<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 16, 2000
REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MARVELL TECHNOLOGY GROUP LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
BERMUDA 3674 77-0481679
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION IDENTIFICATION NO.)
CODE NUMBER)
</TABLE>
RICHMOND HOUSE
3RD FLOOR
12 PAR LA VILLE ROAD
HAMILTON HM DX
BERMUDA
(441) 296-6395
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MATTHEW GLOSS
CORPORATE COUNSEL
MARVELL SEMICONDUCTOR, INC.
645 ALMANOR AVENUE
SUNNYVALE, CALIFORNIA 94086
(408) 222-2500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
KENNETH R. LAMB STEPHEN M. BESEN
JOHN E. STONER MALCOLM E. LANDAU
MICHELLE A. HODGES WEIL, GOTSHAL & MANGES LLP
GIBSON, DUNN & CRUTCHER LLP 767 FIFTH AVENUE
ONE MONTGOMERY STREET NEW YORK, NEW YORK 10153
SAN FRANCISCO, CALIFORNIA 94104 (212) 310-8000
(415) 393-8200
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement and the
satisfaction or waiver of all other conditions to the merger described in the
joint proxy statement/prospectus.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) FEE(2)
---------------------------------------------------------------------------------------------------------------------------
Common Stock, $0.002 par value..... 31,564,708 $48.25 $1,522,997,161 $402,071.25
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</TABLE>
(1) The amount of common stock of the Registrant to be registered hereunder
equals the product of (i) the exchange ratio of 0.674 shares of the
Registrant to be issued for each outstanding ordinary share of Galileo
Technology Ltd. in the merger of Toshack Acquisitions Ltd., a direct
wholly-owned subsidiary of the Registrant, into Galileo Technology Ltd. and
(ii) 46,831,912 shares, which is the estimated maximum number of shares of
Galileo Technology Ltd. that may be outstanding on the effective date of the
merger, and is equal to the sum of 42,990,992 shares of Galileo Technology
Ltd. which are currently outstanding and options to purchase 3,840,920
shares of Galileo Technology Ltd., which is an estimate of the options that
will be vested on the effective date of the merger.
(2) The registration fee was computed pursuant to Rules 457(f) and 457(c) under
the Securities Act of 1933, as amended, based on the average of the high and
low sales prices of the Registrant's common stock, as reported on the Nasdaq
National Market on November 14, 2000.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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--------------------------------------------------------------------------------
<PAGE> 2
MARVELL TECHNOLOGY GROUP LTD.
------------------------
NOTICE OF SPECIAL GENERAL MEETING OF SHAREHOLDERS
------------------------
TO BE HELD ON
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
To all Marvell shareholders:
Notice is hereby given that a Special General Meeting of Shareholders of
Marvell Technology Group Ltd., a Bermuda corporation, will be held at
, on at a.m. local time for the following
purposes:
1. To consider and vote upon the proposal:
- to approve and adopt the Agreement of Merger, dated as of October
16, 2000, by and between Marvell, Galileo Technology Ltd., a
corporation formed under the laws of the State of Israel, and
Toshack Acquisitions Ltd., a corporation formed under the laws of
the State of Israel and a direct wholly-owned subsidiary of
Marvell, that provides, among other things, for the merger of
Toshack Acquisitions into Galileo so that Galileo becomes a
wholly-owned subsidiary of Marvell;
- to issue up to a maximum of 31,564,708 shares of Marvell common
stock to Galileo shareholders in connection with the merger; and
- to approve the assumption and adoption by Marvell of the stock
option plans of Galileo; and
2. To transact any other business that properly comes before the
meeting or any adjournment or postponement of the meeting.
Only shareholders of record on the close of business on ,
the record date, are entitled to notice of and to vote at the special general
meeting and any adjournments or postponements of the meeting. You are cordially
invited to the meeting.
By order of the board of directors of
Marvell Technology Group Ltd.,
Sehat Sutardja
Chairman of the Board
and Chief Executive Officer
Sunnyvale, California
[ ], 2000
REGARDLESS OF THE NUMBER SHARES OF MARVELL YOU OWN OR WHETHER YOU PLAN TO
ATTEND THE MEETING, IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED.
THE MERGER CANNOT BE COMPLETED UNLESS THE HOLDERS OF 66 2/3% OF THE MARVELL
COMMON STOCK PRESENT IN PERSON OR BY PROXY AND VOTING AND 66 2/3% IN NUMBER OF
RECORD SHAREHOLDERS PRESENT IN PERSON OR BY PROXY AT THE SPECIAL GENERAL MEETING
APPROVE THE MERGER PROPOSAL. THEREFORE, WE URGE YOU TO COMPLETE, SIGN, DATE AND
RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED SELF-ADDRESSED, STAMPED
ENVELOPE. RETURNING THE PROXY CARD DOES NOT DEPRIVE YOU OF YOUR RIGHT TO ATTEND
THE MEETING AND TO VOTE YOUR SHARES IN PERSON. YOUR VOTE IS VERY IMPORTANT.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ADOPTION
OF THE MERGER PROPOSAL.
<PAGE> 3
GALILEO TECHNOLOGY LTD.
------------------------
NOTICE OF EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS
------------------------
TO BE HELD ON
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
To all Galileo shareholders:
Notice is hereby given that an Extraordinary General Meeting of
Shareholders of Galileo Technology Ltd., a corporation formed under the laws of
the State of Israel, will be held at the principal executive offices of Galileo,
located at Moshav Manof, D.N. Misgav 20184, Israel, on at a.m.
Israel time for the following purposes:
1. To consider and vote upon the proposal to approve, adopt and ratify
the Agreement of Merger, dated as of October 16, 2000, by and between
Galileo, Marvell Technology Group Ltd., a Bermuda corporation, and Toshack
Acquisitions Ltd., a corporation formed under the laws of the State of
Israel and a direct wholly-owned subsidiary of Marvell, and the merger of
Toshack Acquisitions into Galileo under the provisions of Israeli Companies
Law-1999, so that Galileo will become a wholly-owned subsidiary of Marvell;
and
2. To transact any other business that properly comes before the
extraordinary general meeting or any adjournment or postponement of the
meeting.
Only shareholders of record on the close of business on ,
the record date, are entitled to notice of and to vote at the extraordinary
general meeting and any adjournments or postponements of the meeting. You are
cordially invited to the meeting. This notice supersedes and replaces the
previous notice of extraordinary general meeting, dated October 17, 2000, which
was mailed to Galileo shareholders on October 31, 2000.
By order of the board of directors of
Galileo Technology Ltd.,
Avigdor Willenz
Chairman of the Board
and Chief Executive Officer
Moshav Manof, Israel
[ ], 2000
REGARDLESS OF THE NUMBER OF SHARES OF GALILEO YOU OWN OR WHETHER YOU PLAN
TO ATTEND THE MEETING, IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND
VOTED. THE MERGER CANNOT BE COMPLETED UNLESS THERE IS A QUORUM PRESENT OR
REPRESENTED AT THE EXTRAORDINARY GENERAL MEETING AND THE HOLDERS OF 75% OF THE
GALILEO ORDINARY SHARES PRESENT AND VOTING IN PERSON OR BY PROXY AT THE MEETING
VOTE FOR THE MERGER AND THE MERGER AGREEMENT. THEREFORE, WE URGE YOU TO
COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED
SELF-ADDRESSED, STAMPED ENVELOPE. RETURNING THE PROXY CARD DOES NOT DEPRIVE YOU
OF YOUR RIGHT TO ATTEND THE MEETING AND TO VOTE YOUR SHARES IN PERSON. YOUR VOTE
IS VERY IMPORTANT.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ADOPTION
OF THE MERGER AND THE MERGER AGREEMENT.
PLEASE DO NOT RETURN YOUR GALILEO STOCK CERTIFICATES WITH YOUR ENCLOSED
PROXY.
<PAGE> 4
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. The prospectus is not
an offer to sell these securities and is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
[Marvell Logo] [Galileo Logo]
Marvell Technology Group Ltd., Galileo Technology Ltd. and Toshack
Acquisitions Ltd., a direct wholly-owned subsidiary of Marvell, have entered
into a merger agreement which provides for the merger of Toshack Acquisitions
into Galileo. As a result of the merger, Galileo will become a wholly-owned
subsidiary of Marvell. The boards of directors of Marvell and Galileo have
unanimously approved the merger agreement. If the merger is completed:
- each outstanding ordinary share of Galileo will be exchanged for 0.674
shares of Marvell common stock; and
- Marvell shareholders will continue to own their existing shares.
Marvell will issue at least 28.9 million shares of its common stock to
Galileo shareholders in the merger, which will represent approximately 25% of
the outstanding shares of Marvell common stock after the merger on a
fully-diluted basis. Marvell may issue as many as 31.6 million shares if all
vested Galileo options are exercised prior to the merger.
The merger cannot be completed unless both Marvell's and Galileo's
shareholders approve the merger and the merger agreement. The boards of
directors of Marvell and Galileo each recommend that their respective
shareholders vote for approval of the merger and the merger agreement. We have
scheduled shareholder meetings for you to vote on the merger and the merger
agreement. YOUR VOTE IS VERY IMPORTANT. The dates, times and places of the
meetings are as follows:
<TABLE>
<S> <C>
For Marvell shareholders: For Galileo shareholders:
a.m. local time a.m. Israel time
Galileo Technology Ltd.
Moshav Manof
California D.N. Misgav 20184
Israel
</TABLE>
This joint proxy statement/prospectus is being furnished to Marvell and
Galileo shareholders in connection with the solicitation by their respective
board of directors of proxies for use at the shareholder meetings. This joint
proxy statement/prospectus also constitutes the prospectus of Marvell with
respect to the shares of Marvell common stock to be issued to Galileo
shareholders in the merger.
Share information for Marvell and Galileo:
Marvell ("MRVL"): The closing price on the Nasdaq National Market on
October 16, 2000, the last trading day before the
transaction was announced, was $81.75 per share.
The closing price on the Nasdaq National Market on
[November 16, 2000] was $[45.125] per share.
Galileo ("GALT"): The closing price on the Nasdaq National Market on
October 16, 2000, the last trading day before the
transaction was announced, was $30.7656 per share.
The closing price on the Nasdaq National Market on
[November 16, 2000] was $[22.6875] per share.
THIS JOINT PROXY STATEMENT/PROSPECTUS PROVIDES YOU WITH DETAILED
INFORMATION CONCERNING MARVELL, GALILEO AND THE MERGER. PLEASE GIVE ALL OF THE
INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/ PROSPECTUS YOUR CAREFUL
ATTENTION. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE DISCUSSION IN THE
SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE 13 OF THIS JOINT PROXY
STATEMENT/PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE SECURITIES TO BE ISSUED IN THIS TRANSACTION OR
DETERMINED THAT THIS JOINT PROXY STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED , 2000, AND
IS FIRST BEING MAILED TO GALILEO AND MARVELL SHAREHOLDERS ON OR ABOUT
, 2000.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 3
SELECTED CONSOLIDATED FINANCIAL DATA........................ 8
COMPARATIVE MARKET PRICES AND DIVIDENDS..................... 12
RISK FACTORS................................................ 13
Risks Related to the Merger............................... 13
Risks Related to Marvell.................................. 15
Risks Related to Galileo.................................. 29
FORWARD-LOOKING STATEMENTS.................................. 34
MARVELL SPECIAL GENERAL MEETING............................. 35
General................................................... 35
Purpose of the Special General Meeting.................... 35
Recommendation of Marvell's Board of Directors............ 35
Required Vote for Adoption of the Merger Agreement........ 35
Record Date............................................... 36
Quorum.................................................... 36
Proxies................................................... 36
Revocation of Proxies..................................... 37
Solicitation of Proxies................................... 37
GALILEO EXTRAORDINARY GENERAL MEETING....................... 38
General................................................... 38
Purpose of the Extraordinary General Meeting.............. 38
Recommendation of Galileo's Board of Directors............ 38
Required Vote for Adoption of the Merger and the Merger
Agreement.............................................. 38
Record Date............................................... 39
Quorum.................................................... 39
Proxies................................................... 39
Revocation of Proxies..................................... 40
Solicitation of Proxies................................... 40
No Appraisal Rights....................................... 40
THE MERGER.................................................. 41
General................................................... 41
Background of the Merger.................................. 41
Recommendation of the Marvell Board of Directors and
Marvell's Reasons for the Merger....................... 44
Recommendation of the Galileo Board of Directors and
Galileo's Reasons for the Merger....................... 46
Interests of Certain Persons in the Merger................ 50
Opinion of Marvell's Financial Advisor.................... 51
Opinion of Galileo's Financial Advisor.................... 58
Government and Regulatory Matters......................... 65
Material United States Federal Income Tax Consequences of
the Merger............................................. 67
Material Israeli Tax Consequences of the Merger........... 69
Restrictions on Resales by Affiliates..................... 70
Delisting and Deregistering of Shares of Galileo; Listing
of Marvell Common Stock Issued in Connection with the
Merger................................................. 71
Accounting Treatment...................................... 71
No Appraisal Rights....................................... 71
THE MERGER AGREEMENT........................................ 72
Structure of the Merger................................... 72
Closing; Effective Time................................... 72
</TABLE>
i
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
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Surviving Corporation..................................... 72
Conversion of Shares...................................... 72
Fractional Shares......................................... 72
Exchange of Certificates; Receipt of Merger
Consideration.......................................... 73
Transfers of Shares....................................... 73
Stock Options............................................. 73
Representations and Warranties............................ 74
Conduct of Business of Galileo Prior to the Merger........ 76
Conduct of Business of Marvell Prior to the Merger........ 78
No Solicitation of Transactions........................... 78
Additional Covenants...................................... 80
Conditions to Completing the Merger....................... 81
Termination of the Merger Agreement....................... 83
Extension, Waiver and Amendment of the Merger Agreement... 86
Option Agreement.......................................... 86
Other Agreements Related to the Merger.................... 88
Management After the Merger............................... 89
INFORMATION ABOUT THE COMPANIES............................. 89
Marvell................................................... 89
Galileo................................................... 89
Toshack Acquisitions...................................... 90
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
INFORMATION............................................... 91
PRINCIPAL SHAREHOLDERS...................................... 97
DESCRIPTION OF MARVELL CAPITAL STOCK........................ 99
Marvell Capital Stock..................................... 99
Warrants.................................................. 99
Registration Rights....................................... 99
Anti-Takeover Provisions.................................. 100
Transfer Agent and Registrar.............................. 100
Listing................................................... 100
COMPARISON OF SHAREHOLDERS' RIGHTS.......................... 100
ADDITIONAL INFORMATION...................................... 107
Legal Matters............................................. 107
Experts................................................... 107
Shareholder Proposals..................................... 107
Other Matters............................................. 107
WHERE YOU CAN FIND MORE INFORMATION......................... 107
APPENDICES
APPENDIX A -- AGREEMENT OF MERGER........................... A-1
APPENDIX B -- STOCK OPTION AGREEMENT........................ B-1
APPENDIX C -- OPINION OF GOLDMAN, SACHS & CO. .............. C-1
APPENDIX D -- OPINION OF SALOMON SMITH BARNEY............... D-1
APPENDIX E -- DESCRIPTION OF MARVELL........................ E-1
APPENDIX F -- MARVELL'S FINANCIAL STATEMENTS FOR THE QUARTER
ENDED JULY 31, 2000........................... F-1
</TABLE>
ii
<PAGE> 7
QUESTIONS AND ANSWERS ABOUT
THE MERGER
Q. WHAT IS THE PROPOSED TRANSACTION?
A. Marvell will acquire Galileo through a merger. In the merger, Toshack
Acquisitions, a direct wholly-owned subsidiary of Marvell, will merge into
Galileo. As a result of the merger, Galileo will become a wholly-owned
subsidiary of Marvell.
