated revenue shortfalls and excess
or obsolete inventory which we may be unable to sell to other customers. Alternatively, if we are
unable to project customer requirements accurately, we may not build enough products, which could
lead to delays in product shipments and lost sales opportunities in the near term, as well as force
our customers to identify alternative sources, which could affect our ongoing relationships with
these customers. We have in the past had customers dramatically increase their requested production
quantities with little or no advance notice. If we do not timely fulfill customer demands, our
customers may cancel their orders and we may be subject to customer claims for cost of replacement.
Either underestimating or overestimating demand would lead to insufficient, excess or obsolete
inventory, which could harm our operating results, cash flow and financial condition, as well as
our relationships with our customers.
Adverse changes in general economic or political conditions in any of the major countries in which
we do business could adversely affect our operating results.
As our business has grown to both customers located in the United States as well as customers
located outside of the United States, we have become increasingly subject to the risks arising from
adverse changes in both the domestic and global economic and political conditions. For example, the
direction and relative strength of the U.S. and international economies remains uncertain due to
softness in the housing markets, difficulties in the financial services sector and credit markets
and continuing geopolitical uncertainties. If economic growth in the United States and other
countries economies continues to slow, the demand for our customers products could decline, which
would then decrease demand for our products. Furthermore, if economic conditions in the countries
into which our customers sell their products continue to deteriorate, some of our customers may
decide to postpone or delay certain development programs, which would then delay their need to
purchase our products. This could result in a reduction in sales of our products or in a reduction
in the growth of our product sales. Any of these events would likely harm investors view of our
business, and our results of operations and financial condition.
We receive a substantial portion of our revenues from a limited number of customers, and the loss
of, or a significant reduction in, orders from one or a few of our major customers would adversely
affect our operations and financial condition.
We receive a substantial portion of our revenues from a limited number of customers. We received an
aggregate of approximately 57.9% of our net revenues from our top five customers for the three
months ended September 30,
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2009. We anticipate that we will continue to be dependent on a limited number of customers for a
significant portion of our revenues in the immediate future and in some cases the portion of our
revenues attributable to certain customers may increase in the future. However, we may not be able
to maintain or increase sales to certain of our top customers for a variety of reasons, including
the following:
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our agreements with our customers do not require them to purchase a minimum quantity of our products; |
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some of our customers can stop incorporating our products into their own products with limited
notice to us and suffer little or no penalty; and |
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many of our customers have pre-existing or concurrent relationships with our current or potential
competitors that may affect the customers decisions to purchase our products. |
In the past, we have relied in significant part on our strategic relationships with customers that
are technology leaders in our target markets. We intend to continue expanding such relationships
and forming new strategic relationships but we cannot assure you that we will be able to do so.
These relationships often require us to develop new products that may involve significant
technological challenges. Our customers frequently place considerable pressure on us to meet their
tight development schedules. Accordingly, we may have to devote a substantial amount of our
resources to our strategic relationships, which could detract from or delay our completion of other
important development projects. Delays in development could impair our relationships with our other
strategic customers and negatively impact sales of the products under development. Moreover, it is
possible that our customers may develop their own product or adopt a competitors solution for
products that they currently buy from us. If that happens, our sales would decline and our
business, financial condition and results of operations could be materially and adversely affected.
In addition, our relationships with some customers may also deter other potential customers who
compete with these customers from buying our products. To attract new customers or retain existing
customers, we may offer certain customers favorable prices on our products. In that event, our
average selling prices and gross margins would decline. The loss of a key customer, a reduction in
sales to any key customer or our inability to attract new significant customers could seriously
impact our revenue and materially and adversely affect our results of operations.
We expect our operating results to fluctuate.
We expect our revenues and expense levels to vary in the future, making it difficult to predict our
future operating results. In particular, we experience variability in demand for our products as
our customers manage their product introduction dates and their inventories. Given the current
global economic uncertainty, the demand for our products may be more varied and difficult to
ascertain in a timely and efficient manner.
Additional factors that could cause our results to fluctuate include, among other things:
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our ability to retain, recruit and hire key executives, technical personnel and other employees
in the positions and numbers, and with the experience and capabilities that we need; |
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fluctuations in demand, sales cycles, product mix and prices for our products; |
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the timing of our product introductions, and the variability in lead time between the time when
a customer begins to design in one of our products and the time when the customers end system
goes into production and they begin purchasing our products; |
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the forecasting, scheduling, rescheduling or cancellation of orders by our customers; |
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our ability to successfully define, design and release new products in a timely manner that
meet our customers needs; |
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changes in manufacturing costs, including wafer, test and assembly costs, mask costs,
manufacturing yields and product quality and reliability; |
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the timing and availability of adequate manufacturing capacity from our manufacturing suppliers; |
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the timing of announcements by our competitors or us; |
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future accounting pronouncements and changes in accounting policies; |
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complexity of accounting regulations and related
interpretations and policies, particularly those related to revenue
recognition; |
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volatility in our stock price, which may lead to higher stock compensation expenses; |
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general economic and political conditions in the countries where we operate or our products are
sold or used; costs associated with litigation, especially related to intellectual property;
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productivity and growth of our sales and marketing force. |
Unfavorable changes in any of the above factors, most of which are beyond our control, could
significantly harm our business and results of operations.
We may not sustain our growth rate, and we may not be able to manage any future growth effectively.
We have experienced significant growth in a short period of time. Our revenues increased from
approximately $7.4 million in 2004 to approximately $19.4 million in 2005, $34.2 million in 2006,
$54.2 million in 2007 and $86.6 million in 2008. For the
nine months ended September 30, 2009, our revenues were $69.1 million. We have not achieved a similar growth rate in 2009
through September 30, 2009, and we may not achieve similar growth rates in future periods. You
should not rely on our operating results for any prior quarterly or annual periods as an indication
of our future operating performance. If we are unable to maintain adequate revenue growth, our
financial results could suffer and our stock price could decline.
To manage our growth successfully and to continue handling the responsibilities of being a public
company, we believe we must effectively, among other things:
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recruit, hire, train and manage additional qualified engineers for our research and
development activities, especially in the positions of design engineering, product and
test engineering, and applications engineering; |
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add additional sales personnel and expand sales offices; |
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expand our administrative, financial and operational systems, procedures and controls; and |
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enhance our information technology support for enterprise resource planning and design
engineering by adapting and expanding our systems and tool capabilities, and properly
training new hires as to their use. |
If we are unable to manage our growth effectively, we may not be able to take advantage of market
opportunities or develop new products and we may fail to satisfy customer requirements, maintain
product quality, execute our business plan or respond to competitive pressures.
The average selling prices of products in our markets have historically decreased over time and
will likely do so in the future, which could harm our revenues and gross profits.
Average selling prices of semiconductor products in the markets we serve have historically
decreased over time. Our gross profits and financial results will suffer if we are unable to offset
any reductions in our average selling prices by reducing our costs, developing new or enhanced
products on a timely basis with higher selling prices or gross profits, or increasing our sales
volumes. Additionally, because we do not operate our own manufacturing, assembly or testing
facilities, we may not be able to reduce our costs as rapidly as companies that operate their own
facilities, and our costs may even increase, which could also reduce our margins. We have reduced
the prices of our products in anticipation of future competitive pricing pressures, new product
introductions by us or our competitors and other factors. We expect that we will have to do so
again in the future.
We may be unsuccessful in developing and selling new products or in penetrating new markets.
We operate in a dynamic environment characterized by rapidly changing technologies and industry
standards and technological obsolescence. Our competitiveness and future success depend on our
ability to design, develop, manufacture, assemble, test, market and support new products and
enhancements on a timely and cost effective basis. A fundamental shift in technologies in any of
our product markets could harm our competitive position within these markets. Our failure to
anticipate these shifts, to develop new technologies or to react to changes in existing
technologies could materially delay our development of new products, which could result in product
obsolescence, decreased revenues and a loss of design wins to our competitors. The success of a new
product depends on accurate
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forecasts of long-term market demand and future technological developments, as well as on a variety
of specific implementation factors, including:
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timely and efficient completion of process design and transfer to manufacturing, assembly and test processes; |
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the quality, performance and reliability of the product; and |
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effective marketing, sales and service. |
If we fail to introduce new products that meet the demand of our customers or penetrate new markets
that we target our resources on, our revenues will likely decrease over time and our financial
condition could suffer. Additionally, if we concentrate resources on a new market that does not
prove profitable or sustainable, our financial condition could decline.
Fluctuations in the mix of products sold may adversely affect our financial results.
Because of the wide price differences among our processors, the mix and types of performance
capabilities of processors sold affect the average selling price of our products and have a
substantial impact on our revenue. Generally, sales of higher performance products have higher
gross margins than sales of lower performance products. We currently offer both higher and lower
performance products in our NITROX, OCTEON, ECONA ARM and PureVu Video product families. During
2008 and in the six months ended June 30, 2009, we experienced a sales mix shift towards increased
sales of lower performance, lower margin products, which negatively affected our overall gross
margins. In the three months ended September 30, 2009 compared to the six months ended June 30,
2009, the product mix moved towards higher performance and higher margin products. If this shift
moves back to lower performance, lower margin products, our overall gross margins will be
negatively affected. Fluctuations in the mix and types of our products may also affect the extent
to which we are able to recover our fixed costs and investments that are associated with a
particular product, and as a result can negatively impact our financial results.
