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TABLE OF CONTENTS
CAVIUM
NETWORKS, INC.
805 East
Middlefield Road
Mountain View, CA 94043
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On May 7,
2010
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of
Stockholders of Cavium
Networks, Inc., a Delaware corporation (the
Company). The meeting will be held on Friday,
May 7, 2010 at 10:00 a.m. local time at 805 East
Middlefield Road, Mountain View, CA 94043 for the following
purposes:
1. To elect two nominees for director named herein
to hold office until the 2013 Annual Meeting of Stockholders.
2. To ratify the selection by the Audit Committee of
the Board of Directors of PricewaterhouseCoopers LLP as the
independent registered public accounting firm of the Company for
its fiscal year ending December 31, 2010.
3. To conduct any other business properly brought
before the meeting.
These items of business are more fully described in the Proxy
Statement accompanying this Notice.
The record date for the Annual Meeting is March 12, 2010.
Only stockholders of record at the close of business on that
date may vote at the meeting or any adjournment thereof.
By Order of the Board of Directors
Arthur D. Chadwick
Secretary
Mountain View, California
March 26, 2010
You are cordially invited to attend the meeting in person.
Whether or not you expect to attend the meeting, please
complete, date, sign and return the proxy mailed to you, or vote
over the telephone or the internet as instructed in these
materials, as promptly as possible in order to ensure your
representation at the meeting. Even if you have voted by proxy,
you may still vote in person if you attend the meeting. Please
note, however, that if your shares are held of record by a
broker, bank or other nominee and you wish to vote at the
meeting, you must obtain a proxy issued in your name from that
record holder.
The Board of Directors recommends that you vote For the
proposals identified above.
CAVIUM
NETWORKS, INC.
805 East
Middlefield Road
Mountain View, CA 94043
FOR THE 2010 ANNUAL MEETING OF
STOCKHOLDERS
May 7, 2010
QUESTIONS AND ANSWERS ABOUT
THESE PROXY MATERIALS AND VOTING
Why did I
receive a notice regarding the availability of proxy materials
on the internet?
Pursuant to rules adopted by the Securities and Exchange
Commission (the SEC), we have elected to provide
access to our proxy materials over the internet. Accordingly, we
are sending a Notice of Internet Availability of Proxy Materials
(the Notice) to our stockholders of record. All
stockholders will have the ability to access the proxy materials
on the website referred to in the Notice or request to receive a
printed set of the proxy materials. Instructions on how to
access the proxy materials over the internet or to request a
printed copy may be found in the Notice.
We intend to mail the Notice on or about March 26, 2010 to
all stockholders of record entitled to vote at the annual
meeting.
Will I
receive any other proxy materials by mail?
We may send you a
proxy card, along with a second Notice, on or after
April 5, 2010.
How do I
attend the annual meeting?
The meeting will be held on Friday, May 7, 2010 at
10:00 a.m. local time at 10:00 a.m. local time at 805
East Middlefield Road, Mountain View, CA
94043. Directions
to the annual meeting, which is located at our Corporate
Headquarters, may be found at www.caviumnetworks.com.
Information on how to vote in person at the annual meeting is
discussed below.
Who can
vote at the annual meeting?
Only stockholders of record at the close of business on
March 12, 2010 will be entitled to vote at the annual
meeting. On this record date, there were 43,955,697 shares
of common stock outstanding and entitled to vote.
Stockholder
of Record: Shares Registered in Your Name
If on March 12, 2010, your shares were registered directly
in your name with Caviums transfer agent, BNY Mellon
Shareowner Services, then you are a stockholder of record. As a
stockholder of record, you may vote in person at the meeting or
vote by proxy. Whether or not you plan to attend the meeting, we
urge you to fill out and return the proxy mailed to you or vote
by proxy over the telephone or on the internet as instructed
below to ensure your vote is counted.
Beneficial
Owner: Shares Registered in the Name of a Broker or
Bank
If on March 12, 2010, your shares were held, not in your
name, but rather in an account at a brokerage firm, bank,
dealer, or other similar organization, then you are the
beneficial owner of shares held in street name and
the Notice is being forwarded to you by that organization. The
organization holding your account is considered to be the
stockholder of record for purposes of voting at the annual
meeting. As a beneficial owner, you have the right to direct
your broker or other agent regarding how to vote the shares in
your account. You are also invited to attend the annual meeting.
However, since you are not the stockholder of record, you may
not vote your shares in person at the meeting unless you request
and obtain a valid proxy from your broker or other agent.
What am I
voting on?
There are two matters scheduled for a vote:
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Election of two directors; and
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Ratification of the selection by the Audit Committee of the
Board of Directors of PricewaterhouseCoopers LLP as the
independent registered public accounting firm of the Company for
its fiscal year ending December 31, 2010.
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What if
another matter is properly brought before the meeting?
The Board of Directors knows of no other matters that will be
presented for consideration at the Annual Meeting. If any other
matters are properly brought before the meeting, it is the
intention of the persons named in the accompanying proxy to vote
on those matters in accordance with their best judgment.
How do I
vote?
You may either vote For all the nominees to the
Board of Directors or you may Withhold your vote for
any nominee you specify. For each of the other matters to be
voted on, you may vote For or Against or
abstain from voting. The procedures for voting are fairly simple:
Stockholder
of Record: Shares Registered in Your Name
If you are a stockholder of record, you may vote in person at
the annual meeting, vote by proxy over the telephone, vote by
proxy through the internet or vote by proxy using a proxy card
that you may request or that we may elect to deliver at a later
time. Whether or not you plan to attend the meeting, we urge you
to vote by proxy to ensure your vote is counted. You may still
attend the meeting and vote in person even if you have already
voted by proxy.
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To vote in person, come to the annual meeting and we will give
you a ballot when you arrive.
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To vote using the proxy card, simply complete, sign and date the
proxy card that may be delivered and return it promptly in the
envelope provided. If you return your signed proxy card to us
before the annual meeting, we will vote your shares as you
direct.
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To vote over the telephone, dial toll-free 1-866-540-5760 using
a touch-tone phone and follow the recorded instructions. You
will be asked to provide the company number and control number
from the Notice. Your vote must be received by 11:59 p.m.,
Eastern Time on May 6, 2010 to be counted.
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To vote through the internet, go to
http://www.proxyvoting.com/cavm
to complete an electronic proxy card. You will be asked to
provide the company number and control number from the Notice.
Your vote must be received by 11:59 p.m., Eastern Time on
May 6, 2010 to be counted.
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Beneficial
Owner: Shares Registered in the Name of Broker or Bank
If you are a beneficial owner of shares registered in the name
of your broker, bank, or other agent, you should have received a
Notice containing voting instructions from that organization
rather than from Cavium. Simply follow the voting instructions
in the Notice to ensure that your vote is counted. To vote in
person at the annual meeting, you must obtain a valid proxy from
your broker, bank, or other agent. Follow the instructions from
your broker or bank included with these proxy materials, or
contact your broker or bank to request a proxy form.
We provide internet proxy voting to allow you to vote your
shares online, with procedures designed to ensure the
authenticity and correctness of your proxy vote instructions.
However, please be aware that you must bear any costs associated
with your internet access, such as usage charges from internet
access providers and telephone companies.
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How many
votes do I have?
On each matter to be voted upon, you have one vote for each
share of common stock you own as of March 12, 2010.
What if I
return a proxy card or otherwise vote but do not make specific
choices?
If you return a signed and dated proxy card or otherwise vote
without marking voting selections, your shares will be voted, as
applicable, For the election of both of the two
nominees for director and For the ratification of
PricewaterhouseCoopers LLP as independent registered public
accounting firm of the Company for its fiscal year ending
December 31, 2010. If any other matter is properly
presented at the meeting, your proxyholder (one of the
individuals named on your proxy card) will vote your shares
using his or her best judgment.
Who is
paying for this proxy solicitation?
We will pay for the entire cost of soliciting proxies. In
addition to these proxy materials, our directors and employees
may also solicit proxies in person, by telephone, or by other
means of communication. Directors and employees will not be paid
any additional compensation for soliciting proxies. We may also
reimburse brokerage firms, banks and other agents for the cost
of forwarding proxy materials to beneficial owners.
What does
it mean if I receive more than one Notice?
If you receive more than one Notice, your shares may be
registered in more than one name or in different accounts.
Please follow the voting instructions on the Notices to ensure
that all of your shares are voted.
Can I
change my vote after submitting my proxy?
Yes. You can revoke your proxy at any time before the final vote
at the meeting. If you are the record holder of your shares, you
may revoke your proxy in any one of the following ways:
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You may submit another properly completed proxy card with a
later date.
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You may grant a subsequent proxy by telephone or through the
internet.
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You may send a timely written notice that you are revoking your
proxy to Caviums Secretary at 805 East Middlefield Road,
Mountain View, CA 94043.
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You may attend the annual meeting and vote in person. Simply
attending the meeting will not, by itself, revoke your proxy.
Your most current proxy card or telephone or internet proxy is
the one that is counted.
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If your shares are held by your broker or bank as a nominee or
agent, you should follow the instructions provided by your
broker or bank.
When are
stockholder proposals due for next years annual
meeting?
To be considered for inclusion in next years proxy
materials, your proposal must be submitted in writing by
November 26, 2010, to Caviums Secretary at 805 East
Middlefield Road, Mountain View, CA 94043. If you wish to submit
a proposal that is not to be included in next years proxy
materials or nominate a director, you must provide specified
information to Caviums Secretary at 805 East Middlefield
Road, Mountain View, CA 94043 between January 7, 2011 and
February 6, 2011, unless the date of our 2011 annual
meeting of stockholders is before April 7, 2011 or after
June 6, 2011, in which case such proposals shall be
submitted no earlier than 120 days prior to the 2011 annual
meeting of stockholders and no later than the later of
(i) 90 days before the 2011 annual meeting of
stockholders or (ii) ten days after notice of the date of
the 2011 annual meeting of stockholders is publicly given. You
are also advised to review our Bylaws, which contain additional
requirements regarding advance notice of stockholder proposals
and director nominations.
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How are
votes counted?
Votes will be counted by the inspector of election appointed for
the meeting, who will separately count For and
Withhold and, with respect to proposals other than
the election of directors, Against votes,
abstentions and broker non-votes. Abstentions will be counted
towards the vote total for each proposal, and will have the same
effect as Against votes. Broker non-votes have no
effect and will not be counted towards the vote total for
Proposal Nos. 1 and 2.
What are
broker non-votes?
Broker non-votes occur when a beneficial owner of shares held in
street name does not give instructions to the broker
or nominee holding the shares as to how to vote on matters
deemed non-routine. Generally, if shares are held in
street name, the beneficial owner of the shares is entitled to
give voting instructions to the broker or nominee holding the
shares. If the beneficial owner does not provide voting
instructions, the broker or nominee can still vote the shares
with respect to matters that are considered to be
routine, but not with respect to
non-routine matters. Under the rules and
interpretations of the New York Stock Exchange
(NYSE), non-routine matters are matters
that may substantially affect the rights or privileges of
shareholders, such as mergers, shareholder proposals and, for
the first time, under a new amendment to the NYSE rules,
elections of directors, even if not contested.
How many
votes are needed to approve each proposal?
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For the election of directors, Proposal No. 1, the two
nominees receiving the most For votes (from the
holders of votes of shares present in person or represented by
proxy and entitled to vote on the election of directors) will be
elected. Only votes For or Withheld will
affect the outcome.
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To be approved, Proposal No. 2, the ratification of
the selection by the Audit Committee of the Board of Directors
of PricewaterhouseCoopers LLP as the independent registered
public accounting firm of the company for its fiscal year ending
December 31, 2010, must receive For votes from
the holders of a majority of shares present and entitled to vote
either in person or by proxy. If you Abstain from
voting, it will have the same effect as an Against
vote. Broker non-votes will have no effect.
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What is
the quorum requirement?
A quorum of stockholders is necessary to hold a valid meeting. A
quorum will be present if stockholders holding at least a
majority of the outstanding shares entitled to vote are present
at the meeting in person or represented by proxy. On the record
date, there were
43,955,697
shares
outstanding and entitled to vote.
Your shares will be counted towards the quorum only if you
submit a valid proxy (or one is submitted on your behalf by your
broker, bank or other nominee) or if you vote in person at the
meeting. Abstentions and broker non-votes will be counted
towards the quorum requirement. If there is no quorum either the
chairman of the meeting or the holders of a majority of shares
present at the meeting in person or represented by proxy may
adjourn the meeting to another date.
How can I
find out the results of the voting at the annual
meeting?
Preliminary voting results will be announced at the annual
meeting. In addition, final voting results will be published in
a current report on
Form 8-K
that we expect to file within four business days after the
annual meeting. If final voting results are not available to us
in time to file a
Form 8-K
within four business days after the meeting, we intend to file a
Form 8-K
to publish preliminary results and, within four business days
after the final results are known to us, file an additional
Form 8-K
to publish the final results.
Proposal 1
Election Of
Directors
Caviums Board of Directors is divided into three classes.
Each class consists of one-third of the total number of
directors, and each class has a three-year term. Vacancies on
the Board of Directors may be filled only by persons
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elected by a majority of the remaining directors. A director
elected by the Board of Directors to fill a vacancy in a class,
including vacancies created by an increase in the number of
directors, shall serve for the remainder of the full term of
that class and until the directors successor is duly
elected and qualified.
The Board of Directors presently has six members. There are two
directors in the class whose term of office expires in 2010.
Each of the nominees listed below is a current director of the
Company who was previously appointed by the Board of Directors.
If elected at the annual meeting, each of these nominees would
serve until the 2013 annual meeting and until his successor has
been duly elected and qualified, or, if sooner, until his death,
resignation or removal. It is the Companys policy to
encourage directors and nominees for director to attend the
Annual Meeting. Two of the directors attended the 2009 Annual
Meeting of Stockholders.
Directors are elected by a plurality of the votes of the holders
of shares present in person or represented by proxy and entitled
to vote on the election of directors. The two nominees receiving
the highest number of affirmative votes will be
elected. Shares
represented by executed proxies will be voted, if authority to
do so is not withheld, for the election of the two nominees
named below. If the nominee becomes unavailable for election as
a result of an unexpected occurrence, shares that would have
been voted for that nominee will instead be voted for the
election of a substitute nominee proposed by Cavium. Each person
nominated for election has agreed to serve if elected. The
Companys management has no reason to believe that any
nominee will be unable to serve.
The Nominating and Corporate Governance Committee seeks to
assemble a Board of Directors that, as a whole, possesses the
appropriate balance of professional and industry knowledge.
financial expertise and high-level management experience
necessary to oversee and direct Caviums business. To that
end, the Committee has identified and evaluated nominees in the
broader context of the Board of Directors overall
composition, with the goal of recruiting members who complement
and strengthen the skills of other members and who also exhibit
integrity, collegiality, sound business judgment and other
qualities that the Committee views as critical to effective
functioning of the Board of Directors. The following is a brief
biography of each nominee and each director whose term will
continue after the annual meeting, and a discussion of the
specific experience, qualifications, attributes or skills of
each director that led the Nominating and Corporate Governance
Committee to believe that that director should continue to serve
on the Board of Directors, as of the date of this proxy
statement. However, each of the members of the Committee may
have a variety of reasons why he or she believes a particular
person would be an appropriate nominee for the Board of
Directors, and these views may differ from the views of other
members.
