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NetApp, Inc. DEF 14A 2008

Documents found in this filing:

  1. Def 14A
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  3. Graphic
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def14a
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SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934

Filed by the Registrant [X]

Filed by a Party other than the Registrant [   ]

Check the appropriate box:

     
[   ]   Preliminary Proxy Statement
[X]   Definitive Proxy Statement
[   ]   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[   ]   Definitive Additional Materials
[   ]   Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12

 

NetApp, Inc.


(Name of Registrant as Specified In Its Charter)

 


(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

         
[X]   Fee not required.
[   ]   Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
    (1)   Title of each class of securities to which transaction applies:


    (2)   Aggregate number of securities to which transaction applies:


    (3)   Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):


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[   ]   Fee paid previously with preliminary materials.
[   ]   Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
    (1)   Amount Previously Paid:


    (2)   Form, Schedule or Registration Statement No.:


    (3)   Filing Party:


    (4)   Date Filed:



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NETAPP LOGO
495 East Java Drive
Sunnyvale, California 94089
 
 
 
 
Dear NetApp Stockholder:
 
NetApp, Inc., a Delaware corporation, will be holding our Annual Meeting of Stockholders on September 2, 2008, at 3:00 p.m., local time. The meeting will be held at our company headquarters located at 495 East Java Drive, Sunnyvale, California, 94089. At the meeting, you will be asked to consider and vote upon the following proposals:
 
1. To elect the following individuals to serve as members of the Board of the Directors for the ensuing year or until their respective successors are duly elected and qualified: Daniel J. Warmenhoven, Donald T. Valentine, Jeffry R. Allen, Carol A. Bartz, Alan L. Earhart, Thomas Georgens, Edward Kozel, Mark Leslie, Nicholas G. Moore, George T. Shaheen, and Robert T. Wall;
 
2. To approve an amendment to the 1999 Stock Option Plan (1999 Plan) to allow the Company to grant equity awards to the Company’s nonemployee directors under all equity programs under the 1999 Plan;
 
3. To approve an amendment to our 1999 Plan to increase the share reserve by an additional 6,600,000 shares of common stock;
 
4. To approve an amendment to our Employee Stock Purchase Plan (Purchase Plan) to increase the share reserve under the Purchase Plan by an additional 2,900,000 shares of common stock;
 
5. To ratify the appointment of Deloitte & Touche LLP as our independent auditors of the Company for the fiscal year ending April 24, 2009.
 
After careful consideration, our Board of Directors has unanimously approved the proposals and recommends that you vote FOR each of the proposals. Details of the proposals and business to be conducted at the meeting can be found in the enclosed Proxy Statement. Of particular importance is the request to increase the share reserve under our 1999 Plan in Proposal No. 3 by 6,600,000 shares of common stock. In order to achieve our long-term strategic goals, it is crucial to hire additional qualified employees. We request your support in amending the 1999 Plan in order to drive future growth and development of NetApp by attracting and retaining high-quality candidates. We strongly believe that the amendments to the 1999 Plan are essential for us to compete for talent in the highly competitive labor markets in which we operate. Stock grants also remain an important incentive to retaining and motivating key employees who we view as our most valuable assets. Your support of these proposals is key to our success and allows us to plan for additional growth in fiscal 2009 and beyond. Thank you for your consideration and support.
 
Pursuant to new rules promulgated by the Securities and Exchange Commission (“SEC”), we have elected to provide access to our proxy materials over the Internet. Accordingly, the Company will mail, on or about July 21, 2008, a Notice of Internet Availability of Proxy Materials to its stockholders of record and beneficial owners at the close of business on July 9, 2008. On the date of mailing of the Notice of Internet Availability of Proxy Materials, all stockholders and beneficial owners will have the ability to access all of the proxy materials on a Web site referred to in the Notice of Internet Availability of Proxy Materials. These proxy materials will be available free of charge.
 
The Notice of Internet Availability of Proxy Materials will identify the Web site where the proxy materials will be made available; the date, time and location of the Annual Meeting; the matters to be acted upon at the meeting and the Board of Directors’ recommendation with regard to each matter; a toll-free telephone number, an e-mail address, and a Web site where stockholders can request a paper or e-mail copy of the Proxy Statement, our Annual Report to stockholders and a form of proxy relating to the Annual Meeting; information on how to access the form of proxy; and information on how to obtain directions to attend the meeting and vote in person.


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Your vote is extremely important. We appreciate your taking the time to vote promptly. After reading the Proxy Statement, please vote, at your earliest convenience by telephone or Internet, or request a proxy card to complete, sign and return by mail. If you decide to attend the Annual Meeting and would prefer to vote by ballot, your proxy will be revoked automatically and only your vote at the Annual Meeting will be counted. YOUR SHARES CANNOT BE VOTED UNLESS YOU (1) VOTE BY TELEPHONE, (2) VOTE BY INTERNET, (3) REQUEST A PAPER PROXY CARD, TO COMPLETE, SIGN AND RETURN BY MAIL, OR (4) ATTEND THE ANNUAL MEETING AND VOTE IN PERSON.
 
Thank you for your participation in this important activity.
 
Sincerely yours,
 
Daniel J. Warmenhoven
Chief Executive Officer
 
Sunnyvale, California
July 14, 2008
 
 
 
 
Please vote by telephone or Internet, or request a paper proxy card to complete, sign and return by mail so that your shares may be voted.
 


TABLE OF CONTENTS

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
PROXY STATEMENT
PROPOSAL NO. 1: ELECTION OF DIRECTORS
PROPOSAL NO. 2: AMENDMENT TO THE COMPANY’S 1999 STOCK OPTION PLAN
PROPOSAL NO. 3: AMENDMENT TO THE COMPANY’S 1999 STOCK OPTION PLAN
PROPOSAL NO. 4: AMENDMENT TO THE COMPANY’S EMPLOYEE STOCK PURCHASE PLAN
PROPOSAL NO. 5: RATIFICATION OF INDEPENDENT AUDITORS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
COMPENSATION DISCUSSION AND ANALYSIS
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
DIRECTOR COMPENSATION
AUDIT COMMITTEE REPORT
AUDITOR FEES
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
CORPORATE GOVERNANCE
CERTAIN TRANSACTIONS WITH RELATED PARTIES
OTHER BUSINESS
FORM 10-K
APPENDIX A
APPENDIX B


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NETAPP LOGO
NETAPP, INC.
495 East Java Drive
Sunnyvale, California 94089
 
 
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
 
 
TO OUR STOCKHOLDERS:
 
The Annual Meeting of Stockholders (Annual Meeting) of NetApp, Inc., a Delaware corporation (“NetApp” or “Company”), will be held on September 2, 2008, at 3:00 p.m. local time, at the Company’s headquarters, 495 East Java Drive, Sunnyvale, California 94089, for the following purposes:
 
1. To elect the following individuals to serve as members of the Board of the Directors for the ensuing year or until their respective successors are duly elected and qualified: Daniel J. Warmenhoven, Donald T. Valentine, Jeffry R. Allen, Carol A. Bartz, Alan L. Earhart, Thomas Georgens, Edward Kozel, Mark Leslie, Nicholas G. Moore, George T. Shaheen, and Robert T. Wall;
 
2. To approve an amendment to the 1999 Stock Option Plan (“1999 Plan”) to allow the Company to grant equity awards to the Company’s nonemployee directors under all equity programs under the 1999 Plan.
 
3. To approve an amendment to the Company’s 1999 Plan to increase the share reserve by an additional 6,600,000 shares of common stock;
 
4. To approve an amendment to the Company’s Employee Stock Purchase Plan (Purchase Plan) to increase the share reserve by an additional 2,900,000 shares of common stock;
 
5. To ratify the appointment of Deloitte & Touche LLP as independent auditors of the Company for the fiscal year ending April 24, 2009.
 
The foregoing items of business are more fully described in the Proxy Statement that accompanies this Notice.
 
Stockholders of record at the close of business on July 9, 2008 are entitled to Notice of Internet Availability of Proxy Materials and to vote at the Annual Meeting and at any adjournment or postponement thereof.
 
To assure your representation at the Annual Meeting, you are urged to cast your vote, as instructed in the Notice of Internet Availability of Proxy Materials, over the Internet or by telephone as promptly as possible. You may also request a paper proxy card to submit your vote by mail, if you prefer. Any stockholder of record attending the Annual Meeting may vote in person, even if she or he has voted over the Internet, by telephone or returned a completed proxy card.
 
Thank you for your participation.
 
BY ORDER OF THE BOARD OF DIRECTORS,
 
Daniel J. Warmenhoven
Daniel J. Warmenhoven
Chief Executive Officer
 
Sunnyvale, California
July 14, 2008
 
 
YOUR VOTE IS EXTREMELY IMPORTANT.
 
TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, YOU ARE URGED TO VOTE BY TELEPHONE OR INTERNET AS PROMPTLY AS POSSIBLE. ALTERNATIVELY, YOU MAY REQUEST A PAPER PROXY CARD, WHICH YOU MAY COMPLETE, SIGN AND RETURN BY MAIL.
 
 


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PROXY STATEMENT
 
 
FOR THE ANNUAL MEETING OF STOCKHOLDERS OF NETAPP, INC.
To Be Held September 2, 2008
 
 
 
 
 
 
This Proxy Statement is furnished in connection with the solicitation by the Board of Directors (“Board” or “Board of Directors”) of the Company, of proxies to be voted at the Annual Meeting of Stockholders (“Annual Meeting”) to be held on September 2, 2008, or at any adjournment or postponement thereof, for the purposes set forth in the accompanying Notice of Annual Meeting of Stockholders. Stockholders of record on July 9, 2008 will be entitled to vote at the Annual Meeting. The Annual Meeting will be held at 3:00 p.m.. local time at the Company’s headquarters, 495 East Java Drive, Sunnyvale, California 94089.
 
In accordance with rules and regulations adopted by the Securities and Exchange Commission (the “SEC”), instead of mailing a printed copy of our proxy materials to each stockholder of record, we are now furnishing proxy materials to our stockholders on the Internet. If you received a Notice of Internet Availability of Proxy Materials by mail, you will not receive a printed copy of the proxy materials. Instead, the Notice of Internet Availability of Proxy Materials will instruct you as to how you may access and review all of the important information contained in the proxy materials. The Notice of Internet Availability of Proxy Materials also instructs you as to how you may submit your proxy on the Internet. If you received a Notice of Internet Availability of Proxy Materials by mail and would like to receive a printed copy of our proxy materials you should follow the instructions for requesting such materials included in the Notice of Internet Availability of Proxy Materials.
 
It is anticipated that the Notice of Internet Availability of Proxy Materials will be available to stockholders on or about July 21, 2008.
 
 
The close of business on July 9, 2008 was the record date for stockholders entitled to vote at the Annual Meeting and any adjournments or postponements thereof. At the record date, the Company had approximately 326,876,886 shares of its common stock outstanding and entitled to vote at the Annual Meeting and approximately 1,058 registered stockholders. No shares of the Company’s preferred stock were outstanding. Each holder of common stock is entitled to one vote for each share of common stock held by such stockholder on July 9, 2008.
 
 
While there is no definitive statutory or case law authority in Delaware as to the proper treatment of abstentions, the Company believes that abstentions should be counted for purposes of determining both (1) the presence or absence of a quorum for the transaction of business and (2) the total number of shares entitled to vote in person or by proxy at the Annual Meeting (Votes Cast) with respect to a proposal. In the absence of controlling precedent to the contrary, the Company intends to treat abstentions in this manner. Accordingly, with the exception of the proposal for the election of directors, abstentions will have the same effect as a vote against the proposal. Because directors are elected by a plurality vote, abstentions in the election of directors have no impact on the election of directors once a quorum exists.
 
Broker nonvotes (that is, votes from shares held of record by brokers as to which the beneficial owners have given no voting instructions) will be counted for purposes of determining the presence or absence of a quorum for the transaction of business, but will not be counted for purposes of determining the number of Votes Cast with respect to the particular proposal on which the broker has expressly not voted. Accordingly, broker nonvotes will not affect the outcome of the voting on a proposal that requires a majority of the Votes Cast (such as the approval of an amendment to an option plan). Thus, a broker nonvote will make a quorum more readily attainable, but the broker nonvote will not otherwise affect the outcome of the vote on a proposal.


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If your shares are held in street name and you do not instruct your broker on how to vote your shares, your brokerage firm, at its discretion, may either leave your shares unvoted or vote your shares on routine matters. The election of directors (Proposal No. 1) and the proposal to ratify the appointment of our independent registered public accounting firm for the current fiscal year (Proposal No. 5) should be treated as routine matters. To the extent your brokerage firm votes your shares on your behalf on these two proposals, your shares also will be counted as present for the purpose of determining a quorum. The proposals to approve Proposal Nos. 2, 3, and 4 are not considered routine matters and, consequently, without your voting instructions, your brokerage firm cannot vote your shares.
 
 
Stockholders may vote by proxy. The Company is offering stockholders of record four methods of voting: (1) you may vote by telephone; (2) you may vote over the Internet; (3) you may vote in person at the Annual Meeting; and (4) finally, you may request a proxy card from us and indicate your vote by completing, signing and dating the card where indicated and by mailing or otherwise returning the card in the enclosed prepaid envelope. Each stockholder is entitled to one vote on all matters presented at the Annual Meeting for each share of common stock held by such stockholder. Stockholders do not have the right to cumulate their votes for the election of directors.
 
If a proxy card is voted by telephone or Internet or signed and returned by mail, without choices specified, in the absence of contrary instructions, subject to the limitations described in Rule 14a-4(d)(1) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), the shares of common stock represented by such proxy will be voted FOR Proposal Nos. 1, 2, 3, 4, and 5 and will be voted in the proxy holders’ discretion as to other matters that may properly come before the Annual Meeting.
 
 
For Proposal No. 1, the 11 director nominees receiving the highest number of affirmative votes will be elected. Approval of each of Proposal Nos. 2, 3, 4, and 5 requires the affirmative vote of a majority of the number of Votes Cast. Votes will be tabulated by a representative of Broadridge Financial Solutions, Inc., the independent inspector of elections appointed for the meeting, who will separately tabulate affirmative and negative votes, abstentions and broker nonvotes. Voting results will be published in the Company’s Quarterly Report on Form 10-Q for the second fiscal quarter of 2009, which will be filed with the SEC.
 
 
Any stockholder giving a proxy has the power to revoke it at any time before its exercise. You may revoke or change your proxy by filing with the Secretary of the Company an instrument of revocation or a duly executed proxy bearing a later date or by attending the Annual Meeting and voting in person.
 
 
A majority of the shares of common stock issued and outstanding and entitled to vote, in person or by proxy, constitutes a quorum for the transaction of business at the Annual Meeting.
 
 
The Company will bear the cost of soliciting proxies. Copies of solicitation material will be made available upon request to brokerage houses, fiduciaries, and custodians holding shares in their names that are beneficially owned by others to forward to such beneficial owners. The Company may reimburse such persons for their costs of forwarding the solicitation material to such beneficial owners. The original solicitation of proxies may be supplemented by solicitation by telephone, electronic communication, or other means by directors, officers, employees, or agents of the Company. No additional compensation will be paid to these individuals for any such services. The Company may retain a proxy solicitor to assist in the solicitation of proxies, for which the Company will pay an estimated fee of $10,000 plus reimbursement of expenses.


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The Notice of Annual Meeting, this Proxy Statement and the Annual Report of the Company for the fiscal year ended April 25, 2008 have been made available to all stockholders entitled to vote at the Annual Meeting. The Annual Report is not incorporated into this Proxy Statement and is not considered proxy-soliciting material. The Annual Report is posted at the following Web site address: http://investors.netapp.com/
 
 
The Company’s stockholders may submit proposals that they believe should be voted upon at the Company’s 2009 Annual Meeting of Stockholders. Stockholders may also recommend candidates for election to our Board of Directors for such Annual Meeting (See “Corporate Governance and Nominating/Corporate Governance Committee”).
 
Pursuant to Rule 14a-8 under the Exchange Act and subject to the requirements of our bylaws, stockholder proposals may be included in our 2009 proxy statement. Any such stockholder proposals must be submitted in writing to the attention of the Corporate Secretary, NetApp, Inc., 495 East Java Drive, Sunnyvale, California 94089, no later than March 24, 2009, which is the date 120 calendar days prior to the anniversary of the mailing date of the proxy statement for the fiscal 2008 Annual Meeting.
 
Alternatively, under the Company’s bylaws, a proposal that a stockholder does not seek to include in the Company’s proxy materials for the 2009 Annual Meeting (whether or not it relates to nominations to the Company’s Board of Directors) must be received by the Corporate Secretary (at the address specified in the immediately preceding paragraph) not less than 120 calendar days prior to the date of the 2009 Annual Meeting. The stockholder’s submission must include the information specified in the bylaws.
 
Stockholders interested in submitting such a proposal are advised to contact knowledgeable legal counsel with regard to the detailed requirements of applicable securities laws.
 
If a stockholder gives notice of a proposal or a nomination after the applicable deadline specified above, the notice will not be considered timely, and the stockholder will not be permitted to present the proposal or the nomination to the stockholders for a vote at the meeting.
 
 
ELECTION OF DIRECTORS
 
At the Annual Meeting, 11 directors constituting the entire Board are to be elected to serve until the next Annual Meeting of Stockholders or until successors for such directors are elected and qualified, or until the death, resignation or removal of such directors. It is intended that the proxies will be voted for the 11 nominees named below for election to the Company’s Board unless authority to vote for any such nominee is withheld. There are 11 nominees, each of whom is currently a director of the Company. All of the current directors except for Mr. Georgens were elected to the Board by the stockholders at the last Annual Meeting. Mr. Georgens was appointed by the Board to be a member of the Board on March 10, 2008. The Nominating/Corporate Governance Committee recommended Mr. Georgens, and the inclusion of Mr. Georgens in this Proxy Statement was approved at a meeting of the Board. Each person nominated for election has agreed to serve if elected, and the Board has no reason to believe that any nominee will be unavailable or will decline to serve. In the event, however, that any nominee is unable or declines to serve as a director at the time of the Annual Meeting, the proxies will be voted for any nominee who is designated by the current Board to fill the vacancy. Unless otherwise instructed, the proxy holders will vote the proxies received by them for the nominees named below. The 11 nominees receiving the highest number of affirmative votes of the shares entitled to vote at the Annual Meeting will be elected directors of the Company. The proxies solicited by this Proxy Statement may not be voted for more than 11 nominees.


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The nominees for directors of the Company, and their ages as of May 23, 2008, are as follows:
 
             
Name
 
Age
 
Position
 
Daniel J. Warmenhoven
    57     Chief Executive Officer and Chairman of the Board
Donald T. Valentine*
    75     Lead Independent Director
Jeffry R. Allen
    56     Director
Carol A. Bartz*
    59     Director
Alan L. Earhart*
    64     Director
Thomas Georgens
    48     President and Chief Operating Officer and Director
Edward Kozel*
    52     Director
Mark Leslie*
    62     Director
Nicholas G. Moore*
    66     Director
George T. Shaheen*
    63     Director
Robert T. Wall*
    62     Director
 
 
* Independent Directors.
 
The members of the committees are identified in the following table:
 
                 
                Nominating/Corporate
Director
  Audit   Investment   Compensation   Governance
 
Daniel J. Warmenhoven
               
Donald T. Valentine
              Chair
Jeffry R. Allen
      Chair        
Carol A. Bartz
          Chair   X
Alan L. Earhart
  X   X        
Thomas Georgens
               
Edward Kozel
      X   X    
Mark Leslie
      X       X
Nicholas G. Moore
  Chair           X
George T. Shaheen
  X            
Robert T. Wall
      X   X    
 
DANIEL J. WARMENHOVEN joined NetApp in October 1994 as President and Chief Executive Officer and has been a member of the Board of Directors since October 1994. Mr. Warmenhoven currently serves as Chief Executive Officer, and as of March 2008 he was appointed Chairman of the Board. Prior to joining the Company, Mr. Warmenhoven served in various capacities, including President, Chief Executive Officer, and Chairman of the Board of Directors of Network Equipment Technologies, Inc., a telecommunications equipment company, from November 1989 to January 1994. Prior to Network Equipment Technologies, Mr. Warmenhoven held executive and managerial positions at Hewlett-Packard from 1985 to 1989 and IBM Corporation from 1972 to 1985. Mr. Warmenhoven is a Director of Aruba Networks, Inc. Mr. Warmenhoven holds a BS degree in electrical engineering from Princeton University.
 
DONALD T. VALENTINE has been a member of the Board since 1994 and Lead Independent Director since January 2008. Mr. Valentine was Chairman of the Board of Directors from September 1994 to January 2008. Mr. Valentine has been a general partner of Sequoia Capital, a venture capital firm, since 1972. Mr. Valentine holds a BA degree from Fordham University.
 
JEFFRY R. ALLEN has been a member of the Board since May 2005. Prior to joining the Board, Mr. Allen was the Executive Vice President of Business Operations at the Company. Mr. Allen joined the Company in 1996 as the Chief Financial Officer and Vice President of Finance and Operations. Before coming to the Company, Mr. Allen served as Senior Vice President of Operations for Bay Networks, where he was responsible for manufacturing and


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distribution functions. From 1990 to 1995, he held the position of Controller for SynOptics Communications and subsequently became Vice President and Controller for Bay Networks, the new company created via the merger of SynOptics and Wellfleet Communications. Previously, Mr. Allen had a 17-year career at Hewlett-Packard Company, where he served in a variety of financial, information systems, and financial management positions, including controller for the Information Networks Group. Mr. Allen holds a BS degree from San Diego State University.
 
CAROL A. BARTZ has been a member of the Board since September 1995. From April 1992 to 2006, Ms. Bartz served as Chairman of the Board and Chief Executive Officer of Autodesk, Inc., a design software company. Ms Bartz resigned as the Chief Executive Officer of Autodesk in May 2006. Ms. Bartz has been Executive Chairman of the Board of Autodesk since May 2006. Ms. Bartz held a number of positions with Sun Microsystems, Inc. from September 1983 to April 1992, most recently as Vice President of Worldwide Field Operations. In addition, Ms. Bartz currently serves on the board of directors of Cisco Systems, Inc. and Intel, Inc. Ms. Bartz received a BA degree in computer science from the University of Wisconsin.
 
ALAN L. EARHART has been a member of the Board since December 2004. Mr. Earhart has more than three decades of financial and accounting expertise that includes close involvement with many technology companies, including Cisco Systems, Legato, Varian and Polycom. A former PricewaterhouseCoopers office managing partner, he began his career as a certified public accountant in 1970 with Coopers & Lybrand’s San Francisco office. There he rose through the company to become regional managing partner before its merger with Price Waterhouse. After the merger, he was named managing partner for PricewaterhouseCoopers’ Silicon Valley offices. In addition, he previously served as chair of Coopers & Lybrand’s National Venture Capital Industry Group. Mr. Earhart, who retired from PricewaterhouseCoopers in 2001, also serves on the board of directors and is chairman of the audit committee of Foundry Networks, Macrovision Solutions and Monolithic Power Systems. Mr. Earhart is currently an independent consultant and retired partner of PricewaterhouseCoopers.
 