The semiconductor and communications industries have historically experienced significant
fluctuations with prolonged downturns, which could impact our operating results, financial
condition and cash flows.
The semiconductor industry has historically exhibited cyclical behavior, which at various times has
included significant downturns in customer demand, which happened in
late 2008 and continued through 2009. Because a significant portion of
our expenses is fixed in the near term or is incurred in advance of anticipated sales, we may not
be able to decrease our expenses rapidly enough to offset any unanticipated shortfall in revenues.
If this situation were to occur, it could adversely affect our operating results, cash flow and
financial condition. Furthermore, the semiconductor industry has periodically experienced periods
of increased demand and production constraints. If this happens in the future, we may not be able
to produce sufficient quantities of our products to meet the increased demand. We may also have
difficulty in obtaining sufficient wafer, assembly and test resources from our subcontract
manufacturers. Any factor adversely affecting the semiconductor industry in general, or the
particular segments of the industry that our products target, may adversely affect our ability to
generate revenue and could negatively impact our operating results.
The communications industry has, in the past, experienced pronounced downturns, and these cycles
may continue in the future. To respond to a downturn, many networking equipment providers may slow
their research and development activities, cancel or delay new product development, reduce their
inventories and take a cautious approach to acquiring our products, which would have a significant
negative impact on our business. If this situation were to occur, it could adversely affect our
operating results, cash flow and financial condition. In the future, any of these trends may also
cause our operating results to fluctuate significantly from year to year, which may increase the
volatility of the price of our stock.
Our products must meet exact specifications, and defects and failures may occur, which may cause
customers to return or stop buying our products.
Our customers generally establish demanding specifications for quality, performance and reliability
that our products must meet. However, our products are highly complex and may contain defects and
failures when they are first introduced or as new versions are released. If defects and failures
occur in our products during the design phase or after, we could experience lost revenues,
increased costs, including warranty expense and costs associated with customer support, delays in
or cancellations or rescheduling of orders or shipments, product returns or discounts,
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diversion of management resources or damage to our reputation and brand equity, and in some cases
consequential damages, any of which would harm our operating results. In addition, delays in our
ability to fill product orders as a result of quality control issues may negatively impact our
relationship with our customers. We cannot assure you that we will have sufficient resources,
including any available insurance, to satisfy any asserted claims.
We may have difficulty selling our products if our customers do not design our products into their
systems, and the nature of the design process requires us to incur expenses prior to recognizing
revenues associated with those expenses which may adversely affect our financial results.
One of our primary focuses is on winning competitive bid selection processes, known as design
wins, to develop products for use in our customers products. We devote significant time and
resources in working with our customers system designers to understand their future needs and to
provide products that we believe will meet those needs and these bid selection processes can be
lengthy. If a customers system designer initially chooses a competitors product, it becomes
significantly more difficult for us to sell our products for use in that system because changing
suppliers can involve significant cost, time, effort and risk for our customers. Thus, our failure
to win a competitive bid can result in our foregoing revenues from a given customers product line
for the life of that product. In addition, design opportunities may be infrequent or may be
delayed. Our ability to compete in the future will depend, in large part, on our ability to design
products to ensure compliance with our customers and potential customers specifications. We
expect to invest significant time and resources and to incur significant expenses to design our
products to ensure compliance with relevant specifications.
We often incur significant expenditures in the development of a new product without any assurance
that our customers system designers will select our product for use in their applications. We
often are required to anticipate which product designs will generate demand in advance of our
customers expressly indicating a need for that particular design. Even if our customers system
designers select our products, a substantial period of time will elapse before we generate revenues
related to the significant expenses we have incurred.
The reasons for this delay generally include the following elements of our product sales and
development cycle timeline and related influences:
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our customers usually require a comprehensive technical evaluation of
our products before they incorporate them into their designs; |
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it can take from nine months to three years from the time our products
are selected to commence commercial shipments; and our customers may
experience changed market conditions or product development issues.
The resources devoted to product development and sales and marketing
may not generate material revenue for us, and from time to time, we
may need to write off excess and obsolete inventory if we have
produced product in anticipation of expected demand. We may spend
resources on the development of products that our customers may not
adopt. If we incur significant expenses and investments in inventory
in the future that we are not able to recover, and we are not able to
compensate for those expenses, our operating results could be
adversely affected. In addition, if we sell our products at reduced
prices in anticipation of cost reductions but still hold higher cost
products in inventory, our operating results would be harmed. |
Additionally, even if system designers use our products in their systems, we cannot assure you that
these systems will be commercially successful or that we will receive significant revenue from the
sales of processors for those systems. As a result, we may be unable to accurately forecast the
volume and timing of our orders and revenues associated with any new product introductions.
If customers do not believe our products solve a critical need, our revenues will decline.
Our products are used in networking and security equipment including routers, switches, UTM
appliances, intelligent switches, application-aware gateways, triple-play gateways, WLAN and 3G
access and aggregation devices, storage networking equipment, servers, intelligent network
interface cards, IP surveillance systems, wireless HDMI cable replacement systems, video
conferencing systems and connected home and office equipment.
In order to meet our growth and strategic objectives, providers of networking equipment must
continue to incorporate our products into their systems and the demands for their systems must grow
as well. Our future depends in large part on factors outside our control, and the sale of
next-generation networks may not meet our revenue growth and strategic objectives.
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In the event we terminate one of our distributor arrangements, it could lead to a loss of revenues
and possible product returns.
A portion of our sales is made through third-party distribution agreements. Termination of a
distributor relationship, either by us or by the distributor, could result in a temporary or
permanent loss of revenues, until a replacement distributor can be established to service the
affected end-user customers. We may not be successful in finding suitable alternative distributors
on satisfactory terms or at all and this could adversely affect our ability to sell in certain
locations or to certain end-user customers. Additionally, if we terminate our relationship with a
distributor, we may be obligated to repurchase unsold products. We record a reserve for estimated
returns and price credits. If actual returns and credits exceed our estimates, our operating
results could be harmed. Our arrangements with our distributors typically also include price
protection provisions if we reduce our list prices.
We rely on our ecosystem partners to enhance our product offerings and our inability to continue to
develop or maintain such relationships in the future would harm our ability to remain competitive.
We have developed relationships with third parties, which we refer to as ecosystem partners, which
provide operating systems, tool support, reference designs and other services designed for specific
uses with our SoCs. We believe that these relationships enhance our customers ability to get their
products to market quickly. If we are unable to continue to develop or maintain these
relationships, we might not be able to enhance our customers ability to commercialize their
products in a timely fashion and our ability to remain competitive would be harmed.
The loss of any of our key personnel could seriously harm our business, and our failure to attract
or retain specialized technical, management or sales and marketing talent could impair our ability
to grow our business.
We believe our future success will depend in large part upon our ability to attract, retain and
motivate highly skilled managerial, engineering, sales and marketing personnel. The loss of any key
employees or the inability to attract, retain or motivate qualified personnel, including engineers
and sales and marketing personnel, could delay the development and introduction of and harm our
ability to sell our products. We believe that our future success is highly dependent on the
contributions of Syed Ali, our co-founder, President and Chief Executive Officer, and others. None
of our employees have fixed-term employment contracts; they are all at-will employees. The loss of
the services of Mr. Ali, other executive officers or certain other key personnel could materially
and adversely affect our business, financial condition and results of operations. For instance, if
any of these individuals were to leave our company unexpectedly, we could face substantial
difficulty in hiring qualified successors and could experience a loss in productivity during the
search for and while any such successor is integrated into our business and operations.
There is currently a shortage of qualified technical personnel with significant experience in the
design, development, manufacturing, marketing and sales of integrated circuits. In particular,
there is a shortage of engineers who are familiar with the intricacies of the design and
manufacture of networking processors, and competition for these engineers is intense. Our key
technical personnel represent a significant asset and serve as the source of our technological and
product innovations. We may not be successful in attracting, retaining and motivating sufficient
numbers of technical personnel to support our anticipated growth.
To date, we have relied primarily on our direct marketing and sales force to drive new customer
design wins and to sell our products. Because we are looking to expand our customer base and grow
our sales to existing customers, we will need to hire additional qualified sales personnel in the
near term and beyond if we are to achieve revenue growth. The competition for qualified marketing
and sales personnel in our industry, and particularly in Silicon Valley, is very intense. If we are
unable to hire, train, deploy and manage qualified sales personnel in a timely manner, our ability
to grow our business will be impaired. In addition, if we are unable to retain our existing sales
personnel, our ability to maintain or grow our current level of revenues will be adversely
affected. Further, if we are unable to integrate and retain personnel acquired through our various
acquisitions, we may not be able to fully capitalize on such acquisitions.
Stock options and restricted stock units generally comprise a significant portion of our
compensation packages for all employees. The FASB requirement to expense the fair value of stock
options awarded to employees beginning in the first quarter of our fiscal 2006 has increased our
operating expenses and may cause us to reevaluate our compensation structure for our employees. Our
inability to attract, retain and motivate additional key employees could have an adverse effect on
our business, financial condition and results of operations.
9
In addition, we rely on stock-based awards as one means for recruiting, motivating and retaining
highly skilled talent. If the value of such stock awards does not appreciate as measured by the
performance of the price of our common stock or if our share-based compensation otherwise ceases to
be viewed as a valuable benefit, our ability to attract, retain, and motivate employees could be
weakened, which could harm our results of operations. The decline in the trading price of our
common stock has resulted in the exercise price of a portion of our outstanding options to exceed
the current trading price of our common stock, thus lessening the effectiveness of these
stock-based awards. Consequently, we may not continue to successfully attract and retain key
personnel which would harm our business.