Nominees
for Election for a Three-year Term Expiring at the 2013 Annual
Meeting
Syed
B. Ali
Syed B. Ali, age 51, is one of our founders and has served
as our President, Chief Executive Officer and Chairman of the
Board of Directors since the inception of the Company in 2000.
From 1998 to 2000, Mr. Ali was Vice President of Marketing
and Sales at Malleable Technologies, a communication chip
company of which he was a founding management team member.
Malleable Technologies was acquired by PMC-Sierra, Inc., a
communication integrated circuit company, in 2000. From 1994 to
1998, Mr. Ali was an Executive Director at Samsung
Electronics Co., Ltd. Prior to that, he had various positions at
Wafer Scale Integration, a division of SGS-Thomson, Tandem
Computers, Inc., and American Microsystems, Ltd. He received a
BE (Electrical Engineering) from Osmania University, in
Hyderabad, India and an MSE from the University of Michigan. The
Nominating and Corporate Governance Committee believes that
Mr. Alis extensive experience in numerous senior
managerial positions in the semiconductor industry, as well as
his experience as a founder of the Company and his long tenure
as President and Chief Executive Officer of the Company, brings
necessary industry experience, historic Company knowledge and
experience as well as continuity to the board. In addition, the
Committee believes that having Mr. Ali serve on the Board
of Directors helps to ensure that the Board of Directors and
management act with a common purpose to execute our strategic
initiatives and business plans, and that Mr. Ali, as Chief
Executive Officer and Chairman of the Board of Directors, is
able to act as a bridge between management and the Board of
Directors, facilitating the regular flow of information.
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Anthony
S. Thornley
Anthony S. Thornley, age 63, has served as a director since
September 2006. Mr. Thornley currently serves as the Chief
Financial Officer of KMF Audio Inc., a microphone company. From
February 2002 to June 2005 he served as President and Chief
Operating Officer of Qualcomm Incorporated, a wireless
communication technology and integrated circuit company. From
July 2001 to February 2002 he served as Chief Financial and
Operating Officer of Qualcomm and from March 1994 to February
2002 as Chief Financial Officer of Qualcomm. Prior to joining
Qualcomm, he was with Nortel Networks, a telecommunications
equipment manufacturer, for sixteen years in various financial
and information systems management positions, including Vice
President Finance and IS, Public Networks, Vice President
Finance NT World Trade and Corporate Controller Nortel Limited.
He has also worked for Coopers and Lybrand in public accounting.
Mr. Thornley is a director of Callaway Golf Company, a
golfing equipment manufacturer, Airvana, Inc., a wireless
equipment company, Proximetry, Inc., a network software company,
Gorgon Media LLC, a specialized investment company and Transdel
Pharmaceuticals, Inc., a development stage pharmaceutical
company. Mr. Thornley received his BS degree in Chemistry
from the University of Manchester, England. The Nominating and
Corporate Governance Committee believes that
Mr. Thornleys experience as a chief financial
officer, chief operating officer and director, as well as his
experience in the semiconductor industry, position him to
contribute financial, operational and industry expertise to the
Board of Directors. The Committee believes that
Mr. Thornleys experience as chief financial officer
of a public reporting company and service on the audit committee
of public reporting companies, and experience as a director for
other private and public companies is especially valuable in his
position as the chairperson of the Companys Audit
Committee.
The
Board Of Directors Recommends
A Vote In Favor Of Each Named Nominee.
Directors
Continuing in Office Until the 2011 Annual Meeting
Anthony
J. Pantuso
Anthony J. Pantuso, age 47, has served as a director since
2004. He has been a Managing Director at NeoCarta Ventures, a
venture capital firm, since November 1999. From November 1996 to
July 1999 he served as Senior Vice President for GE Equity, a
division of GE Capital, a private equity investment company.
Prior to working at GE Equity, Mr. Pantuso served in
various positions at US WEST, Inc., MediaOne and
Ernst & Young. He currently serves on several private
company boards. Mr. Pantuso received a BS in Business
Administration from Colorado State University. The Nominating
and Corporate Governance Committee believes that
Mr. Pantusos experience in numerous senior financial
positions within large public companies as well as his
experience in the venture capital business, position him to
contribute financial, financing, and general business expertise
to the Board of Directors. The Committee believes that
Mr. Pantusos financial experience and experience as a
director for other private companies is especially valuable in
his position as a member of the Companys Audit Committee.
C.N.
Reddy
C.N. Reddy, age 54, has served as a director since 2001. He
is a co-founder of Alliance Semiconductor Corporation, which
until 2006, was a provider of semiconductor products and
solutions, and has held various positions. Since October 2000,
he has served as the Executive Vice President for Investments at
Alliance, during which time he has been responsible for
Alliances investments in private technology companies and
identifying future possible technology company acquisitions for
Alliance. From December 1997 to October 2000, he served as
Executive Vice President and Chief Operating Officer at
Alliance. From May 1993 to December 1997, he served as Senior
Vice-President Engineering and Operations at Alliance. From 1985
to May 1993, he served as Vice President Engineering at
Alliance. From February 1985 to October 2000 he also served as
Secretary of Alliance. Mr. Reddy has served as a member of
the board of directors since Alliances inception in 1985.
He was a member of the founding management team at Cypress
Semiconductor Corporation. Prior to that, he held positions at
Texas Instruments Incorporated and National Semiconductor
Corporation. Mr. Reddy is currently the Executive Vice
President of Investments and serves on the board of directors at
Alliance Semiconductor. He currently serves on
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several private company boards. Mr. Reddy received an MSEE
from Utah State University. The Nominating and Corporate
Governance Committee believes that Mr. Reddys long
experience in the semiconductor industry as well as long tenure
on our Board of Directors brings necessary industry and historic
knowledge and continuity to the board. The Committee also
believes that Mr. Reddys extensive experience in
finance and executive positions and as a past director of other
companies, as well as his semiconductor industry background,
position him to contribute financial, operational and industry
expertise to the Board of Directors.
Directors
Continuing in Office Until the 2012 Annual Meeting
Kris
Chellam
Kris Chellam, age 59, has served as a director since
December 2005. Mr. Chellam currently is an independent
consultant advising private companies. From May 2007 until April
2009, Mr. Chellam was Co-Managing Partner of the Galleon
Special Opportunities Fund, a late-stage venture capital fund.
Prior to that, Mr. Chellam served as Senior Vice President,
Global Enterprise Services at Xilinx, Inc., with responsibility
for business and strategy development, information technology,
real estate and Xilinxs Asia-Pacific headquarters in
Singapore, from July 2005, until his retirement in February
2007. Mr. Chellam joined Xilinx in July 1998 and served as
Chief Financial Officer until July 2005. Prior to Xilinx,
Mr. Chellam served as Senior Vice President, Finance and
Administration and Chief Financial Officer at Atmel Corporation
for seven years. Previously, Mr. Chellam worked for more
than 12 years at Intel Corporation in a variety of
financial management positions, in Europe and the United States.
Mr. Chellam is a member of the Institute of Chartered
Accountants in England and Wales. He completed his Cambridge
Certificate of Education in Malaysia in 1968 and obtained his
chartered accountancy degree in London in 1975. Mr. Chellam
served on the Board of Directors of @Road, Inc. from December
1999 until its acquisition by Trimble Navigation Limited in
February 2007, and chaired the audit committee of its board of
directors. The Nominating and Corporate Governance Committee
believes that Mr. Chellams experience as a chief
financial officer, executive officer and director, as well as
his career experience in the semiconductor industry, position
him to contribute financial, operational and industry expertise
to the Board of Directors. The Committee believes that
Mr. Chellams experience as chief financial officer of
a public reporting company and past service on the audit
committee of other public reporting companies, and experience
within the investment community, is especially valuable in his
position as the chairperson of the Companys Compensation
Committee as well as his position as a member of the
Companys Audit Committee.
Sanjay
Mehrotra
Sanjay Mehrotra, age 51, has served as a director since
July 2009. He co-founded SanDisk Corporation in 1988 and has
been its President since June 2006. He continues to serve as
SanDisks Chief Operating Officer, a position he has held
since 2001, and he has previously served as its Executive Vice
President, Vice President of Engineering, Vice President of
Product Development, and Director of Memory Design and Product
Engineering. Mr. Mehrotra has more than 30 years of
experience in the non-volatile semiconductor memory industry
including engineering and engineering management positions at
SanDisk, Integrated Device Technology, Inc., SEEQ Technology,
Inc., Intel Corporation and Atmel Corporation. Mr. Mehrotra
earned B.S. and M.S. degrees in Electrical Engineering and
Computer Sciences from the University of California, Berkeley.
The Nominating and Corporate Governance Committee believes that
Mr. Mehrotras experience in the semiconductor
business, as the co-founder and chief operating officer of
SanDisk, where he has been involved in growing that
companys business from formation to its current size, as
well as his experience in other engineering management
positions, has provided him with leadership skills, experience
in creating and capturing business opportunities, and experience
in scaling up a business to enable growth, which will be
valuable to the Company and the Board of Directors.
7
INFORMATION
REGARDING THE BOARD OF DIRECTORS AND CORPORATE
GOVERNANCE
Independence
of The Board of Directors
As required under the Nasdaq Stock Market (NASDAQ)
listing standards, a majority of the members of a listed
companys Board of Directors must qualify as
independent, as affirmatively determined by the
Board of Directors. The Board of Directors consults with the
Companys counsel to ensure that the Board of
Directors determinations are consistent with relevant
securities and other laws and regulations regarding the
definition of independent, including those set forth
in pertinent listing standards of the NASDAQ, as in effect from
time to time.
Consistent with these considerations, after review of all
relevant identified transactions or relationships between each
director, or any of his or her family members, and the Company,
its senior management and its independent registered public
accounting firm, the Board of Directors has affirmatively
determined that the following current five directors are
independent directors within the meaning of the applicable
NASDAQ listing
standards: Messrs. Chellam, Mehrotra, Pantuso, Reddy, and
Thornley. In making this determination, the Board of Directors
found that none of these directors or nominees for director had
a material or other disqualifying relationship with the Company.
Mr. Ali, the Companys President and Chief Executive
Officer, is not an independent director by virtue of his
employment with the Company.
Board
of Directors Leadership Structure
The Companys Board of Directors is currently chaired by
the President and Chief Executive Officer of the Company,
Mr. Ali.
The Company believes that combining the positions of Chief
Executive Officer and Chairman helps to ensure that the Board of
Directors and management act with a common purpose. In the
Companys view, separating the positions of Chief Executive
Officer and Chairman has the potential to give rise to divided
leadership, which could interfere with good decision-making or
weaken the Companys ability to develop and implement
strategy. Instead, the Company believes that combining the
positions of Chief Executive Officer and Chairman provides a
single, clear chain of command to execute the Companys
strategic initiatives and business plans. In addition, the
Company believes that a combined Chief Executive Officer and
Chairman is better positioned to act as a bridge between
management and the Board of Directors, facilitating the regular
flow of information. The Company also believes that it is
advantageous to have a Chairman with an extensive history with
and knowledge of the Company (as is the case with the
Companys Chief Executive Officer) as compared to a
relatively less informed independent Chairman.
The Board of Directors has not appointed a lead independent
director. To support the independence of the board, the Company
has adopted certain governance measures, including maintenance
of an independent majority of the board and establishment of
standing board committees composed entirely of independent
directors.
Role
of the Board of Directors in Risk Oversight
One of the Board of Directors key functions is informed
oversight of the Companys risk management process. The
Board of Directors does not have a standing risk management
committee, but rather administers this oversight function
directly through the Board of Directors as a whole, as well as
through various standing committees of the Board of Directors
that address risks inherent in their respective areas of
oversight. In particular, our Board of Directors is responsible
for monitoring and assessing strategic risk exposure. Our Audit
Committee has the responsibility to consider and discuss our
major financial risk exposures and the steps our management has
taken to monitor and control these exposures, including
guidelines and policies to govern the process by which risk
assessment and management is undertaken. The Audit Committee
also monitors compliance with legal and regulatory requirements,
in addition to oversight of the performance of our internal
audit function. Our Nominating and Corporate Governance
Committee monitors the effectiveness of our corporate governance
guidelines, including whether they are successful in preventing
illegal or improper liability-creating conduct. Our Compensation
Committee assesses and monitors whether any of our compensation
policies and programs has the potential to encourage excessive
risk-taking.
8
Meetings
of The Board of Directors
The Board of Directors met four times during the last fiscal
year. All directors except Mr. Mehrotra attended at least
75% of the aggregate number of meetings of the Board and of the
committees on which they served, held during the portion of the
last fiscal year for which they were directors or committee
members, respectively. Mr. Mehrotra joined the Board in
July 2009 and attended the regular meetings of the Board held
during the portion of the last fiscal year for which he was a
director; however, he was unable to attend one meeting of the
Compensation Committee and one meeting of the Nominating and
Corporate Governance Committee.
Information
Regarding Committees of the Board of Directors
The Board of Directors has three
committees:
an Audit Committee, a Compensation Committee and a
Nominating and Corporate Governance Committee. The following
table provides membership and meeting information for fiscal
2009 for each of the committees:
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Nominating and
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Corporate
|
Name
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Audit
|
|
Compensation
|
|
Governance
|
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Syed B. Ali
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Kris Chellam
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X
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X
|
* (1)
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John W. Jarve
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X
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* (2)
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Sanjay Mehrotra
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X
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(3)
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X
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(3)
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Anthony J. Pantuso
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X
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X
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(4)
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C.N. Reddy
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X
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X
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Anthony S. Thornley
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X
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*
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X
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*
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Total meetings in fiscal 2009
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5
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2
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1
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* |
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Committee Chairperson |
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(1) |
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Appointed to the Compensation Committee on October 23, 2009. |
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(2) |
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Resigned from the Board effective May 8, 2009. |
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(3) |
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Appointed to the Compensation Committee on July 22, 2009. |
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(4) |
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Served on the Compensation Committee until October 23, 2009. |
Below is a description of each committee of the Board of
Directors. Each of the committees has authority to engage legal
counsel or other experts or consultants, as it deems appropriate
to carry out its
responsibilities.
The Board of Directors has determined that each member of each
committee meets the applicable
NASDAQ rules and
regulations regarding independence and that each
member is free of any relationship that would impair his or her
individual exercise of independent judgment with regard to the
Company.
Audit
Committee
The Audit Committee of the Board of Directors was established in
accordance with Section 3(a)(58)(A) of the Securities
Exchange Act of 1934 to oversee the Companys corporate
accounting and financial reporting processes and audits of its
financial statements. For this purpose, the Audit Committee
performs several functions. The Audit Committee evaluates the
performance of and assesses the qualifications of the
independent registered public accounting firm; determines and
approves the engagement of the independent registered public
accounting firm; determines whether to retain or terminate the
existing independent registered public accounting firm or to
appoint and engage new independent registered public accounting
firm; reviews and approves the retention of the independent
registered public accounting firm to perform any proposed
permissible non-audit services; monitors the rotation of
partners of the independent registered public accounting firm on
the Companys audit engagement team as required by law;
review and approves or rejects transactions between the Company
and any related persons; confers with management and the
independent registered public accounting firm regarding the
effectiveness of internal controls over financial reporting;
establishes procedures, as required under applicable law, for
the receipt, retention and treatment of complaints received by
the Company regarding accounting, internal accounting controls
9
or auditing matters and the confidential and anonymous
submission by employees of concerns regarding questionable
accounting or auditing matters; and meets to review the
Companys annual audited financial statements and quarterly
financial statements with management and the independent
registered public accounting firm, including reviewing the
Companys disclosures under Managements
Discussion and Analysis of Financial Condition and Results of
Operations. The Audit Committee is composed of three
directors: Messrs. Chellam, Pantuso and Thornley. The Audit
Committee met five times during the fiscal year. The Audit
Committee has adopted a written charter that is available to
stockholders on the Companys website at
http://investor.caviumnetworks.com.