THOMAS GEORGENS has been a member of the Board since March 2008. Mr. Georgens is the President and Chief Operating Officer of the Company and is responsible for all product operations and field operations worldwide. Mr. Georgens joined the Company in 2005 and served as the Company’s Executive Vice President of Product Operations from January 2007 until February 2008. Prior to January 2007, Mr. Georgens served as the Company’s Executive Vice President and General Manager of Enterprise Storage Systems. Before joining the Company, Mr. Georgens spent nine years at Engenio, a subsidiary of LSI Logic, the last two years as Chief Executive Officer. He has also served in various other positions, including President of LSI Logic Storage Systems and Executive Vice President of LSI Logic. Prior to Engenio, Mr. Georgens spent 11 years at EMC in a variety of engineering and marketing positions. Mr. Georgens holds a BS degree and an ME degree in computer and systems engineering from Rensselaer Polytechnic Institute as well as an MBA degree from Babson College.
 
EDWARD KOZEL has been a member of the Board since May 2006. Mr. Kozel is Managing Member of Open Range LLC, a private venture firm. Previously he was President and Chief Executive Officer of Skyrider, Inc., a search-based marketing company for peer-to-peer networks, a Managing Director of Integrated Finance, Ltd., a private advisory services firm and as a Managing Member of Open Range Ventures, LLC. Mr. Kozel joined Cisco Systems in 1989 and served as its Chief Technology Officer and Senior Vice President of Business Development until 2001. Mr. Kozel previously worked at Boeing, McDonnell Douglas and SRI International, where he participated in the early design and development of the Internetwork Protocol model and TCP/IP, packet radio networks and highly distributed information systems. Mr. Kozel has a BS degree in electrical engineering from the University of California, Davis.
 
MARK LESLIE has been a member of the Board since July 2004. Mr. Leslie is currently the managing director of Leslie Ventures. Mr. Leslie was the founding CEO of Veritas Software. He joined the board of directors of Veritas Software in May of 1988, and became the Chairman, President and CEO when Veritas was restarted as a software company in 1990. Mr. Leslie currently serves on the board of directors for a number of privately held technology companies. In addition, Mr. Leslie chairs the NYU Science Advisory Board, serves on the NYU Board of Overseers, Chairs the Leslie Family Foundation and serves on the board of TKCJL. Mr. Leslie is also a lecturer at the Stanford Graduate School of Business teaching courses in entrepreneurship and sales. Mr. Leslie received a BA degree in


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physics and mathematics from New York University in 1966 and completed Harvard Business School’s program for management development in 1980.
 
NICHOLAS G. MOORE has been a member of the Board since 2002. Mr. Moore served as Global Chairman of PricewaterhouseCoopers from July 1998 until June 2001, and Chief Executive Officer of PricewaterhouseCoopers LLP from July 1998 until June 2000. Prior to that, he served as Chairman and Chief Executive Officer of Coopers & Lybrand LLP from October 1994 until June 1998, when it was merged into PricewaterhouseCoopers LLP. Mr. Moore is a member of the board of Wells Fargo, Gilead Sciences and Bechtel Corporation. Mr. Moore received a BS degree in accounting from St. Mary’s College and a JD degree from Hastings College of Law, University of California.
 
GEORGE T. SHAHEEN has been a member of the Board since June 2004. Mr. Shaheen is the Chairman and Chief Executive Officer of Entity Labs. He was the Chief Executive Officer of Siebel Systems, Inc. from April 2005 to January 2006. From 1989 to 1999, he was the Chief Executive Officer and Global Managing Partner of Andersen Consulting, which later became Accenture. He then became the Chief Executive Officer and Chairman of the Board of Webvan Group, Inc. Mr. Shaheen serves on the boards of 24/7 Customer, newScale, PRA International, Theranos, and Entity Labs. He is a member of the Advisory Boards of the Marcus & Millichap Company and Genstar Capital and he is an advisor to the Boston Consulting Group. He has served as an IT Governor of the World Economic Forum, and he is a member of the Board of Advisors for the Northwestern University Kellogg Graduate School of Management. He has also served on the Board of Trustees of Bradley University. Mr. Shaheen is a graduate of Bradley University (BS degree 1966 & an MBA degree 1968).
 
ROBERT T. WALL has been a member of the Board since January 1993. Since August 1984, Mr. Wall has been the Founder and President of On Point Developments, LLC, a venture management and investment company. Mr. Wall was a founder and, from November 2000 to December 2006, the Chairman of the Board of Directors of Airgo Networks, Inc., a Wi-Fi wireless networking systems company that was acquired by QUALCOMM, Inc. in December 2006. From June 1997 to November 1998, he was Chief Executive Officer and a member of the board of directors of Clarity Wireless, Inc., a broadband wireless data communications company that was acquired by Cisco Systems, Inc. in November 1998. Mr. Wall was Chairman of the Board, President, and Chief Executive Officer of Theatrix Interactive, Inc., a consumer educational software publisher, from April 1994 to August 1997. He received an AB degree in economics from De Pauw University and an MBA degree from Harvard Business School.
 
 
The Board of Directors held nine regular meetings during fiscal 2008. Each member of the Board of Directors during fiscal 2008 attended more than 75% of the aggregate of (1) the total number of meetings of the Board of Directors held during such period and (2) the total number of meetings held during such period by all Committees of the Board on which he or she served. There are no family relationships among executive officers, directors or nominees of the Company. The Board of Directors has an Audit Committee, a Nominating/Corporate Governance Committee, an Investment Committee and a Compensation Committee.
 
During fiscal 2008, the Audit Committee was composed of Directors Shaheen, Earhart, and Moore, all of whom are independent in accordance with the requirements of applicable SEC and NASDAQ rules and regulations. The Company’s Board has determined that Mr. Moore and Mr. Earhart qualify as “audit committee financial experts” under the rules and regulations of the SEC. The Audit Committee reviews, acts on and reports to the Board of Directors with respect to various auditing and accounting matters, including the selection of the Company’s auditors, the scope of the annual audits, fees to be paid to the auditors, the performance of the Company’s auditors, the accounting practices of the Company and other such functions as detailed in the Audit Committee Charter, which can be found on the Company’s Web site at www.netapp.com. The Audit Committee of the Board of Directors held 12 meetings during fiscal 2008.
 
During fiscal 2008, the Nominating/Corporate Governance Committee was composed of Directors Moore, Bartz, Leslie and Valentine, all of whom are independent in accordance with applicable NASDAQ rules. The committee evaluates and recommends to the Board of Directors candidates for Board membership and considers nominees recommended by stockholders. The committee also develops and recommends corporate governance policies and other governance guidelines and procedures to the Board of Directors. The Nominating/Corporate Governance Committee held one meeting during fiscal 2008.


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During fiscal 2008, the Investment Committee was composed of Directors Allen, Earhart, Kozel, Leslie, and Wall. The Investment Committee was formed for the purpose of reviewing, evaluating, and approving acquisitions and divestitures for the Company. The Investment Committee held two (2) meetings during fiscal 2008.
 
The Compensation Committee, which is composed of Directors Bartz, Kozel, and Wall, establishes salaries, incentive compensation programs, and other forms of compensation for officers; creates the compensation guidelines under which management establishes salaries for nonofficers and other employees of the Company; and administers the incentive compensation and benefit plans of the Company. Directors Bartz, Kozel, and Wall are independent in accordance with applicable NASDAQ rules. The Compensation Committee of the Board of Directors held 7 meetings during fiscal 2008. In addition, the Committee approved stock option and award grants as needed by means of Unanimous Written Consents.
 
 
Directors shall be elected by a plurality vote. The nominees for director receiving the highest number of affirmative votes of the shares entitled to be voted for them shall be elected as directors. Votes against, abstentions and broker nonvotes have no legal effect on the election of directors due to the fact that such elections are by plurality.
 
The Board of Directors Unanimously Recommends That Stockholders
Vote FOR Proposal No. 1.
 
PROPOSAL NO. 2
 
 
The Company is asking its stockholders to approve an amendment to the 1999 Stock Option Plan (“1999 Plan”) so that it can grant equity awards to the Company’s nonemployee directors under all equity programs under the 1999 Plan. The Board has approved this amendment to the 1999 Plan, subject to approval from our stockholders at the Annual Meeting. Approval of the amendment to the 1999 Plan requires the affirmative vote of a majority of the Votes Cast. Our nonemployee directors have an interest in this proposal. Please note that this proposal is separate and distinct from Proposal No. 3 relating to the approval of additional shares of common stock to be reserved for issuance under the 1999 Plan. Accordingly, a vote for this proposal will not affect your vote for or against Proposal No. 3, and how you vote on Proposal No. 3 will not affect your vote for or against this proposal.
 
 
The 1999 Plan is divided into five separate equity programs: (1) the Discretionary Option Grant Program, (2) the Stock Appreciation Rights Program, (3) the Stock Issuance Program, (4) the Performance Share and Performance Unit Program, and (5) the Automatic Option Grant Program.
 
The Company’s employees, consultants, and other independent advisors are eligible to participate in the Discretionary Option Grant Program, the Stock Appreciation Rights Program, the Stock Issuance Program, and the Performance Share and Performance Unit Program. Currently under the 1999 Plan, the Company’s nonemployee directors only receive stock options through the Automatic Option Grant Program. The terms and conditions of the stock options are fixed and are granted on predetermined dates, subject to a director continuing to provide services to us through the applicable grant date. Because the Company is limited in how it can compensate its nonemployee directors, and nonemployee board of director compensation is changing given the increased responsibilities placed on directors in the last few years due to overall market conditions, the Company’s ability to attract and retain the most highly qualified nonemployee directors may be compromised. Through the proposed amendments to the 1999 Plan, we hope to have sufficient flexibility to structure the equity component of director compensation so that we are able to quickly react to changing market conditions in director compensation to allow us to attract and retain highly qualified individuals to serve on the Board.
 
We are asking our stockholders to approve an amendment to the 1999 Plan so that the Company’s nonemployee directors are eligible to participate in all programs under the 1999 Plan. The Company may then


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make discretionary grants to its nonemployee directors to compensate them for responsibilities such as committee service or chairmanship. If our stockholders do not approve this proposal, the Company’s nonemployee directors will only receive stock options through the Automatic Option Grant Program. While the Company will continue to make grants under the Automatic Option Grant Program, the Company believes strongly that the participation of the nonemployee director in the entire 1999 Plan is essential in light of the increased responsibilities of nonemployee directors over the last few years, which has resulted in the need to adjust and enhance their compensation.
 
 
The following paragraphs provide a summary of the principal features of the 1999 Plan and its operation, including a description of the amendment to the 1999 Plan if stockholders approve Proposal No. 2 of this Proxy Statement. The 1999 Plan is set forth in its entirety and has been filed as Appendix A to this Proxy Statement with the SEC. The following summary is qualified in its entirety by reference to the complete text of the 1999 Plan. Any stockholder who wants to obtain a copy of the actual plan document may do so by written request to the Corporate Secretary at the Company’s principal offices in Sunnyvale, California.
 
 
The 1999 Plan is divided into five separate equity programs:
 
1. Discretionary Option Grant Program — Under the Discretionary Option Grant Program, the Plan Administrator is able to grant options to purchase shares of Company common stock (“Shares”) at an exercise price not less than the fair market value of those Shares on the grant date.
 
2. Stock Appreciation Rights Program — Under the Stock Appreciation Rights Program, the Plan Administrator is able to grant stock appreciation rights that will allow individuals to receive the appreciation in the Shares subject to the award between the date of grant and the exercise date.
 
3. Stock Issuance Program — Under the Stock Issuance Program, the Plan Administrator is able to make direct issuances of Shares either through the issuance (or promise to issue) or immediate purchase of such Shares or as a bonus for services rendered by participants on such terms as the Plan Administrator deems appropriate.
 
4. Performance Share and Performance Unit Program — Under the Performance Share and Performance Unit Program, the Plan Administrator is able to grant performance shares and performance units, which are awards that will result in a payment to a participant only if the performance goals or other vesting criteria established by the Plan Administrator are achieved or the awards otherwise vest.
 
5. Automatic Option Grant Program — Under the Automatic Option Grant Program, option grants are automatically made at periodic intervals to nonemployee directors.
 
The 1999 Plan is intended to increase incentives and to encourage Share ownership on the part of eligible employees, nonemployee directors and consultants who provide significant services to the Company and its affiliates.
 
 
The Compensation Committee of the Board of Directors (“Compensation Committee”) administers the 1999 Plan (“Plan Administrator”). The members of the Compensation Committee qualify as nonemployee directors under Rule 16b-3 of the Exchange Act of 1934, as amended, and as outside directors under Section 162(m) of the Internal Revenue Code (“Code”) such that the Company can receive a federal tax deduction for certain compensation paid under the 1999 Plan.
 
Subject to the terms of the 1999 Plan, the Plan Administrator has the sole discretion to select the employees, consultants and other independent advisors who will receive awards, determine the terms and conditions of awards (for example, the exercise price and vesting schedule), and interpret the provisions of the 1999 Plan and outstanding awards, provided, however, that the Company is unable (without the approval of stockholders) to reprice any outstanding stock options granted under the 1999 Plan or cancel any outstanding stock option and immediately replace it with a new stock option with a lower exercise price. Administration of the Automatic Option Grant


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Program will be self-executing in accordance with the terms of the program and the Plan Administrator will not have any discretionary functions with respect to option grants made under the program. The Compensation Committee may delegate any part of its authority and powers under the 1999 Plan to one or more directors and/or officers of the Company, but only the Compensation Committee itself can make awards to participants who are executive officers of the Company.
 
If our stockholders approve this proposal, our nonemployee directors will be eligible to receive awards pursuant to all equity programs under the 1999 Plan. If this proposal is not approved, our nonemployee directors will only be able to participate in the Automatic Option Grant Program.
 
 
A total of 94,500,000 Shares has been reserved for issuance under the 1999 Plan. As of May 23, 2008, 54,931,193 Shares were subject to outstanding awards granted under the 1999 Plan, 14,054,642 Shares remained available for any new awards to be granted in the future and 25,514,165 Shares have been issued pursuant to awards thereunder. These numbers do not reflect the request for additional Shares set forth in Proposal No. 3.
 
If an award expires or is cancelled without having been fully exercised or vested, the unvested or cancelled Shares generally will be returned to the available pool of Shares reserved for issuance under the 1999 Plan. Also, in the event any change is made to our common stock issuable under the 1999 Plan by reason of any stock split, stock dividend, combination of shares, merger, reorganization, consolidation, recapitalization, exchange of shares, or other change in capitalization of the Company affecting the common stock as a class without the Company’s receipt of consideration, appropriate adjustments will be made to (1) the maximum number and/or class of securities issuable under the 1999 Plan, (2) the maximum number and/or class of securities for which any one individual may be granted stock options, stock appreciation rights, stock issuances, or performance shares and performance units under the 1999 Plan per calendar year, (3) the class and/or number of securities and the purchase price per share in effect under each outstanding award, and (4) the class and/or number of securities for which automatic option grants are to be subsequently made under the Automatic Option Grant Program. The Plan Administrator will make adjustments to outstanding awards to prevent the dilution or enlargement of benefits intended to be provided thereunder.
 
 
A stock option is the right to acquire Shares at a fixed exercise price for a fixed period of time. Under the Discretionary Option Grant Program, the Plan Administrator may grant nonstatutory stock options and/or incentive stock options (which entitle employees, but not the Company, to more favorable tax treatment). The Plan Administrator will determine the number of Shares covered by each option, but during any calendar year, no participant may be granted options and/or stock appreciation rights covering more than 3,000,000 Shares.
 
The exercise price of each option is set by the Plan Administrator but cannot be less than 100% of the fair market value of the Shares covered by the option on the date of grant. The exercise price of an incentive stock option must be at least 110% of fair market value if on the grant date the participant owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any of its subsidiaries.
 
An option granted under the Discretionary Option Grant Program cannot be exercised until it becomes vested. The Plan Administrator establishes the vesting schedule of each option at the time of grant. Options become exercisable at the times and on the terms established by the Plan Administrator. To the extent the aggregate fair market value of the Shares (determined on the grant date) covered by incentive stock options first becomes exercisable by any participant during any calendar year is greater than $100,000, the excess above $100,000 will be treated as a nonstatutory stock option. Options granted under the 1999 Plan expire at the times established by the Plan Administrator, but not later than seven (7) years after the grant date.
 
 
A stock appreciation right is the right to receive the appreciation in fair market value of the Shares subject to the award between the exercise date and the date of grant. We can pay the appreciation in either cash or Shares. Stock appreciation rights will become exercisable at the times and on the terms established by the Plan Administrator, subject to the terms of the 1999 Plan. No participant will be granted stock appreciation rights and/or options covering more than 3,000,000 Shares during any calendar year. The exercise price of each stock appreciation right is


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set by the Plan Administrator but cannot be less than 100% of the fair market value of the Shares covered by the award on the date of grant. A stock appreciation right granted under the 1999 Plan cannot be exercised until it becomes vested. The Plan Administrator establishes the vesting schedule of each stock appreciation right at the time of grant. Stock appreciation rights granted under the 1999 Plan expire at the times established by the Plan Administrator, but not later than seven years after the grant date.
 
 
Stock issuances are awards where Shares are or will be issued to a participant and the participant’s right to retain or receive such Shares will vest in accordance with the terms and conditions established by the Plan Administrator. The number of Shares covered by a stock issuance award will be determined by the Plan Administrator, but during any calendar year no participant may be granted an award covering more than 200,000 Shares. Also, assuming approval of Proposal No. 3, no more than 30% of the sum of (1) the number of Shares added to the 1999 Plan at the 2008 Annual Meeting; (2) the number of Shares available to be granted pursuant to awards under the 1999 Plan (that is, reserved but unissued) as of May 23, 2008; and (3) the number of Shares subject to outstanding awards as of May 23, 2008, that actually return to the 1999 Plan upon the repurchase or reacquisition of unvested Shares or that were subject to awards that terminated without any Shares actually having been issued pursuant thereto may be issued pursuant to awards under the Stock Issuance and Performance Share and Performance Unit Programs. In determining whether a stock issuance should be made and/or the vesting schedule for any such award, the Plan Administrator may impose whatever conditions to vesting as it determines to be appropriate. For example, the Plan Administrator may determine to make a stock issuance only if the participant satisfies performance goals established by the Plan Administrator.
 
 
Performance shares and performance units are awards that will result in a payment to a participant only if the performance goals or other vesting criteria established by the Plan Administrator are achieved or the awards otherwise vest. The Plan Administrator will establish organizational, individual performance goals or other vesting criteria at its discretion, which, depending on the extent to which they are met, will determine the number and/or the value of performance units and performance shares to be paid to participants. No participant will receive performance units with an initial value greater than $2,000,000 and no participant will receive more than 200,000 performance shares during any calendar year. Performance units will have an initial dollar value established by the Plan Administrator prior to the grant date. Performance shares will have an initial value equal to the fair market value of a Share on the grant date. Also, assuming approval of Proposal No. 3, no more than 30% of the sum of (1) the number of Shares added to the 1999 Plan at the 2008 Annual Meeting, (2) the number of Shares available to be granted pursuant to awards under the 1999 Plan (that is, reserved but unissued) as of May 23, 2008, and (3) the number of Shares subject to outstanding awards as of May 23, 2008 that actually return to the 1999 Plan upon the repurchase or reacquisition of unvested Shares or that were subject to awards that terminated without any Shares actually having been issued pursuant thereto, may be issued pursuant to awards under the Stock Issuance and Performance Share and Performance Unit Programs.
 
 
The Plan Administrator (at its discretion) may make performance goals applicable to a participant with respect to an award intended to qualify as “performance-based compensation” under Code Section 162(m). At the Plan Administrator’s discretion, one or more of the following performance goals will apply: annual revenue, cash position, earnings per share, individual objectives, net income, operating cash flow, operating income, return on assets, return on equity, return on sales and total stockholder return. The Plan Administrator may utilize other performance criteria for awards not intended to qualify as “performance-based compensation” under Code Section 162(m).
 
 
Under the 1999 Plan, our nonemployee directors will receive annual, automatic, nondiscretionary grants of nonstatutory stock options. If stockholders approve this proposal, nonemployee directors will also be eligible to receive discretionary awards pursuant to the other equity programs under the 1999 Plan.
 
Each new nonemployee director receives an option to purchase 55,000 Shares as of the date he or she first becomes a nonemployee director. Each nonemployee director also receives an option to purchase 20,000 Shares on


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the date of each annual stockholder meeting, provided that he or she has been a nonemployee director for at least six months prior to the grant date and remains an eligible nonemployee director through each such meeting.
 
The exercise price of each option granted to a nonemployee director is equal to 100% of the fair market value of the Shares covered by the option on the date of grant. The option granted to a nonemployee director when he or she first becomes a nonemployee director vests over four years, with 25,000 Shares vesting on the first anniversary of the date of grant and 10,000 Shares vesting on each anniversary thereafter (assuming that he or she remains a nonemployee director on each scheduled vesting date). An option granted under the Automatic Option Grant Program is immediately exercisable. However, any Shares purchased under the option program are subject to repurchase by the Company if the nonemployee director ceases Board service prior to vesting. All options granted thereafter to the nonemployee director become 100% vested on the day preceding the Annual Stockholders Meeting following the grant date. If a nonemployee director terminates his or her service on the Board due to death or disability his or her options would immediately vest.
 
Options granted to nonemployee directors generally expire no later than seven years after the date of grant. If a nonemployee director terminates his or her service on the Board prior to an option’s normal expiration date, the option will remain exercisable for 12 months to the extent it has vested. However, the option may not be exercised later than the original expiration date.
 
 
The number of awards that an employee, nonemployee director, or consultant, may receive under the 1999 Plan is at the discretion of the Plan Administrator and therefore cannot be determined in advance. The following table sets forth (1) the aggregate number of Shares subject to options granted under the 1999 Plan during the last fiscal year, (2) the average per Share exercise price of such options, (3) the aggregate number of Shares subject to awards of restricted stock units granted under the 1999 Plan during the last fiscal year, and (4) the dollar value of such Shares based on $23.77 per Share, the fair market value on May 23, 2008.
 
 
                                 
    Number of
    Average per
    Number of
    Dollar Value of
 
    Options
    Share Exercise
    Restricted Stock
    Restricted Stock
 
Name of Individual or Group
  Granted     Price     Units Granted     Units Granted  
 
Daniel J. Warmenhoven
    350,000     $ 30.74           $  
Chief Executive Officer
                               
Thomas Georgens
    100,000     $ 30.74           $  
President and Chief Operating Officer
                               
Steven J. Gomo
    50,000     $ 30.74           $  
Executive Vice President Finance and
                               
Chief Financial Officer
                               
Thomas F. Mendoza
    150,000     $ 30.74           $  
Vice Chairman
                               
Robert E. Salmon
    100,000     $ 30.74           $  
Executive Vice President
                               
Field Operations
                               
All current executive officers, as a group
    750,000     $ 30.74           $  
All directors who are not executive officers, as a group
    180,000     $ 27.02           $  
All employees who are not executive officers, as a group
    9,563,080     $ 26.41       3,269,348     $ 77,712,402  
 
 
* The table does not represent equity awards granted under the Company’s 1995 Stock Incentive Plan. Please see pages 32-36. for greater detail on the equity awards that have been granted to the Company’s executive officers and directors.