We have a limited operating history, and we may have difficulty accurately predicting our future
revenues for the purpose of appropriately budgeting and adjusting our expenses.
We were established in 2000. Our first quarter of profitability since then was the quarter ended
September 30, 2007 and we remained profitable until the quarter ended December 31, 2008. Since we
had only five quarters of operating profitability, we do not have an extended history from which to
predict and manage profitability. Our limited operating experience, a dynamic and rapidly evolving
market in which we sell our products, our dependence on a limited number of customers, as well as
numerous other factors beyond our control, including general market conditions, impede our ability
to forecast quarterly and annual revenues accurately. As a result, we could experience budgeting
and cash flow management problems, unexpected fluctuations in our results of operations and other
difficulties, any of which could make it difficult for us to attain and maintain profitability and
could increase the volatility of the market price of our common stock.
Some of our operations and a significant portion of our customers and contract manufacturers are
located outside of the United States, which subjects us to additional risks, including increased
complexity and costs of managing international operations and geopolitical instability.
We have international sales offices and research and development facilities and we conduct, and
expect to continue to conduct, a significant amount of our business with companies that are located
outside the United States, particularly in Asia and Europe. Even customers of ours that are based
in the United States often use contract manufacturers based in Asia to manufacture their systems,
and it is the contract manufacturers that purchase products directly from us. As a result of our
international focus, we face numerous challenges, including:
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increased complexity and costs of managing international operations; |
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longer and more difficult collection of receivables; |
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difficulties in enforcing contracts generally; |
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geopolitical and economic instability and military conflicts; |
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limited protection of our intellectual property and other assets; |
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compliance with local laws and regulations and unanticipated changes in local laws and
regulations, including tax laws and regulations; |
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trade and foreign exchange restrictions and higher tariffs; |
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travel restrictions; |
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timing and availability of import and export licenses and other governmental approvals,
permits and licenses, including export classification requirements; |
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foreign currency exchange fluctuations relating to our international operating activities; |
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transportation delays and limited local infrastructure and disruptions, such as large
scale outages or interruptions of service from utilities or telecommunications providers; |
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difficulties in staffing international operations; |
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heightened risk of terrorism; |
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local business and cultural factors that differ from our normal standards and practices; |
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differing employment practices and labor issues; |
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regional health issues (e.g., SARS) and natural disasters; and |
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work stoppages. |
We outsource our wafer fabrication, assembly, testing, warehousing and shipping operations to third
parties, and rely on these parties to produce and deliver our products according to requested
demands in specification, quantity, cost and time.
We rely on third parties for substantially all of our manufacturing operations, including wafer
fabrication, assembly, testing, warehousing and shipping. We depend on these parties to supply us
with material of a requested quantity in a timely manner that meets our standards for yield, cost
and manufacturing quality. We do not have any long-term supply agreements with our manufacturing
suppliers. Any problems with our manufacturing supply chain could adversely impact our ability to
ship our products to our customers on time and in the quantity required, which in turn could cause
an unanticipated decline in our sales and possibly damage our customer relationships.
The fabrication of integrated circuits is a complex and technically demanding process. Our
foundries could, from time to time, experience manufacturing defects and reduced manufacturing
yields. Changes in manufacturing processes or the inadvertent use of defective or contaminated
materials by our foundries could result in lower than anticipated manufacturing yields or
unacceptable performance. Many of these problems are difficult to detect at an early stage of the
manufacturing process and may be time consuming and expensive to correct. Poor yields from our
foundries, or defects, integration issues or other performance problems in our products could cause
us significant customer relations and business reputation problems, harm our financial results and
result in financial or other damages to our customers. Our customers could also seek damages from
us for their losses. A product liability claim brought against us, even if unsuccessful, would
likely be time consuming and costly to defend.
Our products are manufactured at a limited number of locations. If we experience manufacturing
problems at a particular location, we would be required to transfer manufacturing to a backup
location or supplier. Converting or transferring manufacturing from a primary location or supplier
to a backup fabrication facility could be expensive and could take one to two quarters. During such
a transition, we would be required to meet customer demand from our then-existing inventory, as
well as any partially finished goods that can be modified to the required product specifications.
We do not seek to maintain sufficient inventory to address a lengthy transition period because we
believe it is uneconomical to keep more than minimal inventory on hand. As a result, we may not be
able to meet customer needs during such a transition, which could delay shipments, cause a
production delay or stoppage for our customers, result in a decline in our sales and damage our
customer relationships. In addition, we have no long-term supply contracts with the foundries that
we work with. Availability of foundry capacity has in the recent past been reduced due to strong
demand. The ability of each foundry to provide us with semiconductor devices is limited by its
available capacity and existing obligations. Foundry capacity may not be available when we need it
or at reasonable prices which could cause us to be unable to meet customer needs, delay shipments,
because a production delay or stoppage for our customers, result in a decline in our sales and harm
our financial results.
In addition, a significant portion of our sales are to customers that practice just-in-time order
management from their suppliers, which gives us a very limited amount of time in which to process
and complete these orders. As a result, delays in our production or shipping by the parties to whom
we outsource these functions could reduce our sales, damage our customer relationships and damage
our reputation in the marketplace, any of which could harm our business, results of operations and
financial condition.
Any increase in the manufacturing cost of our products could reduce our gross margins and operating
profit.
The semiconductor business exhibits ongoing competitive pricing pressure from customers and
competitors. Accordingly, any increase in the cost of our products, whether by adverse purchase
price variances or adverse manufacturing cost variances, will reduce our gross margins and
operating profit. We do not have any long-term supply agreements with our manufacturing suppliers
and we typically negotiate pricing on a purchase order by purchase order basis. Consequently, we
may not be able to obtain price reductions or anticipate or prevent future price increases from our
suppliers.
Some of our competitors may be better financed than we are, may have long-term agreements with our
main foundries and may induce our foundries to reallocate capacity to those customers. This
reallocation could impair our
11
ability to secure the supply of components that we need. Although we use several independent
foundries to manufacture substantially all of our semiconductor products, most of our components
are not manufactured at more than one foundry at any given time, and our products typically are
designed to be manufactured in a specific process at only one of these foundries. Accordingly, if
one of our foundries is unable to provide us with components as needed, we could experience
significant delays in securing sufficient supplies of those components. We cannot assure you that
any of our existing or new foundries will be able to produce integrated circuits with acceptable
manufacturing yields, or that our foundries will be able to deliver enough semiconductor devices to
us on a timely basis, or at reasonable prices. These and other related factors could impair our
ability to meet our customers needs and have a material and adverse effect on our operating
results.
In order to secure sufficient foundry capacity when demand is high and mitigate the risks described
in the foregoing paragraph, we may enter into various arrangements with suppliers that could be
costly and harm our operating results, such as nonrefundable deposits with or loans to foundries in
exchange for capacity commitments and contracts that commit us to purchase specified quantities of
integrated circuits over extended periods. We may not be able to make any such arrangement in a
timely fashion or at all, and any arrangements may be costly, reduce our financial flexibility, and
not be on terms favorable to us. Moreover, if we are able to secure foundry capacity, we may be
obligated to use all of that capacity or incur penalties. These penalties may be expensive and
could harm our financial results.
If we fail to maintain an effective system of internal controls, we may not be able to accurately
report our financial results or prevent fraud.
Effective internal controls are necessary for us to provide reliable financial reports and
effectively prevent fraud. Any inability to provide reliable financial reports or prevent fraud
could harm our business. The Sarbanes-Oxley Act of 2002 requires management and our auditors to
evaluate and assess the effectiveness of our internal control over financial reporting. These
Sarbanes-Oxley Act requirements may be modified, supplemented or amended from time to time.
Implementing these changes may take a significant amount of time and may require specific
compliance training of our personnel. In the future, we may discover areas of our internal controls
that need improvement. If our auditors or we discover a material weakness, the disclosure of that
fact, even if quickly remedied, could reduce the markets confidence in our financial statements
and harm our stock price. We may not be able to effectively and timely implement necessary control
changes and employee training to ensure continued compliance with the Sarbanes-Oxley Act and other
regulatory and reporting requirements. Our rapid growth in recent periods and our possible future
expansion through acquisitions, present challenges to maintain the internal control and disclosure
control standards applicable to public companies. If we fail to maintain effective internal
controls, we could be subject to regulatory scrutiny and sanctions and investors could lose
confidence in the accuracy and completeness of our financial reports.
Our acquisition strategy may result in unanticipated accounting charges or otherwise adversely
affect our results of operations, and result in difficulties in assimilating and integrating the
operations, personnel, technologies and products of acquired companies or businesses, or be
dilutive to existing shareholders.