The Board of Directors reviews the NASDAQ listing standards
definition of independence for Audit Committee members on an
annual basis and has determined that all members of the
Companys Audit Committee are independent (as independence
is currently defined in Rule 5605(c)(2)(A)(i) and
(ii) of the NASDAQ
listing standards). The Board of Directors has also
determined that each of Messrs. Chellam and Thornley
qualifies as an audit committee financial expert, as
defined in applicable SEC rules. The Board of Directors made a
qualitative assessment of Mr. Chellams and
Mr. Thornleys level of knowledge and experience based
on a number of factors, including their formal education and
experiences as Chief Financial Officers for public reporting
companies.
Report of
the Audit Committee of the Board of
Directors1
The Audit Committee has reviewed and discussed the audited
financial statements for the fiscal year ended December 31,
2009 with management of the Company. The Audit Committee has
discussed with the independent registered public accounting firm
the matters required to be discussed by Statement on Auditing
Standards No. 61, as amended (AICPA, Professional
Standards, Vol. 1. AU section 380), as adopted by the
Public Company Accounting Oversight Board (PCAOB) in
Rule 3200T. The Audit Committee has also received the
written disclosures and the letter from the independent
registered public accounting firm required by applicable
requirements of the PCAOB regarding the independent registered
public accounting firms communications with the audit
committee concerning independence, and has discussed with the
independent registered public accounting firm the accounting
firms independence. Based on the foregoing, the Audit
Committee has recommended to the Board of Directors that the
audited financial statements be included in the Companys
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009.
Mr. Kris Chellam
Mr. Anthony J. Pantuso
Mr. Anthony S. Thornley (Chair)
Compensation
Committee
The Compensation Committee is currently composed of three
directors: Messrs. Chellam, Mehrotra and Reddy. All members
of the Companys Compensation Committee are independent (as
independence is currently defined in Rule 5605(a)(2) of the
NASDAQ listing
standards). The
Compensation Committee met two times during the fiscal
year. The
Compensation Committee has adopted a written charter that is
available to stockholders on the Companys website at
http://investor.caviumnetworks.com.
The Compensation Committee of the Board of Directors acts on
behalf of the Board of Directors to review, adopt and oversee
the Companys compensation strategy, policies, plans and
programs, including:
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establishment of corporate and individual performance objectives
relevant to the compensation of the Companys executive
officers, directors and other senior management and evaluation
of performance in
light of these stated objectives;
|
1 The
material in this report is not soliciting material,
is not deemed filed with the Securities and Exchange
Commission and is not to be incorporated by reference in any
filing of the Company under the Securities Act of 1933, as
amended, or the Exchange Act of 1934, as amended, whether made
before or after the date hereof and irrespective of any general
incorporation language in any such filing.
10
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review and approval of the compensation and other terms of
employment or service, including severance and
change-in-control
arrangements, of the Companys Chief Executive Officer and
the other executive officers and senior management; and
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|
administration of
the Companys equity compensation plans, pension and
profit-sharing plans,
deferred compensation plans and other similar plan and
programs.
|
Each year, the Compensation Committee reviews with management
the Companys Compensation Discussion and Analysis and
considers whether to recommend that it be included
in proxy
statements and other
filings.
Compensation
Committee Processes and Procedures
Typically, the Compensation Committee meets at least two times
annually, with greater frequency if necessary. The agenda
for each meeting is usually developed by the Chair of the
Compensation Committee, in consultation with the Chief Executive
Officer. The Compensation Committee meets regularly in executive
session. However, from time to time, various members of
management and other employees as well as outside advisors or
consultants may be invited by the Compensation Committee to make
presentations, provide financial or other background information
or advice or otherwise participate in Compensation Committee
meetings. The Chief Executive Officer may not participate in or
be present during any deliberations or determinations of the
Compensation Committee regarding his compensation. The charter
of the Compensation Committee grants the Compensation Committee
full access to all books, records, facilities and personnel of
the Company, as well as authority to obtain, at the expense of
the Company, advice and assistance from internal and external
legal, accounting or other advisors and consultants and other
external resources that the Compensation Committee considers
necessary or appropriate in the performance of its duties. In
particular, the Compensation Committee has the sole authority to
retain compensation consultants to assist in its evaluation of
executive and director compensation, including the authority to
approve the consultants reasonable fees and other
retention terms. Additionally, under its charter, the
Compensation Committee may form, and delegate authority to,
subcommittees, as appropriate.
Historically, the Compensation Committee has made most
significant adjustments to annual compensation, and equity
awards at one or more meetings held during the first half of the
year, typically during the first quarter of each year. However,
the Compensation Committee also considers matters related to
individual compensation, such as compensation for new executive
hires, as well as high-level strategic issues, such as the
efficacy of the Companys compensation strategy, potential
modifications to that strategy and new trends, plans or
approaches to compensation, at various meetings throughout the
year. For executives other than the Chief Executive Officer, the
Compensation Committee solicits and considers evaluations and
recommendations submitted to the Committee by the Chief
Executive Officer. In the case of the Chief Executive Officer,
the evaluation of his performance is conducted by the
Compensation Committee, which determines any adjustments to his
compensation as well as awards to be granted. For all executive
officers and senior management, as part of its
deliberations, the Compensation Committee may review and
consider, as appropriate, materials such as financial reports
and projections, operational data, tax and accounting
information, executive and director stock ownership information,
company stock performance data, analyses of historical executive
compensation levels and current Company-wide compensation
levels, and recommendations of a compensation consultant,
including analyses of executive officers and senior
managements compensation paid at other companies
identified by the consultant.
In January 2008, the Compensation Committee engaged an
independent compensation consultant, Compensia, Inc., to provide
the committee with an analysis of our salaries and stock
incentive awards for executive officers. At the request of the
Compensation Committee, Compensia also conducted individual
interviews with members of the Compensation Committee and senior
management to learn more about the Companys business
operations, strategy, key performance metrics and strategic
goals, as well as the labor markets in which the Company
competes. Compensia ultimately developed recommendations that
were presented to the Compensation Committee for its
consideration, and as a result, the Compensation Committee made
changes to the base salaries, bonuses plans and stock option
awards as described in greater detail in the Compensation
Discussion and Analysis section of this proxy statement. The
Compensation Committee did not engage a compensation consultant
during 2009.
11
Compensation
Committee Interlocks and Insider Participation
None of the current members of our Compensation Committee is an
officer or employee of the Company. No current member of our
Compensation Committee serves as a member of the Board of
Directors or Compensation Committee of any entity that has one
or more executive officers serving as a member of our Board of
Directors.
Compensation
Committee
Report2
The Compensation Committee has reviewed and discussed with
management the Compensation Discussion and Analysis
(CD&A) contained in this proxy statement. Based
on this review and discussion, the Compensation Committee has
recommended to the Board of Directors that the CD&A be
included in this proxy statement and incorporated into the
Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009.
Mr. Kris Chellam (Chair)
Mr. Sanjay Mehrotra
Mr. C.N. Reddy
Nominating
and Corporate Governance Committee
The Nominating and Corporate Governance Committee of the Board
of Directors is responsible for identifying, reviewing and
evaluating candidates to serve as directors of the Company
(consistent with criteria approved by the Board of Directors),
reviewing and evaluating incumbent directors, recommending to
the Board of Directors for
selection
candidates for election to the Board of Directors,
making recommendations to the Board of Directors regarding the
membership of the committees of the Board of Directors,
considering nominations and proposals submitted by Caviums
stockholders, assessing the performance and independence of the
Board of Directors, and maintaining a set of corporate
governance principles for the Company. The Nominating and
Corporate Governance Committee is currently composed of three
directors: Messrs. Mehrotra, Thornley and Reddy. All
current members of the Nominating and Corporate Governance
Committee are independent (as independence is currently defined
in Rule 5605(a)(2) of the
NASDAQ listing
standards). The Nominating and Corporate Governance Committee
met one
time during the fiscal year. The Nominating and
Corporate Governance Committee has adopted a written charter
that is available to stockholders on the Companys website
at
http://investor.caviumnetworks.com.
The Nominating and Corporate Governance Committee believes that
candidates for director should have certain minimum
qualifications, including the ability to read and understand
basic financial statements, possessing extensive business and
industry experience, understanding of public company
responsibilities, as well as high personal integrity and ethical
standards. The Nominating and Corporate Governance Committee
also considers such factors as possessing relevant expertise
upon which to be able to offer advice and guidance to
management, having sufficient time to devote to the affairs of
the Company, demonstrated excellence in his or her field, having
the ability to exercise sound business judgment and having the
commitment to rigorously represent the long-term interests of
the Companys stockholders. However, the Nominating and
Corporate Governance Committee retains the right to modify these
qualifications from time to time. Candidates for director
nominees are reviewed in the context of the current composition
of the Board of Directors, the operating requirements of the
Company and the long-term interests of stockholders. In
conducting this assessment, the Nominating and Corporate
Governance Committees policy is to consider diversity,
age, skills, and such other factors as it deems appropriate
given the current needs of the Board of Directors and the
Company, to maintain a balance of knowledge, experience and
capability. The Nominating and Corporate Governance Committee
does not assign specific weights to particular factors and no
particular factor is necessarily applicable to all prospective
nominees. As part of the Board of Directors periodic
self-assessment process, the Board of Directors considers
whether it would be desirable for particular characteristics,
experiences and skills to be represented on the Board of
Directors to a greater degree. In
2 The
material in this report is not soliciting material,
is furnished to, but not deemed filed with, the
Commission and is not deemed to be incorporated by reference in
any filing of the Company under the Securities Act or the
Exchange Act, other than the Companys Annual Report on
Form 10-K,
where it shall be deemed to be furnished, whether
made before or after the date hereof and irrespective of any
general incorporation language in any such filing.
12
the case of incumbent directors whose terms of office are set to
expire, the Nominating and Corporate Governance Committee
reviews these directors overall service to the Company
during their terms, including the number of meetings attended,
level of participation, quality of performance, and any other
relationships and transactions that might impair the
directors independence.
In the case of new director candidates, the Nominating and
Corporate Governance Committee also determines whether the
nominee is independent for
NASDAQ
purposes, which determination is based upon
applicable NASDAQ listing standards, applicable SEC rules and
regulations and the advice of counsel, if necessary. The
Nominating and Corporate Governance Committee then uses its
network of contacts to compile a list of potential candidates,
but may also engage, if it deems appropriate, a professional
search firm. The Nominating and Corporate Governance Committee
conducts any appropriate and necessary inquiries into the
backgrounds and qualifications of possible candidates after
considering the function and needs of the Board of Directors.
The Nominating and Corporate Governance Committee meets to
discuss and consider the candidates qualifications and
then selects a nominee for recommendation to the Board of
Directors by majority vote.
The Nominating and Corporate Governance Committee will consider
director candidates recommended by stockholders. The Nominating
and Corporate Governance Committee does not intend to alter the
manner in which it evaluates candidates, including the minimum
criteria set forth above, based on whether or not the candidate
was recommended by a stockholder. Stockholders who wish to
recommend individuals for consideration by the Nominating and
Corporate Governance Committee to become nominees for election
to the Board of Directors may do so by delivering a written
recommendation to the Nominating and Corporate Governance
Committee at the following address: 805 East Middlefield Road,
Mountain View, CA 94043,
at least 120 days prior to the anniversary date of
the mailing of the Companys proxy statement for the last
Annual Meeting of
Stockholders.
Submissions must include the full name of the proposed
nominee, a description of the proposed nominees business
experience for at least the previous five years, complete
biographical information, a description of the proposed
nominees qualifications as a director and a representation
that the nominating stockholder is a beneficial or record holder
of the Companys stock and has been a holder for at least
one year. Any such submission must be accompanied by the written
consent of the proposed nominee to be named as a nominee and to
serve as a director if elected.
Stockholder
Communications With The Board Of Directors
Historically, the Company has not provided a formal process
related to stockholder communications with the Board of
Directors. Nevertheless, every effort has been made to ensure
that the views of stockholders are heard by the Board of
Directors or individual directors, as applicable, and that
appropriate responses are provided to stockholders in a timely
manner.
Code
Of Ethics
The Company has adopted the Cavium Networks, Inc. Code of
Business Ethics and Conduct, or Code of Ethics, that applies to
all employees, directors and consultants. The Code of Ethics is
available on the Companys website at
http://investor.caviumnetworks.com.
If the Company makes any substantive amendments to the
Code of Ethics or grants any waiver from a provision of the Code
of Ethics to any executive officer or director, the Company will
promptly disclose the nature of the amendment or waiver on its
website.
Proposal 2
Ratification of
Selection of Independent Registered Public Accounting
Firm
The Audit Committee of the Board of Directors has selected
PricewaterhouseCoopers LLP as the Companys independent
registered public accounting firm for the fiscal year ending
December 31, 2010 and has further directed that management
submit the selection of independent registered public accounting
firm for ratification by the stockholders at the annual meeting.
PricewaterhouseCoopers LLP has audited the Companys
financial statements since 2000. Representatives of
PricewaterhouseCoopers LLP are expected to be present at the
Annual Meeting. They will have an opportunity to make a
statement if they so desire and will be available to respond to
appropriate questions.
13
Neither the Companys Bylaws nor other governing documents
or law require stockholder ratification of the selection of
PricewaterhouseCoopers LLP as the Companys independent
registered public accounting firm. However, the Audit Committee
of the Board of Directors is submitting the selection of
PricewaterhouseCoopers LLP to the stockholders for
ratification as a matter of good corporate practice. If the
stockholders fail to ratify the selection, the Audit Committee
of the Board of Directors will reconsider whether or not to
retain that firm. Even if the selection is ratified, the Audit
Committee of the Board of Directors in its discretion may direct
the appointment of different independent registered public
accounting firm at any time during the year if they determine
that such a change would be in the best interests of the Company
and its stockholders.
The affirmative vote of the holders of a majority of the shares
present in person or represented by proxy and entitled to vote
at the annual meeting will be required to ratify the selection
of PricewaterhouseCoopers LLP. Abstentions will be counted
toward the tabulation of votes cast on proposals presented to
the stockholders and will have the same effect as negative
votes. Broker non-votes are counted towards a quorum, but are
not counted for any purpose in determining whether this matter
has been approved.
Principal
Accountant Fees and Services
In connection with the audit of the 2009 financial statements,
the Company entered into an engagement agreement with
PricewaterhouseCoopers LLP which sets forth the terms by which
PricewaterhouseCoopers LLP will perform audit services for the
Company.