Q. WHAT WILL I RECEIVE IN THE MERGER?
A. The merger agreement provides that upon completion of the merger Galileo
shareholders will be entitled to receive 0.674 shares of Marvell common stock
for each outstanding ordinary share of Galileo they hold. The merger will
have no effect on the number of shares of common stock of Marvell owned by
Marvell shareholders.
Q. WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A. We are working to complete the merger as quickly as possible and are
currently targeting the first calendar quarter of 2001 for a closing. We
expect to complete the merger soon after receiving the approval of Marvell
and Galileo shareholders at the shareholder meetings held for the purpose of
voting on the merger agreement, and after all necessary regulatory approvals
are received and all waiting periods have expired.
Q. WHAT DO I NEED TO DO NOW?
A. After carefully reading and considering the information contained in this
joint proxy statement/prospectus, please fill out and sign the enclosed proxy
card, and then mail your signed proxy card in the enclosed postage-paid
envelope as soon as possible so that your shares may be voted at the
appropriate shareholder meeting. Your proxy card will instruct the persons
named on the card to vote your shares at the appropriate shareholder meeting
as you direct the shares to be voted on the card. If you sign and send in
your proxy card and do not indicate how you want to vote, your proxy will be
voted FOR approval and adoption of the merger and the merger agreement. In
addition, this vote for Marvell shareholders is also a vote for the issuance
of Marvell common stock to Galileo shareholders in the merger and for
approval of the assumption by Marvell of the stock option plans of Galileo.
YOUR VOTE IS VERY IMPORTANT.
Q. IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A. Your broker will vote your shares only if you provide instructions on how to
vote. You should follow the directions provided by your broker to vote your
shares. If you do not instruct your broker on how to vote, your shares will
not be voted. You cannot vote shares held in "street name" by returning a
proxy card to Marvell or Galileo.
Q. MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A. You may change your vote at any time before your proxy is voted at the
shareholder meeting. You can do this in one of three ways.
- You can send a written notice to Marvell or Galileo, as appropriate,
stating that you want to revoke your proxy.
- You can complete and submit a new proxy card.
- You can attend the appropriate shareholder meeting and vote in person.
Simply attending the meeting, however, will not revoke your proxy; you must
vote at the meeting.
If you have instructed a broker to vote your shares, you must follow
directions received from your broker to change your vote.
Q. WHAT VOTE IS REQUIRED FOR APPROVAL?
A. Marvell: The merger cannot be completed unless the holders of 66 2/3% of the
Marvell common stock present in person or by proxy and voting and 66 2/3% in
number of record shareholders present in person or by proxy at the Marvell
special general meeting approve
1
<PAGE> 8
the merger proposal, with a quorum present in person or by proxy.
Galileo: The merger and the merger agreement must be approved by holders of
75% of the Galileo ordinary shares present and voting in person or by proxy
at the Galileo extraordinary general meeting.
Q. WHAT DOES MY BOARD OF DIRECTORS RECOMMEND?
A. The boards of directors of each of Marvell and Galileo have determined that
the proposed merger is advisable and fair to, and in the best interests of,
their respective companies and shareholders, and unanimously recommend that
their respective shareholders vote FOR the proposal to approve the merger and
the merger agreement.
Q. IF I AM A GALILEO SHAREHOLDER, HOW SHOULD I SEND IN MY STOCK CERTIFICATES?
A. Do not send your stock certificates with your proxy card. You must keep your
stock certificates until after the closing of the merger, when you will
receive a letter of transmittal providing instructions on how to exchange
your certificates representing Galileo shares for certificates representing
the Marvell shares to be received in the merger.
Q. WHO CAN HELP ANSWER MY QUESTIONS?
A. If you have more questions about the merger, you should contact:
Marvell Shareholders:
Marvell Investor Relations Group
645 Almanor Avenue
Sunnyvale, California 94086
(408) 522-2032
Galileo Shareholders:
Galileo Technology Ltd.
Investor Relations
142 Charcot Avenue
San Jose, California 95131
(408) 367-1400
2
<PAGE> 9
SUMMARY
This brief summary highlights selected information from this joint proxy
statement/prospectus. It does not contain all of the information that may be
important to you. We encourage you to carefully read this entire joint proxy
statement/prospectus, including the attachments and the other documents to which
this joint proxy statement/prospectus refers, to fully understand our proposed
merger. See "Where You Can Find More Information" on page 107.
THE COMPANIES
MARVELL TECHNOLOGY GROUP LTD. (PAGE 89)
Richmond House
3rd Floor
12 Par la Ville Road
Hamilton, HM DX
Bermuda
(441) 296-6395
Marvell operates through its subsidiaries, Marvell Semiconductor Inc.,
Marvell Asia Pte. Ltd. and Marvell Japan K.K. On behalf of Marvell, Marvell
Semiconductor designs, develops, and markets integrated circuits utilizing
proprietary mixed signal and digital signal processing technologies for
broadband communications-related markets. Marvell's proprietary custom mixed
signal processing, or CMSP, technology combines custom digital signal processing
algorithms to allow technology customers to store and move digital data on
demand at high data access rates. Marvell initially focused its core technology
on the data storage market. It more recently applied its technology to the high
speed, or broadband, data communications market by introducing products that are
used in network access equipment to provide the interface between communications
systems and data transmission media. Marvell Asia and Marvell Japan sell
Marvell's products and provide technical support to its customers on behalf of
Marvell. Marvell employs more than 300 people worldwide. Marvell Semiconductor
is headquartered at 645 Almanor Avenue, Sunnyvale, California 94086, and its
telephone number is (408) 222-2500.
TOSHACK ACQUISITIONS LTD. (PAGE 90)
Toshack Acquisitions is a newly formed corporation, formed under the laws
of the State of Israel, organized for the purpose of completing the proposed
merger. It has engaged in no business activities and it has no assets or
liabilities of any kind, other than those incident to its formation and those
incurred in connection with the merger. Toshack Acquisitions is wholly-owned by
Marvell.
GALILEO TECHNOLOGY LTD. (PAGE 89)
Moshav Manof
D.N. Misgav 20184
Israel
(408) 367-1400
Galileo is a market leader in communications systems on silicon, and is one
of the semiconductor industry's fastest growing suppliers of complex,
high-performance, integrated circuit devices serving the needs of the local area
network, or LAN, the metropolitan area network, or MAN, and wide area network,
or WAN, markets. Galileo is organized around two principal product groups:
Internetworking Products, consisting of system controllers and WAN
communications controllers, and Switching Products, consisting of switched
Ethernet controllers and switched PoS/ATM controllers. Galileo employs more than
330 people worldwide and has business headquarters in San Jose, California and
research and development headquarters in Moshav Manof, Israel.
STRUCTURE OF THE MERGER (PAGE 72)
Toshack Acquisitions will merge into Galileo, and Galileo will continue as
the surviving company of the merger. As a result of the merger, each outstanding
ordinary share of Galileo will be exchanged for the right to receive 0.674
shares of Marvell common stock.
Following the merger, Galileo shareholders will no longer have any interest
in Galileo, but will have an equity stake in Marvell, regardless of whether they
vote for the merger. Immediately after the merger, the former Galileo
shareholders will own approximately 25% of the outstanding shares of Marvell
common stock on a fully-diluted basis.
Upon completion of the merger, Galileo shareholders must surrender their
Galileo ordinary share certificates to receive new certificates representing the
Marvell common stock received in the merger. You do not need to do this,
however, until
3
<PAGE> 10
you receive written instructions after we have
completed the merger.
We have attached the merger agreement to this joint proxy
statement/prospectus as Appendix A. The merger agreement describes the terms of
the merger. Please read the merger agreement. It is the legal document that
governs the merger and its exact language prevails over the more general,
abbreviated description in this joint proxy statement/prospectus.
WHAT SHAREHOLDERS WILL RECEIVE (PAGE 72)
If the merger is completed, Galileo shareholders will receive for each
outstanding ordinary share of Galileo they hold at the time of the merger 0.674
shares of Marvell common stock. The merger will have no effect on the number of
shares of Marvell common stock owned by Marvell shareholders.
GALILEO STOCK OPTIONS AND OTHER RIGHTS (PAGE 73)
In the merger, each stock option or other right to buy Galileo ordinary
shares will become an option or other right, as applicable, to buy Marvell
common stock. However, each option or other right will continue to be governed
by the same terms and conditions as applicable under the Galileo stock option
plan or other agreement under which it was issued. The number of shares of
Marvell common stock subject to each new stock option or other right, as well as
the exercise price of that stock option or other right, will be adjusted to
reflect the exchange ratio of 0.674 shares of Marvell common stock for each
ordinary share of Galileo.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF MARVELL AND GALILEO TO SHAREHOLDERS
(PAGES 44 AND 46)
The boards of directors of each of Marvell and Galileo believe that the
proposed merger is advisable, and in the best interests of their respective
companies and shareholders, and unanimously recommend that their respective
shareholders vote FOR approval of the merger and the merger agreement.
OUR REASONS FOR THE MERGER (PAGES 44 AND 46)
Marvell and Galileo are proposing to merge because they believe that the
merger will significantly benefit their respective shareholders and customers.
Marvell and Galileo believe that the combination of the two businesses will
result in a company that can provide end-to-end solutions for its customers and
can use its combined resources to pursue additional opportunities.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION (PAGE 12)
The stock of both Marvell and Galileo are quoted on the Nasdaq National
Market. On October 16, 2000, the last trading day before Galileo and Marvell
announced the merger, Marvell common stock closed at $81.75 per share and
Galileo ordinary shares closed at $30.7656 per share. On [November 16, 2000,]
the latest practicable date before the printing of this joint proxy
statement/prospectus, Marvell common stock closed at $[45.125] per share and
Galileo ordinary shares closed at $[22.6875] per share.
VOTING AGREEMENT WITH MARVELL SHAREHOLDERS (PAGE 88)
As a condition to entering into the merger agreement, Galileo required five
shareholders of Marvell who are directors and/or executive officers of Marvell
and who collectively own approximately 58% of the outstanding shares of common
stock of Marvell, to enter into a voting agreement in which they agreed to vote
in favor of the merger.
PROXY OF GALILEO SHAREHOLDERS (PAGE 88)
As a condition to entering into the merger agreement, Marvell required two
shareholders of Galileo who are directors and executive officers of Galileo and
who collectively own approximately 23.7% of the outstanding ordinary shares of
Galileo, to enter into an irrevocable proxy in which they have instructed and
authorized the proxy holder to vote in favor of the merger.
MANAGEMENT AFTER THE MERGER (PAGE 89)
There will be no change in the current executive officers of Marvell as a
result of the merger. However, immediately prior to the merger, the Marvell
board of directors will be increased by two members. The two newly created
vacancies are currently expected to be filled by Avigdor Willenz, the Chairman
of the board of directors and Chief Executive Officer of Galileo, and Manuel
Alba, a director of Galileo and
4
<PAGE> 11
President of Galileo Technology, Inc., a wholly-
owned subsidiary of Galileo, or otherwise will be filled by two other persons
selected by the board of directors of Galileo.
After the merger, Messrs. Willenz and Alba are expected to retain their
responsibilities for the oversight of Galileo's operations.
THE SHAREHOLDER MEETINGS (PAGES 35 AND 38)
Time, Date and Place
The Marvell shareholders meeting to vote on the merger will be held at
a.m., local time, on at:
, California
The Galileo shareholders meeting will be held at a.m., Israel time, on
at:
Galileo Technology Ltd.
Moshav Manof
D.N. Misgav 20184
Israel
Record Dates, Shares Entitled to Vote and Votes Required
At the Marvell shareholders meeting, Marvell shareholders may cast one vote
per share of Marvell common stock that they held on the close of business on
. On that date, shares of Marvell common stock
were outstanding and entitled to vote, of which [49,802,660] shares were subject
to voting agreements to vote in favor of the merger. The merger proposal to be
voted upon by the Marvell shareholders will require the approval by holders of
66 2/3% of the shares of Marvell common stock present in person or by proxy and
voting and 66 2/3% in number of record shareholders present in person or by
proxy at the Marvell special general meeting called to vote on the merger. A
quorum for the special general meeting is the continuous presence of at least
two shareholders representing more than 50% of the shares eligible to vote at
the meeting.
At the Galileo extraordinary shareholders meeting, Galileo shareholders may
cast one vote per ordinary share of Galileo they held on the close of business
on . On that date, ordinary shares of Galileo were
outstanding and entitled to vote, of which [10,191,978] ordinary shares were
subject to proxies authorizing and instructing the proxy holder to vote in favor
of the merger. The proposal to approve and adopt the merger and the merger
agreement requires the approval by holders of 75% of the ordinary shares of
Galileo present and voting in person or by proxy at the meeting. A quorum for
the meeting is at least two shareholders who hold at least 60% of the voting
rights of the issued share capital of Galileo, and the quorum at any adjourned
meeting is two shareholders who hold at least 34% of the voting rights of the
issued share capital of Galileo.
OPINION OF MARVELL'S FINANCIAL ADVISOR (PAGE 51)
On October 16, 2000, Goldman, Sachs & Co. delivered its oral opinion,
subsequently confirmed in writing, to the board of directors of Marvell that, as
of the date of such opinion, the exchange ratio of 0.674 shares of common stock
of Marvell to be exchanged for each ordinary share of Galileo pursuant to the
merger agreement was fair from a financial point of view to Marvell. The full
text of the written opinion of Goldman Sachs, dated October 16, 2000, which
identifies assumptions made, matters considered and limitations on the review
undertaken in connection with the opinion, is attached as Appendix C to this
joint proxy statement/prospectus. Shareholders of Marvell are urged to, and
should, read such opinion in its entirety. The opinion of Goldman Sachs does not
constitute a recommendation as to how any shareholder of Marvell should vote
with respect to the merger.
OPINION OF GALILEO'S FINANCIAL ADVISOR (PAGE 58)
On October 16, 2000, Salomon Smith Barney, Galileo's financial advisor,
delivered its opinion to Galileo's board of directors that, as of the date of
its opinion and subject to the considerations described in its opinion, the
ratio for exchanging Marvell common stock for Galileo ordinary shares in the
merger was fair from a financial point of view to Galileo's shareholders. The
complete opinion of Salomon Smith Barney is attached as Appendix D. We urge you
to read the opinion in its entirety.
CONDITIONS TO COMPLETING THE MERGER (PAGE 81)
Whether we complete the merger depends on the satisfaction of a number of
conditions in
5
<PAGE> 12
addition to approval of the merger by the
shareholders of Marvell and Galileo. These additional conditions include the
receipt of specified United States and Israeli regulatory approvals.
However, either Marvell or Galileo could choose to complete the merger even
though one or more of these conditions has not been satisfied, as long as
applicable law allows them to do so. Neither Marvell nor Galileo can be certain
when, or if, the conditions to the merger will be satisfied or waived, or that
the merger will be completed.
TERMINATION OF THE MERGER AGREEMENT (PAGE 83)
Before the merger is completed, Galileo and Marvell can mutually agree to
terminate the merger agreement. Also, either party can terminate the merger
agreement if either a governmental authority issues a non-appealable ruling
prohibiting the merger or if the merger is not completed by March 31, 2001.