In May 2008, we acquired certain assets of Parallogic Corporation, in August 2008 we acquired
substantially all of the assets of Star Semiconductor Corporation, in December 2008, we acquired
W&W Communications, Inc., in December 2009 we acquired MontaVista Software, Inc. and we may in the
future acquire companies or assets of companies that we believe to be complementary to our
business, including for the purpose of expanding our new product design capacity, introducing new
design, market or application skills or enhancing and expanding our existing product lines. In
connection with any such future acquisitions, we may need to use a significant portion of our
available cash, issue additional equity securities that would dilute current stockholders
percentage ownership and incur substantial debt or contingent liabilities. Such actions could
adversely impact our operating results and the market price of our common stock. In addition,
difficulties may occur in assimilating and integrating the operations, personnel, technologies, and
products of acquired companies or businesses. In addition, key personnel of an acquired company may
decide not to work for us. Moreover, to the extent we acquire a company with existing products;
those products may have lower gross margins than our customary products, which could adversely
affect our gross margin and operating results. If an acquired company also has inventory that we
assume, we will be required to write up the carrying value of that inventory to fair value.
When that inventory is sold, the gross margins for those products are reduced and our gross margins
for that period are negatively affected. Furthermore, the purchase price of any acquired businesses
may exceed the current fair values of the net tangible assets of such acquired businesses. As a
result, we would be required to record material
12
amounts of goodwill, and acquired in-process research and development charges and other intangible
assets, which could result in significant impairment and acquired in-process research and
development charges and amortization expense in future periods. These charges, in addition to the
results of operations of such acquired businesses and potential restructuring costs associated with
an acquisition, could have a material adverse effect on our business, financial condition and
results of operations. We cannot forecast the number, timing or size of future acquisitions, or the
effect that any such acquisitions might have on our operating or financial results.
We rely on third-party technologies for the development of our products and our inability to use
such technologies in the future would harm our ability to remain competitive.
We rely on third parties for technologies that are integrated into our products, such as wafer
fabrication and assembly and test technologies used by our contract manufacturers, as well as
licensed MIPS and ARM architecture technologies. If we are unable to continue to use or license
these technologies on reasonable terms, or if these technologies fail to operate properly, we may
not be able to secure alternatives in a timely manner and our ability to remain competitive would
be harmed. In addition, if we are unable to successfully license technology from third parties to
develop future products, we may not be able to develop such products in a timely manner or at all.
Our failure to protect our intellectual property rights adequately could impair our ability to
compete effectively or to defend ourselves from litigation, which could harm our business,
financial condition and results of operations.
We rely primarily on patent, copyright, trademark and trade secret laws, as well as confidentiality
and nondisclosure agreements and other methods, to protect our proprietary technologies and
know-how. We have been issued 18 patents in the United States and three patents in foreign
countries and have an additional 27 patent applications pending in the United States and 27 patent
applications pending in foreign countries. Even if the pending patent applications are granted, the
rights granted to us may not be meaningful or provide us with any commercial advantage. For
example, these patents could be opposed, contested, circumvented or designed around by our
competitors or be declared invalid or unenforceable in judicial or administrative proceedings. The
failure of our patents to adequately protect our technology might make it easier for our
competitors to offer similar products or technologies. Our foreign patent protection is generally
not as comprehensive as our U.S. patent protection and may not protect our intellectual property in
some countries where our products are sold or may be sold in the future. Many U.S.-based companies
have encountered substantial intellectual property infringement in foreign countries, including
countries where we sell products. Even if foreign patents are granted, effective enforcement in
foreign countries may not be available.
Monitoring unauthorized use of our intellectual property is difficult and costly. Although we are
not aware of any unauthorized use of our intellectual property in the past, it is possible that
unauthorized use of our intellectual property may have occurred or may occur without our knowledge.
We cannot assure you that the steps we have taken will prevent unauthorized use of our intellectual
property.
Our failure to effectively protect our intellectual property could reduce the value of our
technology in licensing arrangements or in cross-licensing negotiations, and could harm our
business, results of operations and financial condition. We may in the future need to initiate
infringement claims or litigation. Litigation, whether we are a plaintiff or a defendant, can be
expensive, time consuming and may divert the efforts of our technical staff and managerial
personnel, which could harm our business, whether or not such litigation results in a determination
favorable to us.
Some of the software used with our products, as well as that of some of our customers, may be
derived from so called open source software that is generally made available to the public by its
authors and/or other third parties. Such open source software is often made available to us under
licenses, such as the GNU General Public License, which impose certain obligations on us in the
event we were to make available derivative works of the open source software. These obligations may
require us to make source code for the derivative works available to the public, and/or license
such derivative works under a particular type of license, rather than the forms of license
customarily used to protect our intellectual property. In addition, there is little or no legal
precedent for interpreting the terms of certain of these open source licenses, including the
determination of which works are subject to the terms of such licenses. While we believe we have
complied with our obligations under the various applicable licenses for open source software, in
the event the copyright holder of any open source software were to successfully establish in court
that we had not complied with the terms of a license for a particular work, we could be required to
release the source code of that work to the public and/or stop distribution of that work.
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Assertions by third parties of infringement by us of their intellectual property rights could
result in significant costs and cause our operating results to suffer.
The semiconductor industry is characterized by vigorous protection and pursuit of intellectual
property rights and positions, which has resulted in protracted and expensive litigation for many
companies. We expect that in the future we may receive communications from various industry
participants alleging our infringement of their patents, trade secrets or other intellectual
property rights. Any lawsuits resulting from such allegations could subject us to significant
liability for damages and invalidate our proprietary rights. Any potential intellectual property
litigation also could force us to do one or more of the following:
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stop selling products or using technology that contain the allegedly infringing intellectual property; |
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lose the opportunity to license our technology to others or to collect royalty payments based upon
successful protection and assertion of our intellectual property against others; incur significant legal
expenses; |
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pay substantial damages to the party whose intellectual property rights we may be found to be infringing; |
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redesign those products that contain the allegedly infringing intellectual property; or |
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attempt to obtain a license to the relevant intellectual property from third parties, which may not be
available on reasonable terms or at all. |
Any significant impairment of our intellectual property rights from any litigation we face could
harm our business and our ability to compete.
Our customers could also become the target of litigation relating to the patent and other
intellectual property rights of others. This could trigger technical support and indemnification
obligations in some of our licenses or customer agreements. These obligations could result in
substantial expenses, including the payment by us of costs and damages relating to claims of
intellectual property infringement. In addition to the time and expense required for us to provide
support or indemnification to our customers, any such litigation could disrupt the businesses of
our customers, which in turn could hurt our relationships with our customers and cause the sale of
our products to decrease. We cannot assure you that claims for indemnification will not be made or
that if made, such claims would not have a material adverse effect on our business, operating
results or financial conditions.
Our third-party contractors are concentrated primarily in Taiwan and Japan, an area subject to
earthquake and other risks. Any disruption to the operations of these contractors could cause
significant delays in the production or shipment of our products.
Substantially all of our products are manufactured by third-party contractors located in Taiwan and
to a lesser extent manufactured by a third party contractor located in Japan. The risk of an
earthquake in Taiwan, Japan and elsewhere in the Pacific Rim region is significant due to the
proximity of major earthquake fault lines to the facilities of our foundries and assembly and test
subcontractors. For example, several major earthquakes have occurred in Taiwan and Japan since our
incorporation in 2000. Although our third-party contractors did not suffer any significant damage
as a result of these most recent earthquakes, the occurrence of additional earthquakes or other
natural disasters could result in the disruption of our foundry or assembly and test capacity. Any
disruption resulting from such events could cause significant delays in the production or shipment
of our products until we are able to shift our manufacturing, assembling or testing from the
affected contractor to another third-party vendor. We may not be able to obtain alternate capacity
on favorable terms, if at all.
We may experience difficulties in transitioning to new wafer fabrication process technologies or in
achieving higher levels of design integration, which may result in reduced manufacturing yields,
delays in product deliveries and increased expenses.
In order to remain competitive, we expect to continue to transition our semiconductor products to
increasingly smaller line width geometries. This transition requires us to modify our designs to
work with the manufacturing processes of our foundries. We periodically evaluate the benefits, on a
product-by-product basis, of migrating to new process technologies to reduce cost and improve
performance. We may face difficulties, delays and expenses as we continue to transition our
products to new processes. We are dependent on our relationships with our foundry contractors to
transition to new processes successfully. We cannot assure you that the foundries that we use will
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able to effectively manage the transition or that we will be able to maintain our existing foundry
relationships or develop new ones. If any of our foundry contractors or we experience significant
delays in this transition or fail to efficiently implement this transition, we could experience
reduced manufacturing yields, delays in product deliveries and increased expenses, all of which
could harm our relationships with our customers and our results of operations. As new processes
become more prevalent, we expect to continue to integrate greater levels of functionality, as well
as customer and third-party intellectual property, into our products. However, we may not be able
to achieve higher levels of design integration or deliver new integrated products on a timely
basis.
Our investment portfolio may become impaired by further deterioration of the capital markets.
Our cash equivalents at September 30, 2009 consisted primarily of money market instruments, which
are invested primarily in United States treasury securities, bonds of government agencies, and
corporate bonds. We follow an established investment policy and set of guidelines to monitor,
manage and limit our exposure to interest rate and credit risk. The policy sets forth credit
quality standards and limits our exposure to any one issuer, as well as our maximum exposure to
various asset classes.
As a result of current adverse financial market conditions, investments in some financial
instruments, such as structured investment vehicles, sub-prime mortgage-backed securities and
collateralized debt obligations, may pose risks arising from liquidity and credit concerns. As of
September 30, 2009, we had no direct holdings in these categories of investments and our indirect
exposure to these financial instruments through our holdings in money market instruments was
immaterial. As of September 30, 2009, we had no impairment charge associated with our cash
equivalents relating to such adverse financial market conditions. Although we believe our current
investment portfolio has very little risk of impairment, we cannot predict future market conditions
or market liquidity and can provide no assurance that our investment portfolio will remain
unimpaired.