The following table represents aggregate fees billed to the
Company for the fiscal years ended December 31, 2009 and
2008, respectively, by PricewaterhouseCoopers LLP, the
Companys principal accountant.
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Fiscal Year Ended
|
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December 31,
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2009
|
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2008
|
|
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($)
|
|
($)
|
|
|
(In thousands)
|
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Audit Fees(1)
|
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1,019.0
|
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|
1,080.1
|
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Audit-related Fees(2)
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50.5
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Tax Fees(3)
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60.0
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30.0
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Total Fees
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|
1,129.5
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1,110.1
|
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(1) |
|
Audit Fees consist of fees incurred for professional services
rendered for the audit of our annual consolidated financial
statements, review of our quarterly consolidated financial
statements, other services normally provided by
PricewaterhouseCoopers LLP in connection with regulatory
filings, and for the audit of the effectiveness of our internal
control over financial reporting. |
|
(2) |
|
Audit-related fees consist of fees incurred for due diligence
related to the acquisition of MontaVista Software, Inc. |
|
(3) |
|
Tax Fees for the years ended December 31, 2009 and
December 31, 2008 were for services related to tax
compliance. |
All fees described above were approved by the Audit Committee.
Pre-Approval
Policies and
Procedures.
The Audit Committee has adopted a policy and procedures for the
pre-approval of audit and non-audit services rendered by the
Companys independent registered public accounting firm,
PricewaterhouseCoopers LLP. The policy generally pre-approves
specified services in the defined categories of audit services,
audit-related services and tax services up to specified amounts.
Pre-approval may also be given as part of the Audit
Committees approval of the scope of the engagement of the
independent registered public accounting firm or on an
individual, explicit,
case-by-case
basis before the independent registered public accounting firm
is engaged to provide each service. The pre-approval of services
may be delegated to one or more of the Audit Committees
members, but the decision must be reported to the full Audit
Committee at its next scheduled meeting.
14
The Audit Committee has determined that the rendering of the
services other than audit services by PricewaterhouseCoopers LLP
is compatible with maintaining the principal accountants
independence.
The
Board Of Directors Recommends
A Vote In Favor Of
Proposal 2.
Security
Ownership of
Certain Beneficial Owners and Management
The following table sets forth certain information regarding the
ownership of the Companys common stock as of March 1,
2010 by: (i) each director and nominee for director;
(ii) each of the executive officers named in the Summary
Compensation Table; (iii) all executive officers and
directors of the Company as a group; and (iv) all those
known by the Company to be beneficial owners of more than five
percent of its common stock.
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Beneficial Ownership(1)
|
Beneficial Owner
|
|
Number of Shares
|
|
Percent of Total
|
|
FMR LLC(2)
|
|
|
2,173,766
|
|
|
|
4.97
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%
|
Syed B. Ali(3)
|
|
|
2,466,707
|
|
|
|
5.64
|
%
|
Arthur D. Chadwick(4)
|
|
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268,332
|
|
|
|
*
|
|
Anil Jain(5)
|
|
|
451,916
|
|
|
|
1.03
|
%
|
Rajiv Khemani(6)
|
|
|
241,895
|
|
|
|
*
|
|
Sandeep Vij(7)
|
|
|
122,395
|
|
|
|
*
|
|
Kris Chellam(8)
|
|
|
90,364
|
|
|
|
*
|
|
Sanjay Mehrotra(9)
|
|
|
9,375
|
|
|
|
*
|
|
Anthony Pantuso(10)
|
|
|
1,602,352
|
|
|
|
3.66
|
%
|
C.N. Reddy(11)
|
|
|
285,633
|
|
|
|
*
|
|
Anthony Thornley(12)
|
|
|
37,239
|
|
|
|
*
|
|
All executive officers and directors as a group
(10 persons)(13)
|
|
|
5,576,208
|
|
|
|
12.74
|
%
|
|
|
|
* |
|
Less than one percent. |
|
(1) |
|
This table is based upon information supplied by officers,
directors, principal stockholders and Schedules 13G filed with
the SEC. Unless otherwise indicated in the footnotes to this
table and subject to community property laws where applicable,
the Company believes that each of the stockholders named in this
table has sole voting and investment power with respect to the
shares indicated as beneficially owned. Applicable percentages
are based on 43,762,011 shares outstanding on March 1,
2010, adjusted as required by rules promulgated by the SEC. |
|
(2) |
|
Consists of (a) 1,949,206 shares owned by Fidelity
Management & Research Company (Fidelity),
which is a wholly owned subsidiary of FMR LLC
(b) 206,760 shares owned by Strategic Advisers, Inc.
(Strategic), which is a wholly-owned subsidiary of
FMR LLC and (c) 17,800 shares owned by Pyramis Global
Advisors Trust Company (Pyramis), which is an
indirect wholly owned subsidiary of FMR LLC. Edward C. Johnson
3rd is the Chairman of FMR LLC. Mr. Johnson and FMR LLC,
through its control of Fidelity, has (a) sole dispositive
power over 1,949,206 shares and (b) sole voting power
over none of the shares held by Fidelity. Mr. Johnson and
FMR LLC, through its control of Pyramis, has (a) sole
dispositive power over 17,800 shares and (b) sole
voting power over none of the shares held by the institutional
accounts managed by Pyramis. The address for FMR LLC is 82
Devonshire Street, Boston, MA 02109. |
|
(3) |
|
Includes (a) 1,588,062 shares held by Mr. Ali and
(b) 878,645 shares that Mr. Ali has a right to
acquire within 60 days of March 1, 2010 pursuant to
outstanding options, of which 846,561 shares would be
vested. |
|
(4) |
|
Consists of (a) 23,126 shares held by
Mr. Chadwick, 11,876 shares of which remain subject to
a repurchase option held by the Company,
(b) 194,374 shares held by The Chadwick Living Trust,
Arthur D. Chadwick and Farah Subedar, Trustees, U.A DTD
05/24/2000 and (c) 50,832 shares that
Mr. Chadwick has a right to acquire within 60 days of
March 1, 2010 pursuant to outstanding options, of which
50,832 shares would be vested. |
15
|
|
|
(5) |
|
Includes (a) 161,500 shares held by Mr. Jain,
(b) 75,000 shares held by the Jain Family
Trust Dated 2/27/07, a trust for the benefit of
Mr. Jains children, and (c) 215,416 shares
that Mr. Jain has a right to acquire within 60 days of
March 1, 2010 pursuant to outstanding options, of which
205,561 shares would be vested. |
|
(6) |
|
Includes (a) 152,082 shares held by Mr. Khemani
and (b) 89,813 shares that Mr. Khemani has a
right to acquire within 60 days of March 1, 2010
pursuant to outstanding options, of which 80,646 shares
would be vested. |
|
(7) |
|
Includes (a) 93,750 shares held by Mr. Vij and
(b) 28,645 shares that Mr. Vij has a right to
acquire within 60 days of March 1, 2010 pursuant to
outstanding options, of which 28,645 shares would be vested. |
|
(8) |
|
Includes (a) 75,000 shares held by The Chellam Family
Trust dtd 1/28/88, of which Mr. Chellam is a co-trustee,
and (b) 15,364 shares that Mr. Chellam has a
right to acquire within 60 days of March 1, 2010
pursuant to outstanding options, of which 15,364 shares
would be vested. |
|
(9) |
|
Includes 9,375 shares that Mr. Mehrotra has a right to
acquire within 60 days of March 1, 2010 pursuant to
outstanding options, of which 9,375 shares would be vested. |
|
(10) |
|
Consists of (a) 1,433,916 shares held by NeoCarta
Ventures, L.P., (b) 159,322 shares held by NeoCarta
Scout Fund, L.L.C., and (c) 9,114 shares that Anthony
Pantuso has a right to acquire within 60 days of
March 1, 2010 pursuant to outstanding options, of which
9,114 shares would be vested. Mr. Pantuso, one of our
directors, is a managing director of NeoCarta Associates, LLC,
which is the general partner of NeoCarta Ventures, L.P. and the
manager of NeoCarta Scout Fund, L.L.C. Mr. Pantuso may be
deemed to share dispositive and voting power over these shares,
which are, or may be, deemed to be beneficially owned by
NeoCarta Ventures, L.P. and NeoCarta Scout Fund, L.L.C.
Mr. Pantuso may be deemed to have an indirect pecuniary
interest in an indeterminate portion of the shares held by
NeoCarta Ventures, L.P. and NeoCarta Scout Fund, L.L.C.
Mr. Pantuso disclaims beneficial ownership of these shares,
except to the extent of his pecuniary interest therein. |
|
(11) |
|
Consists of (a) 16,372 shares held by Solar Venture
Partners, LP, (b) 171,207 shares held by Scenic
Investments L.P., (c) 86,207 shares held by Scenic
Capital, (d) 2,733 shares held directly by C.N. Reddy,
and (e) 9,114 shares that Mr. Reddy has a right
to acquire within 60 days of March 1, 2010 pursuant to
outstanding options, of which 9,114 shares would be vested.
C.N. Reddy, one of our directors, is one of the general partners
of Solar Venture Partners, LP, one of the general partners of
Scenic Investments, L.P. and the general partner of Scenic
Capital. Mr. Reddy may be deemed to share voting and
investment power over these shares. Mr. Reddy disclaims
beneficial ownership of these shares except to the extent of his
proportionate pecuniary interest in them. |
|
(12) |
|
Includes (a) 25,000 shares held by Mr. Thornley,
3,646 shares of which remain subject to a repurchase option
held by the Company and (b) 12,239 shares that
Mr. Thornley has a right to acquire within 60 days of
March 1, 2010 pursuant to outstanding options, of which
11,588 shares would be vested. |
|
(13) |
|
Includes an aggregate of 1,318,557 shares that our
directors and named executive officers have a right to acquire
within 60 days of March 1, 2010 pursuant to
outstanding options. |
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the
Companys directors and executive officers, and persons who
own more than ten percent of a registered class of the
Companys equity securities, to file with the SEC initial
reports of ownership and reports of changes in ownership of
common stock and other equity securities of the Company.
Officers, directors and greater than ten percent stockholders
are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
To the Companys knowledge, based solely on a review of the
copies of such reports furnished to the Company and written
representations that no other reports were required, during the
fiscal year ended December 31, 2009, all Section 16(a)
filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
16
Equity
Compensation Plan Information
The following table provides certain information with respect to
all of the Companys equity compensation plans in effect as
of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available
|
|
|
|
|
|
|
|
|
|
for Future Issuance
|
|
|
|
Number of Securities
|
|
|
Weighted Average
|
|
|
Under Equity
|
|
|
|
to be Issued upon
|
|
|
Exercise Price of
|
|
|
Compensation Plans
|
|
|
|
Exercise of Outstanding
|
|
|
Outstanding Options,
|
|
|
(Excluding Securities
|
|
Plan Category
|
|
Options, Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Reflected in Column(a)
|
|
|
Equity compensation plans approved by security holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 Stock Incentive Plan(1)
|
|
|
2,706,223
|
|
|
$
|
2.81
|
|
|
|
449,808
|
|
2007 Equity Incentive Plan(2)
|
|
|
5,705,410
|
|
|
$
|
11.72
|
|
|
|
3,023,692
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL:
|
|
|
8,411,633
|
|
|
$
|
8.85
|
|
|
|
3,473,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In February 2001, we adopted the 2001 Stock Incentive Plan, or
2001 Plan. A total of 10,345,979 shares of common stock are
reserved for issuance under the 2001 Plan. As a result of our
initial public offering and the adoption of the 2007 Equity
Incentive Plan, the Company no longer grants awards under the
2001 Plan; however, all outstanding options continue to be
governed by their existing terms. |
|
(2) |
|
In February 2007, we adopted the 2007 Equity Incentive Plan, or
2007 Plan, which became effective in May 2007 in connection with
our initial public offering. A total of 5,000,000 shares of
common stock were initially authorized for issuance under the
2007 Incentive Plan. Our board of directors may increase the
share reserve as of each January 1, from January 1,
2008 through January 1, 2017 (each such day a
Calculation Date), by an amount determined by our
board; provided, however that the increase for any year may not
exceed the lesser of (1) 5% of the total number of shares
of our common stock outstanding on the Calculation Date or
(2) 5,000,000 shares. |
Executive
Compensation
COMPENSATION
DISCUSSION AND ANALYSIS
The following discussion and analysis of compensation
arrangements of our named executive officers for fiscal year
2009 should be read together with the compensation tables and
related disclosures set forth below. This discussion contains
forward-looking statements that are based on our current plans,
considerations, expectations and determinations regarding future
compensation programs. Actual compensation programs that we
adopt may differ materially from currently planned programs as
summarized in this discussion.
The primary objectives of the Compensation Committee of our
Board of Directors with respect to executive compensation are to
attract and retain the best possible executive talent, to tie
annual and long-term cash and stock incentives to achievement of
measurable corporate, market segment and individual performance,
to align executives incentives with stockholder value
creation, to be affordable within the context of our operating
expense model, to be fairly and equitably administered and to
reflect our values. To achieve these objectives, our
Compensation Committee implements and maintains compensation
plans that tie a substantial portion of our executives
overall compensation to our financial performance and common
stock price through the issuance of equity as a significant
component of compensation. Overall, the total compensation
opportunity is intended to create an executive compensation
program that is based on comparable public companies.
17
As we administer our compensation programs, we work to:
|
|
|
|
|
evolve and modify our programs to reflect the competitive
environment and our changing business needs;
|
|
|
|
focus on simplicity wherever possible;
|
|
|
|
openly communicate the details of our programs with our
employees and managers to ensure that our programs and their
goals are understood;
|
|
|
|
provide our managers and employees with the tools they need to
administer our compensation programs; and
|
|
|
|
consistently apply our compensation philosophy to all our
locations, although our specific programs may vary from country
to country.
|
The Compensation Committee meets regularly in executive session.
In 2009, our Chief Financial Officer also attended each meeting
of the Compensation Committee. The Chief Financial Officer was
present in order to provide information regarding new employees
for whom stock option grants were being considered.
Additionally, in the first quarter of 2009 and the first quarter
of 2010, our Chief Executive Officer attended the Compensation
Committee meeting in order to discuss overall company-wide
compensation strategy and answer any questions raised by the
Compensation Committee in regards to general employee
compensation. Our Chief Executive Officer, however, may not and
did not participate in or be present during any deliberations or
determinations of the Compensation Committee regarding his
compensation. From time to time, various other members of
management and other employees as well as outside advisors or
consultants may be invited by the Compensation Committee to make
presentations, provide financial or other background information
or advice, or otherwise participate in Compensation Committee
meetings.
Compensation
Policies
Our Compensation Committees policy is to meet on a
periodic basis at least two times per year for the purpose of
granting equity awards. Historically, during the first quarter
of each calendar year, the Compensation Committee meets in order
to review and grant equity awards to current employees, as well
as to any individuals who became employees since the
Compensation Committees last meeting. During the following
three quarters of the calendar year, equity awards are typically
granted only to new employees. The Company expects that it will
likely continue to grant equity awards to current employees on a
yearly basis. Such determination will be made by the
Compensation Committee each year. In the first quarter of each
of 2008, 2009 and 2010, the Compensation Committee awarded stock
options to almost all current employees who had been employed by
the Company for more than one year.