Either party can decide, without the consent of the other, to terminate the
merger agreement under the following circumstances:
- if Galileo's or Marvell's shareholders do not approve the merger;
- if Galileo's board recommends to its shareholders a proposal by a
third-party to acquire Galileo;
- if the other party has made significant misrepresentations in the merger
agreement or has failed to perform its obligations under the merger
agreement that significantly affect itself or the merger; or
- if the other party ceases to use reasonable best efforts to call its
shareholder meeting to approve the merger.
In addition, each party can terminate the merger agreement under the
circumstances beginning on page 83 of this joint proxy statement/prospectus.
GALILEO'S ABILITY TO RESPOND TO AN UNSOLICITED ACQUISITION PROPOSAL (PAGE 78)
Until the merger is completed or the merger agreement is terminated,
Galileo generally may not engage in or initiate discussions with a potential
acquiror other than Marvell. However, if the board of directors of Galileo
determines the actions are likely to lead to a superior proposal, Galileo may
engage in negotiations regarding an unsolicited proposal from a potential
acquiror other than Marvell if Galileo's board of directors decides in good
faith, based upon advice from legal counsel, that it is necessary to do so in
order to comply with its fiduciary duties and, based on consultation with
Galileo's financial advisors, the potential acquiror is capable of consummating
a superior proposal. Galileo may also provide the other potential acquiror with
the type of due diligence information that it provided to Marvell.
Galileo may withdraw or modify its recommendation of the merger or approve
an acquisition by an acquiror other than Marvell if, after Galileo's board of
directors has received an unsolicited proposal from the potential acquiror, the
board decides in good faith, based upon advice from legal counsel, that it must
take those actions in order to comply with its fiduciary duties. Under these
circumstances, however, Galileo's board of directors must give Marvell a chance
to at least match the potential acquiror's proposal. Marvell or Galileo may
terminate the merger agreement if Galileo's board of directors withdraws or
adversely modifies its recommendation that Galileo shareholders approve the
merger with Marvell or recommends that Galileo shareholders approve a competing
transaction.
LIQUIDATED DAMAGES AND PAYMENT OF EXPENSES IF THE MERGER AGREEMENT IS TERMINATED
(PAGE 84)
Galileo has agreed to pay Marvell liquidated damages of $75 million if the
merger agreement is terminated for certain reasons, which generally relate to:
- the Galileo board of directors recommending a superior acquisition
proposal from a potential acquiror other than Marvell; or
- Galileo failing to call the shareholder meeting to vote on the merger,
Galileo's shareholders not approving the merger, or Galileo willfully
breaching its representations in the merger agreement and, in each case,
Galileo later agreeing to be acquired by another company.
Marvell has agreed to pay Galileo liquidated damages of $80 million if the
merger agreement is terminated for certain reasons, which generally relate to
Marvell's board of directors failing to call the shareholder meeting to vote on
the merger, Marvell's shareholders not approving the merger, or Marvell
willfully breaching its representations
6
<PAGE> 13
in the merger agreement and, in each case,
Marvell later agreeing to be acquired by another company.
Upon termination of the merger agreement under specified circumstances,
each of Marvell and Galileo has agreed to reimburse the other for its costs and
expenses related to the merger in the amount of $5 million. Otherwise,
regardless of whether the merger is completed, each of Marvell and Galileo will
pay their own fees and expenses.
OPTION AGREEMENT (PAGE 86 AND APPENDIX B)
Galileo has entered into a stock option agreement granting Marvell an
option to purchase, under specified circumstances, 5,371,720 ordinary shares of
Galileo or such other number as represents 12.5% of the outstanding ordinary
shares of Galileo at the time of exercise. The exercise price of the option is
$55.10 per share. Marvell may not exercise its option unless the merger
agreement is terminated under circumstances that could obligate Galileo to pay
Marvell liquidated damages.
Under specified circumstances, Marvell may require Galileo to repurchase
the option and Galileo may require Marvell to sell to Galileo any ordinary
shares of Galileo received by Marvell upon its exercise of the option. Marvell
may not receive total value in excess of $80 million from the option and
Galileo's payment of liquidated damages and expenses upon termination of the
merger agreement as described above.
We have attached the option agreement to this joint proxy
statement/prospectus as Appendix B. We urge you to read the option agreement.
NO DISSENTERS' APPRAISAL RIGHTS (PAGE 71)
Under Israeli law, holders of Galileo ordinary shares are not entitled to
appraisal rights.
MATERIAL TAX CONSEQUENCES OF THE MERGER TO GALILEO SHAREHOLDERS (PAGES 67 AND
69)
United States Tax Consequences. The exchange of Marvell common stock for
Galileo ordinary shares in the merger is intended to be tax-free to Galileo
shareholders for United States federal income tax purposes. Galileo shareholders
will, however, recognize gain or loss with respect to any cash received for
fractional shares.
Israeli Tax Consequences. Israeli law generally imposes a capital gains tax
on the sale of capital assets by both residents and non-residents of Israel.
Nevertheless, assuming that Galileo qualifies as an "Industrial Company" under
Israeli law, holders of Galileo's ordinary shares who have acquired their shares
at the time of the initial public offering of Galileo, or any time thereafter,
will be exempt from Israeli capital gains tax in connection with the exchange of
Galileo's ordinary shares for Marvell's common stock pursuant to the merger
agreement, unless trading in securities is their business, as defined under
applicable Israeli law, or unless such shareholders are subject to the Israeli
Inflationary Adjustments Law 1985. Galileo believes that it is currently an
"Industrial Company" under Israeli law.
THIS TAX TREATMENT MAY NOT APPLY TO EVERY GALILEO SHAREHOLDER. DETERMINING
YOUR ACTUAL TAX CONSEQUENCES OF THE MERGER MAY BE COMPLICATED. THEY WILL DEPEND
ON YOUR SPECIFIC SITUATION AND ON VARIABLES NOT WITHIN OUR CONTROL. YOU SHOULD
CONSULT YOUR OWN TAX ADVISOR FOR A FULL UNDERSTANDING OF THE MERGER'S TAX
CONSEQUENCES TO YOU.
ACCOUNTING TREATMENT (PAGE 71)
Marvell will account for the merger as a "purchase" transaction for
accounting and financial reporting purposes, in accordance with generally
accepted accounting principles. Accordingly, Marvell will make a determination
of the fair value of Galileo's assets and liabilities and allocate the purchase
price on its books to the acquired assets.
MATERIAL DIFFERENCES IN RIGHTS OF SHAREHOLDERS (PAGE 100)
Galileo and Marvell are incorporated in different countries having
different corporate laws. In addition, the governing documents of each company
vary. As a result, Galileo shareholders will have different rights as a Marvell
shareholder than those as a Galileo shareholder.
7
<PAGE> 14
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables show summarized historical and unaudited pro forma
financial data for Marvell and Galileo. Per share data have been adjusted for
Galileo's stock dividend on September 20, 1999.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA -- MARVELL
The following selected consolidated financial data for Marvell should be
read in conjunction with, and are qualified by reference to, Marvell's
consolidated financial statements and related notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" appearing
elsewhere in this joint proxy statement/prospectus. The statements of operations
data for the years ended January 31, 1998, 1999 and 2000, and the balance sheet
data as of January 31, 1999 and 2000, are derived from, and are qualified by
reference to, Marvell's audited consolidated financial statements which are
included elsewhere in this joint proxy statement/prospectus. The statements of
operations data for the years ended January 31, 1996 and 1997, and the balance
sheet data as of January 31, 1996, 1997 and 1998, are derived from financial
statements that are not included in this joint proxy statement/prospectus. The
statement of operations data for the six months ended July 31, 1999 and 2000,
and the balance sheet data as of July 31, 2000, are derived from Marvell's
unaudited financial statements which are included elsewhere in this joint proxy
statement/prospectus. In the opinion of Marvell's management, the unaudited
financial statements have been prepared on the same basis as the audited
financial statements and contain all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of Marvell's results of
operations for these periods and financial condition at that date. The
historical results presented below are not necessarily indicative of future
results. See Note 1 of the notes to Marvell's consolidated financial statements
for an explanation of the determination of the number of shares used to compute
per share amounts.
MARVELL TECHNOLOGY GROUP LTD.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS ENDED JANUARY 31, JULY 31,
-------------------------------------------------- -------------------
1996 1997 1998 1999 2000 1999 2000
------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net revenues........................................ $ 210 $ 190 $ 625 $21,253 $81,375 $30,916 $ 61,839
Operating income (loss)............................. (374) (2,246) (7,404) (550) 17,096 6,090 2,555
Net income (loss)................................... (355) (2,153) (7,444) (959) 13,070 4,595 2,692
Earnings (loss) per share:
Basic............................................. $ (0.02) $ (0.08) $ (0.24) $ 0.03 $ 0.32 $ 0.12 $ 0.05
Diluted........................................... $ (0.02) $ (0.08) $ (0.24) $ (0.03) $ 0.16 $ 0.06 $ 0.03
Average common shares:
Basic............................................. 20,738 25,593 30,436 32,470 41,094 38,144 50,702
Diluted........................................... 20,738 25,593 30,436 32,470 81,545 79,583 87,426
</TABLE>
<TABLE>
<CAPTION>
AS OF JANUARY 31,
-------------------------------------------------- JULY 31,
1996 1997 1998 1999 2000 2000
------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 1,264 $ 4,763 $ 3,307 $ 5,515 $16,600 $112,298
Restricted cash............................................. -- -- -- -- -- 3,068
Working capital............................................. 1,188 4,426 2,682 6,865 22,611 121,096
Total assets................................................ 1,364 5,267 5,291 16,563 46,500 161,050
Notes payable to bank and capital lease obligations, less
current portion........................................... 30 -- 21 897 36 10
Mandatorily redeemable convertible preferred stock.......... 1,383 7,176 13,465 17,524 22,353 --
Total shareholders' equity (deficit)........................ (126) (2,289) (9,578) (9,350) 7,940 134,910
</TABLE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA -- GALILEO
The following selected consolidated financial data for Galileo should be
read in conjunction with, and are qualified by reference to, Galileo's
consolidated financial statements and related notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" incorporated by
reference in this joint proxy statement/
8
<PAGE> 15
prospectus. The statement of operations data for the years ended December 31,
1997, 1998 and 1999, and the balance sheet data as of December 31, 1998 and
1999, are derived from, and are qualified by reference to, Galileo's audited
consolidated financial statements which are incorporated by reference in this
joint proxy statement/prospectus. The statement of operations data for the years
ended December 31, 1995 and 1996 and the balance sheet data as of December 31,
1995, 1996 and 1997 are derived from audited consolidated financial statements
of Galileo not included or incorporated by reference in the joint proxy
statement/prospectus. The statement of operations data for the six months ended
June 30, 1999 and 2000, and the balance sheet data as of June 30, 2000, are
derived from Galileo's unaudited consolidated financial statements which are
incorporated by reference in this joint proxy statement/prospectus. In the
opinion of Galileo's management, the unaudited financial statements have been
prepared on the same basis as the audited financial statements and contain all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of Galileo's results of operations for these periods and
financial condition at that date. The historical results presented below are not
necessarily indicative of future results. See Note 1 of the notes to Galileo's
consolidated financial statements for an explanation of the determination of the
number of shares used to compute per share amounts.
GALILEO TECHNOLOGY LTD.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net revenues......................................... $ 843 $ 6,462 $ 36,505 $ 51,643 $ 79,717 $ 33,423 $ 44,470
Operating income (loss).............................. (1,660) (1,098) 8,938 12,056 22,820 9,383 5,724
Net income (loss).................................... (1,590) (948) 10,336 15,450 26,109 11,095 7,722
Earnings (loss) per share:
Basic.............................................. $ (0.08) $ (0.04) $ 0.32 $ 0.38 $ 0.63 $ 0.27 $ 0.18
Diluted............................................ $ (0.08) $ (0.04) $ 0.27 $ 0.36 $ 0.58 $ 0.25 $ 0.17
Average ordinary shares used in computing earnings
(loss) per share:
Basic.............................................. 20,648 21,132 31,896 40,698 41,233 40,852 42,406
Diluted............................................ 20,648 21,132 38,024 42,614 44,845 44,316 45,148
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------- JUNE 30,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 2,156 $ 5,332 $ 43,887 $ 45,607 $ 42,648 $ 57,070
Short-term investments...................................... 1,000 2,304 27,349 40,838 63,005 50,396
Working capital............................................. 2,674 6,143 70,372 84,445 112,038 113,331
Total assets................................................ 4,209 12,712 82,492 102,921 140,738 152,435
Total shareholders' equity.................................. $ 3,155 $ 7,366 $ 72,998 $ 89,799 $121,305 $131,478
</TABLE>
SELECTED PRO FORMA COMBINED CONSOLIDATED FINANCIAL DATA
The following unaudited selected pro forma consolidated financial data
combines Marvell's historical results for the six months ended July 31, 2000 and
the fiscal year ended January 31, 2000 with Galileo's for the six months ended
June 30, 2000 and the fiscal year ended December 31, 1999, giving effect to the
merger as if it had occurred as of the beginning of each period for statement of
operations purposes and on July 31, 2000 for balance sheet purposes. See the
narrative under "-- Unaudited Comparative Historical and Pro Forma Per Share
Data" on page 11 for a discussion of significant assumptions and other
information related to the selected pro forma financial data. This pro forma
information, while helpful in illustrating the financial characteristics of the
combined company under one set of assumptions, does not attempt to predict or
suggest future results. It also does not necessarily reflect what the historical
results of the combined company would have been had Marvell and Galileo actually
been combined during the periods presented, or results that may be achieved in
the future.
The allocation of the purchase price will be finalized following
consummation of the merger. Based on an analysis of fair value, the excess of
the purchase price over the net tangible assets on Galileo's balance sheet will
then be allocated to identifiable intangible assets and goodwill. Marvell is
currently gathering the data necessary for determining the value of identifiable
intangible assets, including in-process research and development. For both
9
<PAGE> 16
in-process and developed technology, Marvell's data gathering efforts are
focused on determining Galileo's forecasted revenues and costs as well as the
stage of completion or remaining product life by individual project or product.
Marvell will acquire Galileo's technology in the merger. The principal
products that use Galileo's technology relate to digital semiconductor devices
that provide connections for high speed networking applications, in which voice,
video and data are handled seamlessly using Internet Protocol techniques.
We assumed the total amount of goodwill and identifiable intangible assets
to be $1.9 billion and to have an average useful life of approximately five
years. Because the valuation analysis has not been completed, the actual amount
of goodwill and identifiable intangible assets, and the related average useful
life, could vary from these assumptions.
MARVELL TECHNOLOGY GROUP LTD.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
JANUARY 31, 2000 JULY 31, 2000
----------------- --------------
<S> <C> <C>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS DATA:
Net revenue................................................. $ 161,092 $ 106,309
Net loss.................................................... $(448,256) $ (233,304)
Net loss per share, basic and diluted....................... $ (6.40) $ (2.93)
</TABLE>
<TABLE>
<CAPTION>
JULY 31, 2000
--------------
<S> <C> <C>
PRO FORMA COMBINED CONDENSED BALANCE SHEET DATA:
Cash and cash equivalents...................................................... $ 169,368
Short-term investments......................................................... $ 50,396
Working capital................................................................ $ 208,068
Total assets................................................................... $2,254,128
Total shareholders' equity..................................................... $2,177,901
</TABLE>
10
<PAGE> 17
UNAUDITED COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA
The following table shows information about our historical income per
common share and book value per share, and similar information reflecting the
completion of our proposed merger, which we refer to as "pro forma" information.