We may need to raise additional capital, which might not be available or which, if available, may
be on terms that are not favorable to use.
We believe our existing cash balances and cash expected to be generated from our operations will be
sufficient to meet our working capital, capital expenditures and other needs for at least the next
12 months. In the future, we may need to raise additional funds, and we cannot be certain that we
will be able to obtain additional financing on favorable terms, if at all. If we issue equity
securities to raise additional funds, the ownership percentage of our stockholders would be
reduced, and the new equity securities may have rights, preferences or privileges senior to those
of existing holders of our common stock. If we borrow money, we may incur significant interest
charges, which could harm our profitability. Holders of debt would also have rights, preferences or
privileges senior to those of existing holders of our common stock. If we cannot raise needed funds
on acceptable terms, we may not be able to develop or enhance our products, take advantage of
future opportunities or respond to competitive pressures or unanticipated requirements, which could
harm our business, operating results and financial condition.
Our future effective tax rates could be affected by the allocation of our income among different
geographic regions, which could affect our future operating results, financial condition and cash
flows.
We are in the process of expanding our international operations and staff to better support our
expansion into international markets. This expansion includes the implementation of an
international structure that includes, among other things, a research and development cost-sharing
arrangement, certain licenses and other contractual arrangements between us and our wholly-owned
domestic and foreign subsidiaries. As a result of these changes, we anticipate that our
consolidated pre-tax income will be subject to foreign tax at relatively lower tax rates when
compared to the United States federal statutory tax rate and, as a consequence, our effective
income tax rate is expected to be lower than the United States federal statutory rate. Our future
effective income tax rates could be adversely affected if tax authorities challenge our
international tax structure or if the relative mix of United States and international income
changes for any reason. Accordingly, there can be no assurance that our income tax rate will be
less than the United States federal statutory rate.
We may incur impairments to goodwill or long-lived assets.
We review our long-lived assets, including goodwill and other
intangible assets, for impairment annually in the fourth quarter or whenever events or changes in circumstances indicate
that the carrying amount of these assets may not be recoverable.
Significant negative industry or economic trends, including a
significant decline in the market price of our common stock, reduced estimates of future cash flows for our reporting
units or disruptions to our business could lead to an impairment charge of our long-lived assets, including goodwill
and other intangible assets.
Our valuation methodology for assessing impairment requires management
to make judgments and assumptions based on historical experience and to rely heavily on projections of future operating performance.
We operate in highly competitive environments and projections of future operating results and cash flows may vary significantly
from results. Additionally, if our analysis results in an impairment to our goodwill, we may be required to record a charge to
earnings in our financial statements during a period in which such impairment is determined to exist, which may negatively
impact our results of operations.
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Risks Related to our Common Stock
The market price of our common stock may be volatile, which could cause the value of your
investment to decline.
The trading prices of the securities of technology companies have been highly volatile. Further,
our common stock has a limited trading history. Since our initial public offering in May 2007
through January 19, 2010, our stock price has fluctuated from a low of $7.61 to a high of $35.60. We
cannot predict the extent to which the trading market will continue to develop or how liquid the
market may become. The trading price of our common stock is therefore likely to be highly volatile
and could be subject to wide fluctuations in price in response to various factors, some of which
are beyond our control. These factors include:
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quarterly variations in our results of operations or those of our competitors; |
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general economic conditions and slow or negative growth of related markets; |
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announcements by us or our competitors of design wins, acquisitions, new
products, significant contracts, commercial relationships or capital commitments; |
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our ability to develop and market new and enhanced products on a timely basis; |
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commencement of, or our involvement in, litigation; |
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disruption to our operations; |
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the emergence of new sales channels in which we are unable to compete effectively; |
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any major change in our board of directors or management; |
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changes in financial estimates including our ability to meet our future revenue
and operating profit or loss projections; |
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changes in governmental regulations; and |
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changes in earnings estimates or recommendations by securities analysts. |
Furthermore, the stock market in general, and the market for semiconductor and other technology
companies in particular, have experienced price and volume fluctuations that have often been
unrelated or disproportionate to the operating performance of those companies. These broad market
and industry factors may seriously harm the market price of our common stock, regardless of our
actual operating performance. These trading price fluctuations may also make it more difficult for
us to use our common stock as a means to make acquisitions or to use options to purchase our common
stock to attract and retain employees. In addition, in the past, following periods of volatility in
the overall market and the market price of a companys securities, securities class action
litigation has often been instituted against these companies. This litigation, if instituted
against us, could result in substantial costs and a diversion of our managements attention and
resources.
Future sales of our common stock in the public market could cause our stock price to fall.
Sales of a substantial number of shares of our common stock in the public market, or the perception
that these sales might occur, could depress the market price of our common stock and could impair
our ability to raise capital through the sale of additional equity securities. As of September 30,
2009, we had 41,662,292 shares of common stock outstanding, all of which shares were eligible for
sale in the public market, subject in some cases to the volume limitations and manner of sale
requirements under Rule 144.
In addition, we have filed registration statements on Form S-8 under the Securities Act of 1933, as
amended, to register the shares of our common stock reserved for issuance under our stock option
plans, and intend to file additional registration statements on Form S-8 to register the shares
automatically added each year to the share reserves under these plans.
16
Pursuant to the terms of a Registration Rights Agreement dated December 14, 2009 we entered into
with the selling stockholders, we have filed a registration statement under the Securities Act, of
which this prospectus is a part, registering the resale of the 1,467,612 shares of common stock we
issued to the selling stockholders pursuant to that certain Agreement and Plan of Merger and
Reorganization, dated November 6, 2009, among Cavium Networks, MV Acquisition Corporation, a
Delaware corporation and wholly owned subsidiary of Cavium Networks, Mantra, LLC, a Delaware
limited liability company and wholly owned subsidiary of Cavium Networks, MontaVista Software,
Inc., a Delaware corporation and with respect to sections 9 and 10.1 of the Merger Agreement,
Thomas Kelly as the MontaVista stockholders agent.
A limited number of stockholders may have the ability to influence the outcome of director
elections and other matters requiring stockholder approval.
Our directors, executive officers and principal stockholders and their affiliates beneficially
owned approximately 45.7% of our outstanding common stock as of September 30, 2009. These
stockholders, if they acted together, could exert substantial influence over matters requiring
approval by our stockholders, including electing directors, adopting new compensation plans and
approving mergers, acquisitions or other business combination transactions. This concentration of
ownership may discourage, delay or prevent a change of control of our company, which could deprive
our stockholders of an opportunity to receive a premium for their stock as part of a sale of our
company and might reduce our stock price. These actions may be taken even if they are opposed by
our other stockholders.
Delaware law and our amended and restated certificate of incorporation and bylaws contain
provisions that could delay or discourage takeover attempts that stockholders may consider
favorable.
Provisions in our amended and restated certificate of incorporation and bylaws may have the effect
of delaying or preventing a change of control or changes in our management. These provisions
include the following:
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the division of our board of directors into three classes; |
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the right of the board of directors to elect a director to fill a
vacancy created by the expansion of the board of directors or due to
the resignation or departure of an existing board member; |
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the prohibition of cumulative voting in the election of directors,
which would otherwise allow less than a majority of stockholders to
elect director candidates; |
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the requirement for the advance notice of nominations for election to the board of directors or
for proposing matters that can be acted upon at a stockholders meeting; |
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the ability of our board of directors to alter our bylaws without obtaining stockholder approval; |
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the ability of the board of directors to issue, without stockholder approval, up to 10,000,000
shares of preferred stock with terms set by the board of directors, which rights could be senior
to those of our common stock; |
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the elimination of the rights of stockholders to call a special meeting of stockholders and to
take action by written consent in lieu of a meeting; |
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the required approval of at least 662/3% of the shares entitled to vote at an election of
directors to adopt, amend or repeal our bylaws or repeal the provisions of our amended and
restated certificate of incorporation regarding the election and removal of directors and the
inability of stockholders to take action by written consent in lieu of a meeting; and |
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the required approval of at least a majority of the shares entitled to vote at an election of
directors to remove directors without cause. |
In addition, because we are incorporated in Delaware, we are governed by the provisions of Section
203 of the Delaware General Corporation Law. These provisions may prohibit large stockholders,
particularly those owning 15% or more of our outstanding voting stock, from merging or combining
with us. These provisions in our amended and restated certificate of incorporation and bylaws and
under Delaware law could discourage potential takeover attempts, could reduce the price that
investors are willing to pay for shares of our common stock in the future and could potentially
result in the market price being lower than they would without these provisions.
17
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the information that we incorporate by reference, contains various
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended,
or the Exchange Act. These statements relate to future events or our future financial performance
and involve known and unknown risks, uncertainties and other factors that may cause our actual
results, levels of activity, performance or achievements to differ materially from any future
results, levels of activity, performance or achievements expressed or implied by these
forward-looking statements. In some cases, you can identify forward-looking statements by
terminology such as anticipates, believes, continue estimates, expects, intends, may,
plans, potential, predicts, should, could, will, or the negative of these terms or
other comparable terminology. These forward-looking statements may also use different phrases.