Historically, the Compensation Committee has made most
adjustments to annual compensation, determined equity awards and
established new performance objectives, if any, at one or more
meetings held during the first quarter of the year. However, at
various meetings throughout the year, the Compensation Committee
also considers matters related to individual compensation, such
as compensation for new executive hires, as well as high-level
strategic issues, such as the efficacy of the Companys
compensation strategy, potential modifications to that strategy
and new trends, plans or approaches to compensation. For
executives other than the Chief Executive Officer, the
Compensation Committee solicits and considers evaluations and
recommendations submitted to the Committee by the Chief
Executive Officer. In the case of the Chief Executive Officer,
the evaluation of his performance is conducted solely by the
Compensation Committee, which determines any adjustments to his
compensation as well as equity awards to be granted.
For all executive officers, as part of its deliberations, the
Compensation Committee may review and consider, as appropriate,
materials such as financial reports and projections, operational
data, tax and accounting information, executive and director
stock ownership information, Company stock performance data,
analyses of historical executive compensation levels and current
Company-wide compensation levels, and recommendations of the
Compensation Committees compensation consultant, including
analyses of executive officers compensation paid at other
companies identified by the consultant. The Compensation
Committee has not established any formal policies or guidelines
for allocating compensation between current and long-term
incentive compensation, or between cash and non-cash
compensation; however, in general the Compensation Committee
emphasizes equity
18
compensation over cash compensation in order to promote
long-term thinking, strategy, and growth. In determining the
amount and mix of compensation elements and whether each element
provides the correct incentives and rewards for performance
consistent with our short and long-term goals and objectives,
the Compensation Committee relies on its judgment about each
individual rather than adopting a formulaic approach to
compensatory decisions. In 2008, the Compensation Committee
focused on financial reports and projections, stock performance
data and analyses by Compensia, Inc. (Compensia)
when determining compensation for the executive officers.
In January 2009, the Compensation Committee considered a
recommendation from management to reduce from 2008 levels the
base salaries of Messrs. Ali, Chadwick, Jain, Khemani and
Vij, as part of our overall cost reduction efforts in response
to economic conditions in existence at the beginning of the
year. As described below, these management-recommended
reductions were approved by the Compensation Committee effective
January 1, 2009. Subsequently, in October 2009, the Board
of Directors approved the reinstatement of the base salaries of
these officers to the full amounts that were in effect prior to
the reductions. The reinstatement took effect January 1,
2010.
Compensation
Consultant
The charter of the Compensation Committee grants the
Compensation Committee full access to all books, records,
facilities and personnel of the Company, as well as authority to
obtain, at the expense of the Company, advice and assistance
from internal and external legal, accounting or other advisors
and consultants and other external resources that the
Compensation Committee considers necessary or appropriate in the
performance of its duties. In particular, the Compensation
Committee has the sole authority to retain compensation
consultants to assist in its evaluation of executive and
director compensation, including the authority to approve the
consultants reasonable fees and other retention terms.
In January 2008, the Compensation Committee engaged an
independent compensation consultant, Compensia to provide the
Compensation Committee with an analysis of our salaries and
stock incentive awards for executive officers. At the request of
the Compensation Committee, Compensia also conducted individual
interviews with members of the Compensation Committee and senior
management to learn more about the Companys business
operations and strategy, key performance metrics and strategic
goals, as well as the labor markets in which the Company
competes. Compensia ultimately developed recommendations that
were presented to the Compensation Committee for its
consideration. While the Committee reviewed the information
provided by Compensia, as well as the survey data discussed
below, the Committee did not, as a material factor, set or
consider specific benchmarks in its compensation decisions.
In order to learn more about overall market conditions, the
Committee reviewed market data compiled by Compensia regarding a
peer group of companies that was selected based on similar
industry and market capitalization to the Company. Compensia
presented a preliminary peer group that was then revised with
the assistance of the Companys management in order to
ensure that the companies selected were in fact considered
industry peers to the Company. The final peer group consisted of
the following sixteen companies: PMC-Sierra, Atheros
Communications, Sirf Technology Holdings, Applied Micro Circuits
Corporation, Rambus, Riverbed Technology, Sonicwall, Hittite
Microwave Corporation, Aruba Networks, Netscout Systems,
Netlogic Mircrosystems, Advanced Analogic Technologies, Data
Domain, PLX Technology, Volterra Semiconductor and Exar.
Additionally, Compensia provided market data from the Radford
October 2007 Executive Compensation Survey.
Compensias analysis indicated that the Companys cash
compensation for its executive officers was below the
25th percentile as compared to the peer group. It was also
recognized that the executive officers salaries had not
been raised for four years. Additionally, Compensia found that
the Companys equity compensation for its executive
officers was generally at or above the 75th percentile as
compared to the peer group companies; however, it was also noted
that the pre-initial public offering equity holdings of the
executive officers would become fully vested over the next
several years. Based on the foregoing, Compensia recommended
eliminating the Companys short-term incentive program,
raising the executive officers salaries, and granting
equity incentive awards equal to half of those awarded in 2006.
After reviewing Compensias recommendations, the Company
decided to eliminate the short-term incentive program, increase
executive officer salaries by approximately ten percent, and
grant new stock option awards in order to strengthen long-term
compensation incentives.
19
The Compensation Committee did not engage a compensation
consultant during 2009 because the Compensation Committee
determined that no compensation consultant analysis and
compensation recommendations were needed for 2009, since the
Compensation Committee approved managements recommendation
to reduce salaries effective January 1, 2009 and the
reduction remained in effect until January 1, 2010.
Compensation
Components
Salary. Salaries for our named executive
officers are established based on the scope of their
responsibilities, taking into account competitive market
compensation paid by other companies for similar positions.
Generally, we believe that executive base salaries should be in
the range of salaries for executives in similar positions and
with similar responsibilities at comparable companies in line
with our straightforward compensation philosophy, which
emphasizes long-term compensation. Base salaries are reviewed by
our Compensation Committee annually, and adjusted from time to
time to realign salaries with market levels after taking into
account individual responsibilities, performance, experience and
cost of living adjustments, as appropriate. The Compensation
Committee neither bases its consideration on any single factor
nor does it specifically assign relative weights to factors, but
rather considers a mix of factors.
The Compensation Committee performed its annual review of the
named executive officer salaries for 2008 and after reviewing
Compensias analysis of our executive officer overall
compensation, decided to adjust the salary amounts and to
eliminate the officer bonus program effective April 1,
2008. The named executive officers salaries were
increased, effective April 1, 2008, such that
Mr. Alis yearly salary rate would be $295,000,
Mr. Chadwicks yearly salary would be $240,000,
Mr. Jains yearly salary would be $240,000 and
Mr. Khemanis yearly salary would be $275,000.
Mr. Vij joined the Company in May 2008 and his yearly
salary rate was set at $274,992. In making such salary
decisions, the Compensation Committee reviewed the information
and recommendations provided by Compensia, the historical
salaries paid to the named executive officers, and the varying
levels of responsibility and oversight held by each executive
officer. The base compensations of Mr. Ali,
Mr. Chadwick, Mr. Jain and Mr. Khemani as
reflected in the Summary Compensation Table below, are lower
than the salaries approved by the Compensation Committee for
2008 because the salary increases did not become effective until
April 1, 2008 and because some of the officers took varying
amounts of unpaid time-off during 2008.
In January 2009, as part of the Companys overall cost
reduction efforts in response to global economic conditions, the
Compensation Committee approved management-recommended
reductions in the base salaries of Messrs. Ali, Chadwick,
Jain, Khemani and Vij. Consequently, effective January 1,
2009, Mr. Alis salary for 2009 was reduced by 50% and
Messrs. Chadwicks, Jains, Khemanis and
Vijs salaries for 2009 were reduced by 25%. These
reductions were from the base salaries that became effective on
April 1, 2008.
In October 2009, the Board of Directors approved reinstatement
of the base salaries of Messrs. Ali, Chadwick, Jain,
Khemani and Vij to be effective January 1, 2010. As a
result of the reinstatement, effective January 1, 2010 the
base salaries returned to the amounts that were in effect prior
to the reductions.
Annual Bonus. In 2007, in addition to base
salaries, we awarded performance-based cash bonuses as an
additional incentive to achieve corporate goals. These cash
bonuses were intended to reward individual performance during
the year. Target bonus amounts were set biannually by the
Compensation Committee and full bonus payments were paid. In
2008, the Compensation Committee discontinued the annual bonus
program because it believed that base salaries and equity
compensation were sufficient to achieve our compensation goals
and provide both short and long-term incentives for our named
executive officers. We did not award performance-based cash
bonuses in 2009, and the Compensation Committee does not intend
to award performance-based cash bonuses in 2010.
Long-Term Incentive Program. We believe that
long-term performance is achieved through an ownership culture
that encourages long-term performance by our named executive
officers through our grants of stock-based awards. Our long-term
equity incentive compensation for our named executive officers
is currently in the form of stock options and restricted stock
units to acquire our common stock. In 2007, our Board of
Directors adopted the Cavium Networks, Inc. 2007 Equity
Incentive Plan, the 2007 Plan, which permits the grant of stock
options, stock appreciation rights, restricted stock grants or
awards, performance shares, and other stock-based awards. The
2007 Plan was established to provide our employees, including
our named executive officers, with incentives to help
20
align those employees incentives with the interests of our
stockholders. Our Compensation Committee does not apply a rigid
formula in allocating stock options to named executive officers
as a group or to any particular named executive officer.
Instead, our Compensation Committee exercises its judgment and
discretion and considers, among other things, the role and
responsibility of the named executive officer, competitive
factors, the amount of stock-based equity compensation already
held by the named executive officer, the non-equity compensation
received by the named executive officer and the total number of
options and restricted stock units to be granted to all
employees during the year. Our Compensation Committee also
considers each named executive officers unvested stock
options and restricted stock units, as we believe the vesting of
stock options and restricted stock units over time is important
to the future performance of our named executive officers. In
the past, our practice has been to review annually equity awards
to our named executive officers, and make additional awards when
appropriate. Like our other compensation components, we intend
that the annual aggregate value of long-term incentive awards
will be set in line with that of comparable companies.
Stock Options and Restricted Stock Units. In
March 2008, the Compensation Committee granted equity incentive
plan awards in the form of stock options to Messrs. Ali,
Chadwick, Jain and Khemani in connection with recommendations
from Compensia, as previously discussed.
In February 2009, the Compensation Committee granted additional
equity incentive plan awards in the form of stock options to
Messrs. Ali, Chadwick, Jain, Khemani and Vij. Each of these
option grants vests as to 12.5% on the date six months from the
vesting commencement date and 1/48th of the shares subject
to the stock option vest monthly thereafter. In the event there
is a change in control (as defined in the stock option
agreements), 100% of the stock options will immediately vest if
any of the following events occur: (i) the employee is
terminated by the Company without cause (as defined in the stock
option agreements) within 24 months following such change
in control, or (ii) the employee resigns for good reason
(as defined in the stock option agreements) within
24 months following such change in control. When making
these grants, the Compensation committee considered, among other
things, the fact that a majority of the stock options then held
by Messrs. Ali, Chadwick, Jain and Khemani would become
fully vested by 2010, and the fact that the exercise prices of
the grants made to Messrs. Ali, Chadwick, Jain, Khemani and
Vij in 2008 were greater than the then-trading price of the
Companys common stock. These grants were made to continue
to foster long-term planning and performance by aligning our
named executive officers interests with those of our
stockholders.
Our Compensation Committee did not grant restricted stock units
to any of our named executive officers in the years ended
December 31, 2009, 2008 or 2007.
In January 2010, the Board granted additional equity incentive
plan awards, in the form of both stock options and restricted
stock units, to Messrs. Ali, Chadwick, Jain and Khemani.
Each of the option grants vests as to 12.5% of the shares
subject to the stock option on the date six months from the
vesting commencement date and 1/48th of the shares subject
to the stock option vest monthly thereafter. In the event there
is a change in control (as defined in the stock option
agreements), 100% of the stock options will immediately vest if
any of the following events occur: (i) the employee is
terminated by the Company without cause (as defined in the stock
option agreements) prior to or within 24 months following
such change in control, or (ii) the employee resigns for
good reason (as defined in the stock option agreements) within
24 months following such change in control. With respect to
the restricted stock units, 25% will be issued on each of
January 30, 2011, 2012, 2013 and 2014, provided that the
officer continues to provide services to the Company on each
such date. In the event there is a change in control (as defined
in the restricted stock unit agreements), 100% of the restricted
stock units will immediately vest if any of the following events
occur: (i) the employee is terminated by the Company
without cause (as defined in the restricted stock unit
agreements) prior to or within 24 months following such
change in control, or (ii) the employee resigns for good
reason (as defined in the restricted stock unit agreements)
within 24 months following such change in control. When
making these grants, the Compensation committee considered,
among other things, the value of equity incentive awarded in the
prior year as well as the fact that the named executive officers
had taken a reduction in base salaries in 2009. These new grants
were made to continue to foster long-term planning and
performance by aligning our named executive officers
interests with those of our stockholders.
Our Compensation Committee does not time the granting of our
stock options with any favorable or unfavorable news released by
us and the proximity of the grant of any awards to an earnings
announcement or
21
other market event is coincidental. The exercise price of
options is set at the closing price of our common stock on the
date of grant.
Stock Appreciation Rights. Our 2007 Plan
authorizes us to grant stock appreciation rights. To date no
stock appreciation rights have been awarded to any of our named
executive officers. Our Compensation Committee, in its
discretion, may in the future elect to make such grants to our
named executive officers if it deems it advisable. However, the
Compensation Committee has no current plans to grant any stock
appreciation rights to our named executive officers in 2010.
Restricted Stock Grants or Awards. Our
Compensation Committee did not grant restricted stock or
restricted stock awards to any of our named executive officers
in the years ended December 31, 2009, 2008 or 2007. Our
2007 Plan authorizes restricted stock and restricted stock
awards and our Compensation Committee, in its discretion, may in
the future elect to make such grants to our named executive
officers if it deems it advisable. However, the Compensation
Committee has no current plans to grant any restricted stock
grants or awards to our named executive officers in 2010.
Stock Ownership Guidelines. While we encourage
our named executive officers to hold a significant equity
interest in the Company, we do not have specific share retention
and ownership guidelines for our named executive officers. We
may implement guidelines regarding the issuance of new stock
option awards in the future in order to assure that our officers
are appropriately incentivized.
Additional Compensation. All of our full-time
employees in the United States, including our named executive
officers, may participate in our health programs, which include
medical, dental and vision care coverage, and our 401(k) and
life insurance programs. We provide these programs to provide a
competitive benefit program for our employees.
Compensation
Policies and Practices as They Relate to Risk
Management
The compensation programs for our employees are structured in a
manner that we believe does not create risks that are reasonably
likely to have a material adverse effect on the Company. The
predominant component of our compensation structure for
executive employees is in the form of long-term equity awards
tied to the price of the Companys common stock, and
increasing levels of compensation are derived from those awards
as the stock price appreciates and stockholder value is created.