We used an exchange ratio of 0.674 shares of Marvell common stock for each
ordinary share of Galileo in computing the pro forma combined and equivalent pro
forma combined per share data, after adjusting for Galileo's 100% stock dividend
distributed on September 20, 1999. All Galileo historical and pro forma combined
per share results reflect the effects of this stock dividend.
The combined pro forma information in the following table was prepared
using a number of assumptions. We assumed the value of Marvell shares to be
issued for outstanding Galileo shares to be $2.1 billion, based on 43.0 million
Galileo shares outstanding and the conversion value of a Galileo share at the
time of the merger agreement on October 16, 2000. We increased this by
approximately $331.7 million for the value of all outstanding Galileo options
and estimated transaction costs of $29.1 million giving a total purchase price
of $2.4 billion.
UNAUDITED COMPARATIVE PER SHARE DATA
OF MARVELL AND GALILEO
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
JANUARY 31, 2000 JULY 31, 2000
----------------- ----------------
<S> <C> <C>
MARVELL TECHNOLOGY GROUP LTD.
HISTORICAL PER COMMON SHARE DATA:
Basic earnings per share............................... $ 0.32 $ 0.05
Diluted earnings per share............................. $ 0.16 $ 0.03
Book value per share(1)................................ $ 0.16 $ 1.58
MARVELL TECHNOLOGY GROUP LTD.
UNAUDITED PRO FORMA COMBINED PER COMMON SHARE DATA:
Basic earnings per share............................... $(6.40) $(2.93)
Diluted earnings per share............................. $(6.40) $(2.93)
Book value per share(2)................................ -- $19.03
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1999 JUNE 30, 2000
----------------- ----------------
<S> <C> <C>
GALILEO TECHNOLOGY LTD.
HISTORICAL PER SHARE DATA:
Basic earnings per share............................... $ 0.63 $ 0.18
Diluted earnings per share............................. $ 0.58 $ 0.17
Book value per share(1)................................ $ 2.89 $ 3.08
GALILEO TECHNOLOGY LTD.
UNAUDITED EQUIVALENT PRO FORMA PER SHARE DATA:
Basic earnings per share(3)............................ $(4.31) $(1.97)
Diluted earnings per share(3).......................... $(4.31) $(1.97)
Book value per share(3)................................ -- $12.83
</TABLE>
------------------
(1) The historical book value per share is computed by dividing total
shareholders' equity by the number of shares of common stock outstanding at
the end of the period.
(2) The pro forma combined book value per Marvell share is computed by dividing
total pro forma shareholders' equity by the pro forma number of shares of
common stock outstanding at the end of the period.
(3) Equivalent pro forma share amounts are calculated by multiplying the pro
forma combined net loss per share and the pro forma book value per share of
Marvell by the exchange ratio of 0.674.
11
<PAGE> 18
COMPARATIVE MARKET PRICES AND DIVIDENDS
MARKET PRICES
Marvell common stock is listed on the Nasdaq National Market under the
symbol "MRVL." Galileo ordinary shares are listed on the Nasdaq National Market
under the symbol "GALT."
The following table shows the high and low intra-day sale prices for the
calendar quarters shown for both Marvell common stock and Galileo ordinary
shares on the Nasdaq National Market.
Prior to the commencement of trading in connection with its initial public
offering on June 27, 2000, there was no public market for Marvell common stock.
As such, the following table contains no market price information for Marvell
prior to the second calendar quarter of 2000.
Galileo distributed a stock dividend of one ordinary share for each
outstanding ordinary share prior to the opening of the market on September 20,
1999. The reported per share intra-day sale prices of Galileo have been adjusted
for the effect of the stock dividend.
<TABLE>
<CAPTION>
MARVELL GALILEO
---------------------- ----------------------
HIGH LOW HIGH LOW
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Calendar 1998
First Quarter.............................. -- -- $ 21.0000 $ 13.3125
Second Quarter............................. -- -- $ 16.8750 $ 4.8750
Third Quarter.............................. -- -- $ 7.5000 $ 4.5000
Fourth Quarter............................. -- -- $ 13.5625 $ 3.3125
Calendar 1999
First Quarter.............................. -- -- $ 14.9063 $ 8.75000
Second Quarter............................. -- -- $ 23.5000 $ 10.6250
Third Quarter.............................. -- -- $ 34.5625 $ 22.3750
Fourth Quarter............................. -- -- $ 31.3750 $ 17.5000
Calendar 2000
First Quarter.............................. -- -- $ 30.5000 $ 13.1250
Second Quarter............................. $ 63.3125 $ 47.4844 $ 23.9375 $ 12.5625
Third Quarter.............................. $109.7500 $ 41.6250 $ 35.2500 $ 16.6250
Fourth Quarter (through [November 16,
2000]).................................. $[92.5000] $[42.7500] $[21.2500] $[34.8100]
</TABLE>
RECENT CLOSING PRICES
On October 16, 2000, the last trading day immediately before the public
announcement of the merger, the closing price of Marvell common stock on the
Nasdaq National Market was $81.75 per share, and the closing price of ordinary
shares of Galileo was $30.7656 per share. On [November 16, 2000,] the latest
practicable trading day before the printing of this joint proxy
statement/prospectus, the closing price of Marvell common stock on the Nasdaq
National Market was $[45.125] per share and the closing price of ordinary shares
of Galileo was $[22.6875] per share. Following the merger, ordinary shares of
Galileo will cease to be traded on the Nasdaq National Market and will represent
only the right to receive shares of Marvell common stock under the terms and
conditions of the merger agreement.
Because the market price of Marvell common stock is subject to fluctuation,
the market value of the shares of Marvell common stock that holders of ordinary
shares of Galileo will receive in the merger may increase or decrease before and
after the merger. See "Risk Factors" beginning on page 13. Shareholders are
urged to obtain current market quotations for Marvell common stock and ordinary
shares of Galileo.
DIVIDENDS
Neither Marvell nor Galileo have ever declared or paid a cash dividend on
their common stock and ordinary shares, respectively, and do not anticipate
paying any cash dividends in the foreseeable future. In addition, the merger
agreement prohibits both Marvell and Galileo from declaring or paying dividends
on their shares without the consent of the other until the completion of the
merger or termination of the merger agreement.
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RISK FACTORS
You should consider the following risk factors, together with the other
information included and incorporated by reference in this joint proxy
statement/prospectus, in deciding whether to approve the merger. Galileo
shareholders, by voting in favor of the merger and electing to receive shares of
Marvell common stock in the merger, will be choosing to invest in Marvell common
stock. An investment in Marvell common stock involves a high degree of risk.
RISKS RELATED TO THE MERGER
THERE IS A FIXED EXCHANGE RATIO OF MARVELL COMMON STOCK FOR GALILEO SHARES AND
CHANGES IN THE MARKET VALUE OF MARVELL COMMON STOCK COULD ADVERSELY AFFECT THE
VALUE GALILEO SHAREHOLDERS RECEIVE FOR SHARES OF GALILEO.
Under the terms of the merger agreement, Marvell will issue 0.674 shares of
its common stock for each Galileo ordinary share outstanding at the time of the
merger. There will be no adjustment of this exchange ratio based on changes to
the market price of either the ordinary shares of Galileo or the Marvell common
stock, and Galileo is not permitted to "walk away" from the merger or resolicit
the vote of its shareholders solely because of changes in the market price of
the Marvell common stock.
Before and after the merger, the trading price of Marvell common stock will
be subject to change. The price of Marvell common stock has experienced
significant volatility and could experience significant volatility in the future
for the following reasons, among others:
- actual or anticipated fluctuations in Marvell's sales and operating
results;
- variations between Marvell's actual or anticipated financial results and
the published expectations of analysts;
- general conditions in the data storage and data communications
industries;
- announcements by Marvell or its competitors of significant technical
innovations, acquisitions, strategic partnerships, joint ventures and
capital commitments;
- introduction of technologies or product enhancements that reduce the need
for Marvell's products;
- general economic and political conditions;
- departures of key personnel;
- sales of Marvell's common stock in the future; and
- the other factors listed below with the caption "-- Risks Related to
Marvell."
Since the announcement of the merger, the trading prices of both Marvell
common stock and Galileo ordinary shares have decreased; as of [November 16],
2000, the last practical trading day before the printing of this joint proxy
statement/prospectus, the closing price of Marvell common stock was [$45.125]
and the closing price of Galileo ordinary shares was [$22.6875]. Prior to the
appropriate shareholder meeting, you should obtain recent market quotations for
the Marvell common stock and the Galileo ordinary shares.
In addition, the stock market in general has experienced extreme price and
volume fluctuations that have affected the market price of many technology
companies in particular, and these fluctuations have often been unrelated to the
operating performance of these companies. Consequently, no prediction can be
made as to the exact value that Galileo's shareholders will receive, and the
market value of Marvell common stock issued in connection with the merger may be
lower than the market price of Galileo shares at the time the merger agreement
was entered into or the time of the appropriate shareholders meeting.
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GALILEO SHAREHOLDERS MAY EXPERIENCE LOWER RETURNS ON THEIR INVESTMENT AFTER THE
MERGER.
Galileo shareholders may receive a lower return on their investment after
the merger than if the merger does not occur. A lower return could occur, for
example, if Marvell does not achieve the anticipated operating and strategic
benefits of the merger, or if Marvell does not otherwise achieve its business
objectives and the market price for Marvell's stock is adversely affected. Also,
the issuance of Marvell common stock in the merger will result in substantial
dilution and this could hurt its market price.
MARVELL AND GALILEO MAY NOT SUCCESSFULLY INTEGRATE THEIR BUSINESS OPERATIONS
AFTER THE MERGER, WHICH COULD HARM MARVELL'S OPERATING RESULTS AND SHARE PRICE.
Integrating the operations of Galileo with those of Marvell after the
merger may be difficult, time consuming and costly. The integration of
operations may distract management from the day-to-day business of the combined
company after the merger. After the merger has been completed, Marvell must
successfully integrate, among other things:
- product offerings;
- product development, sales and marketing;
- customer service functions;
- human resources and other administrative functions;
- research and development; and
- management information systems.
Among the challenges in integrating the companies is demonstrating to their
respective customers that the merger will not result in an adverse change in
business focus and persuading each company's personnel that our business
cultures are compatible. In addition, Galileo operates in locations in which
Marvell does not currently operate. Therefore, to successfully integrate
Galileo's operations, Marvell will need to retain management, key employees and
business partners of Galileo. If we are not able to effectively integrate our
operations, technology and personnel in a timely and efficient manner, then we
will not realize the benefits we expect from the merger. In particular, if the
integration is not successful:
- our operating results may be harmed;
- the combined company may lose key personnel;
- we may not be able to retain or expand our market position; and
- the market price of Marvell common stock may decline.
MARVELL COULD LOSE KEY GALILEO PERSONNEL WHO ARE NECESSARY TO ACHIEVE THE
BENEFITS THAT MARVELL AND GALILEO EXPECT TO REALIZE FROM THE MERGER.
The merger could lead to the loss of key Galileo personnel. Galileo's
contribution to the combined company's success will depend in part on the
continued service of key groups of Galileo personnel. If one or more of
Galileo's technical, sales or management personnel leaves after we complete the
merger, Galileo's business could be seriously harmed, and we may not be able to
achieve the benefits we expect to realize from the merger. Galileo employees are
employed "at will," which means the employees have not committed to stay
employed with Galileo for any specific period.
FAILURE TO COMPLETE THE MERGER COULD BE COSTLY TO MARVELL AND GALILEO AND THEIR
RESPECTIVE SHAREHOLDERS.
If the merger is not completed:
- Galileo may be required to pay Marvell an expense reimbursement of $5
million and, in some instances if an acquisition or other similar
transaction involving Galileo potentially exists or occurs, liquidated
damages of $75 million;
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- Marvell may be required to pay Galileo an expense reimbursement of $5
million and, in some instances if an acquisition or other similar
transaction involving Marvell potentially exists or occurs, liquidated
damages of $80 million;
- in some instances if an acquisition or other similar transaction
involving Galileo potentially exists or occurs, Marvell's option to
purchase up to 5,371,720 shares of Galileo may become exercisable;
- the price of Marvell and Galileo shares may decline, assuming that
current market prices reflect a market assumption that the merger will be
completed; and
- each company must still pay its costs related to the merger, such as
legal, accounting and financial advisory fees.
Furthermore, if the merger agreement is terminated and Marvell exercises
its option to purchase ordinary shares of Galileo, Galileo may not be able to
account for a future merger transaction as a pooling of interests.
RISKS RELATED TO MARVELL
A number of factors may cause significant quarterly and annual fluctuations
in Marvell's business both before and after the merger. Many of these factors
are beyond Marvell's control, including business cycles and seasonal trends of
the computing, semiconductor and related industries.
MARVELL HAS ONLY RECENTLY BEGUN OFFERING FOR SALE ITS FIRST DATA COMMUNICATIONS
PRODUCTS. MARVELL'S FUTURE SUCCESS IS DEPENDENT ON ITS ABILITY TO ACHIEVE RAPID
AND WIDESPREAD MARKET ACCEPTANCE FOR THESE PRODUCTS AND OTHER DATA
COMMUNICATIONS PRODUCTS IT DEVELOPS AND OFFERS FOR SALE.
Prior to March 2000, all of Marvell's products were sold for use in data
storage devices, a market where Marvell expected its rate of sales growth to
slow considerably in fiscal 2001 and beyond. In March 2000, Marvell shipped and
generated revenue from its first high speed, or broadband, data communications
product, an Ethernet product for Fast Ethernet applications. In May 2000,
Marvell introduced its Alaska(TM) Gigabit Ethernet over copper transceiver,
which began shipping and generating revenue in July 2000. Ethernet is the
predominant networking protocol, or format, for connecting devices at data rates
of 10, 100 and 1,000 megabits per second. Ethernet connecting devices at data
rates of 100 megabits per second are known as Fast Ethernet, and Ethernet
connecting devices at data rates of 1,000 megabits per second are known as
Gigabit Ethernet. Marvell is developing other broadband data communications
products, including multi-port count Gigabit switch products. Marvell has a
limited history in developing, marketing and selling its products in the
broadband data communications market. Even if Marvell successfully develops and
manufactures products for this market, it may not achieve market acceptance in
the near term or at all. If Marvell's Fast Ethernet products or other broadband
data communications products do not achieve rapid and widespread market
acceptance, Marvell's growth prospects could be seriously harmed.
MARVELL HAS DEPENDED ON SALES OF ITS READ CHANNEL AND PREAMPLIFIER PRODUCTS FOR
SUBSTANTIALLY ALL OF ITS REVENUE TO DATE, AND SIGNIFICANT REDUCTIONS IN ORDERS
FOR THESE PRODUCTS, OR THE DATA STORAGE DEVICES INTO WHICH SUCH PRODUCTS ARE
INCORPORATED, WOULD SIGNIFICANTLY REDUCE MARVELL'S REVENUES.
Substantially all of Marvell's revenue to date has been derived from sales
of its read channel and preamplifier products. A read channel transmits and
receives the analog data that is stored on a magnetic disk and converts it to
and from digital data for use in computing systems. A preamplifier amplifies the
low level electrical signal transmitted to and from the recording mechanisms in
a disk drive device. In fiscal 1999 and 2000, Marvell experienced rapid growth
in sales of its data storage products and anticipates its rate of sales growth
for these products will slow considerably in 2001 and beyond. Unless Marvell is
able to diversify its sales through the introduction of new products, it will
continue to be dependent on sales of its read channel and preamplifier products.