Discussions containing these forward-looking statements may be found, among other places, in
Business and Managements Discussion and Analysis of Financial Condition and Results of
Operations incorporated by reference from our most recent annual report on Form 10-K and in our
most recent quarterly report on Form 10-Q subsequent to the filing of our most recent annual report
on Form 10-K with the SEC, as well as any amendments thereto reflected in subsequent filings with
the SEC. We may not actually achieve the plans, intentions or expectations disclosed in our
forward-looking statements and you should not place undue reliance on our forward-looking
statements. Actual results or events could differ materially from the plans, intentions and
expectations disclosed in the forward-looking statements we make. Forward-looking statements
include, but are not limited to, statements about:
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our expectations regarding our expenses, sales and operations; |
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our operating results; |
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our customer concentration; |
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our ability to anticipate the future needs of our customers; |
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our ability to achieve new design wins; |
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our plans for future products and enhancements of existing products; |
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our growth strategy and our growth rate; |
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our anticipated cash needs and our estimates regarding our capital requirements and our need for additional
financing; |
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our intellectual property, third-party intellectual property and claims related to infringement thereof; and |
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our anticipated trends and challenges in the markets in which we operate, including average selling price
reductions, cyclicality in the networking industry and transitions to new process technologies. |
Such forward-looking statements involve known and unknown risks, uncertainties and other
factors that may cause our actual results, performance or achievements to differ materially from
any future results, performance or achievements expressed or implied by such forward-looking
statements. These risks include those risks discussed under the heading Risk Factors and
elsewhere in this prospectus. Because the factors referred to above could cause actual results or
outcomes to differ materially from those expressed in any forward-looking statements made by us or
on our behalf, you should not place undue reliance on any forward-looking statements. New factors
emerge from time to time, and it is not possible for us to predict which factors will arise. In
addition, we cannot assess the impact of each factor on our business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements. Further, any forward-looking statement speaks only as
of the date on which it is made, and, except as required by law, we undertake no obligation to
publicly revise our forward-looking statements to reflect events or circumstances that arise after
the date of this prospectus or the date of documents incorporated by reference in this prospectus
that include forward-looking statements. You should read this prospectus and the documents that we
reference and have filed as exhibits to the registration statement of which this prospectus is a
part with the understanding that we cannot guarantee future results, levels of activity,
performance or achievements.
18
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of shares of our common stock by the
selling stockholders pursuant to this prospectus.
SELLING STOCKHOLDERS
On December 14, 2009, we issued an aggregate of 1,467,612 shares of common stock to the
selling stockholders pursuant to that certain Agreement and Plan of Merger and Reorganization,
dated November 6, 2009, among Cavium Networks, MV Acquisition Corporation, a Delaware corporation
and wholly owned subsidiary of Cavium Networks (Merger Sub I), Mantra, LLC, a Delaware limited
liability company and wholly owned subsidiary of Cavium Networks (Merger Sub II), MontaVista
Software, Inc., a Delaware corporation (MontaVista) and with respect to sections 9 and 10.1 of
the Merger Agreement, Thomas Kelly as the MontaVista stockholders agent (the Merger Agreement).
Pursuant to the Registration Rights Agreement dated December 14, 2009, that we entered into with
each of the selling stockholders (the Registration Rights Agreement) related to the shares issued
pursuant to the Merger Agreement, we agreed to file a registration statement of which this
prospectus is a part with the SEC to register the disposition of the shares of our common stock we
issued, and to use our commercially reasonable best efforts to keep the registration statement
continuously effective until the until the earlier of (i) the date on which each selling
stockholder is able to dispose of all their shares in any 90 day period pursuant to Rule 144 and
without the requirement to be in compliance with any current public information requirements under
Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the shares
have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule
of similar effect.
The following table sets forth:
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the name of each of the selling stockholders; |
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the number of shares of our common stock owned by each such selling stockholder prior to
this offering; |
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the percentage (if one percent or more) of common stock owned by each such selling
stockholder prior to this offering; |
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the number of shares of our common stock being offered pursuant to this prospectus; |
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the number of shares of our common stock to be owned upon completion of this offering,
assuming all such shares are sold; |
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the percentage (if one percent or more) of common stock owned by each such selling
stockholder after this offering, assuming all such shares are sold; and |
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if applicable, a description of the material relationship such selling stockholder has
with us. |
This table is prepared based on information supplied to us by the selling stockholders
and reflects holdings as of December 15, 2009. As used in this prospectus, the term selling
stockholder includes each of the selling stockholders listed below, and any donees, pledges,
transferees or other successors in interest selling shares received after the date of this
prospectus from a selling stockholder as a gift, pledge, or other non-sale related transfer. The
number of shares in the column Number of Shares Being Offered represents all of the shares that a
selling stockholder may offer under this prospectus. The selling stockholder may sell some, all or
none of its shares. We do not know how long the selling stockholders will hold the shares before
selling them, and we currently have no agreements, arrangements or understandings with the selling
stockholders regarding the sale of any of the shares.
Beneficial ownership is determined in accordance with Rule 13d-3(d) promulgated by the SEC
under the Securities Exchange Act of 1934, as amended. The percentage of shares beneficially owned
prior to the offering is based on 43,298,327 shares of our common stock actually outstanding as of
December 15, 2009, including the shares of our common stock issued to the selling stockholders.
19
Except as otherwise noted below, the address for each person or entity listed in the
table is c/o Cavium Networks, Inc., 805 East Middlefield Road, Mountain View, California 94043.
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Shares of Common Stock |
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Shares of Common Stock |
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Beneficially Owned Prior |
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Number of Shares |
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Beneficially Owned After |
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to Offering |
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Being Offered |
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Offering |
Security Holder |
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Number |
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Percent |
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Number |
|
Percent |
Alloy Funds |
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Alloy Annex I, L.P. (2) |
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66,712 |
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* |
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66,712 |
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* |
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Alloy Corporate 2000, L.P. (2) |
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13,261 |
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* |
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13,261 |
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* |
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Alloy Investors 2000, L.P. (2) |
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22,751 |
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* |
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22,751 |
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* |
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Alloy Partners 2000, L.P. (2) |
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5,655 |
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* |
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5,655 |
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* |
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Alloy Ventures 2000, L.P. (2) |
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110,340 |
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* |
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110,340 |
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* |
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Alloy Funds Total |
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218,719 |
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|
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* |
|
|
|
218,719 |
|
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* |
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U.S. Venture Partners Funds |
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USVP Entrepreneur Partners VII-A, L.P. (3) |
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4,464 |
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* |
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4,464 |
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* |
|
USVP Entrepreneur Partners VII-B, L.P. (3) |
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4,464 |
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* |
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4,464 |
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* |
|
U.S. Venture Partners VII, L.P. (3) |
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428,622 |
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* |
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428,622 |
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* |
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2180 Associates Fund VII, L.P. (3) |
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8,929 |
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* |
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8,929 |
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* |
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U.S. Venture Partners Funds Total |
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446,479 |
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1.03 |
% |
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446,479 |
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* |
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A&E Investment LLC (4) |
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2,790 |
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* |
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2,790 |
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* |
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Kristin Anderson and Scott Anderson as
community property (5) |
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669 |
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* |
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669 |
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* |
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The Board of Trustees of the Leland Stanford
Junior University (Daper I) (6) |
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1,080 |
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* |
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1,080 |
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* |
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The Board of Trustees of the Leland Stanford
Junior University (SEVF II) (6) |
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1,080 |
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* |
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1,080 |
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* |
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Cipio Partners Fund III GmbH & Co. KG (7) |
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83,691 |
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* |
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83,691 |
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* |
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Russell A. Harris |
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19,255 |
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* |
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19,255 |
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* |
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Jeanne D. Wohlers |
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1,211 |
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* |
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1,211 |
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* |
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The Herzig-Wohlers Revocable Trust dated
7/26/07 (8) |
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296 |
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* |
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296 |
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|
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* |
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Thomas F. Kelly |
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15,371 |
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* |
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15,371 |
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* |
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NEC Corporation (9) |
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135,064 |
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* |
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135,064 |
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* |
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Frank Rowand |
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1,339 |
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* |
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1,339 |
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|
|
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* |
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RRE Ventures II, L.P. (10) |
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32,154 |
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|
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* |
|
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32,154 |
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|
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|
|
|
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RRE Ventures Fund II, L.P. (10) |
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8,784 |
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* |
|
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8,784 |
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|
|
|
|
|
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* |
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Daniel Rubin (2) |
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2,614 |
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|
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* |
|
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2,614 |
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|
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* |
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Saints Capital V, L.P. (1)(11) |
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83,693 |
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|
* |
|
|
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83,693 |
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|
|
|
|
|
|
* |
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Siemens Venture Capital GmbH (12) |
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|
337,302 |
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|
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* |
|
|
|
337,302 |
|
|
|
|
|
|
|
* |
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Stanford University (13) |
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1,582 |
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|
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|
|
|
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1,582 |
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|
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|
|
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SVIC No. 4 New Technology Business Investment
L.L.P. (14) |
|
|
63,733 |
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|
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* |
|
|
|
63,733 |
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|
|
|
|
|
|
* |
|
SVIC No. 14 New Technology Business
Investment L.L.P. (14) |
|
|
6,010 |
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|
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* |
|
|
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6,010 |
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|
|
|
|
|
|
* |
|
The Pidwell Family Living Trust, dated
6/25/87 (15) |
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|
3,342 |
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|
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* |
|
|
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3,342 |
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|
|
|
|
|
|
* |
|
W.R. Hambrecht/MontaVista, LLC (1)(16) |
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|
1,168 |
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|
|
* |
|
|
|
1,168 |
|
|
|
|
|
|
|
* |
|
W.R. Hambrecht/MontaVista 2, LLC (1)(16) |
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|
186 |
|
|
|
* |
|
|
|
186 |
|
|
|
|
|
|
|
* |
|
|
|
|
* |
|
Represents less than 1%. |
20
(1) |
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The selling stockholder has identified itself as an affiliate of a registered broker-dealer.