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Awards granted under the 1999 Plan generally may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the applicable laws of descent and distribution. However, participants may, in a manner specified by the Plan Administrator, transfer nonstatutory stock options (1) to a member of the participant’s family, (2) to a trust or other entity for the sole benefit of the participant and/or a member of his or her family, (3) to a former spouse pursuant to a domestic relations order.
 
 
The following paragraphs are a summary of the general federal income tax consequences to U.S. taxpayers and the Company of awards granted under the 1999 Plan. Tax consequences for any particular individual may be different.
 
 
No taxable income is reportable when a nonstatutory stock option is granted to a participant. Upon exercise, the participant will recognize ordinary income in an amount equal to the excess of the fair market value (on the exercise date) of the Shares purchased over the exercise price of the option. Any taxable income recognized in connection with an option exercise by an employee of the Company is subject to tax withholding by the Company. Any additional gain or loss recognized upon any later disposition of the shares would be capital gain or loss.
 
As a result of Section 409A of the Code and the Treasury regulations promulgated thereunder (“Section 409A”), nonstatutory stock options granted with an exercise price below the fair market value of the underlying stock or with a deferral feature may be taxable to the recipient in the year of vesting in an amount equal to the difference between the then fair market value of the underlying stock and the exercise price of such awards and may be subject to an additional 20% tax plus penalties and interest. In addition, certain states, such as California, have adopted similar tax provisions.
 
 
No taxable income is reportable when an incentive stock option is granted or exercised (except for purposes of the alternative minimum tax, in which case taxation is the same as for nonstatutory stock options). If the participant exercises the option and then later sells or otherwise disposes of the Shares more than two years after the grant date and more than one year after the exercise date, the difference between the sale price and the exercise price will be taxed as capital gain or loss. If the participant exercises the option and then later sells or otherwise disposes of the Shares before the end of the two-year or one-year holding periods described above, he or she generally will have ordinary income at the time of the sale equal to the fair market value of the Shares on the exercise date (or the sale price, if less) minus the exercise price of the option.
 
 
No taxable income is reportable when a stock appreciation right is granted to a participant. Upon exercise, the participant will recognize ordinary income in an amount equal to the amount of cash received and the fair market value of any shares received. Any additional gain or loss recognized upon any later disposition of the shares would be capital gain or loss.
 
As a result of Section 409A of the Code, however, stock appreciation rights granted with an exercise price below the fair market value of the underlying stock or with a deferral feature may be taxable to the recipient in the year of vesting in an amount equal to the difference between the then fair market value of the underlying stock and the exercise price of such options and may be subject to an additional 20% tax plus penalties and interest. In addition, certain states, such as California, have adopted similar tax provisions.
 
 
A participant generally will not have taxable income at the time an award of stock, performance shares or performance units is granted. Instead, he or she will recognize ordinary income in the first taxable year in which his or her interest in the Shares underlying the award becomes either (1) freely transferable or (2) no longer subject to


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substantial risk of forfeiture. However, the recipient of an award of restricted stock may elect to recognize income at the time he or she receives the award in an amount equal to the fair market value of the Shares underlying the award (less any cash paid for the shares) on the date the award is granted.
 
 
The Company generally will be entitled to a tax deduction in connection with an award under the 1999 Plan in an amount equal to the ordinary income realized by a participant and at the time the participant recognizes such income (for example, the exercise of a nonstatutory stock option). Special rules limit the deductibility of compensation paid to our Chief Executive Officer and to certain other of our most highly compensated executive officers. Under Section 162(m) of the Code, the annual compensation paid to any of these specified executives will be deductible only to the extent that it does not exceed $1,000,000. However, the Company can preserve the deductibility of certain compensation in excess of $1,000,000 if the conditions of Section 162(m) are met. These conditions include stockholder approval of the 1999 Plan, setting limits on the number of awards that any individual may receive and for awards other than stock options, establishing performance criteria that must be met before the award actually will vest or be paid. The 1999 Plan has been designed to permit the Plan Administrator to grant awards that qualify as performance-based compensation for purposes of satisfying the conditions of Section 162(m), thereby permitting the Company to continue to receive a federal income tax deduction in connection with such awards.
 
 
The Board generally may amend or terminate the 1999 Plan at any time and for any reason, subject to stockholder approval if applicable.
 
 
We believe strongly that the approval of the amendment to the 1999 Plan to permit our nonemployee directors to participate in all equity programs of the 1999 Plan is essential given the increase in director responsibilities. The 1999 Plan is designed to assist us in recruiting, motivating and retaining talented nonemployee directors who help us achieve our business goals, including creating long-term value for stockholders. If the stockholders do not approve this proposal, the Company cannot grant discretionary equity awards to our nonemployee directors, even if it is in the best interests of the Company to do so. If the Company is unable to grant discretionary equity awards, it may be difficult to recruit and retain talented and qualified nonemployee directors and potentially will limit the Company’s growth and future success.
 
 
The affirmative vote by a majority of the Votes Cast is required to approve this proposal. The effect of an abstention is the same as that of a vote against the proposal. Unless you indicate otherwise, your proxy will vote “FOR” the proposal.
 
The Board of Directors Unanimously Recommends That Stockholders
Vote FOR Proposal No. 2
 
 
AMENDMENT TO THE COMPANY’S 1999 STOCK OPTION PLAN
 
The Company is asking the stockholders to approve an amendment to the 1999 Plan to increase by 6,600,000 the number of Shares that may be issued thereunder. The Board has approved the increase in the number of Shares reserved for issuance under the 1999 Plan, subject to approval from stockholders at the Annual Meeting. Approval of this amendment to the 1999 Plan requires the affirmative vote of a majority of the Votes Cast. The Company’s named executive officers and directors have an interest in this proposal. Please note that this proposal is separate and distinct from Proposal No. 2 relating to an amendment to the 1999 Plan. Accordingly, a vote for this proposal will not affect your vote for or against Proposal No. 2, and how you vote on Proposal No. 2 will not affect your vote for or against this proposal


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The proposal to amend the 1999 Plan also provides that the number of Shares subject to awards granted under the Stock Issuance Program and the Performance Share and Performance Unit Program may not exceed 30% of the sum of (1) the number of Shares added to the 1999 Plan at the 2008 Annual Meeting, (2) the number of Shares available to be granted pursuant to awards under the 1999 Plan (that is, reserved but unissued Shares) as of May 23, 2008, and (3) the number of Shares subject to outstanding awards as of May 23, 2008 that actually return to the 1999 Plan upon the repurchase or reacquisition of unvested Shares or that were subject to awards that terminated without any Shares actually having been issued thereto.
 
The Company believes strongly that the approval of the amendment to the 1999 Plan is essential to attaining and retaining our most valuable asset, our employees. Offering a broad-based equity compensation program is vital to attracting and retaining the most highly skilled people in our industry. The Company believes that employees who have a stake in the future success of our business become highly motivated to achieve our long-term business goals and increase stockholder value. At this important time in our history, the Company’s employees’ innovation and productivity are even more critical to its success in a highly competitive and fast-paced industry. The 1999 Plan is designed to assist in recruiting, motivating and retaining talented employees who help us achieve the Company’s business goals, including creating long-term value for stockholders.
 
 
Please refer to the summary of principal features of the 1999 Plan and its operation as set forth in Proposal No. 2. That summary is qualified in its entirety by reference to the 1999 Plan as set forth in Appendix A to this Proxy statement.
 
 
The Company is and intends to continue to be a growth company. However, in order to grow, it is critical to hire additional people to achieve its long-term strategic goals. The Company strongly believes that the amendment to the 1999 Plan to increase the number of Shares we can use to grant awards is essential for us to compete for talent in the very competitive labor markets in which we operate.
 
 
The affirmative vote by a majority of the Votes Cast is required to approve this proposal. The effect of an abstention is the same as that of a vote against the proposal. Unless you indicate otherwise, your proxy will vote “FOR” the proposal.
 
The Board of Directors Unanimously Recommends That Stockholders
Vote FOR Proposal No. 3
 
PROPOSAL NO. 4:
 
AMENDMENT TO THE COMPANY’S EMPLOYEE STOCK PURCHASE PLAN
 
 
The Company is asking the stockholders to approve an amendment to the Company’s Employee Stock Purchase Plan (“Purchase Plan”), which will increase the number of Shares authorized for issuance under the Purchase Plan by an additional 2,900,000 Shares.
 
The purpose of the amendment is to ensure that the Company will continue to have a sufficient reserve of Shares of the Company’s common stock available under the Purchase Plan to provide eligible employees of the Company and its participating affiliates (whether now existing or subsequently established) with the opportunity to purchase Shares at semiannual intervals through their accumulated periodic payroll deductions.
 
The Purchase Plan was adopted by the Board on September 26, 1995, and became effective on November 20, 1995, in connection with the Company’s initial public offering of its common stock.


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The terms and provisions of the Purchase Plan, as most recently amended, are summarized below. This summary, however, does not purport to be a complete description of the Purchase Plan. The Purchase Plan is set forth in its entirety and has been filed as Appendix B to this Proxy Statement with the SEC. The following summary is qualified in its entirety by reference to the complete text of the Purchase Plan. Any stockholder who wants to obtain a copy of the actual plan document may do so by written request to the Corporate Secretary at the Company’s principal offices in Sunnyvale, California.
 
 
The Purchase Plan is administered by the Compensation Committee of the Board, serving as the plan administrator. As plan administrator, such committee has full authority to adopt administrative rules and procedures and to interpret the provisions of the Purchase Plan.
 
 
The maximum number of Shares reserved for issuance over the term of the Purchase Plan is limited to 23,500,000 Shares, assuming stockholder approval of the 2,900,000 Share increase that is the subject of this Proposal No. 4. As of May 23, 2008, 16,790,819 Shares had been issued under the Purchase Plan, and 6,709,181 Shares were available for future issuance, assuming stockholder approval of the 2,900,000 Share increase.
 
The Shares issuable under the Purchase Plan may be made available from authorized but unissued Shares or from Shares of common stock reacquired by the Company, including Shares purchased on the open market.
 
In the event that any change is made to the outstanding common stock (whether by reason of any stock split, stock dividend, recapitalization, exchange or combination of shares or other change affecting the outstanding common stock as a class without the Company’s receipt of consideration), appropriate adjustments will be made to (1) the maximum number and class of securities issuable under the Purchase Plan, (2) the maximum number and class of securities purchasable per participant on any one semiannual purchase date, and (3) the number and class of securities subject to each outstanding purchase right and the purchase price per Share in effect thereunder. Such adjustments will be designed to preclude any dilution or enlargement of benefits under the Purchase Plan or the outstanding purchase rights thereunder.
 
 
Shares are offered under the Purchase Plan through a series of overlapping offering periods, each with a maximum duration of 24 months. Such offering periods will begin on the first business day of June and on the first business day of December each year over the term of the Purchase Plan. Accordingly, two (2) separate offering periods will begin in each calendar year.
 
Each offering period will consist of a series of one or more successive purchase intervals. Purchase intervals will run from the first business day in June to the last business day in November each year and from the first business day in December each year to the last business day in May in the immediately succeeding year. Accordingly, Shares will be purchased on the last business day in May and November each year with the payroll deductions collected from the participants for the purchase interval ending with each such semiannual purchase date.
 
If the fair market value per share of common stock on any semiannual purchase date within a particular offering period is less than the fair market value per share of common stock on the start date of that offering period, then the participants in that offering period will automatically be transferred from that offering period after the semiannual purchase of Shares on their behalf and enrolled in the new offering period which begins on the next business day following such purchase date.
 
 
Any individual who is employed on a basis under which he or she is regularly expected to work for more than 20 hours per week for more than five months per calendar year in the employ of the Company or any participating


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parent or subsidiary corporation (including any corporation which subsequently becomes such at any time during the term of the Purchase Plan) is eligible to participate in the Purchase Plan.
 
An individual who is an eligible employee on the start date of any offering period may join that offering period at that time. However, no employee may participate in more than one offering period at a time.
 
As of May 23, 2008, approximately 7,628 employees, including five executive officers, were eligible to participate in the Purchase Plan.
 
 
The purchase price of the Shares purchased on behalf of each participant on each semiannual purchase date will be equal to 85% of the lower of (1) the fair market value per Share on the start date of the offering period in which the participant is enrolled or (2) the fair market value on the semiannual purchase date.
 
The fair market value per Share on any particular date under the Purchase Plan will be deemed to be equal to the closing selling price per share on such date reported on the NASDAQ Global Select Market. On May 23, 2008, the closing selling per share of common stock on the NASDAQ Select Market was $23.77 per share.
 
 
Each participant may authorize periodic payroll deductions in any multiple of 1% up to a maximum of 10% of his or her total cash earnings (generally base salary, bonuses, overtime pay and commissions) to be applied to the acquisition of Shares at semiannual intervals. Accordingly, on each semiannual purchase date (the last business day in May and November each year), the accumulated payroll deductions of each participant will automatically be applied to the purchase of whole Shares at the purchase price in effect for the participant for that purchase date.
 
 
The Purchase Plan imposes certain limitations upon a participant’s rights to acquire common stock, including the following limitations:
 
  •  Purchase rights granted to a participant may not permit such individual to purchase more than $25,000 worth of Shares (valued at the time each purchase right is granted) for each calendar year those purchase rights are outstanding.
 
  •  Purchase rights may not be granted to any individual if such individual would, immediately after the grant, own or hold outstanding options or other rights to purchase stock possessing 5% or more of the total combined voting power or value of all classes of stock of the Company or any of its affiliates.
 
  •  No participant may purchase more than 1,500 Shares on any one purchase date.
 
The Plan Administrator will have the discretionary authority to increase, decrease, or implement the per participant and any total participant limitations prior to the start date of any new offering period under the Purchase Plan.
 
 
The participant may withdraw from the Purchase Plan at any time, and his or her accumulated payroll deductions may either be applied to the purchase of shares on the next semiannual purchase date or refunded.
 
Upon the participant’s cessation of employment or loss of eligible employee status, payroll deductions will automatically cease. Any payroll deductions which the participant may have made for the semiannual period in which such cessation of employment or loss of eligibility occurs will be immediately refunded.
 
 
No participant will have any stockholder rights with respect to the Shares covered by his or her purchase rights until the Shares are actually purchased on the participant’s behalf. No adjustment will be made for dividends, distributions or other rights for which the record date is prior to the date of such purchase.


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Purchase rights are not assignable or transferable by the participant and may be exercised only by the participant.
 
 
In the event a change in control occurs, all outstanding purchase rights will automatically be exercised immediately prior to the effective date of such change. The purchase price in effect for each participant will be equal to 85% of the lower of (1) the fair market value per Share on the start date of the offering period in which the participant is enrolled at the time the change in control occurs or (2) the fair market value per Share immediately prior to the effective date of such change in control.
 
A change in control will be deemed to occur if (1) the Company is acquired through a merger or consolidation in which more than 50% of the Company’s outstanding voting stock is transferred to a person or persons different from those who held stock immediately prior to such transaction; (2) the Company sells, transfers or disposes of all or substantially all of its assets; or (3) any person or related group of persons acquires ownership of securities possessing more than 50% of the total combined voting power of the Company’s outstanding securities pursuant to a tender or exchange offer made directly to the Company’s stockholders.
 
 
Should the total number of Shares to be purchased pursuant to outstanding purchase rights on any particular date exceed either (1) the maximum number of Shares purchasable in total by all participants on any one purchase date (if applicable) or (2) the number of Shares then available for issuance under the Purchase Plan, then the Plan Administrator will make a pro-rata allocation of the available Shares on a uniform and nondiscriminatory basis. In such an event, the Plan Administrator will refund the accumulated payroll deductions of each participant, to the extent in excess of the purchase price payable for the Shares prorated to such individual.
 
 
The Purchase Plan will terminate upon the earliest of (1) the last business day in May 2011, (2) the date on which all Shares available for issuance thereunder are sold pursuant to exercised purchase rights, or (3) the date on which all purchase rights are exercised in connection with a change in control.
 
The Board may at any time alter, amend, suspend or discontinue the Purchase Plan. However, the Board may not, without stockholder approval, (1) increase the number of Shares issuable under the Purchase Plan, (2) alter the purchase price formula so as to reduce the purchase price, or (3) modify the requirements for eligibility to participate in the Purchase Plan.


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The table below shows, as to the named executive officers and specified groups, the number of Shares purchased under the Purchase Plan during fiscal 2008, together with the value of those Shares as of the date of purchase.
 
 
 
Participation in the Purchase Plan is voluntary and dependent on each eligible employee’s election to participate and his or her determination as to the level of payroll deductions. Accordingly, future purchases under the Purchase Plan are not determinable. Nonemployee directors are not eligible to participate in the Purchase Plan. The following table sets forth certain information regarding shares purchased under the Purchase Plan during the last fiscal year for each of the named executive officers, for all current executive officers as a group and for all other employees who participated in the Purchase Plan as a group:
 
 
                 
    Number of
       
    Purchased
    Dollar Value of
 
Name
  Shares     Purchased Shares(1)  
 
Daniel J. Warmenhoven
    769     $ 3,710  
Chief Executive Officer
               
Thomas Georgens
    844     $ 4,816  
President and Chief Operating Officer
               
Steven J. Gomo
    850     $ 5,864  
Executive Vice President Finance and Chief Financial Officer
               
Thomas F. Mendoza
        $  
Vice Chairman
               
Robert E. Salmon
    770     $ 3,714  
Executive Vice President Field Operations
               
All current executive officers as a group (5 persons)
    3,233     $ 18,104  
All employees, including current officers who are not executive officers, as a group (4,610 persons)
    2,053,362     $ 9,347,257  
 
 
(1) Market Value of shares on date of purchase, minus the purchase price under the Purchase Plan
 
 
No purchase rights have been granted, and no Shares have been issued, on the basis of the 2,900,000 Share increase that is the subject of this Proposal No. 4.
 
 
The Purchase Plan is intended to be an employee stock purchase plan within the meaning of Section 423 of the Code. Under an employee stock purchase plan, which so qualifies, no taxable income will be recognized by a participant, and no deductions will be allowable to the Company, upon either the grant or the exercise of the purchase rights. Taxable income will not be recognized until there is a sale or other disposition of the Shares acquired under the Purchase Plan or in the event the participant should die while still owning the purchased Shares.
 
If the participant sells or otherwise disposes of the purchased Shares within two years after the start date of the offering period in which such Shares were acquired or within one year after the actual semiannual purchase date of those Shares, then the participant will recognize ordinary income in the year of sale or disposition equal to the amount by which the fair market value of the Shares on the purchase date exceeded the purchase price paid for those Shares, and the Company will be entitled to an income tax deduction, for the taxable year in which such disposition occurs equal in amount to such excess. The participant will also recognize capital gain equal to the amount by which


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the amount realized upon the sale or disposition exceeds the sum of the aggregate purchase price paid for the Shares and the ordinary income recognized in connection with their acquisition.
 
If the participant sells or disposes of the purchased Shares more than two years after the start date of the offering period in which the Shares were acquired and more than one year after the actual semiannual purchase date of those Shares, then the participant will recognize ordinary income in the year of sale or disposition equal to the lesser of (1) the amount by which the fair market value of the Shares on the sale or disposition date exceeded the purchase price paid for those Shares or (2) 15% of the fair market value of the Shares on the start date of that offering period. Any additional gain upon the disposition will be taxed as a long-term capital gain. The Company will not be entitled to an income tax deduction with respect to such disposition.
 
If the participant still owns the purchased Shares at the time of death, the lesser of (1) the amount by which the fair market value of the Shares on the date of death exceeds the purchase price or (2) 15% of the fair market value of the Shares on the start date of the offering period in which those Shares were acquired will constitute ordinary income in the year of death.
 
 
The Board believes that it is in the best interests of the Company to continue to provide employees with the opportunity to acquire an ownership interest in the Company through their participation in the Purchase Plan and thereby encourage them to remain in the Company’s employ and more closely align their interests with those of the stockholders.
 
 
The affirmative vote of a majority of the Votes Cast is required for approval of the amendment to the Purchase Plan described in this Proposal No. 4. Should such stockholder approval not be obtained, the 2,900,000 Share increase, which is the subject of this Proposal, will not be implemented.
 
The Board of Directors Unanimously Recommends That Stockholders
Vote FOR Proposal No. 4
 
PROPOSAL NO. 5:
 
 
The Company is asking the stockholders to ratify the selection of Deloitte & Touche LLP as the Company’s independent auditors for the fiscal year ending April 24, 2009.
 
In the event the stockholders fail to ratify the appointment, the Audit Committee of the Board of Directors will consider it as a direction to select other auditors for the subsequent year. Even if the selection is ratified, the Audit Committee at its discretion may direct the appointment of a different independent accounting firm at any time during the year if the Board determines that such a change would be in the best interest of the Company and its stockholders.
 
A representative of Deloitte & Touche LLP is expected to be present at the Annual Meeting, will have the opportunity to make a statement if he or she desires to do so, and will be available to respond to appropriate questions.
 
 
The affirmative vote by a majority of the Votes Cast is required to ratify the selection of Deloitte & Touche LLP. The effect of an abstention is the same as that of a vote against the proposal. Unless you indicate otherwise, your proxy will vote “FOR” the proposal.
 
The Board of Directors Unanimously Recommends That Stockholders
Vote FOR Proposal No. 5
 


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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
 
To the Company’s knowledge, the following table sets forth certain information regarding beneficial ownership of the Company’s common stock as of May 23, 2008 by (1) each person or entity who is known by the Company to own beneficially more than 5% of the Company’s common stock, (2) each of the Company’s directors and nominees for director, (3) each of the Company’s executive officers set forth in the Summary Compensation Table of the Compensation of Executive Officers section of this Proxy Statement, and (4) all of the Company’s current directors and executive officers as a group.
 
Except as indicated by footnote, the address of the beneficial owners is c/o NetApp, Inc., 495 East Java Drive, Sunnyvale, California 94089. Information related to holders of more than 5% of the Company’s common stock was obtained from filings with the SEC pursuant to Sections 13(d) or 13(g) of the Exchange Act.
 