Marvell's read channel and preamplifier products are incorporated into data
storage devices by its customers primarily for sale to the personal computer and
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computer server markets. Any reduction in the demand for data storage devices
that incorporate Marvell's products would likely result in reduced demand for
its products and would harm its sales. The data storage market is rapidly
evolving and is subject to substantial fluctuation. For example, the data
storage market may be affected by:
- shifts in market share among data storage device manufacturers, driven by
technological advances, price reductions, the level of end-user
satisfaction with the data storage devices and the level of support
provided to the end-users; and
- fluctuations in the market for computing devices and products containing
data storage devices.
MARVELL DEPENDS ON A SMALL NUMBER OF LARGE CUSTOMERS FOR A SUBSTANTIAL MAJORITY
OF ITS SALES. THE LOSS OF, OR A SIGNIFICANT REDUCTION OR CANCELLATION IN SALES
TO, ANY KEY CUSTOMER WOULD SERIOUSLY HARM MARVELL'S ABILITY TO GROW AND BE
PROFITABLE.
In fiscal 2000, Marvell's five largest customers accounted for
approximately 98% of its sales. Of these customers, Samsung accounted for 36%,
Seagate for 24%, Hitachi for 14%, Fujitsu for 14% and Toshiba for 10%. In the
first six months of fiscal 2001, these same customers accounted for
approximately 92% of Marvell's sales. Of these customers, Samsung accounted for
40%, Seagate for 21%, Hitachi for 15%, Fujitsu for 11% and Toshiba for 5%. Sales
to these large customers have fluctuated significantly from period to period,
primarily due to the timing and number of design wins with each customer, and
will likely continue to fluctuate dramatically in the future. The loss of any of
Marvell's largest customers, or a significant reduction in sales it makes to
them, or any problems Marvell encounters collecting amounts from them, would
likely seriously harm Marvell's results of operations and financial condition.
Marvell's operating results in the foreseeable future will continue to depend on
sales to a relatively small number of customers, as well as the ability of these
customers to sell products that incorporate Marvell's products. In the future,
these customers may decide not to purchase Marvell's products at all, to
purchase fewer products than they did in the past, or to alter their purchasing
patterns, particularly because:
- Marvell does not have any long-term purchase arrangements or contracts
with these or any of its other customers or exclusive arrangements with
any customers;
- substantially all of Marvell's sales are made on a purchase order basis,
which permits its customers to cancel, change or delay product purchase
commitments with little or no notice to Marvell and without penalty; and
- Marvell's customers purchase integrated circuits from its competitors.
Marvell's customers may also discontinue sales in the markets for which
they purchase Marvell's products. For example, in fiscal 1999 two of Marvell's
major customers in fiscal 1998 discontinued sales in the disk drive market,
which led to a shift in the composition of Marvell's major customers.
IF MARVELL IS UNABLE TO DEVELOP NEW AND ENHANCED PRODUCTS THAT ACHIEVE MARKET
ACCEPTANCE IN A TIMELY MANNER, ITS OPERATING RESULTS AND COMPETITIVE POSITION
WILL BE HARMED.
Marvell's future success will depend on its ability, in a timely and
cost-effective manner, to develop new products for the broadband data
communications markets and to introduce product enhancements to its read channel
and preamplifier products. Marvell must also achieve market acceptance for these
products and enhancements. If Marvell does not successfully develop and achieve
market acceptance for new and enhanced products, its ability to maintain or
increase revenues will suffer. The development of Marvell's products is highly
complex. Marvell occasionally has experienced delays in completing the
development and introduction of new products and product enhancements, and it
could experience delays in the future. In particular, Marvell has a limited
history in developing products for the broadband data communications market and
may encounter technical difficulties in developing Gigabit Ethernet, 10Gigabit
fiber optic or other products for this market that could prevent or delay the
successful introduction of these products. Unanticipated problems in developing
broadband data communications products could also divert substantial engineering
resources, which may impair Marvell's ability to develop new products for the
data
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storage market, and could substantially increase its costs. Even if the new and
enhanced products are introduced to the market, Marvell may not be able to
achieve market acceptance of these products in a timely manner.
Successful product development and market acceptance of Marvell's products
depends on a number of factors, including:
- timely and cost-effective completion and introduction of new product
designs;
- adoption of Marvell's products by customers that are among the first to
adopt new technologies and by customers perceived to be market leaders;
- timely qualification and certification of Marvell's products for use in
its customers' products;
- the level of acceptance of Marvell's products by existing and potential
customers;
- cost and availability of foundry, assembly and testing capacity;
- availability, price, performance, power, use and size of Marvell's
products and competing products and technologies;
- Marvell's customer service and support capabilities and responsiveness;
- successful development of Marvell's relationships with existing and
potential customers and strategic partners; and
- Marvell's ability to predict and respond to changes in technology,
industry standards or end-user preferences.
MARVELL IS A RELATIVELY SMALL COMPANY WITH LIMITED RESOURCES COMPARED TO SOME OF
ITS CURRENT AND POTENTIAL COMPETITORS, AND MARVELL MAY NOT BE ABLE TO COMPETE
EFFECTIVELY AND INCREASE OR MAINTAIN REVENUES AND MARKET SHARE.
Marvell may not be able to compete successfully against current or
potential competitors. If Marvell does not compete successfully, its market
share and revenues may not increase or may decline. In addition, some of
Marvell's current and potential competitors have longer operating histories,
significantly greater resources and name recognition and a larger base of
customers than Marvell. As a result, these competitors may have greater
credibility with Marvell's existing and potential customers. Moreover, Marvell's
competitors may foresee the course of market developments more accurately than
Marvell. They also may be able to adopt more aggressive pricing policies and
devote greater resources to the development, promotion and sale of their
products than Marvell, which would allow them to respond more quickly than
Marvell to new or emerging technologies or changes in customer requirements. In
addition, new competitors or alliances among existing competitors could emerge.
Marvell expects to face competition in the future from its current competitors,
other manufacturers and designers of integrated circuits, and innovative
start-up integrated circuit design companies. Many of Marvell's customers are
also large, established integrated circuit suppliers. Marvell's sales to and
support of such customers may enable them to become a source of competition to
Marvell, despite Marvell's efforts to protect its intellectual property rights.
As Marvell begins to enter the broadband data communications market, it
faces competition from a number of additional competitors who have a long
history of serving that market. Many of these competitors have established
reputations in that market and long-standing relationships with the customers to
whom Marvell intends to sell its products that could prevent Marvell from
competing successfully. Competition could increase pressure on Marvell to lower
its prices and lower its margins.
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DUE TO MARVELL'S LIMITED OPERATING HISTORY, IT MAY HAVE DIFFICULTY IN ACCURATELY
PREDICTING ITS FUTURE SALES AND APPROPRIATELY BUDGETING FOR ITS EXPENSES, AND IT
MAY NOT BE ABLE TO MAINTAIN ITS EXISTING GROWTH RATE.
Marvell was incorporated in 1995, did not begin generating any meaningful
sales until June 1998 and did not become profitable on an annual basis until
fiscal 2000. This limited operating experience, combined with the rapidly
changing nature of the markets in which Marvell sells its products, limits its
ability to accurately forecast quarterly or annual sales. Additionally, because
many of Marvell's expenses are fixed in the short term or incurred in advance of
anticipated sales, it may not be able to decrease its expenses in a timely
manner to offset any shortfall of sales. Marvell is currently expanding its
staffing and increasing its expense levels in anticipation of future sales
growth. If Marvell's sales do not increase as anticipated, significant losses
could result due to its higher expense levels.
Although Marvell has experienced sales and earnings growth in prior
quarterly and annual periods, it may not be able to sustain these growth rates.
Accordingly, you should not rely on the results of any prior quarterly or annual
periods as an indication of Marvell's future performance.
BECAUSE MARVELL DOES NOT HAVE LONG-TERM COMMITMENTS FROM ITS CUSTOMERS, IT MUST
ESTIMATE CUSTOMER DEMAND, AND ERRORS IN ITS ESTIMATES CAN HAVE NEGATIVE EFFECTS
ON ITS INVENTORY LEVELS AND SALES.
Marvell's sales are made on the basis of individual purchase orders rather
than long-term purchase commitments. In addition, Marvell's customers may cancel
or defer purchase orders. Marvell has historically placed firm orders for
products with its suppliers up to 16 weeks prior to the anticipated delivery
date and typically prior to receiving an order for the product. Therefore,
Marvell's order volumes are based on its forecasts of demand from its customers.
This process requires Marvell to make multiple demand forecast assumptions, each
of which may introduce error into its estimates. If Marvell overestimates
customer demand, it may allocate resources to manufacturing products that it may
not be able to sell when it expects or at all. As a result, Marvell would have
excess inventory, which would harm its financial results. Conversely, if Marvell
underestimates customer demand or if insufficient manufacturing capacity is
available, it would forego revenue opportunities, lose market share and damage
its customer relationships. On occasion, Marvell has been unable to adequately
respond to unexpected increases in customer purchase orders, and therefore, was
unable to benefit from this increased demand.
MARVELL RELIES ON INDEPENDENT FOUNDRIES AND SUBCONTRACTORS FOR THE MANUFACTURE,
ASSEMBLY AND TESTING OF ITS INTEGRATED CIRCUIT PRODUCTS, AND THE FAILURE OF ANY
OF THESE THIRD-PARTY VENDORS TO DELIVER PRODUCTS OR OTHERWISE PERFORM AS
REQUESTED COULD DAMAGE MARVELL'S RELATIONSHIPS WITH ITS CUSTOMERS, DECREASE ITS
SALES AND LIMIT ITS GROWTH.
Marvell does not have its own manufacturing, assembly or testing
facilities. Therefore, Marvell must rely on third-party vendors to manufacture,
assemble and test the products it designs. Marvell currently relies on Taiwan
Semiconductor Manufacturing Company to produce substantially all of its
integrated circuit products. Marvell also currently relies on third-party
assembly and test subcontractors to assemble, package and test its products. If
these vendors do not provide Marvell with high quality products and services in
a timely manner, or if one or more of these vendors terminates its relationship
with Marvell, Marvell may be unable to obtain satisfactory replacements to
fulfill customer orders on a timely basis, Marvell's relationships with its
customers could suffer, its sales could decrease and its growth could be
limited. Other significant risks associated with relying on these third-party
vendors include:
- Marvell's customers or their end customers may fail to approve or delay
approving Marvell's selected supplier;
- Marvell has reduced control over product cost, delivery schedules and
product quality;
- the warranties on wafers or products supplied to Marvell are limited; and
- Marvell faces increased exposure to potential misappropriation of its
intellectual property.
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Marvell currently does not have long-term supply contracts with any of its
third-party vendors. They therefore are not obligated to perform services or
supply products to Marvell for any specific period, in any specific quantities,
or at any specific price, except as may be provided in a particular purchase
order. None of Marvell's third-party foundry or assembly and test subcontractors
has provided contractual assurances to Marvell that adequate capacity will be
available to Marvell to meet future demand for Marvell's products. These
foundries may allocate capacity to the production of other companies' products
while reducing deliveries to Marvell on short notice. In particular, foundry
customers that are larger and better financed than Marvell or that have
long-term agreements with these foundries may cause these foundries to
reallocate capacity to those customers, decreasing the capacity available to
Marvell. If Marvell needs another integrated circuit foundry or assembly and
test contractor because of increased demand or the inability to obtain timely
and adequate deliveries from Marvell's providers at the time, Marvell might not
be able to develop relationships with other vendors who are able to satisfy its
requirements. Even if other integrated circuit foundries or assembly and test
contractors are available at that time to satisfy Marvell's requirements, it
would likely take several months to acquire a new provider. Such a change may
also require the approval of Marvell's customers, which would take time to
effect and could cause Marvell's customers to cancel orders or fail to place new
orders.
IF MARVELL'S FOUNDRIES DO NOT ACHIEVE SATISFACTORY YIELDS OR QUALITY, MARVELL'S
RELATIONSHIPS WITH ITS CUSTOMERS AND ITS REPUTATION WILL BE HARMED.
The fabrication of integrated circuits is a complex and technically
demanding process. Marvell's foundries have from time to time experienced
manufacturing defects and reduced manufacturing yields. In the fourth quarter of
fiscal 2000, Marvell experienced low yields in the production of its newly
introduced read channel product, which decreased its gross profits for the
quarter. Changes in manufacturing processes or the inadvertent use of defective
or contaminated materials by Marvell's foundries could result in lower than
anticipated manufacturing yields or unacceptable performance. Many of these
problems are difficult to detect at an early stage of the manufacturing process
and may be time consuming and expensive to correct. Poor yields from Marvell's
foundries, or defects, integration issues or other performance problems in its
products could cause significant customer relations and business reputation
problems, harm Marvell's financial results and result in financial or other
damages to its customers. Marvell's customers could also seek damages from
Marvell for their losses. A product liability claim brought against Marvell,
even if unsuccessful, would likely be time consuming and costly to defend. In
addition, defects in Marvell's existing or new products could result in
significant warranty, support and repair costs, and divert the attention of
Marvell's engineering personnel from Marvell's product development efforts.
BECAUSE FOUNDRY CAPACITY IS LIMITED, MARVELL MAY TAKE VARIOUS ACTIONS TO TRY TO
SECURE CAPACITY, WHICH MAY BE COSTLY AND HARM ITS OPERATING RESULTS.
Foundry capacity is limited and competition for capacity is increasing. In
order to secure foundry capacity as competition increases, Marvell may enter
into various arrangements with suppliers that could be costly and harm Marvell's
operating results. This year, as Marvell has increased its orders with Taiwan
Semiconductor Manufacturing Company, Taiwan Semiconductor has tightened its
credit policy applicable to Marvell by determining whether Marvell's credit
limit has been reached when it places orders, rather than when Taiwan
Semiconductor begins production of Marvell's orders. This action required
Marvell to obtain additional credit facilities, which reduced its financial
flexibility. As competition for foundry space increases, additional arrangements
may be required, including:
- option payments or other prepayments to a foundry;
- nonrefundable deposits with or loans to foundries in exchange for
capacity commitments;
- contracts that commit Marvell to purchase specified quantities of
integrated circuits over extended periods;
- issuance of Marvell's equity securities to a foundry;
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- investment in a foundry;
- joint ventures; and
- other partnership relationships with foundries.
Marvell may not be able to make any such arrangement in a timely fashion or
at all, and any arrangements may be costly, reduce its financial flexibility,
and not be on terms favorable to Marvell. Moreover, if Marvell is able to secure
foundry capacity, it may be obligated to use all of that capacity or incur
penalties. These penalties may be expensive and could harm Marvell's financial
results.
MARVELL DEPENDS ON KEY PERSONNEL WITH WHOM IT DOES NOT HAVE EMPLOYMENT
AGREEMENTS TO MANAGE ITS BUSINESS, AND IF MARVELL IS UNABLE TO RETAIN ITS
CURRENT PERSONNEL AND HIRE ADDITIONAL PERSONNEL, ITS ABILITY TO DEVELOP AND
SUCCESSFULLY MARKET ITS PRODUCTS COULD BE HARMED.
Marvell believes its future success will depend in large part upon its
ability to attract, integrate and retain highly skilled managerial, engineering
and sales and marketing personnel. The loss of any key employees or the
inability to attract or retain qualified personnel, including engineers and
sales and marketing personnel, could delay the development and introduction of,
and harm Marvell's ability to sell, its products. Due to the relatively early
stage of Marvell's company's business, it believes that its future success is
highly dependent on the contributions of Sehat Sutardja, Marvell's co-founder,
President and Chief Executive Officer, Pantas Sutardja, Marvell's co-founder and
Vice-President, and Chief Technology Officer of Marvell's Semiconductor, and
Weili Dai, Marvell's co-founder and Executive Vice President, and General
Manager of the Data Communications Group of Marvell Semiconductor. Marvell does
not have employment contracts with these or any other key personnel, and their
knowledge of the business and industry would be extremely difficult to replace.