The selling stockholder has represented to us that it purchased the shares in the ordinary
course of its business and, at the time of purchase, with no agreement or understanding,
directly or indirectly, with any persons to distribute such shares. |
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(2) |
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Alloy Annex I, LLC is the general partner of Alloy Annex I, L.P. John Shoch, Craig Taylor,
Doug Kelly, Daniel Rubin and Tony Di Bona are the managing members of Alloy Annex I, LLC and
share voting and investment power with respect the shares held by Alloy Annex I, L.P. Each of
such persons disclaims beneficial ownership of the shares held by Alloy Annex I, L.P. except
to the extent of their pecuniary interest in the shares. Alloy Ventures 2000, LLC is the
general partner of Alloy Partners 2000, L.P., Alloy Ventures 2000, L.P., Alloy Corporate 2000,
L.P. and Alloy Investors 2000, L.P. (collectively, the Alloy Entities). John Shoch, Craig
Taylor, Doug Kelly and Tony Di Bona are the managing members of Alloy Ventures 2000, LLC and
share voting and investment power with respect the shares held by the Alloy Entities. Each of
such persons disclaims beneficial ownership of the shares held by the Alloy Entities except to
the extent of his pecuniary interest in the shares. Alloy Annex I, L.P. and the Alloy
Entities are located at 400 Hamilton Ave., Suite 400, Palo Alto, California 94301. |
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(3) |
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Presidio Management Group VII, L.L.C. is the general partner of U.S. Venture Partners VII,
L.P., USVP Entrepreneur Partners VII-A, L.P., USVP Entrepreneur Partners VII-B, L.P. and 2180
Associates Fund VII, L.P. (collectively, the USVP Funds). Irwin Federman, Winston Fu,
Steven Krausz, David Liddle, Jonathan Root and Philip Young are the managing members of
Presidio Management Group VII, L.L.C. and share voting and investment power over the shares
held by the USVP Funds. Each of such persons disclaims beneficial ownership of the shares
held by the USVP Funds except to the extent of their pecuniary interest in the shares. The
USVP Funds are located at 2735 Sand Hill Road, Menlo Park, California 94025. |
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(4) |
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Lip-Bu Tau is the manager of A&E Investment LLC. Mr. Tau exercises voting and investment
power over the shares listed above for A&E Investment LLC. Mr. Tau disclaims beneficial
ownership of the shares held by A&E Investment LLC except to the extent of his pecuniary
interest in the shares. A&E Investment LLC is located at One California Street,
28th Floor, San Francisco, California 94111. |
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(5) |
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These shares are beneficially owned by Kristin McKenna Anderson and Scott Anderson as
community property. |
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(6) |
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Stanford Management Company is the manager of The Board of Trustees of the Leland Stanford
Junior University (Daper I) and The Board of Trustees of the Leland Stanford Junior University
(SEVF II) (collectively, the Stanford Entities). Martina Poquet is the managing director of
Stanford Management Company and has voting and investment power over the shares held by the
Stanford Entities. Ms. Poquet disclaims beneficial ownership of the share held by the
Stanford Entities. Stanford Management Company is located at 2770 Sand Hill Road, Menlo Park,
California 94025. |
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(7) |
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Cipio Partners GmbH is the general partner of Cipio Partners Fund III GmbH & Co. KG. Cipio
Partners GmbH has voting and investment power over the shares listed above for Cipio Partners
Fund III GmbH & Co. KG. Cipio Partners LLC, which manages Cipio Partners Fund III GmbH & Co.
KG for Cipio Partners GmbH, is located at 560 South Winchester Boulevard, Suite 500, San Jose,
California 95128. |
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(8) |
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These shares are beneficially held by Jeanne D. Wohlers as trustee of The Herzig-Wohlers
Revocable Trust dated 7/26/07. |
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(9) |
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Kaoru Yano is the President of NEC Corporation and is deemed to have voting and investment
power over the shares held by NEC Corporation. Mr. Yano disclaims beneficial ownership of the
shares held by NEC Corporation except to the extent of his pecuniary interest in the shares.
NEC Corporation is located at 7-1 Shiba 5-Chome Minato-ku, Tokyo 108-8001, Japan. |
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(10) |
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Andrew L. Zalasin is the general partner of RRE Ventures II, L.P. and RRE Ventures Fund II,
L.P. (the RRE Entities). Mr. Zalasin exercises voting and investment power over the shares
listed above for the RRE Entities. Mr. Zalasin disclaims beneficial ownership of the shares
held by the RRE Entities except to the extent of his pecuniary interest in the shares. The
RRE Entities are located at 130 East 59th Street, New York, New York 10022. |
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(11) |
|
David Quinlivan is the managing member of Saints Capital V, LLC, which is the managing
partner of Saints Capital V, L.P. Mr. Quinlivan exercises voting and investment power over the
shares listed above for Saints Capital V, LLC. Mr. Quinlivan disclaims beneficial ownership
of the shares held by Saints Capital V, L.P. |
21
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|
except to the extent of his pecuniary interest in the shares. Saints Capital V, L.P. is located
at 475 Sansome Street, Suite 1850, San Francisco, California 94111. |
|
(12) |
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Ralf Schnell is the chief executive officer and Thomas Kolbinger is the chief operating
officer of Siemens Venture Capital GmbH. Messrs. Schnell and Kolbinger share voting and
investment power over the shares held by Siemens Venture Capital GmbH. Messrs. Schnell and
Kolbinger disclaim beneficial ownership of the shares held by Siemens Venture Capital GmbH
except to the extent of their pecuniary interest in the shares. Siemens Venture Capital GmbH
is located at 0 Ho-Hahn, Ring 6, 87739 Munich, Germany. |
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(13) |
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Stanford Management Company is the manager of Stanford University. Martina Poquet is the
managing director of Stanford Management Company and has voting and investment power over the
shares held by Stanford University. Ms. Poquet disclaims beneficial ownership of the share
held by Stanford University. Stanford Management Company is located at 2770 Sand Hill Road,
Menlo Park, California 94025. |
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(14) |
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Woihong Choi is the chief executive officer of SVIC No. 4 New Technology Business Investment
L.L.P. and SVIC No. 14 New Technology Business Investment L.L.P. (the SVIC Entities) and
exercises voting and investment power over the shares held by the SVIC Entities. Mr. Choi
disclaims beneficial ownership of the shares held by the SVIC Entities except to the extent of
his pecuniary interest. The SVIC Entities are located at 29th Samsung Electronics
Bldg., 1320-10, Seocho-dong, Seocho-gu, Seoul, Korea 137-857. |
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These shares are beneficially held by David W. Pidwell as trustee of The Pidwell Family
Living Trust, dated 6/25/87. |
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Peter Morrissey is the manager of WR Hambrecht/MontaVista Management, LLC, which is the
manager of WR Hambrecht/MontaVista, LLC. Mr. Morrissey is the manager of WR
Hambrecht/MontaVista Management 2, LLC, which is the manager of WR Hambrecht/MontaVista 2,
LLC. Mr. Morrissey exercises voting and investment power over the shares listed above for WR
Hambrecht/MontaVista, LLC and WR Hambrecht/MontaVista 2, LLC (collectively, the WR Hambrecht
Entities). Mr. Morrissey disclaims beneficial ownership of the shares held by the WR
Hambrecht Entities except to the extent of his pecuniary interest in the shares. The WR
Hambrecht Entities are located at Pier 1, Bay 3, San Francisco, California 94111. |
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PLAN OF DISTRIBUTION
We are registering the shares of common stock issued to the selling stockholders to permit the
resale of these shares of common stock by the holders of the shares of common stock from time to
time after the date of this prospectus. We will not receive any of the proceeds from the sale by
the selling stockholders of the shares of common stock. We will bear all fees and expenses
incident to our obligation to register the shares of common stock.
Each selling stockholder of the common stock and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares of common stock
covered hereby on The NASDAQ Global Market or any other stock exchange, market or trading facility
on which the shares are traded or in private transactions. These sales may be at fixed prices, at
prevailing market prices at the time of the sale, at varying prices determined at the time of sale,
or negotiated prices. A selling stockholder may use any one or more of the following methods when
selling shares:
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ordinary brokerage transactions and transactions in which the broker dealer solicits
purchasers; |
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block trades in which the broker dealer will attempt to sell the shares as agent but
may position and resell a portion of the block as principal to facilitate the transaction; |
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purchases by a broker dealer as principal and resale by the broker dealer for its
account; |
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an exchange distribution in accordance with the rules of the applicable exchange; |
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privately negotiated transactions; |
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settlement of short sales entered into after the effective date of the registration
statement of which this prospectus is a part; |
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in transactions through broker dealers that agree with the selling stockholders to sell
a specified number of such shares at a stipulated price per share; |
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through the writing or settlement of options or other hedging transactions, whether
through an options exchange or otherwise; |
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a combination of any such methods of sale; or |
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any other method permitted pursuant to applicable law. |
The selling stockholders may also sell shares under Rule 144 under the Securities Act of 1933,
as amended, or the Securities Act, if available, rather than under this prospectus.