We did not award performance-based cash bonuses in 2008 or 2009,
and the Compensation Committee does not intend to award
performance-based cash bonuses in 2010. Accordingly, our overall
compensation program is structured so as to encourage long-term
growth and appreciation in the value of our business and stock
price. In addition, the increasing use of restricted stock unit
awards in lieu of option grants has reduced the risk element
associated with the equity awards. Stock option grants have a
higher risk/reward nature because they only have value to the
extent the market price of the underlying shares appreciates
over the grant date market price that serves as the exercise
price. Restricted stock units, on the other hand, continue to
provide value and serve as a meaningful retention vehicle even
in periods of declining stock prices, because there is no
exercise price or other cash consideration to be paid for the
underlying shares. Restricted stock units cover a smaller number
of shares when compared to a stock option grant with the same
grant-date fair value, and the significant downside protection
they afford lowers the overall risk profile of the total
compensation package.
Accounting
and Tax Considerations
Under ASC Topic 718, we are required to estimate and record
an expense for each award of equity compensation including stock
options and restricted stock units over the vesting period of
the award. The Compensation Committee has determined to retain
for the foreseeable future its stock option and restricted stock
unit grant program as the sole component of its long-term
compensation program.
Section 162(m) of the Internal Revenue Code of 1986 limits
our deduction for federal income tax purposes to not more than
$1.0 million of compensation paid to certain executive
officers in a calendar year. Compensation
22
above $1.0 million may be deducted if it is
performance-based compensation within the meaning of
the Code. The Compensation Committee has not yet established a
policy for determining which forms of incentive compensation
awarded to our executive officers shall be designed to qualify
as performance-based compensation. The Compensation
Committee intends to continue to evaluate the effects of the
compensation limits of Section 162(m) on any compensation
it proposes to grant, and the Compensation Committee intends to
provide future compensation in a manner consistent with the best
interests of the Company and those of our stockholders.
Summary
Compensation Table
The following table shows for the fiscal years ended
December 31, 2009, 2008 and 2007, compensation awarded to,
paid to or earned by the Companys Principal Executive
Officer, or Chief Executive Officer, Principal Financial
Officer, or Chief Financial Officer, and its three other most
highly compensated executive officers as of December 31,
2009:
Summary
Compensation Table for Fiscal 2009
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Plan
|
|
All Other
|
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Name and Principal
|
|
|
|
Salary
|
|
Bonus
|
|
Option Awards
|
|
Compensation
|
|
Compensation
|
|
|
Position
|
|
Year
|
|
($)
|
|
($)(1)
|
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($)(2)
|
|
($)
|
|
($)(3)
|
|
Total ($)
|
|
Syed B. Ali,
|
|
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2009
|
|
|
|
145,160
|
|
|
|
|
|
|
|
1,607,250
|
|
|
|
|
|
|
|
13,035
|
|
|
|
1,765,445
|
|
President and Chief
|
|
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2008
|
|
|
|
264,748
|
|
|
|
|
|
|
|
1,236,848
|
|
|
|
|
|
|
|
14,420
|
|
|
|
1,516,016
|
|
Executive Officer
|
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2007
|
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|
|
194,480
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
12,220
|
|
|
|
256,700
|
|
Arthur D. Chadwick,
|
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|
2009
|
|
|
|
153,000
|
|
|
|
|
|
|
|
455,388
|
|
|
|
|
|
|
|
12,458
|
|
|
|
620,846
|
|
Vice President of
|
|
|
2008
|
|
|
|
196,557
|
|
|
|
|
|
|
|
353,385
|
|
|
|
|
|
|
|
13,696
|
|
|
|
563,638
|
|
Finance and
|
|
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2007
|
|
|
|
182,250
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
11,834
|
|
|
|
214,084
|
|
Administration, Chief Financial Officer and Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anil K. Jain,
|
|
|
2009
|
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|
|
180,000
|
|
|
|
|
|
|
|
401,813
|
|
|
|
|
|
|
|
9,189
|
|
|
|
591,002
|
|
Corporate Vice
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|
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2008
|
|
|
|
228,619
|
|
|
|
|
|
|
|
353,385
|
|
|
|
|
|
|
|
12,948
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|
|
|
594,952
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President, IC
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|
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2007
|
|
|
|
194,480
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|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
12,609
|
|
|
|
227,089
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Engineering
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|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Rajiv Khemani,
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2009
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|
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204,663
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|
|
|
|
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|
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669,688
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|
|
|
|
|
|
|
12,742
|
|
|
|
887,093
|
|
Vice President and
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|
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2008
|
|
|
|
228,370
|
|
|
|
|
|
|
|
1,152,207
|
|
|
|
|
|
|
|
15,683
|
|
|
|
1,396,260
|
|
General Manager of
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|
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2007
|
|
|
|
187,200
|
|
|
|
35,000
|
|
|
|
|
|
|
|
|
|
|
|
11,796
|
|
|
|
233,996
|
|
Networking and Communications Division
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sandeep Vij,
|
|
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2009
|
|
|
|
198,020
|
|
|
|
|
|
|
|
669,688
|
|
|
|
|
|
|
|
13,375
|
|
|
|
881,083
|
|
Vice President and
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|
|
2008
|
|
|
|
178,309
|
|
|
|
|
|
|
|
2,292,300
|
|
|
|
|
|
|
|
10,402
|
|
|
|
2,481,011
|
|
General Manager
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2007
|
|
|
|
N/A
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|
|
N/A
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|
|
N/A
|
|
|
|
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Broadband and Consumer Division(4)
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|
|
|
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|
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(1) |
|
Bonuses listed on this table reflect the performance of the
named executive officer, named financial officer and each of the
named executive officers. However, a portion of the bonuses for
2007 were actually paid in the following calendar year. |
|
(2) |
|
The dollar amounts in this column represent the aggregate full
grant date fair value calculated in accordance with FASB ASC
Topic 718 for stock awards granted during the fiscal years ended
December 31, 2009, 2008 and 2007. Stock options are valued
using the Black Scholes option valuation model and the
assumptions outlined in Note 8 of our financial statements
included in our Annual Report on
Form 10-K
for the year ended December 31, 2009, as filed with the SEC
on March 1, 2010. |
|
(3) |
|
Includes the following payments we paid on behalf of the
executives: |
23
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Health Care
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401k Contributions
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|
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Contribution
|
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Insurance Premiums
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Made by the Company
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Other
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Total
|
Name
|
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Year
|
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($)(a)
|
|
($)(b)
|
|
($)
|
|
($)(c)
|
|
($)
|
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Syed B. Ali
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2009
|
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|
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11,931
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|
|
854
|
|
|
|
250
|
|
|
|
|
|
|
|
13,035
|
|
|
|
|
2008
|
|
|
|
11,364
|
|
|
|
1,056
|
|
|
|
2,000
|
|
|
|
|
|
|
|
14,420
|
|
|
|
|
2007
|
|
|
|
10,884
|
|
|
|
1,336
|
|
|
|
|
|
|
|
|
|
|
|
12,220
|
|
Arthur D. Chadwick
|
|
|
2009
|
|
|
|
11,931
|
|
|
|
527
|
|
|
|
|
|
|
|
|
|
|
|
12,458
|
|
|
|
|
2008
|
|
|
|
11,364
|
|
|
|
332
|
|
|
|
2,000
|
|
|
|
|
|
|
|
13,696
|
|
|
|
|
2007
|
|
|
|
10,884
|
|
|
|
950
|
|
|
|
|
|
|
|
|
|
|
|
11,834
|
|
Anil K. Jain
|
|
|
2009
|
|
|
|
7,675
|
|
|
|
1,123
|
|
|
|
391
|
|
|
|
|
|
|
|
9,189
|
|
|
|
|
2008
|
|
|
|
9,634
|
|
|
|
1,314
|
|
|
|
2,000
|
|
|
|
|
|
|
|
12,948
|
|
|
|
|
2007
|
|
|
|
10,884
|
|
|
|
1,725
|
|
|
|
|
|
|
|
|
|
|
|
12,609
|
|
Rajiv Khemani
|
|
|
2009
|
|
|
|
11,931
|
|
|
|
584
|
|
|
|
227
|
|
|
|
|
|
|
|
12,742
|
|
|
|
|
2008
|
|
|
|
11,364
|
|
|
|
319
|
|
|
|
2,000
|
|
|
|
2,000
|
|
|
|
15,683
|
|
|
|
|
2007
|
|
|
|
10,884
|
|
|
|
912
|
|
|
|
|
|
|
|
|
|
|
|
11,796
|
|
Sandeep Vij
|
|
|
2009
|
|
|
|
11,931
|
|
|
|
944
|
|
|
|
500
|
|
|
|
|
|
|
|
13,375
|
|
|
|
|
2008
|
|
|
|
7,668
|
|
|
|
734
|
|
|
|
2,000
|
|
|
|
|
|
|
|
10,402
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes medical, dental and vision insurance. |
|
(b) |
|
Includes premiums for life, accidental death and dismemberment,
long term disability and short term disability insurance. |
|
(c) |
|
Reflects a bonus awarded for the hiring by the Company of an
individual referred to the Company by Mr. Khemani. |
|
(4) |
|
Mr. Vij resigned as an employee of the Company effective
January 25, 2010. |
Grants
of Plan-Based Awards
The following table shows for the fiscal year ended
December 31, 2009, certain information regarding grants of
plan-based awards to the Named Executive Officers:
Grants
of Plan-Based Awards in Fiscal 2009
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other Option
|
|
|
|
|
|
|
|
|
Awards: Number of
|
|
Exercise or Base
|
|
Grant Date Fair
|
|
|
|
|
Securities
|
|
Price of Option
|
|
Value of
|
|
|
|
|
Underlying Options
|
|
Awards
|
|
Option Awards
|
Name
|
|
Grant Date
|
|
(#)(1)
|
|
($/Sh)
|
|
($)(2)
|
|
Syed B. Ali
|
|
|
2/6/09
|
|
|
|
300,000
|
|
|
|
10.32
|
|
|
|
1,607,250
|
|
Arthur D. Chadwick
|
|
|
2/6/09
|
|
|
|
85,000
|
|
|
|
10.32
|
|
|
|
455,388
|
|
Anil K. Jain
|
|
|
2/6/09
|
|
|
|
75,000
|
|
|
|
10.32
|
|
|
|
401,813
|
|
Rajiv Khemani
|
|
|
2/6/09
|
|
|
|
125,000
|
|
|
|
10.32
|
|
|
|
669,688
|
|
Sandeep Vij
|
|
|
2/6/09
|
|
|
|
125,000
|
|
|
|
10.32
|
|
|
|
669,688
|
|
|
|
|
(1) |
|
Represents stock options granted to our named executive officers
pursuant to the Companys 2007 Equity Incentive Plan, which
are described further in the Outstanding Equity Awards at Fiscal
Year-End Table below. |
|
(2) |
|
Represents the grant date fair value of such stock option award
as determined in accordance with FASB ASC Topic 718. Stock
options are valued using the Black Scholes option valuation
model and the assumptions outlined in Note 8 of our
financial statements included in our Annual Report on
Form 10-K
for the year ended December 31, 2009, as filed with the SEC
on March 1, 2010. |
Employee
Agreements and Potential Payments Upon Termination or Change in
Control
The following summaries set forth the employment agreements and
potential payments payable to our named executive officers upon
termination of employment or a change in control of us under
their current employment agreements and our other compensation
programs. The Compensation Committee may in its discretion
revise, amend or add to the benefits if it deems advisable. Thus
far, the Compensation Committee has only revised the
24
employment agreements of Mr. Ali, Mr. Jain and
Mr. Vij in order to ensure that the terms of such
agreements were in documentary compliance with Section 409A
of the Internal Revenue Code, as amended.
We do not currently maintain a qualified or non-qualified
defined benefit plan, nor do we currently maintain a
nonqualified defined contribution plans or other deferred
compensation plans.
We believe that the severance benefits are appropriate and
provide us with greater flexibility to make changes in our
executive management if such changes are in the
stockholders best interests. This flexibility is provided
by already having in place certain mutually agreed upon
severance packages such that parties are aware of and have
agreed upon the payments that would occur upon various
termination events. In addition to the potential payments set
forth below, each of the named executive officers, as employees,
may be entitled to certain benefits under the 2007 Equity
Incentive Plan relating to a change in control or other
corporate transaction.
Syed B. Ali. In January 2001, we entered into
an employment agreement with Mr. Ali, our President and
Chief Executive Officer. In December 2008, we entered into an
amendment to such employment agreement in order to comply with
the requirements of Section 409A of the Internal Revenue
Code of 1986, as amended. Mr. Alis agreement provides
that he is an at-will employee and his employment may be
terminated at any time by us or Mr. Ali. If we terminate
Mr. Alis employment without cause (as defined in his
employment agreement) or Mr. Ali is constructively
terminated, and Mr. Ali executes a release of claims
against the Company, Mr. Ali will be entitled to receive
$14,583 (less applicable withholding taxes) per month for a
period of 12 months and reimbursement for health care
continuation coverage for the same period. If, during that
twelve-month period, Mr. Ali obtains full time employment
(or its equivalent), then Mr. Alis severance payments
will be decreased by the salary or fees paid for such work (but
not decreased by more than $50,000) and his health care
continuation reimbursements will cease if he has been provided
with substantially similar coverage. For a period of eighteen
months after his termination of employment, Mr. Ali will be
subject to certain restrictions on competition with the Company
and on the solicitation of employees, customers and clients.
Mr. Ali is also eligible to participate in our general
employee benefit plans in accordance with the terms and
conditions of such plans.
Arthur D. Chadwick. In December 2004, we
entered into an employment offer letter with Mr. Chadwick,
our Vice President of Finance & Administration and
Chief Financial Officer. Mr. Chadwicks offer letter
provides that he is an at-will employee and his employment may
be terminated at any time by us or Mr. Chadwick. If we
terminate Mr. Chadwicks employment without cause (as
defined in his offer letter) or Mr. Chadwick resigns for
good reason (as defined in his offer letter), one half of his
unvested Company stock and stock options will become vested.
Additionally, Mr. Chadwicks unvested Company stock
and stock options will fully vest if we terminate
Mr. Chadwicks employment or Mr. Chadwick resigns
for good reason within three months prior to or 12 months
following a change in control (as defined in his offer letter)
or Mr. Chadwick is not offered the position of chief
financial officer of the surviving or continuing entity within
three months following the change in control. In addition, in
the event of a change in control, Mr. Chadwick has agreed
to assist the Company with the transition following such a
transaction for up to six months. Mr. Chadwick is also
eligible to participate in our general employee benefit plans in
accordance with the terms and conditions of such plans.
Anil K. Jain. In January 2001, we entered into
an employment offer letter with Mr. Jain, our Vice
President of IC Engineering. In December 2008, we entered into
an amendment to such employment offer letter in order to comply
with the requirements of Section 409A of the Internal
Revenue Code of 1986, as amended. Mr. Jains offer
letter provides that Mr. Jain is an at-will employee and
his employment may be terminated at any time by us or
Mr. Jain. If we terminate Mr. Jains employment
for any reason, Mr. Jain is entitled to receive his salary
as well as benefits for three months after termination.
Mr. Jain is also eligible to participate in our general
employee benefit plans in accordance with the terms and
conditions of such plans.