There is currently a shortage of qualified technical personnel with
significant experience in the design, development, manufacture, marketing and
sales of integrated circuits for use in communications products. In particular,
there is a shortage of engineers who are familiar with the intricacies of the
design and manufacture of products based on analog technology, and competition
for these engineers is intense. Marvell's key technical personnel represent a
significant asset and serve as the source of its technological and product
innovations. Marvell may not be successful in attracting, integrating and
retaining sufficient numbers of technical personnel to support its anticipated
growth.
MARVELL'S RAPID GROWTH HAS STRAINED ITS RESOURCES AND ITS INABILITY TO MANAGE
ANY FUTURE GROWTH COULD HARM ITS PROFITABILITY.
Marvell's rapid growth has placed, and future growth of its operations,
including as a result of the merger, will continue to place, a significant
strain on Marvell's management personnel, systems and resources. Marvell
anticipates that it will need to implement a variety of new and upgraded
operational and financial systems, procedures and controls, including the
improvement of its accounting and other internal management systems. Marvell
also expects that it will need to continue to expand, train, manage and motivate
its workforce. All of these endeavors will require substantial management
effort. If Marvell is unable to effectively manage its expanding operations, its
profitability could be harmed.
As a result of this growth, Marvell believes that its current facilities
will be inadequate to meet its requirements past fiscal 2002. Marvell expects it
will need to locate additional space in California, and may find it necessary to
vacate current locations. If Marvell relocates, it may have to pay rent on two
leases for a period of time. Because of the competition for space in the area of
California in which Marvell is located, additional space may cost substantially
more than existing facilities. Marvell may also incur significant additional
capital expenditures for construction of tenant improvements. These relocations
could also result in temporary disruptions of operations and diversion of
management's attention and resources.
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MARVELL FACES FOREIGN BUSINESS, POLITICAL AND ECONOMIC RISKS, WHICH MAY HARM
RESULTS OF OPERATIONS, BECAUSE A MAJORITY OF MARVELL'S PRODUCTS AND MARVELL'S
CUSTOMERS' PRODUCTS ARE MANUFACTURED AND SOLD OUTSIDE OF THE UNITED STATES.
A substantial portion of Marvell's business is conducted outside of the
United States and as a result, Marvell is subject to foreign business, political
and economic risks. All of Marvell's products are manufactured outside of the
United States. Marvell's current qualified integrated circuit foundries are
located in the same region within Taiwan, and its primary assembly and test
subcontractors are located in the Pacific Rim region. In addition, many of
Marvell's customers are located outside of the United States, primarily
concentrated in Singapore, Korea, the Philippines and Japan, which further
exposes Marvell to foreign risks. Sales outside of the United States accounted
for 99% and 97% of Marvell's revenues in fiscal 2000 and for the first six
months of fiscal 2001, respectively. Marvell anticipates that its manufacturing,
assembly, testing and sales outside of the United States will continue to
account for a substantial portion of its operations and revenue in future
periods. Accordingly, Marvell is subject to international risks, including:
- difficulties in obtaining domestic and foreign export, import and other
governmental approvals, permits and licenses;
- compliance with foreign laws;
- difficulties in staffing and managing foreign operations;
- trade restrictions or higher tariffs;
- transportation delays;
- difficulties of managing distributors, especially because we expect to
continue to increase our sales through international distributors;
- political and economic instability; and
- inadequate local infrastructure.
Because sales of Marvell's products have been denominated to date
exclusively in United States dollars, increases in the value of the United
States dollar will increase the price of its products so that they become
relatively more expensive to customers in the local currency of a particular
country, potentially leading to a reduction in sales and profitability for
Marvell in that country. A portion of Marvell's international revenue may be
denominated in foreign currencies in the future, which will subject it to risks
associated with fluctuations in exchange rates for those foreign currencies.
MARVELL'S THIRD-PARTY FOUNDRIES AND SUBCONTRACTORS ARE CONCENTRATED IN TAIWAN
AND ELSEWHERE IN THE PACIFIC RIM, AN AREA SUBJECT TO SIGNIFICANT EARTHQUAKE
RISKS. ANY DISRUPTION TO THE OPERATIONS OF THESE FOUNDRIES AND SUBCONTRACTORS
RESULTING FROM EARTHQUAKES OR OTHER NATURAL DISASTERS COULD CAUSE SIGNIFICANT
DELAYS IN THE PRODUCTION OR SHIPMENT OF MARVELL'S PRODUCTS.
Substantially all of Marvell's products are produced by Taiwan
Semiconductor Manufacturing Company located in Taiwan. Currently Marvell's only
alternative manufacturing source is also located in Taiwan. In addition,
substantially all of Marvell's assembly and testing facilities are located in
Singapore, Taiwan and the Philippines. The risk of an earthquake in Taiwan and
elsewhere in the Pacific Rim region is a significant risk due to the proximity
of major earthquake fault lines to the facilities of Marvell's foundries and
subcontractors. In September 1999, a major earthquake in Taiwan affected the
facilities of several of these third-party contractors. As a consequence of this
earthquake, these contractors suffered power outages and disruptions that
impaired their production capacity. The occurrence of an earthquake or other
natural disaster could result in the disruption of Marvell's foundry or assembly
and test capacity. Any disruption resulting from such events could cause
significant delays in the production or shipment of Marvell's products until
Marvell is able to shift its manufacturing, assembling or testing from the
affected
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contractor to another third-party vendor. Marvell may not be able to obtain
alternate capacity on favorable terms, if at all.
MARVELL RELIES ON THIRD-PARTY DISTRIBUTORS AND THE FAILURE OF THESE DISTRIBUTORS
TO PERFORM AS EXPECTED COULD REDUCE MARVELL'S FUTURE SALES.
Marvell sells its data communications products to customers primarily
through distributors and manufacturers' representatives. Marvell's relationships
with its distributors and manufacturers' representatives have been established
within the last year, and Marvell is unable to predict the extent to which some
of these distributors and manufacturers' representatives will be successful in
marketing and selling Marvell's products. Moreover, many of its distributors
also market and sell competing products. Manufacturers' representatives and
distributors may terminate their relationships with Marvell at any time.
Marvell's future performance will also depend, in part, on its ability to
attract additional distributors or manufacturers' representatives that will be
able to market and support Marvell's products effectively, especially in markets
in which Marvell has not previously distributed its products. If Marvell cannot
retain its current distributors or manufacturers' representatives or recruit
additional or replacement distributors or manufacturers' representatives its
sales and operating results will be harmed. The loss of one or more of Marvell's
distributors or manufacturers' representatives could harm Marvell's sales and
results of operations. Marvell generally realizes a higher gross margin on
direct sales and from sales through manufacturers' representatives than on sales
through distributors. Accordingly, if Marvell's distributors were to account for
an increased portion of Marvell's net sales, its gross margin would decline.
PRODUCTS THAT CONTAIN ERRORS OR DEFECTS COULD RESULT IN SIGNIFICANT COSTS FOR
MARVELL AND HARM ITS REPUTATION.
Marvell's products are complex. Despite demanding testing and quality
control, Marvell cannot be certain that errors and defects will not be found in
connection with the introduction of products or product enhancements. Marvell
has experienced errors and defects in the past in connection with new products.
Introductions by Marvell of new or enhanced products with reliability, quality
or compatibility problems could significantly delay or hinder market acceptance
of such products, and could adversely affect Marvell's ability to retain its
existing customers and to attract new customers. Alleviating these problems
could require significant expenditures of capital and additional development
costs, and diversion of technical and other resources by Marvell. These problems
may also result in claims by Marvell's customers or others against Marvell.
MARVELL'S FUTURE ACQUISITIONS AND TRANSACTIONS MAY NOT BE SUCCESSFUL.
Marvell expects to continue to make acquisitions of, and investments in,
businesses that offer complementary products, services and technologies, augment
its market segment coverage, or enhance its technological capabilities. Marvell
may also enter into strategic alliances or joint ventures to achieve these
goals. Marvell cannot assure you that it will be able to locate suitable
acquisition, investment, alliance, or joint venture opportunities or that it
will be able to consummate any such transactions or relationships on terms and
conditions acceptable to Marvell, or that such transactions or relationships
will be successful.
Any transactions or relationships will be accompanied by the risks commonly
encountered with those matters. Risks that could have a material adverse affect
on Marvell's business, results of operations or financial condition include,
among other things:
- the difficulty of assimilating the operations and personnel of the
acquired businesses;
- the potential disruption of Marvell's ongoing business;
- the distraction of management from Marvell's business;
- the potential inability of management to maximize the financial and
strategic position of Marvell as a result of the acquisition;
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- the maintenance of uniform standards, controls, procedures and policies;
- the impairment of relationships with employees and clients as a result of
any integration of new management personnel;
- the risk of entering market segments in which Marvell has no or limited
direct prior experience and where competitors in such market segments
have stronger market segment positions; or
- the potential loss of key employees of an acquired company.
THE AVERAGE SELLING PRICES OF PRODUCTS IN MARVELL'S MARKETS HAVE HISTORICALLY
DECREASED RAPIDLY AND WILL LIKELY DO SO IN THE FUTURE, WHICH COULD HARM
MARVELL'S GROSS PROFITS AND SALES.
The products Marvell develops and sells are used for high volume
applications. As a result, the prices of those products have historically
decreased rapidly. Marvell's gross profits and financial results will suffer if
it is unable to offset any reductions in its average selling prices by
increasing its sales volumes, reducing its costs, or developing new or enhanced
products on a timely basis with higher selling prices or gross profits. Marvell
expects that, as a result of pricing pressure from its customers, its gross
profits on its data storage products are also likely to decrease over the next
fiscal year below levels it has historically experienced. Because Marvell does
not operate its own manufacturing, assembly or testing facilities, it may not be
able to reduce its costs as rapidly as companies that operate their own
facilities, and its costs may even increase. In the past, Marvell has reduced
the average unit price of its products in anticipation of future competitive
pricing pressures, new product introductions by Marvell or its competitors and
other factors. Marvell expects that it will have to do so again in the future.
MARVELL HAS A LENGTHY AND EXPENSIVE SALES CYCLE, WHICH DOES NOT ASSURE PRODUCT
SALES, AND WHICH IF UNSUCCESSFUL MAY HARM ITS OPERATING RESULTS.
The sales cycle for Marvell's products is long and requires it to invest
significant resources with each potential customer without any assurance of
sales to that customer. Marvell's sales cycle typically begins with a three to
six month evaluation and test period, also known as qualification, during which
its products undergo rigorous reliability testing by its customers.
Qualification is followed by a 12 to 18 month development period by Marvell's
customers and an additional three to six month period before a customer
commences volume production of equipment incorporating Marvell's products. This
lengthy sales cycle creates the risk that Marvell's customers will decide to
cancel or change product plans for products incorporating Marvell's integrated
circuits. During Marvell's sales cycle, Marvell's engineers assist customers in
implementing Marvell's products into the customers' products. Marvell incurs
significant research and development and selling, general and administrative
expenses as part of this process, and it may never generate related revenues.
Marvell derives revenue from this process only if its design is selected. Once a
customer selects a particular integrated circuit for use in a data storage
product, the customer generally uses solely that integrated circuit for a full
generation of its product. Therefore, if Marvell does not achieve a design win
for a product, it will be unable to sell its integrated circuit to a customer
until that customer develops a new product or a new generation of its product.
Even if Marvell achieves a design win with a customer, its customer may not
ultimately ship products incorporating Marvell's products or may cancel orders
after Marvell has achieved a sale. In addition, Marvell will have to begin the
qualification process again when a customer develops a new generation of a
product for which Marvell was the successful supplier.
Also, during the final production of a mature product, Marvell's customers
typically exhaust their existing inventory of Marvell's integrated circuits.
Consequently, orders for Marvell's products may decline in those circumstances,
even if Marvell's products are incorporated into both its customer's mature and
replacement products. A delay in the customer's transition to commercial
production of a replacement product may cause the customer to lose sales, which
would delay Marvell's ability to recover the lost sales from the discontinued
mature product. In addition, customers may defer orders in anticipation of new
products or product enhancements from Marvell or its competitors.
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MARVELL IS SUBJECT TO THE CYCLICAL NATURE OF THE INTEGRATED CIRCUIT INDUSTRY.
ANY FUTURE DOWNTURNS WILL LIKELY REDUCE MARVELL'S REVENUE AND RESULT IN EXCESS
INVENTORY.
The integrated circuit industry is highly cyclical and is characterized by
constant and rapid technological change, rapid product obsolescence and price
erosion, evolving standards, short product life cycles and wide fluctuations in
product supply and demand. The industry has experienced significant downturns,
often connected with, or in anticipation of, maturing product cycles of both
integrated circuit companies' and their customers' products and declines in
general economic conditions. These downturns have been characterized by
diminished product demand, production overcapacity, high inventory levels and
accelerated erosion of average selling prices. Any future downturns will likely
reduce Marvell's revenue and result in Marvell having excess inventory.
Furthermore, any upturn in the integrated circuit industry could result in
increased competition for access to third-party foundry, assembly and test
capacity.
MARVELL IS DEPENDENT UPON THE HARD DISK DRIVE INDUSTRY, WHICH IS HIGHLY CYCLICAL
AND EXPERIENCES RAPID TECHNOLOGICAL CHANGE.
Prior to March 2000, all of Marvell's sales were to customers in the hard
disk drive industry. The hard disk drive industry is intensely competitive and
the technology changes rapidly. As a result, this industry is highly cyclical,
with periods of increased demand and rapid growth followed by periods of
oversupply and subsequent contraction. These cycles may affect Marvell as its
customers are suppliers to this industry. Hard disk drive manufacturers tend to
order more components than they may need during growth periods, and sharply
reduce orders for components during periods of contraction. In addition,
advances in existing technologies and the introduction of new technologies may
result in lower demand for disk drive storage devices, thereby reducing demand
for Marvell's products.
Rapid technological changes in the hard disk drive industry often result in
significant and rapid shifts in market share among the industry's participants.
If the hard disk drive manufacturers supplied by Marvell's customers do not
retain or increase market share, Marvell's sales may decrease.
THE DEVELOPMENT AND EVOLUTION OF MARKETS FOR MARVELL'S INTEGRATED CIRCUITS ARE
DEPENDENT ON FACTORS, SUCH AS INDUSTRY STANDARDS, OVER WHICH MARVELL HAS NO
CONTROL. FOR EXAMPLE, IF MARVELL'S CUSTOMERS ADOPT NEW OR COMPETING INDUSTRY
STANDARDS WITH WHICH MARVELL'S PRODUCTS ARE NOT COMPATIBLE OR FAIL TO ADOPT
STANDARDS WITH WHICH MARVELL'S PRODUCTS ARE COMPATIBLE, MARVELL'S EXISTING
PRODUCTS WOULD BECOME LESS DESIRABLE TO ITS CUSTOMERS AND ITS SALES WOULD
SUFFER.
The emergence of markets for Marvell's integrated circuits is affected by a
variety of factors beyond its control. In particular, Marvell's products are
designed to conform to current specific industry standards. Marvell's customers
may not adopt or continue to follow these standards, which would make Marvell's
products less desirable to its customers and reduce its sales. Also, competing
standards may emerge that are preferred by Marvell's customers, which could also
reduce Marvell's sales and require it to make significant expenditures to
develop new products.