                         
          Number of
       
          Shares
       
          Beneficially
    Percentage of
 
Title of Class
   
Name of Beneficial Owner
  Owned     Class(1)  
 
  Common Stock    
Wellington Company Management(2)
75 State Street
Boston, MA 02109
    37,820,771       11.01 %
       
UBS AG(3)
Bahnhofstrasse 45, P.O. Box Cit-8021, Zurich, Switzerland
    19,132,599       5.6 %
       
Daniel J. Warmenhoven(4)
    8,562,129       2.5 %
       
Thomas Georgens(5)
    328,910       *  
       
Steven J. Gomo(6)
    545,347       *  
       
Thomas F. Mendoza(7)
    2,015,072       *  
       
Robert F. Salmon(8)
    873,371       *  
       
Donald T. Valentine(9)
    822,000       *  
       
Jeffry R. Allen(10)
    1,018,975       *  
       
Carol A. Bartz(11)
    125,000       *  
       
Alan L. Earhart(12)
    90,000       *  
       
Edward Kozel(13)
    81,500       *  
       
Mark Leslie(14)
    110,000       *  
       
Nicholas G. Moore(15)
    90,000       *  
       
George T. Shaheen(16)
    110,000       *  
       
Robert T. Wall(17)
    370,071       *  
       
All current directors and officers as a group (14 persons)(18)
    15,142,375       4.3 %
 
 
Less than 1%
 
(1) Percentage of Class is based on 342,299,730 shares of common stock outstanding on May 23, 2008. Shares of common stock subject to stock options which are currently exercisable or will become exercisable within 60 days of May 23, 2008 are deemed outstanding for computing the percentage of the person or group holding such options, but are not deemed outstanding for computing the percentage of any other person or group. Except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock.
 
(2) Information is based on a Schedule 13G/A filed with the SEC on May 12, 2008 by Wellington Company Management, LLP, a Massachusetts corporation (“Wellington”), on behalf of itself. The principal Wellington business office is located at 75 State Street, Boston, MA 02109. Wellington, in its capacity as an investment advisor, may be deemed to beneficially own 37,820,771 shares which are held of record by clients of


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Wellington. Wellington has the shared power to vote or to direct the vote of the 27,156,328 shares, and the shared power to dispose or to direct to dispose 37,820,771 shares.
 
(3) Information is based on a Schedule 13G filed with the SEC on February 11, 2008 by UBS AG, a corporation organized under the laws of Switzerland (“UBS”). UBS’ principal place of business is Bahnhofstrasse 45, P.O. Box Cit-8021, Zurich, Switzerland. UBS is classified as a bank, as defined in Section 3(a)(6) of the Securities Exchange Act of 1934, as amended. UBS filed the Schedule 13G for the benefit of and on behalf of the UBS Global Asset Management business group of UBS (which is comprised of a number of distinct U.S. and foreign affiliates and subsidiaries of UBS). The filing reflects the securities beneficially owned by the UBS Global Asset Management business group of UBS and its subsidiaries and affiliates on behalf of its clients. UBS has sole voting power with respect to 17,281,561 shares and shared dispositive power with respect to 19,132,599 shares. UBS disclaims beneficial ownership of all such securities.
 
(4) Includes 3,218,832 shares held by Daniel J. Warmenhoven and Charmaine A. Warmenhoven, trustees to The Warmenhoven 1987 Revocable Trust, of which Mr. Warmenhoven is a trustee and shares voting and investment powers. Also includes 970,000 shares held by Warmenhoven Ventures LP, a limited partnership of which the Warmenhoven Management Trust is the general partner, of which Mr. Warmenhoven is a trustee. Excludes 81,462 shares held by Richard A. Andre, trustee to the Daniel J. Warmenhoven 1991 Children’s Trust, as Mr. Warmenhoven disclaims beneficial ownership of the shares held by this trust. Includes 1,368,614 shares of common stock issuable upon exercise of options granted under the 1995 Plan and 2,958,957 shares of common stock issuable upon exercise of options granted under the 1999 Plan, each of which are currently exercisable or will become exercisable within 60 days after May 23, 2008.
 
(5) Includes 313,165 shares of common stock issuable upon exercise of options granted under the 1999 Plan, each of which are currently exercisable or will become exercisable within 60 days of May 23, 2008.
 
(6) Includes 80,000 shares of common stock issuable upon exercise of options granted under the 1995 Plan and 457,498 shares of common stock issuable upon exercise of options granted under the 1999 Plan, each of which are currently exercisable or will become exercisable within 60 days of May 23, 2008.
 
(7) Includes 43,750 shares of common stock issuable upon exercise of options granted under the 1995 Plan and 1,411,459 shares of common stock issuable upon exercise of options granted under the 1999 Plan, each of which are currently exercisable or will become exercisable within 60 days of May 23, 2008.
 
(8) Includes 21,560 shares held by Robert Salmon and Patricia Mertens-Salmon, trustees to the Salmon Trust; and 240 shares held by Patricia Mertens-Salmon, Custodian under UTMA CA. Includes 148,210 shares of common stock issuable upon exercise of options granted under the 1995 Plan and 652,914 shares of common stock issuable upon exercise of options granted under the 1999 Plan, each of which are exercisable or will become exercisable within 60 days of May 23, 2008.
 
(9) Includes 506,000 shares held in trust by Donald T. Valentine, trustee to the Donald T. Valentine Family Trust. Includes 146,000 shares of common stock issuable upon exercise of currently exercisable options granted under the 1995 Plan; and 170,000 shares of common stock issuable upon exercise of currently exercisable options granted under the 1999 Plan.
 
(10) Includes 29,376 shares of common stock issuable upon exercise of currently exercisable options granted under the 1995 Plan. Also includes 967,433 shares of common stock issuable upon exercise of options granted under the 1999 Plan, which are currently exercisable or will become exercisable within 60 days of May 23, 2008.
 
(11) Includes 25,000 shares of common stock issuable upon exercise of currently exercisable options granted under the 1995 Plan; and 100,000 shares of common stock issuable upon exercise of currently exercisable options granted under the 1999 Plan. Excludes 82,352 shares held by Ms. Bartz’s spouse as separate property.
 
(12) Common stock issuable upon exercise of currently exercisable options granted under the 1999 Plan.
 
(13) Includes 75,000 shares of common stock issuable upon exercise of currently exercisable options granted under the 1999 Plan.
 
(14) Common stock issuable upon exercise of currently exercisable options granted under the 1999 Plan.
 
(15) Includes 20,000 shares of common stock issuable upon exercise of currently exercisable options granted under the 1999 Plan, of which 5,000 shares are held by Nicholas G. Moore and 15,000 shares are held by The Moore Family Ventures LP, of which Mr. Moore is General Partner. Also includes 70,000 shares of common stock


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issuable upon exercise of currently exercisable options granted under the 1999 Plan, of which 20,000 shares are held by Nicholas G. Moore and 50,000 shares are held by The Moore Family Ventures LP, of which Mr. Moore is General Partner.
 
(16) Common stock issuable upon exercise of currently exercisable options granted under the 1999 Plan.
 
(17) Includes 140,000 shares of common stock issuable upon exercise of currently exercisable options granted under the 1999 Plan.
 
(18) Includes 1,860,950 shares of common stock issuable upon exercise of options granted under the 1995 Plan and 7,626,426 shares of common stock issuable upon the exercise of options granted under the 1999 Plan, which are currently exercisable or will become exercisable within 60 days of May 23, 2008.
 
 
Section 16(a) of the Exchange Act requires the Company’s directors and executive officers and persons who own more than 10% of a registered class of the Company’s equity securities to file with the SEC initial reports of ownership and reports of changes in their ownership of common stock and other equity securities of the Company. Officers, directors and greater than 10% stockholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.
 
Based solely on the review of the copies of such reports furnished to the Company and written representations that no other reports were required, the Company believes that during the fiscal year ended April 25, 2008, its officers, directors and greater than 10% stockholders complied with all Section 16 filing requirements. However, Mr. Mendoza inadvertently failed to file one Form 4 with respect to a forfeiture of common stock in August 1998 and one Form 4 with respect to a sale of common stock in May 2002 , which transactions are both reflected on a Form 4 filed on July 11, 2008.
 
 
The Board has delegated to the Compensation Committee of the Board (“Compensation Committee”) sole authority and responsibility for establishing and overseeing salaries, incentive compensation programs, and other forms of compensation for our executive officers and our other employees and for administering our equity incentive and benefits plans.
 
The principal components of compensation that we pay to our named executive officers consist of the following:
 
1. Base salary and standard employee benefits (including our 401(k) plan, health and life insurance plans, and nonqualified deferred compensation program);
 
2. Cash incentive compensation under the terms of incentive compensation plans established for our senior executive officers (including our named executive officers);
 
3. Equity compensation in the form of grants of stock options, restricted stock and restricted stock units; and
 
4. The Executive Retirement Medical Plan for qualifying senior executive officers (including our named executive officers).
 
Our compensation programs are designed to recruit and retain quality senior executive officers and to motivate and reward our senior executive officers for managing and operating our business in a manner that maximizes stockholder value consistent with good ethical behavior. We use a combination of individual and corporate-wide performance goals and measure these goals on an annual and long-term basis in order to ensure that we achieve our corporate goals. This compensation discussion and analysis explains the material elements of our compensation for our named executive officers and how our compensation program is designed and operated to help us achieve our corporate goals.


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Our compensation program is designed to reward employee behaviors that benefit the Company and its stockholders on a day-to-day, periodic and long-term basis. These behaviors include excellence in performing one’s duties, collegiality and teamwork in meeting individual- and corporate-wide goals and good ethical behavior in performing one’s duties. Our base salary compensation is designed to ensure excellence in the day-to-day management and operation of our business while our cash incentive compensation program rewards behaviors that support the Company’s short-term (typically annual) goals. Our equity award programs target longer term value that we believe should ultimately be expressed as a sustained material increase in our stock price. Our equity awards also represent a key tool for retaining our employees, including our named executive officers. We do so through the granting of equity awards that “vest” over a fixed period of time subject to the continued provision of services by the individual to the Company. Our customary new hire equity award vests over a period of four years, with one-quarter of the total award vesting on the first anniversary of the employee’s hire date and the balance of the award vesting ratably each month thereafter for the next three years such that the entire award vests in full on the fourth anniversary of the hire date, subject to continued provision of service. Our customary performance equity award vests over a period of four years, vesting ratably each month such that the entire award vests in full on the fourth anniversary of the grant date, subject to continued provision of service.
 
Our Executive Retirement Medical Plan provides medical coverage beyond the COBRA maximum benefit period to a defined group of retiring executive officers as a fully insured plan based on minimum age, service and level of responsibility (that is, executive vice president or above) and was adopted by the Company as a method to retain the defined group of executive officers.
 
Total compensation is higher for senior executive officers (including our named executive officers) with greater responsibility and greater ability to influence the Company’s achievement of targeted results and corporate goals. As an executive’s position and responsibility increase, we believe that a greater portion of that executive’s total compensation should be performance-based pay that is contingent on the achievement of specific corporate goals. And as an executive’s performance-based pay increases with increasing levels of responsibility, we also believe that equity-based compensation should compose an increasingly higher portion of performance-based compensation and of total compensation. Therefore, our compensation program is structured such that a significant portion of our most senior executives’ (and all of our named executive officers’) total compensation is tied to long-term appreciation of our stock price.
 
 
The Compensation Committee meets periodically throughout the year to manage our compensation program. The Compensation Committee determines and approves the principal components of compensation for our named executive officers (including the incentive targets for the cash incentive compensation program) on an annual basis, typically prior to the beginning of the applicable fiscal year. As part of this process, the Compensation Committee establishes targeted total compensation levels (that is, maximum achievable compensation) for each of our named executive officers. In making its decisions regarding compensation, the Compensation Committee obtains the advice and counsel of outside advisors engaged by the Compensation Committee. With respect to our named executive officers (other than the CEO), the Compensation Committee solicits the input of our chief executive officer, who recommends to the Compensation Committee the salary, incentive compensation and equity-based compensation to be paid to our named executive officers other than himself. We expect that the Compensation Committee will continue to solicit input from our chief executive officer with respect to compensation decisions affecting the other named executive officers and other members of our senior management team. With respect to compensation for our chief executive officer, the Compensation Committee deliberates and makes decisions without the presence or participation of the chief executive officer.
 
In addition, the Compensation Committee typically engages an independent compensation consultant to periodically review our compensation programs, based on both benchmarking of a select group of “peer companies” as well as based on our own internal pay equity parameters and our overall corporate goals. For instance, in connection with its determination of compensation for our fiscal year 2009, the Compensation Committee retained an independent compensation consultant to (1) review and assess the total direct compensation levels provided to


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our senior management team relative to an appropriate peer group, (2) review and assess our current equity grant guidelines and practices relative to an appropriate peer group, and (3) develop future equity grant guidelines and practices for all employees taking into account current trends in compensation. Based on the analysis by the consultant, input from the senior management team and the Compensation Committee’s deliberations, the Compensation Committee approved our compensation plan for fiscal 2009.
 
The Compensation Committee has designed our compensation program in order to recruit and retain quality executives in a competitive labor environment and to motivate those executives to perform the best job possible consistent with good ethical behavior and to do so over a sustained period of time, which we believe will ultimately be expressed in our stock price. The Company offers each of the elements of compensation outlined above to our named executive officers because we believe that all four elements are necessary in order to meet the goals that we have set for our Company. For instance, if we were to reduce the payments under or eliminate entirely the incentive compensation plan, we would not have an appropriate means to motivate our executives to achieve short-term goals because we would be relying on base salary (which is not tied to specific corporate goals) and equity awards that (because of their vesting) are tied to long-term appreciation of our stock price. Similarly, if we were to reduce or eliminate our equity awards and rely solely on base salary and our incentive compensation plan, our executives might focus their efforts on achieving short-term corporate goals without regard to the creation of long-term value that would be expressed in our stock price.
 
 
The primary factors that the Compensation Committee takes into consideration in establishing the principal components of compensation of our named executive officers are discussed below. While these are typically the considerations upon which the Compensation Committee bases its compensation decisions for our named executive officers, the Compensation Committee may, at its discretion, apply entirely different factors, such as different measures of financial performance, for future fiscal years.
 
 
In February 2007, the Compensation Committee reviewed and approved a peer group of companies to be used for fiscal 2008 for benchmarking and for setting executive compensation. The Compensation Peer Group for fiscal 2008 was as follows:
 
         
3Com Corp. 
  Cadence Design Systems, Inc.   SanDisk Corp.
Adobe Systems, Inc. 
  Juniper Networks, Inc.   Synopsys, Inc.
BEA Systems, Inc. 
  Intuit, Inc.   VeriSign, Inc.
BMC Software, Inc. 
  LSI Corporation   Xilinx, Inc.
Broadcom Corp. 
  Quantum Corp.    


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In February 2008, based on the review and recommendations presented by Radford Surveys + Consulting, the Compensation Committee reviewed and approved a revised Compensation Peer Group to be used for benchmarking and for setting executive compensation. To determine the appropriate peer group, the Compensation Committee considered companies with similar revenue, number of employees, market capitalization and annual growth rates. The median annual revenues for the new peer group are $2.3 billion and the group has been increased from 14 to 34 companies. The Compensation Committee will periodically review and update the peer group as appropriate. The Compensation Peer Group established for fiscal 2008 and 2009 is as follows:
 
         
Adobe Systems, Inc. 
  Electronic Arts, Inc.   Palm, Inc.
Agere Systems, Inc.(1)
  Gateway, Inc.   Sabre Holdings Corp.
American Power Conversion
  Harris Corp.   SanDisk Corp.
ASML Holding N.V. 
  Intuit, Inc.   Spansion, Inc.
ATI Technologies, Inc.(2)
  Juniper Networks, Inc.   Stryker Endoscopy
Atmel Corp. 
  Level 3 Communications, Inc.   Symantec Corp.
Autodesk, Inc. 
  Logitech International S.A.   Symbol Technologies, Inc.(2)
Bell Microproducts, Inc. 
  LSI Corporation   VeriSign, Inc.
Broadcom Corp. 
  Marvell Technology Group Ltd.   Western Digital Corp.
CA, Inc. 
  Metavante Corp.   Xilinx, Inc.
Corning, Inc. 
  National Semiconductor    
eBay, Inc. 
  NVIDIA Corp.    
 
 
(1) Agere was acquired by LSI
 
(2) ATI Technologies, Inc. and Symbol Technologies, Inc. did not participate in the survey data in 2008
 
 
In setting the base salary for each named executive officer, the Compensation Committee considers the executive’s qualifications and experience, scope of responsibilities, future potential contributions to the Company, the goals and objectives of the executive, and the executive’s past performance. In addition, the Compensation Committee reviews published compensation survey data for the industry, engages compensation consultants to perform customized studies for the Compensation Committee and reviews internal pay equity. The base salary for each named executive officer is designed to be competitive with salary levels for comparable positions in the published surveys as well as to reflect the individual’s personal performance and internal alignment considerations. The relative weight given to each factor varies with each individual at the sole discretion of the Compensation Committee. For fiscal 2008, the base salary of the Company’s named executive officers ranged from the 50th percentile to the 75th percentile of the base salary levels in effect for comparable positions in the then surveyed compensation data for the former peer group, which consisted of smaller revenue-sized companies. For fiscal 2009, we expect that the base salary of the Company’s named executive officers will remain within the 50th percentile range for the more comparably sized new peer group. In addition, for the named executive officers, we establish base salaries at a level so that a significant portion (generally 50% or more) of the executive’s total compensation is performance-based (that is, cash incentive and/or equity awards), and, therefore, in connection with its determination of increases or decreases in total compensation for our named executive officers, the Compensation Committee reviews the executive’s current total compensation package in order to ensure that any change in annual base salary is properly balanced relative to those portions of his or her total compensation that consist of incentive compensation and equity awards.
 
While base salary levels (along with all other components of a named executive officer’s compensation) are typically set at fixed and consistent points in our fiscal year cycle, under certain circumstances, the Compensation Committee will revise base salary levels when those levels are not consistent with the Company’s overall compensation policies or are not competitive enough to attract higher quality employees.


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We have not historically paid any automatic or guaranteed cash incentives to our employees, including our named executive officers. The Compensation Committee believes that a cash incentive compensation plan that is tied to operational performance metrics can better serve to motivate the Company’s named executive officers and employees to achieve annual performance goals because such a plan uses more immediate measures of performance than those reflected in the appreciation in value of equity awards while still putting receipt of such compensation “at risk”. The Compensation Committee administers the incentive compensation plan on a yearly basis and authorizes payment of the incentive compensation payouts at the end of a particular fiscal year and creates a new, similarly structured plan for the succeeding fiscal year. The Compensation Committee determines the specific targets for each of our named executive officers based on the same criteria used to set base salary.
 
Under the 2008 incentive compensation plan, our senior executive officers (including all of our named executive officers) are eligible to receive annual performance-based cash compensation based on such individuals’ assigned target incentive compensation levels (which are expressed as a percentage of actual annual base salary earnings) and the funding of the 2008 incentive compensation plan, which is determined based on the Company achieving operating profits. For fiscal 2008, which ended April 25, 2008, the Company actually achieved 87.5% of its fiscal year 2008 plan. The incentive compensation-to-operating profit payout ratio is ten for one above 100% of the Company’s target operating profit goal and four for one below 100% of the Company’s target operating profit goal. For example, for each incremental percentage point of corporate operating profit beyond 100% of the Company’s targeted operating profit goal for a fiscal year, each eligible executive officer receives additional cash compensation equal to 10% of his actual incentive compensation target payout, up to a maximum of 200% of the target. For each incremental percentage point of the Company’s operating profit below 100% of the Company’s target operating profit goal for fiscal 2008, each eligible officer’s actual incentive compensation target payout is reduced by four percent. This incentive program is illustrated in the following schedule:
 
             
Percent of Operating
  Percent of Incentive
Profit Target
  Compensation Target Payout
 
  120 %     200 %
  110 %     200 %
  105 %     150 %
  102 %     120 %
  100 %     100 %
  98 %     92 %
  95 %     80 %
  90 %     60 %
  80 %     20 %
 
For our named executive officers, the target incentive compensation levels for fiscal year 2008 range from 110% to 130% of such individuals’ base earnings. All executives’ awards are capped at 2.0x target.
 
 
The Compensation Committee has the authority to grant stock options, restricted stock and restricted stock units (“RSUs”) to our named executive officers under our Amended and Restated 1995 Stock Incentive Plan and our Amended and Restated 1999 Stock Option Plan. These grants are designed to align the interests of each executive officer with those of the stockholders and provide each executive officer with a significant incentive to manage the Company from the perspective of an owner with an equity stake in the business. Each stock option grant allows the executive officer to acquire shares of the Company’s common stock at a fixed price per share (the market price on the grant date) over a specified period of time (up to seven years), thus providing a return to the executive officer only if the market price of the shares appreciates over the option term, and the officer continues to be employed by the Company. The size of the option grant to each executive officer is designed to create a meaningful opportunity for stock ownership and is based on a number of factors, of which the principal ones are the executive officer’s current position with the Company, external comparability with option grants made to executive officers based on


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published surveys, internal comparability with option grants made to other executive officers within the Company, the executive officer’s current level of performance and the executive officer’s potential for future responsibility and promotion over the option term. The Compensation Committee also takes into account the number of vested and unvested options and RSUs held by the executive officer in order to maintain an appropriate level of equity incentive for the individual. However, the Compensation Committee does not adhere to any specific guidelines as to the relative option holdings of the Company’s executive officers.
 
Since May of 2003, we have occasionally granted restricted stock in addition to stock options in unique situations when retention was of key strategic importance. As with the granting of stock options, restricted stock and RSU grants allow us to align the interests of each named executive officer with those of the stockholders and provide each individual with a significant incentive to manage the Company from the perspective of an owner with an equity stake in the business. Restricted stock and RSUs vest annually over four years and, because the restricted stock and RSU entails actual ownership of our common stock without the need to “exercise”, our restricted stock and RSU grants are proportionally smaller than our stock option grants, though the size of the restricted stock and RSU grant for each executive officer is still determined based on the same factors used to determine stock option grants described in the immediately preceding paragraph.
 
 
All grants of stock options to our executive officers, employees, and directors have exercise prices equal to or exceeding the fair market value of the underlying shares of common stock on the grant date, as determined by our Board. All equity-based awards have been reflected in our consolidated financial statements, based on the applicable accounting guidance. Previously, we accounted for equity compensation paid to our employees and directors using the intrinsic value method under APB Opinion No. 25 and FASB Financial Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation — an Interpretation of APB Opinion No. 25.” Under the intrinsic value method, no stock-based compensation was recognized in our consolidated statements of operations for options granted to our directors, employees, consultants and others because the exercise price of the stock options equaled or exceeded the fair market value of the underlying stock on the dates of grant. Effective April 29, 2006, we adopted FAS 123R using the modified prospective method. Under this method, stock-based compensation expense is recognized using the fair-value based method for all awards granted on or after the date of adoption of FAS 123R. FAS 123R requires us to estimate and record an expense over the service period of the stock-based award.
 
 
Except in extraordinary circumstances as approved by the Compensation Committee, we grant stock options, restricted stock and RSUs to all of our employees (including our named executive officers) on fixed dates. If the named executive officer is a new hire and is receiving an initial grant in connection with the commencement of employment, the grant to such individual “will be effective” on the 15th (or the first business day following the 15th, in the event that the 15th falls on a weekend or holiday) of the month that immediately follows the month in which the individual first commences employment with us. Regardless of the date of grant, the vesting commencement date is still the actual first day of employment. For named executive officers who receive promotion or retention grants, such grants “will be effective” on the 15th (or the first business day following the 15th, in the event that the 15th falls on a weekend or holiday) of the month that immediately follows the month in which the Compensation Committee approves the grant for such individual. Annual stock option and restricted stock grants to named executive officers are “effective” on June 1st (or the first business day following June 1st, in the event that June 1st falls on a weekend or holiday).
 