Rajiv Khemani. In May 2003, we entered into an
employment offer letter with Mr. Khemani, our Vice
President of Marketing and Sales. Mr. Khemanis offer
letter provides that Mr. Khemani is an at-will employee and
his employment may be terminated at any time by us or
Mr. Khemani. The offer letter does not provide
Mr. Khemani with any severance or change in control
benefits. Mr. Khemani is eligible to participate in our
general employee benefit plans in accordance with the terms and
conditions of such plans.
25
Sandeep Vij. In May 2008, we entered into an
employment offer letter with Mr. Vij, formerly our Vice
President of Strategic Markets and Business Development. In
December 2008, we entered into an amendment to such employment
offer letter in order to comply with the requirements of
Section 409A of the Internal Revenue Code of 1986, as
amended. Mr. Vij resigned from the Company effective
January 25, 2010. The salary for Mr. Vij per his
employment offer letter was $274,992 per year.
Mr. Vijs offer letter provided that Mr. Vij was
an at-will employee and his employment may have been terminated
at any time by us or Mr. Vij. If we had terminated
Mr. Vijs employment without cause (as defined in his
offer letter) or Mr. Vij had resigned for good reason (as
defined in his offer letter), then two-thirds of his then
unvested stock options granted pursuant to his offer letter
would have become vested, he would have received 12 months
of his salary and one hundred percent of his target yearly bonus
(if such bonus had existed), and the Company would have paid for
his health care continuation coverage for a period of
12 months; provided, that such health care continuation
payments shall have ceased if he had received comparable
benefits from a new employer. Additionally, if there had been a
change in control (as defined in his offer letter), then all of
Mr. Vijs unvested stock options granted pursuant to
his offer letter would have become vested if we had terminated
him or he had resigned for good reason within three months prior
to or 12 months following such change in control, or if he
had not been offered a similar position of responsibility with
the surviving or continuing entity within three months following
the change in control. Mr. Vij was eligible to participate
in our general employee benefit plans in accordance with the
terms and conditions of such plans.
In February 2009, the Compensation Committee granted equity
incentive plan awards to Messrs. Ali, Chadwick, Jain,
Khemani and Vij. Each of these option grants vests as to 12.5%
on the date six months from the vesting commencement date and
1/48th of the shares subject to the stock option vest
monthly thereafter. In the event there is a change in control
(as defined in the stock option agreements), 100% of the stock
options will immediately vest if any of the following events
occur: (i) the employee is terminated by the Company
without cause (as defined in the stock option agreements) within
24 months following such change in control, or
(ii) the employee resigns for good reason (as defined in
the stock option agreements) within 24 months following
such change in control.
The amount of potential compensation and benefits payable to
each named executive officer in various termination and change
in control situations has been estimated in the table below and
assumes that the event occurred on December 31, 2009, the
last business day of the Companys last fiscal year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
Acceleration of
|
|
Total
|
Named
|
|
|
|
Severance
|
|
Continuation
|
|
Vesting of Stock
|
|
Termination
|
Executive
|
|
Termination or Change
|
|
Payment
|
|
of Medical
|
|
Options
|
|
Benefits
|
Officer
|
|
in Control Event
|
|
($)
|
|
Benefits($)
|
|
($)(1)
|
|
($)
|
|
Syed B. Ali
|
|
Termination without cause or constructive termination
|
|
|
174,996
|
|
|
|
13,124
|
(2)
|
|
|
|
|
|
|
188,120
|
|
|
|
Termination without cause or resignation for good reason within
24 months following a change in control
|
|
|
174,996
|
|
|
|
13,124
|
(2)
|
|
|
3,208,625
|
|
|
|
3,396,745
|
|
Arthur D. Chadwick
|
|
Termination without cause or resignation for good reason
|
|
|
|
|
|
|
|
|
|
|
581,542
|
|
|
|
581,542
|
|
|
|
Termination without cause or resignation for good reason within
three months prior to or 12 months following a change in
control, or if he is not offered the position of chief financial
officer of the surviving or continuing entity within three
months following the change in control
|
|
|
|
|
|
|
|
|
|
|
1,163,084
|
|
|
|
1,163,084
|
|
|
|
Termination without cause or resignation for good reason more
than 12 months and less than 24 months following a
change in control
|
|
|
|
|
|
|
|
|
|
|
1,036,099
|
|
|
|
1,036,099
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
Acceleration of
|
|
Total
|
Named
|
|
|
|
Severance
|
|
Continuation
|
|
Vesting of Stock
|
|
Termination
|
Executive
|
|
Termination or Change
|
|
Payment
|
|
of Medical
|
|
Options
|
|
Benefits
|
Officer
|
|
in Control Event
|
|
($)
|
|
Benefits($)
|
|
($)(1)
|
|
($)
|
|
Anil K. Jain
|
|
Termination for any reason
|
|
|
60,000
|
|
|
|
13,124
|
|
|
|
|
|
|
|
73,124
|
|
|
|
Termination without cause or resignation for good reason within
24 months following a change in control
|
|
|
60,000
|
|
|
|
13,124
|
|
|
|
802,156
|
|
|
|
875,280
|
|
Rajiv Khemani
|
|
Termination without cause or resignation for good reason within
24 months following a change in control
|
|
|
|
|
|
|
|
|
|
|
1,336,936
|
|
|
|
1,336,936
|
|
Sandeep Vij
|
|
Termination without cause or resignation for good reason
|
|
|
274,992
|
|
|
|
2,110
|
|
|
|
258,282
|
|
|
|
535,384
|
|
|
|
Termination without cause or resignation for good reason within
three months prior to a change in control
|
|
|
274,992
|
|
|
|
2,110
|
|
|
|
387,423
|
|
|
|
664,525
|
|
|
|
Change in control, if he is not offered a similar position of
responsibility with the surviving or continuing entity within
three months following the change in control
|
|
|
|
|
|
|
|
|
|
|
387,423
|
|
|
|
387,423
|
|
|
|
Termination without cause or resignation for good reason within
12 months following a change in control
|
|
|
274,992
|
|
|
|
2,110
|
|
|
|
1,724,359
|
|
|
|
2,001,461
|
|
|
|
Termination without cause or resignation for good reason more
than 12 months and less than 24 months following a
change in control
|
|
|
274,992
|
|
|
|
2,110
|
|
|
|
1,595,218
|
|
|
|
1,872,320
|
|
|
|
|
(1) |
|
The value of stock option vesting acceleration is based on the
closing stock price of $23.83 per share for our common stock as
reported on NASDAQ on December 31, 2009 with respect to
in-the-money unvested stock option shares minus the exercise
price of the unvested option shares. |
|
(2) |
|
If, during the twelve-month period, Mr. Ali obtains full
time employment (or its equivalent), then Mr. Alis
severance payments will be decreased by the salary or fees paid
for such work (but not decreased by more than $50,000) and his
health care continuation reimbursements will cease if he is
provided with substantially similar coverage. |
Stock
Option Awards
We currently grant stock awards to executive officers under our
2007 Equity Incentive Plan, or the 2007 Plan. The 2007 Plan was
established to provide our employees with an opportunity to
participate in our long-term performance. The following is a
brief description of certain permissible terms of stock options
under the 2007 Plan:
Exercise Price. Incentive and nonstatutory
stock options are granted pursuant to stock option agreements
adopted by the plan administrator. The plan administrator
determines the exercise price for a stock option, within the
terms and conditions of the 2007 Plan, provided that the
exercise price of a stock option cannot be less than 100% of the
fair market value of our common stock on the date of grant
except in the case of certain incentive stock options.
Term. The plan administrator determines the
term of stock options granted under the 2007 Plan, up to a
maximum of seven years (except in the case of certain incentive
stock options). Unless the terms of an optionees stock
option agreement provide otherwise, if an optionees
relationship with us, or any of our affiliates, ceases for any
reason other than disability or death, the optionee may exercise
any vested stock options for a period of three
27
months following the cessation of service. If an optionees
service relationship with us, or any of our affiliates, ceases
due to disability or death (or an optionee dies within a certain
period following cessation of service), the optionee or a
beneficiary may exercise any vested stock options for a period
of 12 months following such cessation of service in the
event of disability and 18 months following the date of
death. The stock option term may be extended in the event that
exercise of the stock option following termination of service is
prohibited by applicable securities laws. In no event, however,
may a stock option be exercised beyond the expiration of its
term.
Consideration. Acceptable consideration for
the purchase of common stock issued upon the exercise of a stock
option will be determined by the plan administrator and may
include (a) cash, check, bank draft or money order,
(b) a broker-assisted cashless exercise, (c) the
tender of common stock owned by the optionee, (d) a net
exercise arrangement,
and/or
(e) other legal consideration approved by the plan
administrator.
Restriction on Transfer. Unless the plan
administrator provides otherwise, stock options generally are
not transferable except by will, the laws of descent and
distribution, or pursuant to a domestic relations order. An
optionee may designate a beneficiary, however, who may exercise
the stock option following the optionees death.
Corporate Transactions. In the event of
certain significant corporate transactions, our Board of
Directors has the discretion to take one or more of the
following actions with respect to a stock award:
(i) arrange for the surviving or acquiring corporation (or
its parent) to assume or continue the stock award or to
substitute a similar stock award for the stock award;
(ii) arrange for the assignment of any reacquisition or
repurchase rights held by us for any shares issued pursuant to
the stock award to the surviving or acquiring corporation (or
its parent); (iii) accelerate the vesting and
exercisability of the stock award, if applicable, with such
stock award terminating if not exercised (if applicable) prior
to the corporate transaction; (iv) arrange for the lapse of
any reacquisition or repurchase rights held by us with respect
to the stock award; or (v) cancel the stock award, to the
extent not vested or not exercised prior to the corporate
transaction, in exchange for such cash consideration as our
Board of Directors, in its discretion, may consider appropriate.
Our Board of Directors does not need to take the same action
with respect to all stock awards or with respect to all
participants. Other terms may be provided in individual stock
award agreements.
For purposes of the 2007 Plan, a corporate transaction will be
deemed to occur in the event of (i) a sale of all or
substantially all of our consolidated assets and the
consolidated assets of our subsidiaries; (ii) a sale of at
least 90% of our outstanding securities; (iii) the
consummation of a merger or consolidation in which we are not
the surviving corporation; or (iv) the consummation of a
merger or consolidation in which we are the surviving
corporation but the shares of our outstanding common stock are
converted into other property by virtue of the transaction.
Prior to May 2007, we granted options under our 2001 Stock
Incentive Plan. The 2001 Stock Incentive Plan was terminated in
connection with our initial public offering so that no further
awards may be granted under the plan. Although the 2001 Stock
Incentive Plan has terminated, all outstanding options will
continue to be governed by their existing terms.
401(k)
Plan
We maintain a defined contribution employee retirement plan, or
401(k) plan, for our employees. Our named executive officers are
also eligible to participate in the 401(k) plan on the same
basis as our other employees. The 401(k) plan is intended to
qualify as a tax-qualified plan under Section 401(k) of the
Internal Revenue Code. The 401(k) plan provides that each
participant may contribute up to 15% of his or her pre-tax
compensation, up to the statutory limit, which was $15,500 for
calendar year 2008. Participants that are 50 years or older
can also make
catch-up
contributions, which in calendar year 2008 could be up to an
additional $5,000 above the statutory limit.
Under the 401(k) plan, each participant is fully vested in his
or her deferred salary contributions, when contributed. In 2008,
we made matching contributions equal to 50% of the employee
contribution up to a maximum matching amount of $2,000. In
January 2009, as part of the Companys overall cost
reduction efforts in response to global economic conditions, we
stopped all matching contributions to the 401(k) plan.
Contributions were resumed in January 2010. Participant
contributions are held and invested by the plans trustee.
28
Outstanding
Equity Awards at Fiscal year - end.
The following table shows for the fiscal year ended
December 31, 2009, certain information regarding
outstanding equity awards at fiscal year end for the Named
Executive Officers.