Marvell has made a significant investment in the development and production
of its Gigabit Ethernet products. However, the Gigabit Ethernet technology is
relatively new compared to the more established 10 and 100 megabits per second
Ethernet technologies. If the Gigabit Ethernet technology does not achieve
widespread market acceptance, Marvell's Gigabit Ethernet products may never be
profitable.
MARVELL MAY BE UNABLE TO PROTECT ITS INTELLECTUAL PROPERTY, WHICH WOULD
NEGATIVELY AFFECT ITS ABILITY TO COMPETE.
Marvell believes one of its key competitive advantage results from its
collection of proprietary technologies that it has developed since its
inception. If Marvell fails to protect these intellectual property rights,
competitors could sell products based on technology that Marvell has developed,
which could harm Marvell's competitive position and decrease its revenues.
Marvell believes that the protection of its intellectual property rights is and
will continue to be important to the success of its business. Marvell relies on
a combination of patent, copyright, trademark and trade secret laws, as well as
nondisclosure
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agreements and other methods, to protect its proprietary technologies. Marvell
also enters into confidentiality or license agreements with its employees,
consultants and business partners, and controls access to and distribution of
its documentation and other proprietary information. As of October 28, 2000,
Marvell has been issued 11 United States patents and had a number of pending
United States patent applications. However, a patent may not be issued as a
result of any applications or, if issued, claims allowed may not be sufficiently
broad to protect Marvell's technology. In addition, it is possible that existing
or future patents may be challenged, invalidated or circumvented. Despite
Marvell's efforts, unauthorized parties may attempt to copy or otherwise obtain
and use its products or proprietary technology. Monitoring unauthorized use of
its technology is difficult, and the steps that Marvell has taken may not
prevent unauthorized use of its technology, particularly in foreign countries
where the laws may not protect its proprietary rights as fully as in the United
States.
SIGNIFICANT LITIGATION OVER INTELLECTUAL PROPERTY IN MARVELL'S INDUSTRY MAY
CAUSE IT TO BECOME INVOLVED IN COSTLY AND LENGTHY LITIGATION, WHICH COULD
SUBJECT IT TO LIABILITY, REQUIRE IT TO STOP SELLING ITS PRODUCTS OR FORCE IT TO
REDESIGN ITS PRODUCTS.
Litigation involving patents and other intellectual property is widespread
in the high-technology industry and is particularly prevalent in the integrated
circuit industry, where a number of companies aggressively bring numerous
infringement claims to protect their patent portfolios. Marvell may become a
party to litigation in the future either to protect its intellectual property or
as a result of an alleged infringement of others' intellectual property. These
lawsuits could subject Marvell to significant liability for damages and
invalidate its proprietary rights. These lawsuits, regardless of their success,
would likely be time-consuming and expensive to resolve and would divert
management time and attention. Any potential intellectual property litigation
also could force Marvell to do one or more of the following:
- stop selling products or using technology that contain the allegedly
infringing intellectual property;
- pay damages to the party claiming infringement;
- attempt to obtain a license to the relevant intellectual property, which
license may not be available on reasonable terms or at all; and
- attempt to redesign those products that contain the allegedly infringing
intellectual property.
MARVELL IS INCORPORATED IN BERMUDA, AND, AS A RESULT, IT MAY NOT BE POSSIBLE FOR
MARVELL'S SHAREHOLDERS TO ENFORCE CIVIL LIABILITY PROVISIONS OF THE SECURITIES
LAWS OF THE UNITED STATES.
Marvell is organized under the laws of Bermuda. As a result, it may not be
possible for Marvell's shareholders to effect service of process within the
United States upon Marvell, or to enforce against Marvell in United States
courts judgments based on the civil liability provisions of the securities laws
of the United States. Marvell's executive officers and directors are all
residents of the United States. However, there is significant doubt as to
whether the courts of Bermuda would recognize or enforce judgments of United
States courts obtained against Marvell or its directors or officers based on the
civil liabilities provisions of the securities laws of the United States or any
state or hear actions brought in Bermuda against Marvell or those persons based
on those laws. The United States and Bermuda do not currently have a treaty
providing for the reciprocal recognition and enforcement of judgments in civil
and commercial matters. Therefore, a final judgment for the payment of money
rendered by any federal or state court in the United States based on civil
liability, whether or not based solely on United States federal or state
securities laws, would not be automatically enforceable in Bermuda.
MARVELL'S BYE-LAWS CONTAIN A WAIVER OF CLAIMS OR RIGHTS OF ACTION BY ITS
SHAREHOLDERS AGAINST ITS OFFICERS AND DIRECTORS, WHICH WILL SEVERELY LIMIT ITS
SHAREHOLDERS' RIGHT TO ASSERT A CLAIM AGAINST MARVELL'S OFFICERS AND DIRECTORS
UNDER BERMUDA LAW.
Marvell's Bye-laws contain a broad waiver by its shareholders of any claim
or right of action, both individually and on its behalf, against any of its
officers and directors. The waiver applies to any action
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taken by an officer or director, or the failure of an officer or director to
take any action, in the performance of his or her duties with or for Marvell,
other than with respect to any matter involving any fraud or dishonesty on the
part of such officer or director. This waiver will limit Marvell's shareholders'
right to assert claims against Marvell's officers and directors unless the act
complained of involves actual fraud or dishonesty. Thus, so long as acts of
business judgment do not involve actual fraud or dishonesty, they will not be
subject to shareholder claims under Bermuda law. For example, shareholders will
not have claims against officers and directors for a breach of trust, unless the
breach rises to the level of actual fraud or dishonesty.
MARVELL IS SUBJECT TO SUBSTANTIAL TAX RISK BECAUSE EXISTING CASES, RULINGS AND
REGULATIONS DO NOT CLEARLY ADDRESS HOW UNITED STATES FEDERAL INCOME TAX LAWS
APPLY TO A BUSINESS LIKE MARVELL'S THAT INVOLVES FOREIGN OPERATIONS RECEIVING
SUPPORT FROM A UNITED STATES SUBSIDIARY.
Marvell is incorporated in Bermuda. Marvell's Bermuda operations are
subject to United States federal income tax at regular corporate rates and to
United States branch profits tax, in each case to the extent that its income is
effectively connected with the conduct of a trade or business in the United
States. By contrast, corporations incorporated in the United States are subject
to United States federal income taxes on their worldwide income, regardless of
whether that income is effectively connected with the conduct of a trade or
business in the United States.
Marvell's corporate structure was developed in a manner that it believes
limits the amount of its income that is effectively connected with the conduct
of a trade or business in the United States. Marvell has sales offices in
Singapore and Japan that handle its foreign sales activities, and Marvell tries
to limit the activities conducted by its United States operations. However,
unlike many other foreign corporations whose sole connection to the United
States is through a United States subsidiary established for the purpose of
doing business in the United States, Marvell's United States operations provide
support to its other subsidiaries throughout the world. The provision of these
support services increases the risk that Marvell's income will be deemed
effectively connected income.
The determination of whether income of a foreign corporation is effectively
connected with the conduct of a trade or business in the United States and,
therefore, subject to United States tax, involves a consideration of all the
facts and circumstances and the application of legal standards that are
uncertain. There have been few court cases or rulings by the Internal Revenue
Service addressing the application of these legal standards and Marvell believes
that none of these cases or rulings relate to facts precisely like its.
Moreover, there are no proposed or published regulations with respect to one of
the main sections of the Internal Revenue Code that applies to Marvell, leading
to further uncertainty.
Because of the uncertainty as to how United States federal income tax laws
apply to the way Marvell conducts its business, Marvell believes the Internal
Revenue Service will probably disagree with its past or future positions as to
the amount of effectively connected income that it earns. Based on Marvell's
analysis of applicable United States federal income tax laws and regulations to
its operations as currently conducted, Marvell expects to pay United States
federal income taxes at an effective rate of approximately 5% to 10%. The
maximum federal income tax rate is 35%, and the branch profits tax rate on
income remaining after application of the corporate tax is 30%. Together these
two taxes combine for a 54.5% tax rate. Any of Marvell's income that is deemed
to be income that is effectively connected with the conduct of a trade or
business in the United States could be subject to this 54.5% rate of tax.
Consequently, if Marvell's positions are disallowed, the amount it has accrued
on its financial statements for United States federal income taxes may be
insufficient to the extent of the difference between the income tax rate
ultimately determined to apply and the 25% accrual rate. In addition, Marvell
could be required to make significant cash payments for back taxes and interest
based on the difference between the income tax rate ultimately determined to
apply and the effective rate at which it paid those taxes. At July 31, 2000,
Marvell's income tax liability accrued on its balance sheet aggregated $6.3
million, which reflects Marvell's best estimate of such liability. However,
Marvell cannot assure you that its actual income tax liability will not exceed
this amount. If the Internal Revenue Service were to prevail in an argument that
all of Marvell's non-United States income is effectively connected income,
Marvell estimates that its exposure
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for taxes, interest and penalties would be approximately $14 million at July 31,
2000. Marvell has filed United States federal income tax returns since 1996. The
Internal Revenue Service examined Marvell's 1996 United States federal income
tax return and made no adjustment; however, Marvell had losses for that year.
TAX BENEFITS MARVELL RECEIVES MAY BE TERMINATED OR REDUCED IN THE FUTURE, WHICH
WOULD INCREASE MARVELL'S COSTS.
The Economic Development Board of Singapore granted Marvell pioneer status
in July 2000 for a period of at least six years, commencing July 1, 1999. As a
result, Marvell anticipates that a significant portion of the income it earns in
Singapore during this period will be exempt from the 26% Singapore tax rate.
Marvell is required to meet several requirements as to investment, headcount and
activities in Singapore to retain this status. If Marvell's pioneer status is
terminated early its financial results could be harmed.
Under current Bermuda law, Marvell is not subject to tax on its income or
capital gains. Marvell has obtained from the Minister of Finance of Bermuda
under the Exempt Undertakings Tax Protection Act 1966, as amended, an
undertaking that, in the event that Bermuda enacts any legislation imposing tax
computed on income or capital gains, those taxes should not apply to Marvell
until March 28, 2016. However, this exemption may not be extended beyond this
date.
IF MARVELL IS CLASSIFIED AS A PASSIVE FOREIGN INVESTMENT COMPANY, ITS
SHAREHOLDERS MAY SUFFER ADVERSE TAX CONSEQUENCES.
Because Marvell is incorporated in Bermuda and has operations in the United
States and Singapore, it is subject to special rules and regulations, including
rules regarding a passive foreign investment company or PFIC. Marvell believes
that it is not a PFIC, and it expects to continue to manage its affairs so that
it will not become a PFIC. However, whether Marvell should be treated as a PFIC
is a factual determination that is made annually and is subject to change. If
Marvell is classified as a PFIC, then each United States holder of Marvell
common stock would, upon qualifying distributions by Marvell or upon the pledge
or sale of their shares of common stock at a gain, be liable to pay tax at the
then prevailing rates on ordinary income plus an interest charge, generally as
if the distribution or gain had been earned ratably over the shareholder's
holding period. In addition to the risks related to PFIC status, Marvell and its
shareholders could also suffer adverse tax consequences if Marvell is classified
as a foreign personal holding company, a personal holding company or a
controlled foreign corporation.
OFFICERS AND DIRECTORS OF MARVELL OWN A LARGE PERCENTAGE OF MARVELL'S VOTING
STOCK, AND THREE EXISTING DIRECTORS, WHO ARE ALSO SIGNIFICANT SHAREHOLDERS, ARE
RELATED BY BLOOD OR MARRIAGE. THESE FACTORS MAY ALLOW THE OFFICERS AND DIRECTORS
AS A GROUP OR THE THREE RELATED DIRECTORS TO CONTROL THE ELECTION OF DIRECTORS
AND THE APPROVAL OR DISAPPROVAL OF SIGNIFICANT CORPORATE ACTIONS.
As of November 13, 2000, the executive officers and directors of Marvell
beneficially own or control, directly or indirectly, approximately 62% of the
outstanding shares of common stock of Marvell, or 53% after the issuance of
shares in the merger and the anticipated addition of Mr. Avigdor Willenz and Mr.
Manuel Alba to the board of directors of Marvell. Additionally, Sehat Sutardja
and Weili Dai are husband and wife and Sehat Sutardja and Pantas Sutardja are
brothers. All three are directors and together they hold approximately 42% of
Marvell's outstanding common stock as of November 13, 2000, or 31% after the
issuance of shares in the merger. As a result, if the directors and officers as
a group or any of Sehat Sutardja, Pantas Sutardja and Weili Dai act together,
they will significantly influence, and will likely control, the election of
Marvell's directors and approval or disapproval of Marvell's significant
corporate actions. This influence over Marvell's affairs might be adverse to the
interests of other shareholders. In addition, the voting power of these
shareholders or directors could have the effect of delaying or preventing an
acquisition of Marvell on terms that other shareholders may desire.
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Under Bermuda law all Marvell's officers, in exercising their powers and
discharging their duties, must act honestly and in good faith with a view to
Marvell's best interests and exercise the care, diligence and skill that a
reasonably prudent person would exercise in comparable circumstances. Majority
shareholders do not owe fiduciary duties to minority shareholders. As a result,
the minority shareholders will not have a direct claim against the majority
shareholders in the event the majority shareholders take actions that damage the
interests of minority shareholders. Class actions and derivative actions are
generally not available to shareholders under the laws of Bermuda, except the
Bermuda courts would be expected to follow English case law precedent, which
would permit a shareholder to bring an action in Marvell's name if the directors
or officers are alleged to be acting beyond Marvell's corporate power,
committing illegal acts or violating Marvell's Memorandum of Association or
Bye-laws. In addition, minority shareholders would be able to challenge a
corporate action that allegedly constituted a fraud against them or required the
approval of a greater percentage of Marvell's shareholders than actually
approved it. The winning party in such an action generally would be able to
recover a portion of attorneys' fees incurred in connection with the action.
CLASS ACTION LITIGATION DUE TO STOCK PRICE VOLATILITY COULD CAUSE MARVELL TO
INCUR SUBSTANTIAL COSTS AND DIVERT ITS MANAGEMENT'S ATTENTION AND RESOURCES.
In the past, securities class action litigation often has been brought
against a company following periods of volatility in the market price of its
securities. Companies in the integrated circuit industry and other technology
industries are particularly vulnerable to this kind of litigation due to the
high volatility of their stock prices. Accordingly, Marvell may in the future be
the target of securities litigation. Securities litigation could result in
substantial costs and could divert the attention and resources of Marvell's
management.
FUTURE SALES OF MARVELL'S COMMON STOCK IN THE PUBLIC MARKET MAY DEPRESS ITS
STOCK PRICE.
Future sales of a substantial number of shares of Marvell's common stock in
the public market could cause Marvell's stock price to decline. As of November
13, 2000, Marvell, had 85,477,766 shares of common stock outstanding and will
have up to 114,442,085 shares outstanding after completion of the merger. Of
these shares, 76,060,109 shares are subject to lock-up agreements with the
underwriters for Marvell's initial public offering and 429,240 shares are
subject to lock-up agreements with Marvell, in each case ending on December 25,
2000. Upon the expiration of the lock-up agreements, and subject to the
provisions of Rule 144 and Rule 701, approximately 25,252,937 shares of common
stock, assuming the exercise of outstanding warrants and all outstanding vested
stock options, will be available for sale after December 25, 2000. Additional
shares issuable upon exercise of outstanding stock options will become freely
tradable at various times after that date. In addition, 10,191,978 ordinary
shares of Galileo, which will be converted into 6,869,393 shares of Marvell
stock pursuant to the merger, and 49,802,660 shares of Marvell common stock that
are subject to the underwriters lock-ups described above, are subject to lock-
up agreements restricting the sale of Marvell shares for 45 days after the
effective date of the merger. Marvell may release the restrictions on these
shares prior to the 45 day period. As these restrictions on resale end, the
market price of Marvell's stock could drop significantly if the holders of these
shares sell them or are perceived by the market as intending to sell them. In
addition, the sale of these shares could impair Marvell's ability to raise
capital through the sale of additional stock.