We do not have a policy or practice in place to grant equity awards that are timed to precede or follow the release or withholding of material nonpublic information.


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As of fiscal 2008, we did not have any employment contracts or severance agreements in effect with any of our named executive officers. However, we did have contractual obligations to provide three of our named executive officers with severance benefits in certain circumstances. Specifically, the stock options granted to each of Daniel J. Warmenhoven, our Chief Executive Officer, Thomas F. Mendoza, our Vice Chairman, and Steven J. Gomo, our Executive Vice President of Finance and Chief Financial Officer, under the Discretionary Option Grant Programs of our Amended and Restated 1995 Stock Incentive Plan and our Amended and Restated 1999 Stock Option Plan will immediately accelerate and vest in full in the event that such individual’s employment with us is terminated in connection with an acquisition of the Company pursuant to a merger or reorganization or a sale of all or substantially all of our assets. We also have a general severance policy applicable to all employees (including the named executive officers) providing for additional weeks of pay based on years of service, plus periods of access to a career center and office resources, one-on-one coaching, and access to an online database.
 
In considering total executive compensation for fiscal year 2009, the Compensation Committee recognized that we faced a potential risk of not being able to retain key executives in the event of an acquisition of the Company as a result of not having employment or severance agreements. On April 7, 2008, the Compensation Committee began to discuss entering into change of control severance agreements with certain of our executives. The Compensation Committee worked with an independent compensation consultant, Radford Surveys + Consulting, who provided various suggestions regarding the potential terms of a change of control severance agreement based on competitive market data from our Compensation Peer Group. In considering these potential terms, the Compensation Committee’s objectives were to: (1) assure we would have the continued dedication and objectivity of our executives, notwithstanding the possibility of a change of control of the Company, thereby aligning the interests of these key executives with those of the stockholders in connection with potentially advantageous offers to acquire the Company; and (2) create a total executive compensation plan that is competitive with our Compensation Peer Group.
 
On June 19, 2008, the Compensation Committee approved the terms of a change of control severance agreement and entering into such agreements with certain of our executives. Thereafter, we entered into a Change of Control Severance Agreements with certain executives, including each of the named executive officers. The terms of the individual Change of Control Severance Agreements are described in further detail in the section below titled “Potential Payments upon Termination or Change of Control.”
 
 
The Company’s named executive officers are eligible to participate in the Company’s Executive Retirement Medical Plan, which provides medical coverage beyond the COBRA maximum benefit period to a defined group of retiring executive officers as a fully-insured plan based on minimum age, service and level of responsibility (that is, executive vice president or above), and was adopted by the Company as a method to retain the defined group of executive officers. Our named executive officers are also entitled to a preventive care medical benefit not available to nonexecutives up to $2,500 per calendar year.
 
 
Named executive officers are eligible to participate in all of our employee benefit plans, such as medical, dental, vision, group life and accidental death and dismemberment insurance and our 401(k) plan, in each case on the same basis as other employees. We offer up to $3,000 in a matching contribution under our 401(k) plan to each employee. The only retirement benefits that we offer our named executive officers are those under the Executive Retirement Medical Plan.
 
The Board of Directors has adopted a travel policy whereby the Company’s CEO and Vice Chairman are permitted for business travel to fly private or charter aircraft within certain limitations. The CEO and Vice Chairman are two of the most frequently traveled senior executive officers of the Company and are often required to travel on extremely short notice and to areas that have limited access to commercial flights. Because the reimbursement is for business travel only and is integrally and directly related to the performance of the executives’ duties, the


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Company’s reimbursement is not compensation or a perquisite. Subject to an annual cap of $500,000, the CEO is reimbursed for expenses incurred in the operation of his privately owned aircraft when used for Company business, provided such expenses do not exceed the rate charged for equivalent commercial charter travel. For further details, see the Certain Transactions with Related Parties section of this Proxy Statement. The Vice Chairman is reimbursed for the actual cost of chartering an aircraft for his qualified business travel as defined in the policy and is also subject to an annual cap of $500,000.
 
 
Section 162(m) of the Code generally disallows a tax deduction to publicly held companies for compensation paid to certain executive officers, to the extent that compensation exceeds $1 million per officer in any year. The Company generally seeks to maximize the deductibility for tax purposes of all elements of compensation. The compensation paid to the CEO for the fiscal year 2008 did exceed the $1 million limit per officer, and it is expected the compensation to be paid to the CEO for the 2009 fiscal year will also exceed that limit. Our Amended and Restated 1995 Stock Incentive Plan and our Amended and Restated 1999 Stock Option Plan are structured so that any compensation deemed paid to an executive officer in connection with the exercise of his or her outstanding options under each such plan will qualify as performance-based compensation which will not be subject to the $1 million limitation. At the 2007 Annual Meeting, stockholders approved the Executive Compensation Plan so that cash bonuses paid in accordance with our Executive Compensation Plan could be structured to allow for a deduction under 162(m). The Company does not believe the amount of compensation in excess of $1 million will be significant. However, the Compensation Committee periodically reviews applicable tax provisions, such as Section 162(m), and may revise compensation plans from time to time to maximize deductibility.
 
 
 
 
The information contained in the following Report of the Compensation Committee of the Board of Directors on Executive Compensation shall not be deemed to be soliciting material or to be filed with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates it by reference in such filing.
 
 
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based upon such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
 
Submitted by the Compensation Committee
of the Board of Directors:
 
Carol A. Bartz, Chairman
Edward Kozel
Robert T. Wall
 


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COMPENSATION OF EXECUTIVE OFFICERS
 
Summary Compensation Table
 
The table below summarizes the compensation information for the named executive officers for the fiscal years ended April 25, 2008 and April 27, 2007.
 
                                                                         
                                        Change in
             
                                        Pension
             
                                        Value and
             
                                        Nonqualified
             
                                  Non-Equity
    Deferred
             
                      Stock
    Option
    Incentive Plan
    Compensation
    All Other
       
          Salary
    Bonus
    Awards
    Awards
    Compensation
    Earnings
    Compensation
    Total
 
Name and Principal Position
  Year     ($)     ($)     ($)(1)     ($)(2)     ($)(3)     ($)(4)     ($)(5)     ($)  
 
Daniel J. Warmenhoven
    2008     $ 786,538                 $ 3,327,060     $ 507,160 (6)   $ 1,285,280     $ 1,738     $ 5,907,776  
Chief Executive Officer
    2007     $ 709,615                 $ 3,714,835     $ 986,365 (6)   $ 1,016,567     $ 2,600     $ 6,429,982  
Thomas Georgens
    2008     $ 511,154           $ 138,569     $ 1,962,119     $ 304,239 (8)         $ 1,738     $ 2,917,819  
President and Chief Operating Officer
    2007     $ 405,769           $ 138,569     $ 2,551,575     $ 451,215 (8)         $ 907     $ 3,548,035  
Steven J. Gomo
    2008     $ 411,538                 $ 722,193     $ 224,535 (7)         $ 1,738     $ 1,360,004  
Executive Vice President and Chief Financial Officer
    2007     $ 366,923                 $ 968,340     $ 306,013 (7)         $ 1,416     $ 1,642,692  
Thomas F. Mendoza
    2008     $ 582,500                 $ 1,472,379     $ 346,704 (9)         $ 1,738     $ 2,403,321  
Vice Chairman
    2007     $ 440,385                 $ 2,337,808     $ 520,314 (9)         $ 2,600     $ 3,301,107  
Robert E. Salmon
    2008     $ 486,538           $ 384,520     $ 1,623,868     $ 265,455 (10)         $ 1,738     $ 2,762,119  
Executive Vice President, Field Operations
    2007     $ 405,769           $ 169,427     $ 1,721,628     $ 451,215 (10)         $ 907     $ 2,748,946  
 
 
(1) Stock awards consist of Restricted Stock and RSU’s. The amounts shown represent the compensation cost recognized for financial statement reporting purposes in accordance with FAS 123R for stock awards for the fiscal years ended April 25, 2008 and April 27, 2007. The amounts disregard estimates of forfeitures that are included in the financial reporting. The total fair value of each award is calculated as of the grant date and expensed in the financial statements over the service period of the award. The amounts shown include ratable amounts expensed for stock awards that were granted in fiscal years 2006 and 2007. Assumptions used in the valuations of these awards are included in Note 7 of the Company’s Annual Report on Form 10-K as filed with the SEC on June 24, 2008. These amounts do not necessarily represent actual value that may be realized by the named executive officers.
 
(2) The amounts shown represent the compensation cost recognized for financial statement reporting purposes in accordance with FAS 123R for stock option awards for the fiscal years ended April 25, 2008 and April 27, 2007. The amounts disregard estimates of forfeitures that are included in the financial reporting. The total fair value of each award is calculated as of the grant date and expensed in the financial statements over the service period of the award. The amounts shown include ratable amounts expensed for option awards that were granted in fiscal years 2004 through 2008. Assumptions used in the valuations of these awards are included in Note 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended April 25, 2008, as filed with the SEC on June 24, 2008. These amounts do not necessarily represent actual value that may be realized by the named executive officers.
 
(3) Amounts shown consist of payouts under the Non-equity Incentive Compensation Plan paid based upon the Company achieving 103.9% of its fiscal 2007 plan and 87.5% of its fiscal 2008 plan.
 
(4) Amounts consist of executive contributions plus aggregate earnings in the last fiscal year. Deferrals are placed at the participant’s direction into a variety of publicly traded mutual funds. These amounts are also reported in the Nonqualified Deferred Compensation Table below under the columns entitled “Executive Contributions in the Last Fiscal Year” and “Aggregate Earnings in the Last Fiscal Year.”
 
(5) The amounts shown represent the imputed income of term life insurance in excess of $50,000.
 
(6) Based upon the Company achieving 87.5% of its targeted operating profit, Mr. Warmenhoven received 49.6% of his nonequity incentive compensation target, which is 64% of his base compensation earnings for fiscal 2008. Fiscal 2007 is based upon the Company achieving 103.9% of its targeted operating profit, and


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Mr. Warmenhoven received 139% of his nonequity incentive compensation target, which is 139% of his base compensation earnings for fiscal 2007.
 
(7) Based upon the Company achieving 87.5% of its targeted operating profit, Mr. Gomo received 49.6% of his nonequity incentive compensation target, which is 55% of his base compensation earnings for fiscal 2008. Fiscal 2007 is based upon the Company achieving 103.9% of its targeted operating profit, and Mr. Gomo received 139% of his nonequity incentive compensation target, which is 83% of his base compensation earnings for fiscal 2007.
 
(8) Based upon the Company achieving 87.5% of its targeted operating profit, Mr. Georgens received 49.6% of his nonequity incentive compensation target, which is 60% of his base compensation earnings for fiscal 2008. Fiscal 2007 is based upon the Company achieving 103.9% of its targeted operating profit, and Mr. Georgens received 139% of his nonequity incentive compensation target, which is 111% of his base compensation earnings for fiscal 2007.
 
(9) Based upon the Company achieving 87.5% of its targeted operating profit, Mr. Mendoza received 49.6% of his nonequity incentive compensation target, which is 60% of his base compensation earnings for fiscal 2008. Fiscal 2007 is based upon the Company achieving 103.9% of its targeted operating profit, and Mr. Mendoza received 139% of his nonequity incentive compensation target, which is 118% of his base compensation earnings for fiscal 2007.
 
(10) Based upon the Company achieving 87.5% of its targeted operating profit, Mr. Salmon received 49.6% of his nonequity incentive compensation target, which is 55% of his base compensation earnings for fiscal 2008. Fiscal 2007 is based upon the Company achieving 103.9% of its targeted operating profit, and Mr. Salmon received 139% of his nonequity incentive compensation target, which is 111% of his base compensation earnings for fiscal 2007.
 
Grants of Plan-Based Awards
 
The table below summarizes information concerning all plan-based awards granted to the named executive officers during fiscal 2008, which ended on April 25, 2008.
 
                                                                                         
                                              All
    All
             
                                              Other
    Other
             
                                              Stock
    Option
          Grant Date
 
                                              Awards:
    Awards:
    Exercise
    Fair
 
                                              Number
    Number of
    or Base
    Value of
 
          Estimated Future Payouts
    Estimated Future Payouts Under Equity Incentive Plan
    of Shares
    Securities
    Price of
    Stock and
 
          Under Non-Equity Incentive Plan Awards(1)     Awards     of Stock
    Underlying
    Option
    Option
 
    Grant
    Threshold
    Target
    Maximum
    Threshold
    Target
    Maximum
    or Units
    Options
    Awards
    Awards
 
Name
  Date     ($)     ($)(2)     ($)(3)     (#)     (#)     (#)     (#)     (#)(4)     ($/Sh)(5)     ($)(6)  
 
Daniel J. Warmenhoven
    6/1/2007                                                 350,000 (7)   $ 30.74     $ 3,626,070  
      3/23/2007           $ 1,023,750     $ 2,047,500                                            
Thomas Georgens
    6/1/2007                                                 100,000 (7)   $ 30.74     $ 1,036,020  
      2/15/2008                                                 300,000 (8)   $ 21.40     $ 2,595,810  
      3/23/2007           $ 536,250     $ 1,072,500                                            
Steven J. Gomo
    6/1/2007                                                 50,000 (7)   $ 30.74     $ 518,010  
      3/23/2007           $ 453,750     $ 907,500                                            
Thomas F. Mendoza
    6/1/2007                                                 150,000 (7)   $ 30.74     $ 1,554,030  
      3/23/2007           $ 700,500     $ 1,401,000                                            
Robert E. Salmon
    6/1/2007                                                 100,000 (7)   $ 30.74     $ 1,036,020  
      3/23/2007           $ 536,250     $ 1,072,500                                            
 
 
(1) Amounts shown in these columns represent the range of possible cash payouts for each named executive officer under the Company’s Non-equity Incentive Plan, as determined by the Compensation Committee at its March 23, 2007 meeting.
 
(2) The estimated payouts are based upon the Company achieving 100% of its targeted operating profit for fiscal 2008.
 
(3) The Non-equity Incentive Plan is capped at a maximum of 200% of the target cash payouts for the applicable fiscal year.


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(4) The exercise price for all options granted to the named executive officers is 100% of the fair market value of the shares on the grant date. Regardless of the value placed on a stock option by FAS 123R on the grant date, the actual value of the option will depend on the market value of the Company’s common stock at the date in the future when the option is exercised.
 
(5) The exercise price may be paid in cash or in shares of common stock valued at fair market value on the exercise date
 
(6) The amounts shown represent the total fair value of the award calculated as of the grant date in accordance with FAS 123R. This amount is expensed in the financial statements over the service period of the award. Assumptions used in the valuations of these awards are included in Note 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended April 25, 2008, as filed with the SEC on June 24, 2008. These amounts do not necessarily represent the actual value that may be realized by the named executive officers.
 
(7) The stock option was granted under the Discretionary Option Grant Program of the 1999 Plan. The option has a maximum term of seven years measured from the grant date, subject to earlier termination upon the individual’s cessation of service with the Company. The option vests in a series of equal monthly installments over 48 months of service beginning with the month following the grant date.
 
(8) The stock option was granted under the Discretionary Option Grant Program of the 1995 Plan. The option has a maximum term of seven years measured from the grant date, subject to earlier termination upon the individual’s cessation of service with the Company. The option vests as to 25% of the underlying shares on January 29, 2009, and thereafter in a series of equal monthly installments over the next 36 months of service.


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Outstanding Equity Awards at Fiscal Year End
 
The following table sets forth information regarding stock options and stock awards held by the named executive officers as of April 25, 2008.
 
                                                                         
    Option Awards     Stock Awards  
                                                    Equity
 
                                                    Incentive
 
                                                    Plan
 
                                              Equity
    Awards:
 
                                              Incentive
    Market
 
                Equity
                            Plan Awards:
    or Payout
 
                Incentive
                            Number
    Value of
 
                Plan Awards:
                      Market
    of Unearned
    Unearned
 
    Number of
    Number of
    Number
                Number of
    Value of
    Shares,
    Shares,
 
    Securities
    Securities
    of Securities
                Shares or
    Shares or
    Units
    Units or
 
    Underlying
    Underlying
    Underlying
                Units of
    Units of
    or Other
    Other
 
    Unexercised
    Unexercised
    Unexercised
                Stock That
    Stock That
    Rights
    Rights
 
    Options
    Options
    Unearned
    Option
    Option
    Have Not
    Have Not
    That Not
    That Have
 
    (#)
    (#)
    Options
    Exercise
    Expiration
    Vested
    Vested
    Vested
    Not Vested
 
    Exercisable     Unexercisable     (#)     Price     Date     (#)     ($)(1)     (#)     ($)  
 
Daniel J. Warmenhoven
    950,000                   $ 11.250       5/23/2009                          
      2,648                   $ 14.167       1/2/2010                          
      500,000                   $ 53.907       1/31/2010                          
      2,187                   $ 17.146       1/1/2011                          
      800,000                   $ 20.160       4/25/2011                          
      3,153                   $ 7.927       1/1/2012                          
      240,000                   $ 15.320       2/6/2012                          
      120,000                   $ 15.320       2/6/2012                          
      400,000                   $ 9.990       10/31/2012                          
      7,009                   $ 3.566       1/1/2013                          
      400,000                   $ 15.711       5/8/2013                          
      3,617                   $ 6.910       1/1/2014                          
      287,500       12,500 (2)           $ 19.220       6/16/2014                          
      247,916       102,084 (3)           $ 29.240       5/31/2015                          
      206,250       243,750 (4)           $ 32.500       5/31/2013                          
      72,916       277,084 (5)           $ 30.740       5/31/2014                          
Thomas Georgens
    208,999       150,001 (6)           $ 27.810       11/14/2015       10,000 (7)   $ 234,400              
      45,833       54,167 (4)           $ 32.500       5/31/2013                          
      20,833       79,167 (5)           $ 30.740       5/31/2014                          
            300,000 (8)           $ 21.400       2/14/2015                          
Steven J. Gomo
    100,000                   $ 7.449       8/11/2012                          
      100,000                   $ 9.990       10/31/2012                          
      80,000                   $ 15.711       5/8/2013                          
      88,124       1,876 (9)           $ 19.170       5/2/2014                          
      44,791       5,209 (10)           $ 20.610       9/1/2014                          
      49,583       20,417 (3)           $ 29.240       5/31/2015                          
      45,833       54,167 (4)           $ 32.500       5/31/2013                          
      10,416       39,584 (5)           $ 30.740       5/31/2014                          
Thomas F. Mendoza
    300,000                   $ 53.907       1/31/2010                          
      75,000                   $ 58.000       5/9/2010                          
      41,667                   $ 9.990       10/31/2012                          
      43,750                   $ 15.711       5/8/2013                          
      850,000                   $ 24.690       10/30/2013                          
      35,417       29,167 (3)           $ 29.240       5/31/2015                          
      53,125       81,250 (4)           $ 32.500       5/31/2013                          
      31,250       118,750 (5)           $ 30.740       5/31/2014                          
Robert E. Salmon
    24,000                   $ 18.500       10/31/2009       5,000 (11)   $ 117,200.00              
      148                   $ 14.167       1/2/2010       22,500 (12)   $ 527,400.00              
      150,000                   $ 53.907       1/31/2010                          
      2,187                   $ 17.146       1/1/2011                          
      100,000                   $ 20.160       4/25/2011                          
      30,000                   $ 15.320       2/6/2012                          
      25,000                   $ 15.320       2/6/2012                          
      75,000                   $ 15.711       5/8/2013                          
      117,499       2,501 (9)           $ 19.170       5/2/2014                          
      44,791       5,209 (13)           $ 20.610       9/1/2014                          
      49,583       20,417 (3)           $ 29.240       5/31/2015                          
      42,187       32,813 (14)           $ 34.240       3/14/2016                          
      45,833       54,167 (4)           $ 32.500       5/31/2013                          
      39,062       85,938 (15)           $ 39.830       1/15/2014                          
      20,833       79,167 (5)           $ 30.740       5/31/2014                          


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(1) The market value for stock awards is calculated based on a market value of $23.44, the closing price of the Company’s common stock on April 25, 2008, multiplied by the number of shares.
 
(2) 25% of the option shares vested one year after the grant date (that is, on June 17, 2005) and 1/48th of the shares vest monthly in equal installments thereafter for the next 36 months. The option will be fully vested on June 17, 2008, subject to continued service through each applicable vesting date.
 
(3) 1/48th of the option shares vest monthly over four years measured from the grant date. The option will be fully vested on June 1, 2009, subject to continued service through each applicable vesting date.
 
(4) 1/48th of the option shares vest monthly over four years measured from the grant date. The option will be fully vested on June 1, 2010, subject to continued service through each applicable vesting date.
 
(5) 1/48th of the option shares vest monthly over four years measured from the grant date. The option will be fully vested on June 1, 2011, subject to continued service through each applicable vesting date.
 
(6) 25% of the option shares vested one year from the individual’s date of hire on October 17, 2006, and 1/48th of the option shares vest monthly thereafter for the next 36 months. The option will be fully vested on October 17, 2009, subject to continued service through each applicable vesting date.
 
(7) 25% of the shares vested one year after the grant date (that is, on November 15, 2006) and 25% of the shares will vest annually in equal installments thereafter for the next three years. All shares will be fully vested on November 15, 2009, subject to continued service through each applicable vesting date.
 
(8) 25% of the option shares vest on January 29, 2009, and 1/48th of the option shares vest monthly in equal installments thereafter for the next 36 months. The option will be fully vested on January 29, 2012, subject to continued service through each applicable vesting date.
 
(9) 1/48th of the option shares vest monthly in equal installments over four years measured from the grant date. The option will be fully vested on May 3, 2008, subject to continued service through each applicable vesting date.
 
(10) 50% of the option shares vested two years after the grant date on September 2, 2006, and 1/48th of the option shares vest monthly in equal installments thereafter for the next two years. The option will be fully vested on September 2, 2008, subject to continued service through each applicable vesting date.
 
(11) 25% of the shares vested one year after the grant date on March 22, 2007, and 25% of the shares will vest annually in equal installments thereafter for the next three years. All shares will be fully vested on March 22, 2010, subject to continued service through each applicable vesting date.
 
(12) 25% of the shares vested one year after the grant date on January 16, 2008, and 25% of the shares will vest annually in equal installments thereafter for the next three years. All shares will be fully vested on January 16, 2011, subject to continued service through each applicable vesting date.
 
(13) 25% of the option shares vested one year from the grant date on September 2, 2005, and 1/48th of the option shares vest monthly in equal installments thereafter for the next 36 months. The option will be fully vested on September 2, 2008, subject to continued service through each applicable vesting date.
 