Outstanding Equity Awards At December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
|
Underlying
|
|
Underlying
|
|
Option
|
|
|
|
|
Unexercised Options
|
|
Unexercised Options
|
|
Exercise
|
|
Option
|
|
|
(#)
|
|
(#)
|
|
Price
|
|
Expiration
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
($)
|
|
Date
|
|
Syed B. Ali
|
|
|
350,000
|
(1)
|
|
|
0
|
|
|
|
1.02
|
|
|
|
8/2/2015
|
|
|
|
|
76,562
|
(2)
|
|
|
98,438
|
|
|
|
14.80
|
|
|
|
3/17/2015
|
|
|
|
|
164,062
|
(1)
|
|
|
10,938
|
|
|
|
3.04
|
|
|
|
3/22/2016
|
|
|
|
|
131,250
|
(3)
|
|
|
43,750
|
|
|
|
3.04
|
|
|
|
3/22/2016
|
|
|
|
|
62,500
|
(4)
|
|
|
237,500
|
|
|
|
10.32
|
|
|
|
2/6/2016
|
|
Arthur D. Chadwick
|
|
|
21,875
|
(2)
|
|
|
28,125
|
|
|
|
14.80
|
|
|
|
3/17/2015
|
|
|
|
|
17,708
|
(4)
|
|
|
67,292
|
|
|
|
10.32
|
|
|
|
2/6/2016
|
|
Anil K. Jain
|
|
|
60,000
|
(1)
|
|
|
0
|
|
|
|
1.02
|
|
|
|
8/2/2015
|
|
|
|
|
50,390
|
(1)
|
|
|
3,360
|
|
|
|
3.04
|
|
|
|
3/22/2016
|
|
|
|
|
40,312
|
(3)
|
|
|
13,438
|
|
|
|
3.04
|
|
|
|
3/22/2016
|
|
|
|
|
21,875
|
(2)
|
|
|
28,125
|
|
|
|
14.80
|
|
|
|
3/17/2015
|
|
|
|
|
15,625
|
(4)
|
|
|
59,375
|
|
|
|
10.32
|
|
|
|
2/6/2016
|
|
Rajiv Khemani
|
|
|
21,167
|
(2)
|
|
|
33,750
|
|
|
|
14.80
|
|
|
|
3/17/2015
|
|
|
|
|
35,937
|
(2)
|
|
|
39,063
|
|
|
|
20.33
|
|
|
|
1/18/2015
|
|
|
|
|
16,667
|
(3)
|
|
|
12,500
|
|
|
|
3.04
|
|
|
|
3/22/2016
|
|
|
|
|
8,334
|
(1)
|
|
|
3,125
|
|
|
|
3.04
|
|
|
|
3/22/2016
|
|
|
|
|
26,041
|
(4)
|
|
|
98,959
|
|
|
|
10.32
|
|
|
|
2/6/2016
|
|
Sandeep Vij
|
|
|
89,062
|
(5)
|
|
|
135,938
|
|
|
|
20.98
|
|
|
|
5/1/2015
|
|
|
|
|
26,041
|
(4)
|
|
|
98,959
|
|
|
|
10.32
|
|
|
|
2/6/2016
|
|
|
|
|
(1) |
|
The stock option was granted pursuant to our 2001 Equity
Incentive Plan and vests as to 12.5% on the date six months from
the vesting commencement date and 1/48th of the shares subject
to the stock option vest monthly thereafter. The option may also
be early exercised in which case it would remain subject to a
repurchase right in favor of the Company that would vest
according the schedule previously described. |
|
(2) |
|
The stock option was granted pursuant to our 2007 Equity
Incentive Plan and vests as to 12.5% on the date six months from
the vesting commencement date and 1/48th of the shares subject
to the stock option vest monthly thereafter. |
|
(3) |
|
The stock option was granted pursuant to our 2001 Equity
Incentive Plan and vests as to 20% on the one year anniversary
of the vesting commencement date and 1/60th of the shares
subject to the stock option vest monthly thereafter. The option
may also be early exercised in which case it would remain
subject to a repurchase right in favor of the Company that would
vest according the schedule previously described. |
|
(4) |
|
The stock option was granted pursuant to our 2007 Equity
Incentive Plan and vests as to 12.5% on the date six months from
the vesting commencement date and 1/48th of the shares subject
to the stock option vest monthly thereafter. In the event there
is a change in control (as defined in the stock option
agreements), 100% of the stock options will immediately vest if
any of the following events occur: (i) the employee is
terminated by the Company without cause (as defined in the stock
option agreements) within 24 months following such change
in control, or (ii) the employee resigns for good reason
(as defined in the stock option agreements) within
24 months following such change in control. |
|
(5) |
|
The stock option was granted pursuant to our 2007 Equity
Incentive Plan and vests monthly over four years beginning on
the vesting commencement date. The stock option is subject to
acceleration such that if we terminate Mr. Vijs
employment without cause (as defined in his offer letter) or
Mr. Vij resigns for good reason |
29
|
|
|
|
|
(as defined in his offer letter), then two-thirds of the then
unvested stock options will become vested, and if there is a
change in control (as defined in his offer letter), then all of
the unvested stock options will become vested if we terminate
him or he resigns for good reason within three months prior to
or 12 months following such change in control, or if he is
not offered a similar position of responsibility with the
surviving or continuing entity within three months following the
change in control. |
OPTION
EXERCISES AND STOCK VESTED
The following table shows for the fiscal year ended
December 31, 2009, certain information regarding option
exercises and stock vested during the last fiscal year with
respect to the Named Executive Officers:
Option
Exercises and Stock Vested in Fiscal 2009
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Number of
|
|
|
|
|
Shares
|
|
|
|
|
Acquired
|
|
Value Realized
|
|
|
on Exercise
|
|
on Exercise
|
Name
|
|
(#)
|
|
($)
|
|
Syed B. Ali
|
|
|
|
|
|
|
|
|
Arthur D. Chadwick
|
|
|
|
|
|
|
|
|
Anil K. Jain
|
|
|
30,000
|
|
|
|
619,200
|
|
Rhajiv Khemani
|
|
|
5,000
|
|
|
|
57,650
|
|
|
|
|
400
|
|
|
|
6,280
|
|
|
|
|
700
|
|
|
|
10,990
|
|
|
|
|
1,300
|
|
|
|
20,410
|
|
|
|
|
900
|
|
|
|
14,130
|
|
|
|
|
200
|
|
|
|
3,140
|
|
|
|
|
2,500
|
|
|
|
43,250
|
|
|
|
|
12,000
|
|
|
|
207,600
|
|
|
|
|
417
|
|
|
|
6,222
|
|
|
|
|
5,083
|
|
|
|
28,160
|
|
|
|
|
1,500
|
|
|
|
23,550
|
|
Sandeep Vij
|
|
|
|
|
|
|
|
|
DIRECTOR
COMPENSATION
The following table shows for the fiscal year ended
December 31, 2009 certain information with respect to the
compensation of all non-employee directors of the Company:
Director
Compensation for Fiscal 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
|
|
Option
|
|
All Other
|
|
|
|
|
Earned or Paid in Cash
|
|
Awards
|
|
Compensation
|
|
Total
|
Name
|
|
($)
|
|
($)(1)
|
|
($)
|
|
($)
|
|
Kris Chellam
|
|
|
18,000
|
|
|
|
88,631
|
(2)
|
|
|
|
|
|
|
106,631
|
|
John W. Jarve(3)
|
|
|
|
|
|
|
|
(4)
|
|
|
|
|
|
|
|
|
Sanjay Mehrotra
|
|
|
18,000
|
|
|
|
491,895
|
(5)
|
|
|
|
|
|
|
509,895
|
|
Anthony J. Pantuso
|
|
|
24,000
|
|
|
|
88,631
|
(6)
|
|
|
|
|
|
|
112,631
|
|
C.N. Reddy
|
|
|
18,000
|
|
|
|
88,631
|
(7)
|
|
|
|
|
|
|
106,631
|
|
Anthony S. Thornley
|
|
|
24,000
|
|
|
|
88,631
|
(8)
|
|
|
|
|
|
|
112,631
|
|
|
|
|
(1) |
|
The dollar amounts in this column represent the aggregate full
grant date fair value calculated in accordance with FASB ASC
Topic 718 for stock awards granted during the fiscal year ended
December 31, 2009. Stock options are valued using the Black
Scholes option valuation model and the assumptions outlined in
Note 8 of |
30
|
|
|
|
|
our financial statements included in our Annual Report on
Form 10-K
for the year ended December 31, 2009, as filed with the SEC
on March 1, 2010. |
|
(2) |
|
As of December 31, 2009, Mr. Chellam held unexercised
options to purchase 31,250 shares. |
|
(3) |
|
Served as a member of the Board until May 8, 2009. |
|
(4) |
|
As of December 31, 2009, Mr. Jarve held no unexercised
options. |
|
(5) |
|
As of December 31, 2009, Mr. Mehrotra held unexercised
options to purchase 50,000 shares. |
|
(6) |
|
As of December 31, 2009, Mr. Pantuso held unexercised
options to purchase 25,000 shares. |
|
(7) |
|
As of December 31, 2009, Mr. Reddy held unexercised
options to purchase 25,000 shares. |
|
(8) |
|
As of December 31, 2009, Mr. Thornley held unexercised
options to purchase 28,125 shares. |
Mr. Syed Ali, our one employee director, did not receive
any cash compensation for his services as a member of our Board
of Directors in 2009.
Our non-employee directors received, in 2009, cash compensation
for their services as non-employee members of the Board of
Directors in the following amounts: $12,000 per year for service
on the Board of Directors, plus $6,000 per year for service on
the audit committee and $6,000 per year for service on the
Compensation Committee. In addition, the chairperson of the
audit committee received an additional $6,000. This cash
compensation was paid on, or soon thereafter, the date of our
2009 annual stockholders meeting. We plan to continue
these rates of cash compensation in 2010. Additionally, we have
a policy of reimbursing directors for travel, lodging and other
reasonable expenses incurred in connection with their attendance
at Board of Directors or committee meetings.
Each individual who is elected or appointed as a non-employee
director of the Board of Directors will automatically be granted
a stock option to purchase 50,000 shares of our common
stock. All of the shares subject to each such grant vest in
equal monthly installments over four years. The vesting
commencement date of these stock options will occur when the
director first takes office. At the time of each of our annual
stockholders meetings, beginning in 2008, each
non-employee director who has served for at least the preceding
six months and who will continue to be a director after that
meeting will automatically be granted a non-statutory stock
option on such date to purchase 12,500 shares of our common
stock that will vest in equal monthly installments over four
years. All these stock options will be granted with an exercise
price equal to the fair market value of our common stock on the
date of the grant. In 2009, the following directors received
such stock option grants: Mr. C.N. Reddy,
Mr. Anthony Pantuso, Mr. Anthony Thornley, and
Mr. Kris Chellam.
Our intention is to make such grants to all non-employee
directors at the 2010 Annual Stockholders Meeting. We make
such grants because we believe that long-term performance from
our non-employee directors should be encouraged and rewarded
through a culture of stock option ownership. Therefore, our
long-term equity incentive compensation for non-employee
directors is currently exclusively in the form of stock options
to acquire our common stock. The 2007 Plan was established to
provide our employees, named executive officers, and our
non-employee directors with equity incentives to help align
their incentives with the interests of our stockholders.
Transactions
With Related Persons
CODE OF
CONDUCT POLICY AND PROCEDURES
In 2007, the Company adopted a written Code of Business Ethics
and Conduct, or Code of Ethics, that sets forth the
Companys policies and procedures regarding the
identification, review, consideration and approval or
ratification of related person transactions with employees,
directors and consultants. Pursuant to our written Code of
Ethics, our executive officers and directors are not permitted
to enter into such related person transactions without the
approval of either our Audit Committee or our Board of
Directors. Our Audit Committee
and/or Board
of Directors shall approve only those related person
transactions that, in light of known circumstances, are in, or
are not inconsistent with, our best interests, which our Audit
Committee or Board of Directors determines in the good faith
exercise of its discretion. Our Code of Ethics also prohibits
employees from entering into transactions that are a
31
conflict of interest, such as those in which a
persons private interest interferes in any way with the
Companys interests, without the approval of our designated
Compliance Officer.
CERTAIN
RELATED-PERSON TRANSACTIONS
The Company has entered into indemnity agreements with certain
officers and directors which provide, among other things, that
the Company will indemnify such officer or director, under the
circumstances and to the extent provided for therein, for
expenses, damages, judgments, fines and settlements he or she
may be required to pay in actions or proceedings which he or she
is or may be made a party by reason of his or her position as a
director, officer or other agent of the Company, and otherwise
to the fullest extent permitted under Delaware law and the
Companys Bylaws.
Householding
of Proxy Materials
The SEC has adopted rules that permit companies and
intermediaries (e.g., brokers) to satisfy the delivery
requirements for Notices of Internet Availability of Proxy
Materials or other Annual Meeting materials with respect to two
or more stockholders sharing the same address by delivering a
single Notice of Internet Availability of Proxy Materials or
other Annual Meeting materials addressed to those stockholders.
This process, which is commonly referred to as
householding, potentially means extra convenience
for stockholders and cost savings for companies.
This year, a number of brokers with account holders who are
Cavium Networks. Inc. stockholders will be
householding the Companys proxy materials. A
single Notice of Internet Availability of Proxy Materials will
be delivered to multiple stockholders sharing an address unless
contrary instructions have been received from the affected
stockholders. Once you have received notice from your broker
that they will be householding communications to
your address, householding will continue until you
are notified otherwise or until you revoke your consent. If, at
any time, you no longer wish to participate in
householding and would prefer to receive a separate
Notice of Internet Availability of Proxy Materials , please
notify your broker. Direct your written request to Cavium
Networks, Inc., Arthur D. Chadwick, Chief Financial Officer,
Cavium Networks, Inc., 805 East Middlefield Road, Mountain View,
CA 94043.
Stockholders who currently receive multiple copies of the
Notice of Internet Availability of Proxy Materials at their
addresses and would like to request householding of
their communications should contact their brokers.
32
Other
Matters
The Board of Directors knows of no other matters that will be
presented for consideration at the Annual Meeting. If any other
matters are properly brought before the meeting, it is the
intention of the persons named in the accompanying proxy to vote
on such matters in accordance with their best judgment.
By Order of the Board of Directors
Arthur D. Chadwick
Secretary
March 26, 2010
A copy of the Companys Annual Report to the Securities and
Exchange Commission on
Form 10-K
for the fiscal year ended December 31, 2009 is available
without charge upon written request to: Corporate Secretary,
Cavium Networks, Inc., 805 East Middlefield Road, Mountain View,
CA 94043.
33
Fulfillment PX 71997 PX 71995 FOLD AND DETACH HERE YOUR VOTE IS IMPORTANT. PLEASE VOTE
TODAY. We encourage you to take advantage of Internet or telephone voting. Both are available
24 hours a day, 7 days a week. Internet and telephone voting is available through 11:59 PM
Eastern Time the day prior to the Annual Meeting day. OR If you vote your proxy by Internet
or by telephone, you do NOT need to mail back your proxy card. To vote by mail, mark, sign
and date your proxy card and return it in the enclosed postage-paid envelope. Your Internet
or telephone vote authorizes the named proxies to vote your shares in the same manner as if
you marked, signed and returned your proxy card. INTERNET http://www.proxyvoting.com/cavm Use
the Internet to vote your proxy. Have your proxy card in hand when you access the web site.
TELEPHONE 1-866-540-5760 Use any touch-tone telephone to vote your proxy. Have your proxy
card in hand when you call. CAVIUM NETWORKS, INC. Mark Here for Address Change or Comments
SEE REVERSE Please mark your votes as indicated in this example X FOR AGAINST ABSTAIN The
Board of Directors recommends a vote FOR Items 1 and 2. Signature Signature Date NOTE: Please
sign as name appears hereon. Joint owners should each sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such. THIS PROXY WILL
BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE VOTED FOR THE PROPOSALS THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. FOR ALL WITHHOLD FOR ALL ITEM
1Election of Director for a three-year term expiring at the 2013 Annual Meeting: Nominee:
01 Syed B. Ali 02 Anthony S. Thornley If you plan to attend the Annual Meeting, please mark
the WILL ATTEND box WILL ATTEND ITEM 2To ratify the appointment of PricewaterhouseCoopers
LLP as the independent registered public accounting firm of Cavium Networks, Inc. for its
fiscal year ending December 31, 2010. *EXCEPTIONS (INSTRUCTIONS: To withhold authority to
vote for any individual nominee, mark the Exceptions box above and write that nominees
name in the space provided below.) *Exceptions Fulfillment PX 71997 PX 71995 |
You can now access your Cavium Networks, Inc. account online. Access your Cavium Networks,
Inc. account online via Investor ServiceDirect® (ISD). BNY Mellon Shareowner Services, the
transfer agent for Cavium Networks, Inc., now makes it easy and convenient to get current
information on your shareholder account. View account status View payment history for
dividends View certificate history Make address changes View book-entry information
Obtain a duplicate 1099 tax form Visit us on the web at
http://www.bnymellon.com/shareowner/isd For Technical Assistance Call 1-877-978-7778 between
9am-7pm Monday-Friday Eastern Time Investor ServiceDirect ® Available 24 hours per day, 7
days per week TOLL FREE NUMBER: 1-800-370-1163 Important notice regarding the Internet
availability of proxy materials for the Annual Meeting of shareholders. The Proxy Statement
and the 2009 Annual Report are available at: http://www.proxyvoting.com/cavm PROXY THIS PROXY
IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CAVIUM NETWORKS, INC. ANNUAL MEETING OF
STOCKHOLDERS MAY 7, 2010 The undersigned hereby appoints Syed B. Ali and Arthur D.
Chadwick, and each of them, with power to act without the other and with power of
substitution, as proxies and attorneys-in-fact and hereby authorizes them to represent and
vote, as provided on the other side, all the shares of Cavium Networks, Inc. Common Stock
that the undersigned is entitled to vote, and, in their discretion, to vote upon such other
business as may properly come before the Annual Meeting of Stockholders of the Company to be
held May 7, 2010 (the Annual Meeting) or any adjournment thereof, with all powers that the
undersigned would possess if present at the Annual Meeting. Address Change/Comments (Mark the
corresponding box on the reverse side) BNY MELLON SHAREOWNER SERVICES P.O. BOX 3550 SOUTH
HACKENSACK, NJ 07606-9250 Choose MLinkSM for fast, easy and secure 24/7 online access to your
future proxy materials, investment plan statements, tax documents and more. Simply log on to
Investor ServiceDirect® at www.bnymellon.com/shareowner/isd where step-by-step instructions
will prompt you through enrollment. FOLD AND DETACH HERE (Continued and to be marked, dated
and signed, on the other side) |