Broker dealers engaged by the selling stockholders may arrange for other brokers dealers to
participate in sales. Broker dealers may receive commissions or discounts from the selling
stockholders (or, if any broker dealer acts as agent for the purchaser of shares, from the
purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this
Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission
in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown
in compliance with FINRA IM-2440-1.
In connection with the sale of the common stock or interests therein, the selling stockholders
may enter into hedging transactions with broker-dealers or other financial institutions, which may
in turn engage in short sales of the common stock in the course of hedging the positions they
assume. The selling stockholders may also sell shares of the common stock short and deliver these
securities to close out their short positions or to return borrowed shares in connection with such
short sales, or loan or pledge the common stock to broker-dealers that in turn may sell these
securities. The selling stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or create one or more derivative securities which
require the delivery to such broker-dealer or other financial institution of shares offered by this
prospectus, which shares such broker-dealer or other financial institution may resell pursuant to
this prospectus (as supplemented or amended to reflect such transaction). Notwithstanding the
foregoing, the selling stockholders have been advised that they may not use shares registered on
this registration statement to cover short sales of our common stock made prior to the date the
registration statement, of which this prospectus forms a part, has been declared effective by the
SEC.
The selling stockholders and any broker-dealers or agents that are involved in selling the
shares may be deemed to be underwriters within the meaning of the Securities Act in connection
with such sales. In such event, any commissions received by such broker-dealers or agents and any
profit on the resale of the shares purchased by them may be deemed to be underwriting commissions
or discounts under the Securities Act. Selling stockholders who are underwriters within the
meaning of Section 2(11) of the Securities Act will be subject to the prospectus delivery
requirements of the Securities Act and may be subject to certain statutory liabilities of,
including but not limited to,
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Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the Securities Exchange Act
of 1934, as amended, or the Exchange Act. Each selling stockholder has informed us that it is not
a registered broker-dealer and does not have any written or oral agreement or understanding,
directly or indirectly, with any person to distribute the common stock. In no event shall any
broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed eight
percent (8%).
We are required to pay certain fees and expenses incurred by us incident to the registration
of the shares. We have agreed to indemnify the selling stockholders against certain losses,
claims, damages and liabilities, including liabilities under the Securities Act, and the selling
stockholders may be entitled to contribution. We may be indemnified by the selling stockholders
against certain losses, claims, damages and liabilities, including liabilities under the Securities
Act, that may arise from any written information furnished to us by the selling stockholders
specifically for use in this prospectus, or we may be entitled to contribution.
The selling stockholders will be subject to the prospectus delivery requirements of the
Securities Act including Rule 172 thereunder unless an exemption therefrom is available.
The selling stockholders have advised us that there is no underwriter or coordinating broker
acting in connection with the proposed sale of the resale shares by the selling stockholders.
We agreed to use our commercially reasonable best efforts keep this prospectus effective until
the earlier of (i) the date on which the shares may be resold by the selling stockholders without
registration and without regard to any volume restrictions by reason of under Rule 144 under the
Securities Act or any other rule of similar effect or (ii) all of the shares have been sold
pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar
effect. The resale shares will be sold only through registered or licensed brokers or dealers if
required under applicable state securities laws. In addition, in certain states, the resale shares
of Common Stock covered hereby may not be sold unless they have been registered or qualified for
sale in the applicable state or an exemption from the registration or qualification requirement is
available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person engaged in the
distribution of the resale shares may not simultaneously engage in market making activities with
respect to the common stock for the applicable restricted period, as defined in Regulation M, prior
to the commencement of the distribution. In addition, the selling stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations thereunder, including
Regulation M, which may limit the timing of purchases and sales of shares of the common stock by
the selling stockholders or any other person. We will make copies of this prospectus available to
the selling stockholders and have informed them of the need to deliver a copy of this prospectus to
each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the
Securities Act).
There can be no assurance that any selling stockholder will sell any or all of the shares of
common stock registered pursuant to the registration statement, of which this prospectus forms a
part.
Once sold under the registration statement, of which this prospectus forms a part, the shares
of common stock will be freely tradable in the hands of persons other than our affiliates.
LEGAL MATTERS
The validity of the securities being offered hereby will be passed upon by Cooley Godward
Kronish llp, Palo Alto, California.
EXPERTS
The consolidated financial statements of Cavium Networks, Inc. and managements assessment of
the effectiveness of internal control over financial reporting (which is included in Managements
Report on Internal Control over Financial Reporting) incorporated in this prospectus by reference
to the Annual Report on Form 10-K for the year ended December 31, 2008 have been so incorporated in
reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting
firm, given on the authority of said firm as experts in auditing and accounting.
The consolidated
financial statements of MontaVista Software, Inc. as of December 31, 2008 and 2007 and for each of the three
years in the period ended December 31, 2008 incorporated by reference in this prospectus have been so
incorporated in reliance on the report of BDO Seidman, LLP, independent auditors, incorporated herein by
reference, given on the authority of said firm as experts in auditing and accounting.
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The financial statements of W&W Communications, Inc. incorporated in this prospectus by
reference to the Current Report on Form 8-K/A filed with the SEC on March 5, 2009, have been
audited by Armanino McKenna LLP, independent auditors, as stated in their report which is
incorporated herein by reference. Such financial statements have been so incorporated in reliance
upon the report of such firm given upon their authority as experts in accounting and auditing.
Ernst & Young, independent auditors, has audited the financial statements of Star
Semiconductor Corporation for the years ended December 31, 2007 and 2006 included in the Current
Report on Form 8-K/A of Cavium Networks, Inc. dated October 17, 2008, as set forth in their report,
which is incorporated by reference in this prospectus and elsewhere in the registration statement.
The financial statements of Star Semiconductor Corporation are incorporated by reference in
reliance on Ernst & Youngs report, given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file electronically with the SEC our annual reports on Form 10-K, quarterly interim reports
on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended. We make
available on or through our website, free of charge, copies of these reports as soon as reasonably
practicable after we electronically file or furnish it to the SEC. You can also request copies of
such documents by contacting our Investor Relations Department at (650) 623-7000. You may read and
copy any document we file at the SECs Public Reference Room at 100 F Street, N.E., Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more information about the operation of the
Public Reference Room. The SEC maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers that file electronically with the
SEC, including Cavium Networks. The SECs Internet site can be found at http://www.sec.gov.
INFORMATION INCORPORATED BY REFERENCE
We incorporate by reference into this prospectus the documents listed below and any future
filings (other than current reports furnished under Item 2.02 or Item 7.01 of Form 8-K and exhibits
filed on such form that are related to such items) we make with the SEC under Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, including any filings after
the date of this prospectus but before the end of any offering made under this prospectus.
Information in such future filings updates and supplements the information provided in this
prospectus. Any statements in any such future filings will automatically be deemed to modify and
supersede any information in any document we previously filed with the SEC that is incorporated or
deemed to be incorporated herein by reference to the extent that statements in the later filed
document modify or replace such earlier statements. The SEC file number for the documents
incorporated by reference in this prospectus is 1-33435. We incorporate by reference the following
information that has been filed with the SEC:
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our current report on Form 8-K/A filed with the SEC on October 17, 2008; |
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our current report on Form 8-K filed with the SEC on January 12, 2009; |
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our annual report on Form 10-K for the year ended December 31, 2008 filed with the SEC
on March 2, 2009 (2008 Form 10-K); |
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our current report on Form 8-K/A filed with the SEC on March 5, 2009; |
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our current report on Form 8-K filed with the SEC on March 20, 2009; |
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the information specifically incorporated by reference into our 2008 Form 10-K from our
definitive proxy statement on Schedule 14A, filed with the SEC on April 6, 2009; |
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our quarterly report on Form 10-Q for the quarter ended March 31, 2009 filed with the
SEC on May 7, 2009; |
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our current report on Form 8-K filed with the SEC on July 24, 2009; |
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our quarterly report on Form 10-Q for the quarter ended June 30, 2009 filed with the SEC
on August 6, 2009;
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our current report on Form 8-K filed with the SEC on October 27, 2009 (except for the
information furnished under Item 2.02 or any related exhibit); |
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our quarterly report on Form 10-Q for the quarter ended September 30, 2009 filed with
the SEC on November 3, 2009; |
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our current report on Form 8-K filed with the SEC on November 10, 2009; |
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our current report on Form 8-K filed with the SEC on December 18, 2009; |
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our current report on Form 8-K/A filed with the SEC on January 8, 2010; and |
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the description of the common stock contained in our Registration Statement on Form 8-A
filed with the SEC on April 27, 2007 under the Exchange Act. |
Any information in any of the foregoing documents will automatically be deemed to be modified
or superseded to the extent that information in this prospectus or in a later filed document that
is incorporated or deemed to be incorporated herein by reference modifies or replaces such
information.
We will provide to each person, including any beneficial owner, to whom a prospectus is
delivered, without charge upon written or oral request, a copy of any or all of the documents that
are incorporated by reference into this prospectus but not delivered with the prospectus, including
exhibits which are specifically incorporated by reference into such documents. Requests should be
directed to: Investor Relations, Cavium Networks, Inc., 805 Middlefield Road, Mountain View,
California 94043, telephone: (650) 623-7000.
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