(14) 25% of the option shares vested on January 9, 2007, and 1/48th of the option shares vest monthly in equal installments thereafter for the next 36 months. The option will be fully vested on January 9, 2010, subject to continued service through each applicable vesting date.
 
(15) 1/48th of the option shares vest monthly in equal installments over four years measured from the grant date. The option will be fully vested on January 16, 2011, subject to continued service through each applicable vesting date.


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The following table provides information regarding options and stock awards exercised and vested, respectively, and value realized for each of the named executive officers during the fiscal year that ended on April 25, 2008.
 
                                 
    Option Awards     Stock Awards  
    Number of Shares
    Value
    Number of Shares
    Value
 
    Acquired on
    Realized on
    Acquired on
    Realized on
 
    Exercise
    Exercise
    Vesting
    Vesting
 
Name
  (#)     ($)(1)     (#)     ($)(2)  
 
Daniel J. Warmenhoven
    44,352     $ 747,420              
Thomas Georgens
                5,000 (3)   $ 131,000  
Steven J. Gomo
                       
Thomas F. Mendoza
                       
Robert E. Salmon
    5,000     $ 99,157       10,000 (4)   $ 215,875  
 
 
(1) Based on the market price of the Company’s common stock on the date of exercise less the option exercise price paid for those shares, multiplied by the number of shares for which the option was exercised
 
(2) Based on the market price of the Company’s common stock on the vesting date, multiplied by the number of shares vested
 
(3) Of this amount, 1,787 shares were withheld by the Company to satisfy tax withholding requirements
 
(4) Of this amount, 893 shares were withheld by the Company to satisfy tax withholding requirements
 
 
Under the Company’s Deferred Compensation Plan, key employees, including the named executive officers, may defer from 1% to 100% of the compensation they receive. The Deferred Compensation Plan allows contributions on a tax deferred basis in excess of IRS limits imposed on 401(k) Plans as permitted and in compliance with Internal Revenue Code Section 409A. Eligible employees may defer an elected percentage of eligible earnings that include Base Salary, Sales Incentive Compensation, and Company Incentive Compensation. Eligible employees are director level and higher employees who are on the U.S. payroll. Elections made under the Deferred Compensation Plan are irrevocable for the period (plan year) to which they apply, and cannot be changed or terminated. If no new election is made for a subsequent plan year, the election will be 0%. Previous elections do not carry forward.
 
Interest (earnings) is not calculated by the Company or related to the Company’s earnings in the last fiscal year. Instead, deferrals are placed (at the participant’s direction) into a variety of publicly traded mutual funds administered through Fidelity Investments. The mutual funds available mirror those in the Company 401(k) Plan. Available mutual funds are selected and monitored by the 401(k) Compensation Committee which is comprised of a group of executives (none of whom are named executive officers), with input from an outside investment advisor as well as Fidelity Investment Advisors. Participants are permitted to make changes to their investment choices (but not their deferral percentages) at any time, but always within the family of publicly traded mutual funds. Neither Company common stock nor securities of any other issuers are included among the investment choices. However, it is possible that Company common stock may compose a portion of the portfolio of investments held by these mutual funds.
 
At the time of initial election, the participant must also elect a distribution option. Distribution options include a Separation Account (paid six months after termination of employment) or an In-Service Account (paid at a specified fixed future date). Participants are not permitted to change the timing of a Separation Account. In-Service Account distributions begin on January 15 of the specified year, and deferrals must be at least two years old before distribution can begin. Participants are permitted to delay the timing of an In-Service Account, but any such modification to timing must delay the distribution for at least five years.


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The following table represents the executive contributions, earnings and account balances for the named executive officers in the Deferred Compensation Plan.
 
NONQUALIFIED DEFERRED COMPENSATION
 
                                         
    Executive
    Company
    Aggregate
          Aggregate
 
    Contributions
    Contributions
    Earnings
    Aggregate
    Balance at
 
    in Last Fiscal
    in Last Fiscal
    in Last Fiscal
    Withdrawals/
    End of Last
 
    Year
    Year
    Year
    Distributions
    Fiscal Year
 
Name
  ($)(1)     ($)(2)     ($)     ($)     ($)(4)  
 
Daniel J. Warmenhoven(3)
  $ 1,200,521           $ 9,977           $ 2,485,801  
Steven J. Gomo
                             
Thomas Georgens
                             
Thomas F. Mendoza
                             
Robert E. Salmon
                             
 
 
(1) Represents amounts deferred, which is reported as compensation to Mr. Warmenhoven in the Summary Compensation Table.
 
(2) The Company does not make contributions to the Deferred Compensation Plan.
 
(3) Mr. Warmenhoven is the only named executive officer who participated in the Deferred Compensation Plan in fiscal 2008.
 
(4) Amounts reported in this column for each named executive officer include amounts reported in the Company’s Summary Compensation Table in previous years when earned if that executive’s compensation was required to be disclosed in a previous year.
 
 
The Company does not provide pension benefits or a defined contribution plan to the named executive officers other than the tax-qualified 401(k) plan.
 
Potential Payments upon Termination or Change in Control
 
 
In June 2008, the Compensation Committee approved the terms of a change of control severance arrangement. Thereafter, we entered into a Change of Control Severance Agreement with certain executives, including each of the named executive officers. The Compensation Committee believes these agreements are necessary for us to retain key executives in the event of an acquisition of the Company. In approving the agreements, the Compensation Committee’s objective was to (1) assure we would have the continued dedication and objectivity of our executives, notwithstanding the possibility of a change of control of the Company, thereby aligning the interests of these key executives with those of the stockholders in connection with potentially advantageous offers to acquire the Company, and (2) create a total executive compensation plan that is competitive with our Compensation Peer Group.


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Estimated Payments Upon Termination or Change in Control
 
The following table provides information concerning the estimated payments and benefits that would be provided in the circumstances described below for each of the named executive officers in accordance with the Company’s severance and benefits plans and practices as of April 25, 2008. Payments and benefits are estimated assuming that the triggering event took place on the last business day of fiscal year 2008 (April 25, 2008), and the price per share of the Company’s common stock is the closing price of the NASDAQ Global Select Market as of that date ($23.44). There can be no assurance that a triggering event would produce the same or similar results as those estimated below if such event occurs on any other date or at any other price, or if any other assumption used to estimate potential payments and benefits is not correct. Due to the number of factors that affect the nature and amount of any potential payments of benefits, any actual payments and benefits may be different.
 
                                     
        Potential Payments Upon:  
        Involuntary Termination
    Voluntary Termination
 
        Other Than for Cause     for Good Reason  
              On or Within
          On or Within
 
              12 Months
          12 Months
 
        Prior to
    Following
    Prior to
    Following
 
        Change of
    Change of
    Change of
    Change of
 
        Control
    Control
    Control
    Control
 
Name
 
Type of Benefit(1)
  ($)     ($)     ($)     ($)  
 
Daniel J. Warmenhoven
  Cash severance payments                          
    Vesting acceleration(2)         $ 52,750 (4)         $ 52,750 (4)
    Continued coverage of employee benefits(3)   $ 450,967     $ 450,967     $ 450,967     $ 450,967  
    Total termination benefits   $ 450,967     $ 503,717     $ 450,967     $ 503,717  
    Total previously vested equity value   $ 27,098,863     $ 27,098,863     $ 27,098,863     $ 27,098,863  
    Full “walk away” value   $ 27,549,830     $ 27,602,580     $ 27,549,830     $ 27,602,580  
Thomas Georgens
  Cash severance payments Vesting acceleration(2)                        
    Continued coverage of employee benefits(3)                        
    Total termination benefits                        
    Total previously vested equity value                        
    Full “walk away” value                        
Steven J. Gomo
  Cash severance payments Vesting acceleration(2)         $ 22,752 (4)         $ 22,752 (4)
    Continued coverage of employee benefits(3)   $ 842,153     $ 842,153     $ 842,153     $ 842,153  
    Total termination benefits   $ 842,153     $ 864,905     $ 842,153     $ 864,905  
    Total previously vested equity value   $ 4,065,468     $ 4,065,468     $ 4,065,468     $ 4,065,468  
    Full “walk away” value   $ 4,907,621     $ 4,930,373     $ 4,907,621     $ 4,930,373  
Thomas F. Mendoza
  Cash severance payments Vesting acceleration(2)           (4)           (4)
    Continued coverage of employee benefits(3)   $ 450,097     $ 450,097     $ 450,097     $ 450,097  
    Total termination benefits   $ 450,097     $ 450,097     $ 450,097     $ 450,097  
    Total previously vested equity value   $ 898,565     $ 898,565     $ 898,565     $ 898,565  
    Full “walk away” value   $ 1,348,662     $ 1,348,662     $ 1,348,662     $ 1,348,662  
Robert E. Salmon
  Cash severance payments                        
    Vesting acceleration(2)                        
    Continued coverage of employee benefits(3)                        
    Total termination benefits                        
    Total previously vested equity value   $ 2,116,452     $ 2,116,452     $ 2,116,452     $ 2,116,452  
    Full “walk away” value   $ 2,116,452     $ 2,116,452     $ 2,116,452     $ 2,116,452  
 
 
(1) Reflects the Company’s severance and benefits plans and practices as of April 25, 2008 and the provisions of stock option agreement entered into between the executive and the Company.
 
(2) Reflects the aggregate value of unvested option grants with exercise prices less than or equal to $23.44 and other equity awards. For unvested option grants with an exercise prices less than or equal to $23.44, aggregate market value is determined by multiplying (1) the number of shares subject to such options as of April 25, 2008 by (2) the difference between $23.44 and the exercise price of such options. Does not reflect any dollar value associated with the acceleration of options with exercise prices in excess of $23.44. For unvested restricted


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stock awards, aggregate market value is determined by multiplying (1) the number of shares subject to such awards as of April 25, 2008 by (2) $23.44.
 
(3) Assumes continued coverage of employee benefits at the amounts paid by the Company for fiscal year 2008 for health, dental, vision, long-term disability and life insurance coverage, including continued coverage under the Company’s Executive Retirement Medical Plan. The Company also provides periods of access to a career center and office resources, one-on-one coaching, and access to an online database.
 
(4) The stock options granted to each of Daniel J. Warmenhoven, Thomas F. Mendoza, and Steven J. Gomo under the Discretionary Option Grant Programs of our Amended and Restated 1995 Stock Incentive Plan and our Amended and Restated 1999 Stock Option Plan will immediately accelerate and vest in full in the event that such individual’s employment with us is terminated in connection with an acquisition of the Company pursuant to a merger or reorganization or a sale of all or substantially all of our assets.
 
 
Each Change of Control Severance Agreement has an initial term of three years. On the third anniversary of the effective date of the Change of Control Severance Agreement, the Change of Control Severance Agreement will renew automatically for an additional one-year term unless either party provides the other with a notice of nonrenewal at least 60 days prior to the date of automatic renewal. If a Change of Control (as defined below) occurs at any time during the term of the agreement, the term of the Change of Control Severance Agreement will extend automatically for 12 months following the effective date of the Change of Control. If an executive becomes entitled to severance benefits pursuant to his or her Change of Control Severance Agreement, the Change of Control Severance Agreement will not terminate until all of obligations of the Change of Control Severance Agreement have been satisfied.
 
 
Each Change of Control Severance Agreement provides that if the Company terminates an executive’s employment without Cause (as defined below) or if the executive resigns for Good Reason (as defined below), and such termination occurs on or within 12 months after a Change of Control, the executive will receive certain benefits (as described below). The executive will not be entitled to any benefits, compensation or other payments or rights upon his or her termination following a Change of Control other than as set forth in his or her Change of Control Severance Agreement.
 
If the executive voluntarily terminates his or her employment with the Company (other than for Good Reason during the period that is on or within 12 months after a Change of Control), or if the Company terminates the executive’s employment for Cause, then the executive will not be entitled to receive severance or benefits except for those (if any) as provided in the Company’s existing severance and benefits plans and practices or pursuant to other written agreements with the Company.
 
If the Company terminates the executive’s employment as a result of executive’s disability, or if the executive’s employment terminates due to his or her death, then the executive will not be entitled to receive severance or benefits except for those (if any) as provided in the Company’s existing severance and benefits plans and practices or pursuant to other written agreements with the Company.
 
If the executive voluntarily terminates his or her employment and such termination is for Good Reason, or if the Company terminates the executive’s employment without Cause, and in either event such termination does not occur on or within 12 months after a Change of Control, then the executive will not be entitled to receive severance or benefits except for those (if any) as provided in the Company’s existing severance and benefits plans and practices or pursuant to other written agreements with the Company.
 
The Company has a general severance policy applicable to all employees (including the named executive officers) providing for additional weeks of pay based on years of service, plus periods of access to a career center and office resources, one-on-one coaching, and access to an online database. However, if the named executive officer is eligible to receive any payments under his or her Change of Control Severance Agreement, the executive


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will not be eligible to receive any payments or benefits pursuant to any Company severance plan, policy, or other arrangement.
 
 
Unless otherwise required by Section 409A of the Internal Revenue Code, any severance payments to be made pursuant to the Change of Control Severance Agreement will be paid in a lump sum as soon as practicable following the executive’s termination date. No severance or other benefits will be paid or provided until a separation agreement and release of claims between the executive and the Company becomes effective. If the executive should die before all of the severance has been paid, any unpaid amounts will be paid in a lump-sum payment to the executive’s designated beneficiary.
 
 
If the Company terminates an executive’s employment without Cause or if the executive resigns for Good Reason and such termination occurs on or within 12 months after a Change of Control, the executive will receive the following benefits:
 
  •  all accrued but unpaid vacation, expense reimbursements, wages, and other benefits due to the executive under any Company plan or policy (provided, however, that an executive will not be eligible to receive any benefits under any Company severance plan, policy or other arrangement);
 
  •  the sum of (1) 200% (250% in the case of Mr. Warmenhoven) of the executive’s annual base salary as in effect immediately prior to the executive’s termination date or (if greater) at the level in effect immediately prior to the Change of Control, and (2) 100% of the executive’s target annual bonus in effect immediately prior to the executive’s termination date or (if greater) at the level in effect immediately prior to the Change of Control;
 
  •  accelerated vesting of the executive’s outstanding equity awards as follows:
 
  •  Prior to entering into the Change of Control Severance Agreements, the Company had a contractual obligation to certain executives to provide for accelerated vesting of equity awards in certain circumstances. As a result, the Change of Control Severance Agreement entered into between the Company and each of Mr. Warmenhoven, Mr. Gomo and Mr. Mendoza provides that equity awards granted on or before June 19, 2008 will vest in full as to 100% of the unvested portion of the award. All outstanding equity awards granted after June 19, 2008 that are subject to time-based vesting will vest as to that portion of the award that would have vested through the 24 month period following the executive’s termination date had the executive remained employed through such period. Additionally, the executive will be entitled to accelerated vesting as to an additional 50% of the then unvested portion of all of his or her outstanding equity awards granted after June 19, 2008 that are scheduled to vest pursuant to performance-based criteria, if any.
 
  •  The Change of Control Severance Agreements entered into with the remaining named executive officers provide that equity awards that are subject to time-based vesting will vest as to that portion of the award that would have vested through the 24 month period following the executive’s termination date had the executive remained employed through such period. Additionally, the executive will be entitled to accelerated vesting as to an additional 50% of the then unvested portion of all of his or her outstanding equity awards that are scheduled to vest pursuant to performance-based criteria, if any.
 
  •  Each executive will have one year following the date of his or her termination in which to exercise any outstanding stock options or other similar rights to acquire Company stock (but such post termination exercise period will not extend beyond the original maximum term of the award);
 
  •  if the executive elects continuation coverage pursuant to COBRA for himself or herself and his or her eligible dependents, the Company will reimburse the executive for the COBRA premiums for such coverage until the earlier of (1) 18 months (or 24 months in the case of Mr. Warmenhoven), or (2) the date upon which the executive and/or the executive’s eligible dependents are covered under similar plans.


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The executive’s receipt of any payments or benefits under the Change of Control Severance Agreement will be subject to the executive continuing to comply with the terms of any confidential information agreement entered into between the executive and the Company and complying with the provisions of the Change of Control Severance Agreement. Additionally, the receipt of any severance payment under the Change of Control Severance Agreement is conditioned on the executive signing and not revoking a separation agreement and release of claims with the Company, with such release to be effective no later than March 15 of the year following the year in which the termination occurs.
 
 
In the event that the severance payments and other benefits payable to the executive pursuant to his or her Change of Control Severance Agreement constitute “parachute payments” under Section 280G of the U.S. tax code and would be subject to the applicable excise tax, then the executive’s severance benefits will be either (1) delivered in full or (2) delivered to such lesser extent which would result in no portion of such benefits being subject to the excise tax, whichever results in the receipt by the executive on an after-tax basis of the greatest amount of benefits.
 
 
Each Change of Control Severance Agreement defines “Cause” as: (1) the executive’s continued intentional and demonstrable failure to perform his or her duties customarily associated with his or her position (other than any such failure resulting from the executive’s mental or physical disability) after the executive has received a written demand of performance from the Company and the executive has failed to cure such nonperformance within 30 days after receiving such notice; (2) the executive’s conviction of, or plea of nolo contendere to, a felony that the Board of Directors reasonably believes has had or will have a material detrimental effect on the Company’s reputation or business; or (3) the executive’s commission of an act of fraud, embezzlement, misappropriation, willful misconduct, or breach of fiduciary duty against, and causing material harm to, the Company.
 
Each Change of Control Severance Agreement defines “Change of Control” as any of the following events: (1) a change in the ownership of the Company which occurs on the date that any one person, or more than one person acting as a group (Person), acquires ownership of the stock of the Company that, together with the stock held by such Person, constitutes more than 50% of the total voting power of the stock of the Company, except that any change in the ownership of the stock of the Company as a result of a private financing of the Company that is approved by the Board of Directors will not be considered a Change of Control; (2) a change in the effective control of the Company which occurs on the date that a majority of members of the Board of Directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election; or (3) a change in the ownership of a substantial portion of the Company’s assets which occurs on the date that any Person acquires (or has acquired during the 12 month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than 50% of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions. Notwithstanding the foregoing provisions of this definition, a transaction will not be deemed a Change of Control unless the transaction qualifies as a change in control event within the meaning of Section 409A of the Internal Revenue Code.
 
Mr. Warmenhoven’s Change of Control Severance Agreement defines “Good Reason” as his termination of employment within 90 days following the expiration of any cure period following the occurrence of any of following, without his consent: (1) a material reduction of his authority or responsibilities, or a change in his reporting position such that he no longer reports directly to the Board of Directors of the parent corporation in a group of controlled corporations following a Change of Control; (2) a material reduction his base salary or target annual incentive (Base Compensation), unless the Company also similarly reduces the Base Compensation of all other employees of the Company; (3) a material change in the geographic location at which the executive must perform services; (4) any purported termination of the executive’s employment for “Cause” without first satisfying the procedural protections set forth in his agreement; or (5) the failure of the Company to obtain the assumption of


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the agreement by a successor and/or acquirer and an agreement that the executive will retain the substantially similar responsibilities in the acquirer or the merged or surviving company as he had prior to the transaction.
 
Mr. Gomo’s Change of Control Severance Agreement defines “Good Reason” as his termination of employment within 90 days following the expiration of any cure period following the occurrence of any of the following, without his consent: (1) a material reduction of his authority or responsibilities, or a change in his reporting position such that he no longer reports directly to the Chief Executive Officer of the parent corporation in a group of controlled corporations following a Change of Control; (2) a material reduction in his base salary or target annual incentive (Base Compensation), unless the Company also similarly reduces the Base Compensation of all other employees of the Company; (3) a material change in the geographic location at which the executive must perform services; (4) any purported termination of the executive’s employment for “Cause” without first satisfying the procedural protections set forth in his agreement; or (5) the failure of the Company to obtain the assumption of the agreement by a successor and/or acquirer and an agreement that the executive will retain the substantially similar responsibilities in the acquirer or the merged or surviving company as he had prior to the transaction.
 
The Change of Control Severance Agreement for each of the remaining named executive officers defines Good Reason” as the termination of employment within 90 days following the occurrence of any of the following, without the executive’s consent: (1) a material reduction of the executive’s authority or responsibilities, or a change in the executive’s reporting position such that the executive no longer reports directly to the officer position or its functional equivalent to which the executive was reporting immediately prior to such change in reporting position (unless the executive is reporting to the comparable officer position of the parent corporation in a group of controlled corporations following a Change of Control); (2) a material reduction in the executive’s base salary or target annual incentive (Base Compensation), unless the Company also similarly reduces the Base Compensation of all other employees of the Company with positions, duties and responsibilities comparable to the executive’s; (3) a material change in the geographic location at which the executive must perform services; (4) any purported termination of the executive’s employment for “Cause” without first satisfying the procedural protections set forth in his or her agreement; or (5) the failure of the Company to obtain the assumption of the agreement by a successor and/or acquirer and an agreement that the executive will retain the substantially similar responsibilities in the acquirer or the merged or surviving company as he or she had prior to the transaction.


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Estimated Payments Pursuant to Change of Control Severance Agreements
 
As described above, on June 19, 2008, the Compensation Committee approved the terms of Change of Control Severance Agreements with various executives, including each of the named executive officers. The following table provides information concerning the estimated payments and benefits that would be provided in the circumstances described above for each of the named executive officers pursuant to the Change of Control Severance Agreements. Payments and benefits are estimated assuming that the triggering event took place on the last business day of fiscal year 2008 (April 25, 2008), and the price per share of the Company’s common stock is the closing price of the NASDAQ Global Select Market as of that date ($23.44). There can be no assurance that a triggering event would produce the same or similar results as those estimated below if such event occurs on any other date or at any other price, or if any other assumption used to estimate potential payments and benefits is not correct. Due to the number of factors that affect the nature and amount of any potential payments of benefits, any actual payments and benefits may be different.
 
                                     
        Potential Payments Upon:  
        Involuntary Termination
    Voluntary Termination
 
        Other Than for Cause     for Good Reason  
              On or Within
          On or Within
 
              12 Months
          12 Months
 
        Prior to
    Following
    Prior to
    Following
 
        Change of
    Change of
    Change of
    Change of
 
        Control
    Control
    Control
    Control
 
Name
 
Type of Benefit(1)
  ($)     ($)     ($)     ($)  
 
Daniel J. Warmenhoven
  Cash severance payments         $ 3,420,000 (4)         $ 3,420,000 (4)
    Vesting acceleration(2)         $ 52,750 (5)         $ 52,750 (5)
    Continued coverage of employee benefits(3)   $ 450,967     $ 450,967     $ 450,967     $ 450,967  
    Total termination benefits   $ 450,967     $ 3,923,717     $ 450,967     $ 3,923,717  
    Total previously vested equity value   $ 27,098,863     $ 27,098,863     $ 27,098,863     $ 27,098,863  
    Full “walk away” value   $ 27,549,830     $ 31,022,580     $ 27,549,830     $ 31,022,580  
Thomas Georgens
  Cash severance payments         $ 1,920,000 (7)         $ 1,920,000 (7)
    Vesting acceleration(2)         $ 565,900 (8)         $ 565,900 (8)
    Continued coverage of employee benefits(3)         $ 28,808 (9)         $ 28,808 (9)
    Total termination benefits         $ 2,514,708           $ 2,514,708  
    Total previously vested equity value                        
    Full “walk away” value         $ 2,514,708           $ 2,514,708  
Steven J. Gomo
  Cash severance payments         $ 1,550,000 (7)         $ 1,550,000 (7)
    Vesting acceleration(2)         $ 22,752 (5)         $ 22,752 (5)
    Continued coverage of employee benefits(3)   $ 842,153     $ 842,153     $ 842,153     $ 842,153  
    Total termination benefits   $ 842,153     $ 2,414,905     $ 842,153     $ 2,414,905  
    Total previously vested equity value   $ 4,065,468     $ 4,065,468     $ 4,065,468     $ 4,065,468  
    Full “walk away” value   $ 4,907,621     $ 6,480,373     $ 4,907,621     $ 6,480,373  
Thomas F. Mendoza
  Cash severance payments         $ 1,920,000 (7)         $ 1,920,000 (7)
    Vesting acceleration(2)           (5)           (5)
    Continued coverage of employee benefits(3)   $ 450,967     $ 450,967     $ 450,967     $ 450,967  
    Total termination benefits   $ 450,967     $ 2,370,967     $ 450,967     $ 2,370,967  
    Total previously vested equity value   $ 898,565     $ 898,565     $ 898,565     $ 898,565  
    Full “walk away” value   $ 1,349,532     $ 3,269,532     $ 1,349,532     $ 3,269,532  
Robert E. Salmon
  Cash severance payments         $ 1,643,000 (7)         $ 1,643,000 (7)
    Vesting acceleration(2)         $ 494,221 (8)         $ 494,221 (8)
    Continued coverage of employee benefits(3)         $ 28,808 (9)         $ 28,808 (9)
    Total termination benefits         $ 2,166,029           $ 2,166,029  
    Total previously vested equity value   $ 2,116,452     $ 2,116,452     $ 2,116,452     $ 2,116,452  
    Full “walk away” value   $ 2,116,452     $ 4,282,481     $ 2,116,452     $ 4,282,481  
 
 
(1) Reflects the terms of the executive’s Change of Control Severance Agreement entered into with the Company.


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(2) Reflects the aggregate value of unvested option grants with exercise prices less than or equal to $23.44 and other equity awards. For unvested option grants with an exercise prices less than or equal to $23.44, aggregate market value is determined by multiplying (1) the number of shares subject to such options as of April 25, 2008 by (2) the difference between $23.44 and the exercise price of such options. Does not reflect any dollar value associated with the acceleration of options with exercise prices in excess of $23.44. For unvested restricted stock, aggregate market value is determined by multiplying (1) the number of shares subject to such awards as of April 25, 2008 by (2) $23.44
 
(3) Assumes the executive does not elect to continue coverage of employee benefits under COBRA, but assumes continued coverage under the Company’s Executive Medical Retirement Plan.
 
(4) Pursuant to Mr. Warmenhoven’s Change of Control Severance Agreement, this amount represents the sum of 250% of Mr. Warmenhoven’s annual base salary and 100% of Mr. Warmenhoven’s target annual bonus.
 
(5) Pursuant to the Change of Control Severance Agreement, equity awards granted on or before June 19, 2008 will vest in full as to 100% of the unvested portion of the award. All outstanding equity awards granted after June 19, 2008 that are subject to time-based vesting will vest as to that portion of the award that would have vested through the 24-month period following the executive’s termination date had the executive remained employed through such period. Additionally, the executive will be entitled to accelerated vesting as to an additional 50% of the then unvested portion of all of his outstanding equity awards granted after June 19, 2008 that are scheduled to vest pursuant to performance-based criteria.
 
(6) Pursuant to Mr. Warmenhoven’s Change of Control Severance Agreement, if he elects continuation coverage pursuant to COBRA for himself and his eligible dependents, the Company will reimburse him for the COBRA premiums for such coverage until the earlier of (1) 24 months, or (2) the date upon which Mr. Warmenhoven and/or his eligible dependents are covered under similar plans.
 
(7) Pursuant to the terms of the Change of Control Severance Agreement, this amount represents the sum of 200% of the executive’s annual base salary and 100% of the executive’s target annual bonus.
 
(8) Pursuant to the terms of the Change of Control Severance Agreement, equity awards that are subject to time-based vesting will vest as to that portion of the award that would have vested through the 24 month period following the executive’s termination date had the executive remained employed through such period. Additionally, the executive will be entitled to accelerated vesting as to an additional 50% of the then unvested portion of all of his outstanding equity awards that are scheduled to vest pursuant to performance-based criteria.
 
(9) Pursuant to the terms of the Change of Control Severance Agreement, if the executive elects continuation coverage pursuant to COBRA for executive and his or her eligible dependents, the Company will reimburse the executive for the COBRA premiums for such coverage until the earlier of (1) 18 months, or (2) the date upon which the executive and/or his or her eligible dependents are covered under similar plans.


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The following table provides information as of April 25, 2008, with respect to the shares of the Company’s common stock that may be issued under the Company’s existing equity compensation plans. The table does not include information with respect to shares subject to outstanding options and awards granted under equity compensation plans assumed by the Company in connection with mergers and acquisitions of the companies that originally granted those options and awards. Footnote 6 to the table sets forth the total number of shares of the Company’s common stock issuable upon the exercise of those assumed options and awards as of April 25, 2008, and the weighted average exercise price.
 
                         
    A     B     C  
    Number of Securities
          Number of Securities Remaining
 
    to Be Issued upon
          Available for Future Issuance
 
    Exercise of
    Weighted Average
    Under Equity Compensation
 
    Outstanding Options
    Exercise Price of
    Plans (Excluding Securities
 
    and RSU Awards     Outstanding Options     Reflected in Column A)  
 
Equity compensation plans approved by stockholders(1)
    67,779,380 (2)   $ 30.33 (3)     21,525,094 (4)
Equity compensation plans not approved by stockholders(5)
    283,395     $ 17.39       1,542,847  
Total(6)
    68,062,775     $ 30.27 (7)     23,067,941  
 
 
(1) The category consists of the 1995 Plan, the 1999 Plan and the Purchase Plan.
 
(2) Excludes purchase rights accruing under the Company’s Purchase Plan. The Purchase Plan was approved by the stockholders in connection with the initial public offering of the Company’s common stock. Under the Purchase Plan, each eligible employee may purchase up to 1,500 shares of common stock at semiannual intervals on the last business day of May and November each year at a purchase price per share equal to 85% of the lower of (1) the closing selling price per share of common stock on the employee’s entry date into the two-year offering period in which that semiannual purchase date occurs, or (2) the closing selling price per share on the semiannual purchase date.
 
(3) The weighted average exercise price including outstanding options and RSU awards is $28.37 per share.
 
(4) Includes 13,802,643 shares of common stock available for issuance under the 1999 Plan, of which 3,295,470 shares may be issued as RSUs; 3,913,270 shares are available for issuance under the 1995 Plan, of which 339,790 shares may be issued as RSUs; and 3,809,181 shares are available for issuance under the Purchase Plan.
 
(5) The category consists of the Spinnaker Networks, Inc. 2000 Stock Plan. The Spinnaker Networks Inc. 2000 Stock Plan was assumed by the Company in connection with the acquisition of Spinnaker Networks on February 18, 2004 and will expire in 2010. Eligible participants are employees or consultants of Spinnaker Networks before February 18, 2004 or who first become employees or consultants of the Company after February 18, 2004. Options, restricted stock units and stock purchase rights may be issued under the Spinnaker Networks Inc. 2000 Stock Plan. The exercise price of options may not be less than 100% of the fair market value per share of the Company’s common stock on the grant date.
 
(6) The table does not include information for equity compensation plans assumed by the Company in connection with mergers and acquisitions of the companies that originally established those plans. As of April 25, 2008, a total of 2,106,723 shares of the Company’s common stock were issuable upon exercise of outstanding options and RSUs under those assumed plans. The weighted average exercise price of the outstanding options is $22.11 per share. The weighted average exercise price for outstanding options and RSUs is $20.10 per share. No additional awards may be made under those assumed plans.
 
(7) The weighted average exercise price including outstanding options and RSU awards is $28.33 per share.


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The Compensation Committee evaluates the compensation and form of compensation for nonemployee directors annually and recommends changes to the Board when appropriate. The directors receive annual retainers and stock options for their service on the Board. Details of the compensation are discussed in the narrative below.
 
The table below summarizes the compensation paid by the Company to the nonemployee directors for the fiscal year ended April 25, 2008.
 
                                                         
                            Change in
             
                            Pension
             
                            Value and
             
    Fees Earned
                Nonequity
    Nonqualified
             
    or Paid in
    Stock
    Option
    Incentive Plan
    Deferred
    All Other
       
    Cash
    Awards
    Awards
    Compensation
    Compensation
    Compensation
    Total
 
Name
  ($)(1)     ($)     ($)(2)(3)(4)     ($)     Earnings     ($)     ($)  
 
Donald T. Valentine
  $ 35,000           $ 338,811                       $ 373,811  
Jeffry R. Allen
  $ 35,000           $ 503,282                       $ 538,282  
Carol A. Bartz
  $ 40,000           $ 282,343                       $ 322,343  
Alan L. Earhart
  $ 45,000           $ 315,157                       $ 360,157  
Edward Kozel
  $ 40,000           $ 289,130                       $ 329,130  
Mark Leslie
  $ 35,000           $ 260,993                       $ 295,993  
Nicholas G. Moore
  $ 50,000           $ 282,343                       $ 332,343  
George Shaheen
  $ 40,000           $ 260,666                       $ 300,666  
Robert T. Wall
  $ 40,000           $ 225,874                       $ 265,874  
 
 
(1) Fees earned represent annual retainers and committee fees.
 
(2) The amounts shown represent the compensation cost recognized for financial statement reporting purposes in accordance with FAS123R for option awards for the fiscal year ended April 25, 2008. The amounts disregard estimates of forfeitures that are included in the financial reporting. The total fair value of each award is calculated as of the grant date and expensed in the financial statements over the service period of the award. The amounts shown include ratable amounts expensed for option awards that were granted in fiscal 2008 as well as prior years. Assumptions used in the valuations of these awards are included in Note 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended April 25, 2008, as filed with the SEC on June 24, 2008. These amounts do not necessarily represent the actual value that may be realized by the Director.
 
(3) The nonemployee Directors had options to purchase the following number of shares of common stock outstanding as of April 25, 2008: Mr. Valentine, 316,000 shares; Mr. Allen, 1,009,414 shares; Ms. Bartz, 125,000 shares; Mr. Earhart, 90,000 shares; Mr. Kozel, 75,000 shares; Mr. Leslie, 110,000 shares; Mr. Moore, 90,000 shares; Mr. Shaheen, 110,000 shares; and Mr. Wall, 140,000 shares.
 
(4) The nonemployee Directors received stock option grants to purchase shares of the Company’s common stock in fiscal 2008 with the following fair values calculated as of the grant date in accordance with FAS 123R:
 
• Mr. Valentine, $333,120 fair value for stock option to purchase 30,000 shares made on September 19, 2007, at an exercise price of $27.02 per share;
 
• Mr. Allen, $277,600 fair value for stock option to purchase 25,000 shares made on September 19, 2007, at an exercise price of $27.02 per share;
 
• Ms. Bartz, $277,600 fair value for stock option to purchase 25,000 shares made on September 19, 2007, at an exercise price of $27.02 per share;
 
• Mr. Earhart, $222,080 fair value for stock option to purchase 20,000 shares made on September 19, 2007, at an exercise price of $27.02 per share;
 
• Mr. Kozel, $222,080 fair value for stock option to purchase 20,000 shares made on September 19, 2007, at an exercise price of $27.02 per share;
 
• Mr. Leslie, $222,080 fair value for stock option to purchase 20,000 shares made on September 19, 2007, at an exercise price of $27.02 per share;


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• Mr. Moore, $277,600 fair value for stock option to purchase 25,000 shares made on September 19, 2007, at an exercise price of $27.02 per share;
 
• Mr. Shaheen, $222,080 fair value for stock option to purchase 20,000 shares made on September 19, 2007, at an exercise price of $27.02 per share; and
 
• Mr. Wall, $222,080 fair value for stock option to purchase 20,000 shares made on September 19, 2007, at an exercise price of $27.02 per share.
 
In fiscal year 2008, the members of the Board received an annual cash retainer for their service as directors in the amount of $30,000. Audit Committee members received an additional $10,000, and Compensation Committee and Nominating/Governance committee members received an additional $5,000 per committee. The Chair of the Audit Committee received an additional $5,000 in cash. Nonemployee Directors are eligible to receive stock options under the Automatic Option Grant Program in effect under the 1999 Plan, under which option grants to purchase shares of common stock at an exercise price equal to 100% of the fair market value of the option shares on the grant date are automatically made at periodic intervals to eligible nonemployee Board members. Directors who served as Chair of the Board or the Chair of one of the committees of the Board received an additional stock grant of 5,000 shares under the 1995 Plan with an exercise price equal to 100% of the fair market value of the option shares on the grant date.
 
After conducting a survey and peer group analysis based upon the Compensation Peer Group, the Compensation Committee determined that the annual compensation of the Board should be increased to remain competitive with current market trends. Therefore, for fiscal year 2009, members of the Board will receive an annual cash retainer for their service as directors, in the amount of $50,000. Audit Committee members shall receive an additional $15,000 in cash. Compensation Committee members shall receive an additional $8,000 in cash and Nominating/Governance Committee members shall receive an additional $6,500 in cash. Investment and Acquisition Committee members shall receive an additional $3,000 in cash. The Chair of the Audit Committee shall receive an additional $30,000 in cash. The Chair of the Compensation Committee shall receive an additional $16,000 in cash. The Chair of the Nominating/Governance Committee shall receive an additional $13,000 in cash and the Chair of the Investment and Acquisition Committee shall receive an additional $7,000 in cash. The Lead Independent Director shall receive an additional $10,000 in cash. Directors who serve as the Chair of one of the committees of the Board will receive an additional stock option grant under the 1999 Plan, assuming approval of Proposal No. 2 of this Proxy Statement, to purchase 5,000 shares of common stock per Chair, with a per share exercise price equal to the fair market value on the date of the grant. Each option grant has a term of seven years measured from the grant date, subject to earlier termination following the Director’s cessation of committee service, and is immediately exercisable for all the option shares. However, any shares purchased upon exercise of the option are subject to repurchase by the Company, at the option exercise price paid per share, should the Director cease service on the committee prior to vesting in those shares. The shares subject to each such 5,000 share grant will vest (and the Company’s repurchase right as to those shares will terminate) upon the Director’s completion of one term of committee service measured from the grant date and continuing through the day immediately preceding the next Annual Stockholders Meeting.
 
At the 2007 Annual Stockholders Meeting held on September 19, 2007, each of the following individuals reelected as a nonemployee Board member at that meeting received an option grant for 20,000 shares of common stock under the Automatic Option Grant Program of the 1999 Plan with a per share exercise price of $27.02, the fair market value per share of common stock on the grant date: Mr. Allen, Ms. Bartz, Mr. Earhart, Mr. Kozel, Mr. Leslie, Mr. Moore, Mr. Shaheen, Mr. Valentine, and Mr. Wall. Each such option grant has a term of seven years measured from the grant date, subject to earlier termination following the Director’s cessation of Board service, and is immediately exercisable for all the option shares. However, any shares purchased upon exercise of the option are subject to repurchase by the Company, at the per share exercise price, should the Director cease service on the Board prior to vesting of those purchased shares. The shares subject to each such 20,000-share grant will vest (and the Company’s repurchase right as to those shares will terminate) upon the Director’s completion of one term of Board service measured from the grant date and continuing through the day immediately preceding the next Annual Stockholders Meeting (that is, approximately September 1, 2008).


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At the 2007 Annual Stockholders Meeting held on September 19, 2007, the following individuals received option grants of common stock for service as Chair of the Board or Chair of one of the committees of the Board: Mr. Valentine, 5,000 shares for serving as Chair of the Board and 5,000 shares for serving as Chair of the Nominating/Corporate Governance Committee; Ms. Bartz, 5,000 shares for serving as Chair of the Compensation Committee; Mr. Moore, 5,000 shares for serving as Chair of the Audit Committee; and Mr. Allen 5,000 shares for serving as Chair of the Investment Committee. Each option grant has a per share exercise price of $27.02, the fair market value per share of common stock on the grant date, and a term of seven years measured from the grant date, subject to earlier termination following the Director’s cessation of Board service, and is immediately exercisable for all the option shares. However, any shares purchased upon exercise of the option are subject to repurchase by the Company, at the option exercise price paid per share, should the Director cease service on the Board prior to vesting in those shares. The shares subject to each grant will vest (and the Company’s repurchase right as to those shares will terminate) upon the Director’s completion of one term of Board service measured from the grant date and continuing through the day immediately preceding the next Annual Stockholders Meeting (that is, approximately September 1, 2008).
 
 
 
 
The information contained in the following Audit Committee Report shall not be deemed to be soliciting material or to be filed with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates it by reference in such filing.
 
 
The following is the report of the Audit Committee with respect to the Company’s audited financial statements for the fiscal year ended April 25, 2008, which are included in the Company’s Annual Report on Form 10-K for that fiscal year.
 
In accordance with its written charter, the Audit Committee oversees and assists the Board in fulfilling its responsibility for monitoring the quality and integrity of the accounting, auditing and financial reporting practices of the Company. The Audit Committee reviews the Charter annually to reassess the adequacy of the Charter. During fiscal 2008, the Audit Committee reviewed the Charter in accordance with current regulations and requirements. In addition, the Audit Committee discussed the interim financial information contained in each quarterly earnings announcement with the chief financial officer, corporate controller and independent auditors prior to public release. The Audit Committee is directly responsible for the appointment, compensation, retention, termination, and oversight of the work of the Company’s internal and independent auditors, and such internal and independent auditors report directly to the Audit Committee.
 
Management is responsible for the Company’s internal controls over financial reporting and for the preparation of the consolidated financial statements. The Company’s independent auditors are responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with auditing standards generally accepted in the United States of America and to issue a report thereon. The Audit Committee has general oversight responsibility with respect to the Company’s financial reporting and reviews the scope of the internal and independent audits, the results of the audits and other nonaudit services provided by the Company’s independent auditors.
 
In this context, the Audit Committee has met and held discussions with management and the Company’s independent auditors. Management represented to the Audit Committee that the Company’s consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, and the Audit Committee has reviewed and discussed the consolidated financial statements with management and the Company’s independent auditors. The Audit Committee discussed with the independent auditors matters required to be discussed by Statement on Auditing Standards No. 61, as amended (“Communications with Audit Committees”), by the Auditing Standards Board of the American Institute of Certified Public Accountants.
 
The Company’s independent auditors also provided to the Audit Committee the written disclosures required by Independence Standards Board Standard No. 1 (“Independence Discussions with Audit Committees”), and the


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Audit Committee discussed with the independent auditors their independence and satisfied itself as to the auditors’ independence.
 
Based upon the Audit Committee’s discussion with management and the independent auditors and the Audit Committee’s review of the representations of management and the report of the independent auditors to the Audit Committee, the Audit Committee recommended to the Board of Directors that the Company’s audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 25, 2008, as filed with the SEC on June 24, 2008.
 
Finally, the Audit Committee believes that each of the members of the Audit Committee is “independent” as determined by the Board of Directors and in compliance with the rules of the National Association of Securities Dealers, Inc. and the Exchange Act.
 
Submitted by the Audit Committee
of the Board of Directors
 
Nicholas G. Moore, Chairman
Alan L. Earhart
George T. Shaheen
 
 
The Audit Committee preapproved services performed by the independent auditors during fiscal year 2008 and reviews auditor billings in accordance with the Audit Committee charter. All requests for audit, audit-related, tax and other services must be submitted to the Audit Committee for specific preapproval and cannot commence until such approval has been granted. Normally, preapproval is provided at regularly scheduled meetings. However, the authority to grant specific preapproval between meetings, as necessary, has been delegated to the Chairman of the Audit Committee. The Chairman must update the Audit Committee at the next regularly scheduled meeting of any services that were granted specific preapproval.
 
Aggregate fees to the Company for the fiscal years ended April 25, 2008 and April 27, 2007, respectively, represent fees billed or to be billed by the Company’s independent accounting firm, Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, Deloitte & Touche).
 
                 
    Fiscal Year Ended  
    2008     2007  
 
Audit fees(a)
  $ 3,581,000     $ 2,782,000  
Audit-related fees(b)
    507,000       637,500  
                 
Total audit and audit-related fees
  $ 4,088,000     $ 3,419,500  
Tax fees(c)
    745,000       1,000,000  
All other fees
             
                 
Total fees
  $ 4,833,000     $ 4,419,500  
 
 
(1) Includes fees for professional services related to the fiscal years ended April 25, 2008 and April 27, 2007 rendered for the audit of the Company’s annual consolidated financial statements; the audit of management’s assessment of our internal control over financial reporting and Deloitte & Touche’s audit of our internal control over financial reporting, reviews of the financial statements included in the Company’s Quarterly Reports on Form 10-Q; and foreign statutory audits.
 
(2) Includes fees for accounting consultations and the performance of comfort procedures associated with our issuance of convertible debentures.
 
(3) Includes fees for tax consulting services associated with international and acquisition strategies.


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The Audit Committee has considered whether the provision of the nonaudit services discussed above is compatible with maintaining the principal auditor’s independence and believes such services are compatible with maintaining the auditor’s independence.
 
 
The Committee is composed of Ms. Bartz, Mr. Kozel and Mr. Wall. None of these individuals was at any time during the 2008 fiscal year, or at any other time, an officer or employee of the Company. No executive officer of the Company serves as a member of the board of directors or compensation committee of any entity, which has one or more executive officers serving as a member of the Company’s Board of Directors or Compensation Committee.
 
 
The Company’s Board of Directors has adopted policies and procedures that the Board believes are in the best interests of the Company and its stockholders as well as compliant with the Sarbanes-Oxley Act of 2002, and the rules and regulations of the SEC and NASDAQ.
 
In particular:
 
 
  •  A majority of our Board members is independent of the Company and its management as defined by the NASDAQ Stock Market (“NASDAQ”).
 
  •  The nonmanagement directors regularly meet in executive session, without management, as part of the normal agenda of our Board meetings.
 
  •  The Lead Independent Director is a nonemployee member and independent (as defined by the NASDAQ rules).
 
 
  •  All the members of the Nominating/Corporate Governance Committee meet all the applicable requirements for independence from Company management and requirements for financial literacy.
 
  •  The Nominating/Corporate Governance Committee has adopted a charter that meets applicable NASDAQ standards. The charter is located at: www.netapp.com/company/corporate-governance.html
 
  •  The Board has adopted nomination guidelines for the identification, evaluation and further nomination of candidates for director.
 
  •  The Nominating/Corporate Governance Committee considers the suitability of each candidate, including any candidates recommended by stockholders holding at least 5% of the outstanding shares of the Company’s voting securities continuously for at least 12 months prior to the date of the submission of the recommendation for nomination.
 
  •  If the Nominating/Corporate Governance Committee wants to identify new independent director candidates for Board membership, it is authorized to retain, and to approve the fees of, third party executive search firms to help identify prospective director nominees.
 
  •  In evaluating the suitability of each candidate, the Nominating/Corporate Governance Committee will consider issues of character, judgment, independence, age, expertise, diversity of experience, length of service, other commitments and the like. While there are no specific minimum qualifications for director nominees, the ideal candidate should exhibit (1) independence, (2) integrity, (3) qualifications that will increase overall Board effectiveness and (4) should meet other requirements as may be required by applicable rules, such as financial literacy or expertise for Audit Committee members.


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  •  The Nominating/Corporate Governance Committee uses the same process for evaluating all nominees, regardless of the source of the nomination, provided that the Company does not consider nominees recommended by stockholders unless such stockholders have continuously held at least 5% of the outstanding shares of the Company’s voting securities for at least 12 months prior to the date on which the recommendation is submitted.
 
  •  A stockholder who desires to recommend a candidate for election to the Board shall direct the recommendation in writing to NetApp, Inc., 495 East Java Drive, Sunnyvale, California 94089, Attention: Corporate Secretary and must include the candidate’s name; home and business contact information; detailed biographical data and qualifications; information regarding any relationships between the candidate and NetApp, Inc. within the last three years and evidence of the nominating person’s ownership of Company stock.
 
 
  •  All the members of the Compensation Committee meet the applicable requirements for independence as defined by applicable NASDAQ and Internal Revenue Service rules.
 
  •  The Compensation Committee has adopted a charter that meets applicable NASDAQ standards and is available on www.netapp.com/company/corporate-governance.html.
 
  •  Incentive compensation plans are reviewed and approved by the Compensation Committee as part of its charter.
 
  •  Director compensation guidelines are determined by the Compensation Committee as defined by our Corporate Governance Guidelines.
 
 
  •  The Board’s Audit Committee has been established in accordance with Section 3(a)(58)(A) of the Exchange Act.
 
  •  The Audit Committee has established policies and procedures that are consistent with the SEC and NASDAQ requirements for auditor independence.
 
  •  Audit Committee members all meet the applicable requirements for independence from Company management and requirements for financial literacy.
 
  •  Each member of the Audit Committee has the requisite financial management expertise.
 
  •  Deloitte & Touche LLP, our independent auditors, reports directly to the Audit Committee.
 
  •  The internal audit function of the Company reports directly to the Audit Committee.
 
  •  The Audit Committee Charter is available at www.netapp.com/company/corporate-governance.html.
 
 
  •  The Annual Meeting of Stockholders meeting is typically scheduled on the same day as a Board of Directors meeting and a majority of the Directors typically attend the Annual Meeting of Stockholders. Last year, 80% of the Directors attended the Annual Meeting of Stockholders.
 
 
  •  The Company requires stockholder approval of all equity compensation plans.
 
 
  •  The Company has adopted a Code of Business Conduct and Ethics that includes a conflict of interest policy and applies to all directors, officers and employees.


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  •  All employees are required to affirm in writing their understanding and acceptance of the code.
 
  •  All employees are required to annually reaffirm in writing their acceptance of the Code of Business Conduct and Ethics.
 
  •  The Code of Business Conduct and Ethics is posted on the Company’s internal Web site.
 
 
  •  The Company does not provide personal loans or extend credit to any executive officer or director.
 
 
Stockholders may contact any of the Company’s directors by writing to them whether by mail or express mail, c/o NetApp, Inc., 495 East Java Drive, Sunnyvale, California 94089. Employees and others who wish to contact the Board or any member of the Audit Committee to report questionable accounting or auditing matters may do so anonymously by using this address and designating the communication as “confidential.”
 
 
In May 2004, the Board of Directors adopted a travel policy whereby the Company’s Chief Executive Officer, Mr. Daniel J. Warmenhoven, is required to utilize a private airplane for business travel. Subject to an annual cap of $500,000, Mr. Warmenhoven will be reimbursed for expenses incurred in the operation of his private plane when used for Company business provided such expenses do not exceed the rate charged for equivalent commercial charter travel. The cost reimbursement shall occur on a quarterly basis with a $125,000 cap per quarter. Any amount unused in a particular quarter may be carried over to the following quarter. Any amount unused at the end of a fiscal year, however, may not carry over to the following fiscal year. During fiscal 2008, the Company recognized a total of $500,000 in expenses pursuant to this reimbursement agreement related to expenses incurred by Mr. Warmenhoven during 2008.
 
The foregoing transactions were negotiated by the Company on an arms-length basis, and were made on terms no less favorable to the Company than could be obtained from an unaffiliated third party.
 
Our Corporate Governance and Nominating Committee is responsible for the review, approval, and ratification of transactions with related persons. Specifically, the Corporate Governance and Nominating Committee has the authority to:
 
  •  Review and monitor the Company’s Code of Business Conduct and Ethics;
 
  •  Consider questions of possible conflicts of interest of members of the Board and corporate officers; and
 
  •  Review actual and potential conflicts of interest of members of the Board and corporate officers, and clear any involvement of such persons in matters that may involve a conflict of interest.
 
 
The Board of Directors knows of no other business that will be presented for consideration at the Annual Meeting. If other matters are properly brought before the Annual Meeting, however, it is the intention of the persons named in the accompanying proxy to vote the shares represented thereby on such matters in accordance with their best judgment.


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The Company filed an Annual Report on Form 10-K with the SEC on or about June 24, 2008. Our Internet address is www.netapp.com. We make available through our Web site our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Stockholders may also obtain a copy of this report, without charge, by writing to Steven J. Gomo, Chief Financial Officer of the Company at the Company’s principal executive offices located at 495 East Java Drive, Sunnyvale, California 94089.
 
By Order of the Board of Directors
 
DANIEL J. WARMENHOVEN
Chief Executive Officer
 
July 14, 2008
 
© 2008 NetApp, Inc. All rights reserved. Specifications are subject to change without notice. NetApp, the NetApp logo, Go further, faster are trademarks or registered trademarks of NetApp, Inc. in the United States and/or other countries. All other brands or products are trademarks or registered trademarks of their respective holders and should be treated as such.


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APPENDIX A
NETAPP, INC.
1999 STOCK OPTION PLAN
AS AMENDED AND RESTATED THROUGH JULY 11, 2008
ARTICLE ONE
GENERAL PROVISIONS
     I. PURPOSE OF THE PLAN
          This 1999 Stock Option Plan is intended to promote the interests of NetApp, Inc., a Delaware corporation, by providing eligible persons with the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Corporation as an incentive for them to remain in the service of the Corporation.
          Capitalized terms shall have the meanings assigned to such terms in the attached Appendix.
          All share numbers in this document reflect (i) the 2-for-1 split of the Common Stock effected on December 20, 1999 and (ii) the 2-for-1 split of the Common Stock effected on March 22, 2000.
     II. STRUCTURE OF THE PLAN
          A. The Plan shall be divided into five separate equity programs:
               (i) the Discretionary Option Grant Program under which eligible persons may, at the discretion of the Plan Administrator, be granted options to purchase shares of Common Stock,
               (ii) the Stock Appreciation Rights Program under which eligible persons may, at the discretion of the Plan Administrator, be granted stock appreciation rights that will allow individuals to receive the appreciation in Fair Market Value of the Shares subject to the award between the exercise date and the date of grant,
               (iii) the Stock Issuance Program under which eligible persons may, at the discretion of the Plan Administrator, be issued shares of Common Stock directly, either through the issuance or immediate purchase of such shares or as a bonus for services rendered the Corporation (or any Parent or Subsidiary),
               (iv) the Performance Share and Performance Unit Program under which eligible persons may, at the discretion of the Plan

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Administrator, be granted performance shares and performance units, which are awards that will result in a payment to a Participant only if the performance goals or other vesting criteria the established by the Plan Administrator are achieved or the awards otherwise vest, or
               (v) the Automatic Option Grant Program under which non-employee Board members shall automatically receive option grants at periodic intervals to purchase shares of Common Stock.
          B. The provisions of Articles One and Seven shall apply to all equity programs under the Plan and shall accordingly govern the interests of all persons under the Plan.
     III. ADMINISTRATION OF THE PLAN
          A. The Primary Committee shall have sole and exclusive authority to administer the Discretionary Option Grant, the Stock Appreciation Rights Program, Stock Issuance Programs and the Performance Share and Performance Unit Program with respect to Section 16 Insiders. Administration of the Discretionary Option Grant, Stock Appreciation Rights, Stock Issuance and Performance Share and Performance Unit Programs with respect to all other eligible persons may, at the Board’s discretion, be vested in the Primary Committee or a Secondary Committee, or the Board may retain the power to administer that program with respect to all such persons.
          B. Members of the Primary Committee or any Secondary Committee shall serve for such period of time as the Board may determine and may be removed by the Board at any time. The Board may also at any time terminate the functions of any Secondary Committee and reassume all powers and authority previously delegated to such committee.
          C. Each Plan Administrator shall, within the scope of its administrative functions under the Plan, have full power and authority to establish such rules and regulations as it may deem appropriate for proper administration of the Discretionary Option Grant, Stock Appreciation Rights, Stock Issuance and Performance Share and Performance Unit Programs and to make such determinations under, and issue such interpretations of, the provisions of such programs and any outstanding options thereunder as it may deem necessary or advisable. Decisions of the Plan Administrator within the scope of its administrative functions under the Plan shall be final and binding on all parties who have an interest in the Discretionary Option Grant, Stock Appreciation Rights, Stock Issuance or Performance Share and Performance Unit Program under its jurisdiction or any award granted thereunder.
          D. Service by Board members on the Primary Committee or the Secondary Committee shall constitute service as a Board member, and Board members of each such committee shall accordingly be entitled to full indemnification and reimbursement as Board members for their service on such committee. No member of the Primary Committee or the Secondary Committee shall be liable for any act or omission made in good faith with respect to the Plan or any option grants under the Plan.

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          E. Administration of the Automatic Option Grant Program shall be self-executing in accordance with the terms of that program, and no Plan Administrator shall exercise any discretionary functions with respect to option grants made thereunder.
     IV. ELIGIBILITY
          A. The persons eligible to participate in the Discretionary Option Grant, Stock Appreciation Rights, Stock Issuance and Performance Share and Performance Unit Programs are as follows:
     (i) Employees,
     (ii) non-employee Board members, and
     (iii) consultants and other independent advisors who provide services to the Corporation (or any Parent or Subsidiary).
          B. Each Plan Administrator shall, within the scope of its administrative jurisdiction under the Plan, have full authority (subject to the provisions of the Plan) to determine (i) with respect to the Discretionary Option Grant and Stock Appreciation Rights Programs, which eligible persons are to receive awards under the Discretionary Option Grant and Stock Appreciation Rights Programs, the time or times when such awards are to be made, the number of shares to be covered by each such grant, the status of an option as either an Incentive Option or a Non-Statutory Option, the time or times when each award is to become exercisable, the vesting schedule (if any) applicable to the award, the maximum term for which the award is to remain outstanding, and whether to modify or amend each award, including the discretionary authority to extend the post-termination exercisability period of awards longer than is otherwise provided for in the Plan, and (ii) with respect to awards granted under the Stock Issuance and Performance Share and Performance Unit Programs, which eligible persons are to receive awards, the time or times when such awards are to be made, the number of shares subject to awards to be issued to each Participant, the vesting schedule (if any) applicable to the awards and the consideration, if any, to be paid for shares subject to such awards.
          C. Only non-employee Board members shall be eligible to participate in the Automatic Option Grant Program.
     V. STOCK SUBJECT TO THE PLAN
          A. The stock issuable under the Plan shall be shares of authorized but unissued or reacquired Common Stock, including shares repurchased by the Corporation on the open market. The maximum number of shares of Common Stock which may be issued over the term of the Plan shall not exceed 101,000,000 shares. Such authorized share reserve is comprised of (i) the 13,200,000 shares of Common Stock initially authorized for issuance under the Plan, (ii) an additional increase of 15,000,000 shares authorized by the Board on August 17, 2000 and approved by the stockholders at the 2000 Annual Meeting, (iii) an additional increase of 13,400,000 shares authorized by the Board on August 9, 2001 and approved by the

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stockholders at the 2001 Annual Meeting, (iv) an additional increase of 14,000,000 shares authorized by the Board on July 2, 2002 and approved by the stockholders at the 2002 Annual Meeting, (v) an additional increase of 10,200,000 shares authorized by the Board on July 7, 2004 and approved by the stockholders at the 2004 Annual Meeting, (vi) an additional increase of 10,600,000 shares authorized by the Board on July 1, 2005 and approved by the stockholders at the 2005 Annual Meeting, (vii) an additional increase of 10,900,000 shares authorized by the Board on July 10, 2006 and approved by the stockholders at the 2006 Annual Meeting, (viii) an additional increase of 7,200,000 shares authorized by the Board on July 13, 2007 and approved by the stockholders at the 2007 Annual Meeting, plus (ix) an additional increase of 6,600,000 shares authorized by the Board on July 11, 2008and approved by the stockholders at the 2008 Annual Meeting. Such authorized share reserve shall be in addition to the number of shares of Common Stock reserved for issuance under the Corporation’s 1995 Stock Incentive Plan and the Corporation’s Special Non-Officer Stock Option Plan, and share issuances under this Plan shall not reduce or otherwise affect the number of shares of Common Stock available for issuance under the 1995 Stock Incentive Plan or the Special Non-Officer Stock Option Plan. In addition, share issuances under such plans shall not reduce or otherwise affect the number of shares of Common Stock available for issuance under this Plan.
          B. No one person participating in the Plan may receive stock options and/or stock appreciation rights under the Plan for more than 3,000,000 shares of Common Stock in the aggregate per calendar year.
          C. Shares of Common Stock subject to outstanding options or stock appreciation rights shall be available for subsequent issuance under the Plan to the extent the options or stock appreciation rights expire or terminate for any reason prior to exercise in full. In addition, any unvested shares issued under the Plan and subsequently repurchased or reacquired by the Corporation pursuant to the Corporation’s repurchase rights under the Plan shall be added back to the number of shares of Common Stock reserved for issuance under the Plan and shall accordingly be available for reissuance through one or more subsequent awards under the Plan. Should the exercise price of an award under the Plan be paid with shares of Common Stock or should shares of Common Stock otherwise issuable under the Plan be withheld by the Corporation in satisfaction of the withholding taxes incurred in connection with the exercise of an award or the vesting or disposition of exercised shares or stock issuances under the Plan, then the number of shares of Common Stock available for issuance under the Plan shall be reduced by the gross number of shares for which the award is exercised or the gross number of exercised shares or stock issuances which vest, and not by the net number of shares of Common Stock issued to the holder of such award or exercised shares or stock issuances.
          D. Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation’s receipt of consideration, appropriate adjustments shall be made to (i) the maximum number and/or class of securities issuable under the Plan, (ii) the maximum number and/or class of securities for which any one person may be granted stock options and/or stock appreciation rights or awards under the Stock Issuance and Performance Share and Performance Unit Programs per calendar year, (iii) the number and/or class of securities for which automatic option grants are to be made

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subsequently under the Automatic Option Grant Program and (iv) the number and/or class of securities and the exercise price per share in effect under each outstanding award in order to prevent the dilution or enlargement of benefits thereunder. The adjustments determined by the Plan Administrator shall be final, binding and conclusive.

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ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
     I. OPTION TERMS
          Each option shall be evidenced by one or more documents in the form approved by the Plan Administrator; provided, however, that each such document shall comply with the terms specified below. Each document evidencing an Incentive Option shall, in addition, be subject to the provisions of the Plan applicable to such options.
          A. Exercise Price.
               1. The exercise price per share shall be fixed by the Plan Administrator but shall not be less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the option grant date.
               2. The exercise price shall become immediately due upon exercise of the option and shall be payable in one or more of the forms specified by the Plan Administrator, including without limitation, by one of the following forms of consideration:
               (i) cash or check made payable to the Corporation,
               (ii) shares of Common Stock held for the requisite period necessary to avoid a charge to the Corporation’s earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date, or
               (iii) to the extent the option is exercised for vested shares, through a special sale and remittance procedure pursuant to which the Optionee shall concurrently provide irrevocable instructions to (a) a brokerage firm reasonably satisfactory to the Corporation for purposes of administering such procedure to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the Corporation by reason of such exercise and (b) the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale transaction.
          Except to the extent such sale and remittance procedure is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date.
          B. Exercise and Term of Options. Each option shall be exercisable at such time or times, during such period and for such number of shares as shall be determined by the Plan Administrator and set forth in the documents evidencing the option. However, no option shall have a term in excess of seven (7) years measured from the option grant date.

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          C. Effect of Termination of Service.
               1. The following provisions shall govern the exercise of any options held by the Optionee at the time of cessation of Service or death:
               (i) Any option outstanding at the time of the Optionee’s cessation of Service for any reason shall remain exercisable for such period of time thereafter as shall be determined by the Plan Administrator and set forth in the documents evidencing the option, but no such option shall be exercisable after the expiration of the option term.
               (ii) Any option exercisable in whole or in part by the Optionee at the time of death may be exercised subsequently by the personal representative of the Optionee’s estate or by the person or persons to whom the option is transferred pursuant to the Optionee’s will or in accordance with the laws of descent and distribution.
               (iii) During the applicable post-Service exercise period, the option may not be exercised in the aggregate for more than the number of vested shares for which the option is exercisable on the date of the Optionee’s cessation of Service. Upon the expiration of the applicable exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be outstanding for any vested shares for which the option has not been exercised. However, the option shall, immediately upon the Optionee’s cessation of Service, terminate and cease to be outstanding to the extent the option is not otherwise at that time exercisable for vested shares.
               (iv) Should the Optionee’s Service be terminated for Misconduct, then all outstanding options held by the Optionee shall terminate immediately and cease to be outstanding.
               2. The Plan Administrator shall have the discretion, exercisable either at the time an option is granted or at any time while the option remains outstanding, to:
               (i) extend the period of time for which the option is to remain exercisable following the Optionee’s cessation of Service from the period otherwise in effect for that option to such greater period of time as the Plan Administrator shall deem appropriate, but in no event beyond the expiration of the option term, and/or
               (ii) permit the option to be exercised, during the applicable post-Service exercise period, not only with respect to the number of vested shares of Common Stock for which such option is exercisable at the time of the Optionee’s cessation of Service but also with respect to one or more additional installments in which the Optionee would have vested under the option had the Optionee continued in Service.

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          D. Stockholder Rights. The holder of an option shall have no stockholder rights with respect to the shares subject to the option until such person shall have exercised the option, paid the exercise price and become a holder of record of the purchased shares.
          E. Repurchase Rights. The Plan Administrator shall have the discretion to grant options which are exercisable for unvested shares of Common Stock. Should the Optionee cease Service while holding such unvested shares, the Corporation shall have the right to repurchase, at the exercise price paid per share, any or all of those unvested shares. The terms upon which such repurchase right shall be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares) shall be established by the Plan Administrator and set forth in the document evidencing such repurchase right.
          F. Limited Transferability of Options. During the lifetime of the Optionee, Incentive Options shall be exercisable only by the Optionee and shall not be assignable or transferable other than by will or by the laws of inheritance following the Optionee’s death. However, Non-Statutory Options may be assigned in whole or in part during the Optionee’s lifetime to one or more members of the Optionee’s family or to a trust established exclusively for one or more such family members or the Optionee’s former spouse, to the extent such assignment is in connection with the Optionee’s estate plan, or to the Optionee’s former spouse pursuant to a domestic relations order. The person or persons who acquire a proprietary interest in the option pursuant to the assignment may only exercise the assigned portion. The terms applicable to the assigned portion shall be the same as those in effect for the option immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Plan Administrator may deem appropriate.
     II. INCENTIVE OPTIONS
          The terms specified below shall be applicable to all Incentive Options. Except as modified by the provisions of this Section II, all the provisions of Articles One, Two and Five shall be applicable to Incentive Options. Options which are specifically designated as Non-Statutory Options when issued under the Plan shall not be subject to the terms of this Section II.
          A. Eligibility. Incentive Options may only be granted to Employees.
          B. Dollar Limitation. The aggregate Fair Market Value of the shares of Common Stock (determined as of the respective date or dates of grant) for which one or more options granted to any Employee under the Plan (or any other option plan of the Corporation or any Parent or Subsidiary) may for the first time become exercisable as Incentive Options during any one (1) calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two (2) or more such options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability of such options as Incentive Options shall be applied on the basis of the order in which such options are granted.
          C. 10% Stockholder. If any Employee to whom an Incentive Option is granted is a 10% Stockholder, then the exercise price per share shall not be less than one hundred

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ten percent (110%) of the Fair Market Value per share of Common Stock on the option grant date, and the option term shall not exceed five (5) years measured from the option grant date.
     III. CORPORATE TRANSACTION/CHANGE IN CONTROL
          A. Each option, to the extent outstanding under the Plan at the time of a Corporate Transaction but not otherwise exercisable for all the option shares, shall automatically accelerate so that each such option shall, immediately prior to the effective date of the Corporate Transaction, become exercisable for all of the shares of Common Stock at the time subject to such option and may be exercised for any or all of those shares as fully-vested shares of Common Stock. However, an outstanding option shall not become exercisable on such an accelerated basis if and to the extent: (i) such option is, in connection with the Corporate Transaction, to be assumed by the successor corporation (or parent thereof) or replaced with a comparable option to purchase shares of the capital stock of the successor corporation (or parent thereof), (ii) such option is to be replaced with a cash incentive program of the successor corporation which preserves the spread existing on the unvested option shares at the time of the Corporate Transaction and provides for subsequent payout in accordance with the same vesting schedule applicable to those option shares or (iii) the acceleration of such option is subject to other limitations imposed by the Plan Administrator at the time of the option grant. The determination of option comparability under clause (i) above shall be made by the Plan Administrator, and its determination shall be final, binding and conclusive.
          B. All outstanding repurchase rights shall also terminate automatically, and the shares of Common Stock subject to those terminated rights shall immediately vest in full, in the event of any Corporate Transaction, except to the extent: (i) those repurchase rights are to be assigned to the successor corporation (or parent thereof) in connection with such Corporate Transaction or (ii) such accelerated vesting is precluded by other limitations imposed by the Plan Administrator at the time the repurchase right is issued.
          C. Immediately following the consummation of the Corporate Transaction, all outstanding options shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof).
          D. Each option which is assumed in connection with a Corporate Transaction shall be appropriately adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been issuable to the Optionee in consummation of such Corporate Transaction had the option been exercised immediately prior to such Corporate Transaction. Appropriate adjustments to reflect such Corporate Transaction shall also be made to (i) the exercise price payable per share under each outstanding option, provided the aggregate exercise price payable for such securities shall remain the same, (ii) the maximum number and/or class of secu