MARVELL'S BYE-LAWS CONTAIN PROVISIONS THAT COULD DELAY OR PREVENT A CHANGE IN
CORPORATE CONTROL, EVEN IF THE CHANGE IN CORPORATE CONTROL WOULD BENEFIT
MARVELL'S SHAREHOLDERS.
Marvell's Bye-laws contain change in corporate control provisions which
include:
- authorizing the issuance of preferred stock without shareholder approval;
- providing for a classified board of directors with staggered, three-year
terms; and
- requiring two-thirds of the outstanding shares to approve amendments to
Marvell's Bye-laws.
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These change in corporate control provisions could make it more difficult
for a third-party to acquire Marvell, even if doing so would be a benefit to its
shareholders.
RISKS RELATED TO GALILEO
COMPETITION IN GALILEO'S INDUSTRY IS INTENSE, AND RAPID TECHNOLOGICAL CHANGE AND
NEW COMPETITORS MAY AFFECT GALILEO'S ABILITY TO COMPETE EFFECTIVELY IN THE
FUTURE.
The data communications market into which Galileo sells its products is
intensely competitive and is subject to frequent product introductions with
improved price or performance characteristics, rapid technological change, rapid
erosion of unit average selling price, or ASP, and continued evolution of new
industry standards. Galileo expects competition to increase in the future from
existing competitors and from other companies that may enter Galileo's existing
or future markets. Potential competitors include current customers with similar
or substitute products that may be less costly or provide better performance or
features than Galileo's products. To be successful in the future, Galileo must
continue to respond promptly and effectively to changing customer performance,
feature and pricing requirements, technological change and competitors'
innovations. If Galileo is unable to compete successfully against current and
future competitors and introduce new products to meet competitive pressures, its
ability to maintain or increase revenues will be suffer.
Historically, unit ASPs in the semiconductor industry have decreased over
the life of individual products. In the past, Galileo has experienced decreases
in unit ASPs on each of its products. Galileo believes that many of its current
and potential customers are volume purchasers, and will require volume
discounts, and that per unit ASPs of individual products will continue to
decline in the future due to these increased volume shipments and other pricing
pressures. Such declines in unit ASPs will lead to declines in the gross margins
for these products, absent offsetting cost reductions or high margins on new
product introductions. Also, as Galileo enters new markets its gross margins may
be less than historical levels.
Many large companies develop and market competing network components. Many
of these companies have significantly greater resources and name recognition
than Galileo, and a larger base of customers. For example, in the market for
system controllers, Galileo's competitors include NEC Corp. with respect to the
MIPS microprocessor, and Motorola and IBM with respect to the Power PC
microprocessor. Galileo's switched Ethernet LAN controllers compete with
products from companies such as Broadcom Corporation and Allayer Technologies
Corporation. Galileo's remote access WAN communications controllers compete
directly with products from Motorola Inc., Siemens A.G. and PMC-Sierra, Inc.
Competition increases pressure on Galileo's prices and margins.
GALILEO DEPENDS ON A SMALL NUMBER OF CUSTOMERS FOR A MAJORITY OF ITS SALES. THE
LOSS OF, OR A SIGNIFICANT REDUCTION OR CANCELLATION IN SALES TO, ANY KEY
CUSTOMER WOULD SERIOUSLY HARM GALILEO'S ABILITY TO GROW AND BE PROFITABLE.
To date, a small number of customers have accounted for a majority of
Galileo's net sales. Galileo expects that revenues from the sale of its products
to a limited number of customers will continue to account for a significant
percentage of its net sales for the foreseeable future. The loss of any one of
Galileo's major customers, or if a major customer cancels, decreases or delays
its orders, absent offsetting new orders from existing or new customers,
Galileo's revenues would be seriously harmed.
None of Galileo's customers has committed to purchase a minimum quantity of
product from Galileo. Therefore, Galileo's current customers may not continue to
place orders with Galileo, or if they do, they may not place orders for
historical quantities. Galileo currently has purchase agreements with a few of
its larger customers, however, none of these agreements contain minimum purchase
requirements. Customers purchase Galileo's products pursuant to short-term
purchase orders that may be canceled without charge if notice is given within an
agreed-upon period.
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Galileo has a limited number of potential customers. A limited number of
large original equipment manufacturers, or OEMs, account for a majority of
purchasers in the data communications market, and Galileo's success will depend
upon its ability to establish and maintain relationships with these customers.
In addition, there is increasing consolidation within Galileo's customer base
reducing further the number of potential customers.
GALILEO HAS DEPENDED ON SALES OF ITS SYSTEM CONTROLLERS AND SWITCHED ETHERNET
LAN CONTROLLERS FOR SUBSTANTIALLY ALL OF ITS REVENUE TO DATE, AND THE INABILITY
TO OBTAIN BROAD MARKET ACCEPTANCE FOR NEW PRODUCTS MAY SERIOUSLY HARM GALILEO'S
ABILITY TO GROW AND BE PROFITABLE IN THE FUTURE.
Galileo currently derives substantially all of its net sales from its
system controllers and switched Ethernet LAN controllers and expects that net
sales from these products will continue to account for a substantial portion of
its net sales for the foreseeable future. Galileo's future performance will also
depend in part on its ability to successfully develop, introduce and market new
and enhanced products at competitive prices. Broad market acceptance of these
products is critical to Galileo's future success. Factors that may affect the
market acceptance of Galileo's products include the market acceptance of network
switching products, the price, functionality and availability of competing
products and technologies, and the success of the sales efforts of Galileo and
its customers. Galileo may not be able to develop products that will attain
broad market acceptance. Failure of Galileo's products to achieve broad market
acceptance would reduce its sales and results of operations.
GALILEO'S RELIANCE ON TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY AND ITS
SUBCONTRACTORS TO MANUFACTURE, ASSEMBLE AND TEST ITS PRODUCTS MAY RESULT IN
INCREASED COSTS OR DELAYS IN PRODUCT PRODUCTION.
Substantially all of Galileo's semiconductor devices are manufactured,
assembled and tested by Taiwan Semiconductor Manufacturing Company and other
third-party subcontractors. Galileo intends to continue to rely on Taiwan
Semiconductor and these third-party subcontractors for substantially all of its
manufacturing, assembly and testing requirements for the foreseeable future.
Taiwan Semiconductor also manufactures products for other companies. Galileo
does not have a long-term manufacturing agreement with Taiwan Semiconductor. If
Taiwan Semiconductor is unable to provide Galileo with its products on a turnkey
basis or Galileo is otherwise required to find alternative subcontractors,
product shipments could be delayed significantly.
Galileo's products are assembled and tested by third-party subcontractors.
The assembly and testing is conducted on a purchase order basis rather than
under a long-term agreement. As a result of its reliance on third-party
subcontractors to assemble and test its products, Galileo cannot directly
control product delivery schedules, which could lead to product shortages or
quality assurance problems that could increase the costs of manufacturing or
assembly of Galileo's products. Any problems associated with the delivery,
quality or cost of the assembly and testing of Galileo's products could harm
Galileo's sales and business reputation. If Galileo was required to qualify
alternative assembly and test subcontractors, Galileo may not be able to locate
alternative subcontractors who are able to satisfy its requirements, and if it
does, qualification would take considerable time and could divert product
development resources.
GALILEO RELIES ON THIRD-PARTIES LOCATED IN TAIWAN AND ELSEWHERE IN THE PACIFIC
RIM, AN AREA SUBJECT TO SIGNIFICANT EARTHQUAKE RISKS, TO MANUFACTURE, ASSEMBLE
AND TEST ITS PRODUCTS. ANY DISRUPTION TO THE OPERATIONS OF THESE THIRD-PARTIES
RESULTING FROM EARTHQUAKES OR OTHER NATURAL DISASTERS COULD CAUSE SIGNIFICANT
DELAYS IN THE PRODUCTION OR SHIPMENT OF GALILEO'S PRODUCTS.
Substantially all of Galileo's products are manufactured, assembled and
tested by Taiwan Semiconductor Manufacturing Company and other third-parties
located in Taiwan and the Pacific Rim. The risk of an earthquake in Taiwan and
elsewhere in the Pacific Rim region is significant due to the proximity of major
earthquake fault lines to the facilities of these third-parties. In September
1999, a major earthquake in Taiwan affected the facilities of several of these
third-party contractors. As a consequence of this earthquake, these contractors
suffered power outages and disruptions that impaired
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their production capacity. The occurrence of an earthquake or other natural
disaster could result in the disruption of Galileo's ability to manufacture,
assemble and test its products. Any disruption resulting from such events could
cause significant delays in the production or shipment of Galileo's products
until Galileo is able to shift its manufacturing, assembling or testing from the
affected contractor to another third-party vendor. Galileo may not be able to
obtain alternate capacity on favorable terms, if at all.
IN ORDER TO COMPETE EFFECTIVELY IN THE DATA COMMUNICATIONS INDUSTRY, GALILEO
NEEDS TO CONTINUALLY DEVELOP NEW PRODUCTS THAT GAIN MARKET ACCEPTANCE.
The markets for Galileo's products are characterized by rapidly changing
technologies, evolving and competing industry standards, changes in customer
needs, emerging competition, new product introductions and rapid product
obsolescence. Galileo's future success will depend, in part, on its ability to:
- use its proprietary technologies effectively;
- continue to develop its technical expertise;
- maintain close working relationships with its key customers in order to
develop new products that meet changing customer needs;
- advertise and market its products; and
- influence and respond to changing industry standards and other
technological changes on a timely and cost-effective basis.
Galileo cannot be sure that it will be successful in effectively developing
or using new technologies, developing new products or enhancing its existing
products on a timely basis, or that such new technologies or enhancements will
achieve market acceptance. Galileo's pursuit of necessary technological advances
may require substantial time and expense, and Galileo may not succeed in
adapting its products or business to alternate technologies. If Galileo fails,
for technological or other reasons, to develop and introduce new or enhanced
products that are compatible with industry standards and that satisfy customer
price and performance requirements, its operating results and competitive
position would be harmed.
In addition, Galileo's competitors may offer enhancements to existing
products, or offer new products based on new technologies, industry standards or
customer requirements, that have the potential to replace or provide lower cost
alternatives to Galileo's products. The introduction of such enhancements or new
products by Galileo's competitors could render Galileo's existing and future
products obsolete, unmarketable or inoperable.
PRODUCTS THAT CONTAIN ERRORS, DEFECTS, OR BUGS COULD IMPOSE SIGNIFICANT COSTS
AND HARM GALILEO'S REPUTATION.
Galileo's products are complex and can contain errors, defects and bugs
when first introduced or new versions are released. Galileo has experienced
errors, defects and bugs in the past in connection with new products.
Introductions by Galileo of new or enhanced products with reliability, quality
or compatibility problems could significantly delay or hinder market acceptance
of such products and harm Galileo's ability to retain its existing customers and
attract new customers. In addition, errors, defects or bugs could cause
problems, interruptions, delays or cessation of service to Galileo's customers.
Alleviating these problems could require significant expenditures of capital and
additional development costs and diversion of technical and other resources by
Galileo. These problems may also result in claims by Galileo's customers or
others against Galileo.
BECAUSE GALILEO DOES NOT HAVE LONG-TERM COMMITMENTS FROM ITS CUSTOMERS, IT MUST
ESTIMATE CUSTOMER DEMAND, AND ERRORS IN ITS ESTIMATES CAN NEGATIVELY IMPACT
GALILEO'S INVENTORY LEVELS AND SALES.
Galileo must meet the product timing and quantity requirements of OEMs.
Galileo works closely with its customers to determine customers' future product
needs. Galileo places product orders and incurs, and expects to continue to
incur, expenses based upon these sales forecasts. However, the actual orders
which Galileo receives may not match the product forecasts it receives from its
customers. If the forecasts are
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wrong, Galileo may not be able to take advantage of sales increases or may have
excess inventory, and its financial results would be harmed.
Galileo believes that its success in broadly penetrating markets for its
products also depends on its ability to maintain and cultivate relationships
with OEMs that are leaders in the data communications and networking markets.
Accordingly, in selling to OEMs, Galileo can often incur significant
expenditures prior to volume sales of new products. If Galileo is unable to
develop relationships with additional OEMs and have its products designed into
new network systems developed by existing and potential OEM customers, its
financial results would be harmed.
GALILEO RELIES ON THIRD-PARTY DISTRIBUTORS, AND THE FAILURE OF THESE
DISTRIBUTORS TO PERFORM AS EXPECTED COULD REDUCE GALILEO'S FUTURE SALES.
Galileo sells its products to customers primarily through distributors and
manufacturers' representatives. Galileo's relationships with many of its
distributors and manufacturers' representatives have been established within the
last three years. Galileo is unable to predict the extent to which some of these
distributors and manufacturers' representatives will be successful in marketing
and selling Galileo's products. Moreover, many of its distributors also market
and sell competing products. Manufacturers' representatives and distributors may
terminate their relationships with Galileo at any time. Galileo's future
performance will also depend, in part, on its ability to attract additional
distributors or manufacturers' representatives that will be able to market and
support Galileo's products effectively, especially in markets in which Galileo
has not previously distributed its products. If Galileo cannot retain its
current distributors or manufacturers' representatives or recruit additional or
replacement distributors or manufacturers' representatives its sales and
operating results will be harmed. The loss of one or more of Galileo's
distributors or manufacturers' representatives could harm Galileo's results of
operations.
GALILEO DEPENDS ON KEY PERSONNEL TO MANAGE ITS BUSINESS, AND IF GALILEO IS
UNABLE TO RETAIN ITS CURRENT PERSONNEL AND HIRE ADDITIONAL PERSONNEL, ITS
ABILITY TO DEVELOP AND SUCCESSFULLY MARKET ITS PRODUCTS COULD BE HARMED.
Galileo's future performance depends, in significant part, upon the
continued service of its key technical, sales and management personnel. Galileo
does not have employment agreements with or life insurance on some of these
individuals. In addition, Galileo's future success depends on its continuing
ability to attract and retain additional highly qualified technical, sales and
management personnel. Competition for these people in both the United States and
Israel is intense, and Galileo may not be able to attract and retain new
technical, sales and management personnel in the future. If Galileo cannot
retain or is unable to hire key personnel, Galileo's ability to develop and
market its products could be harmed.
GALILEO IS INCORPORATED UNDER THE LAWS OF, AND ITS PRINCIPAL OFFICES ARE LOCATED
IN, THE STATE OF ISRAEL AND THEREFORE ITS BUSINESS OPERATIONS MAY BE HARMED BY
ADVERSE POLITICAL, ECONOMIC AND MILITARY CONDITIONS AFFECTING ISRAEL.
Galileo is both incorporated under the laws of and has its principal
offices in the State of Israel. In addition, Galileo maintains its research and
development operations in Israel. Thus, Galileo is directly influenced by the
political, economic and military conditions affecting Israel. Any major
hostilities involving or within Israel could disrupt Galileo's research and
development and other business operations. For example, continued hostilities
between Israel and the Palestinian Authority in recent months caused substantial
political unrest, which could lead to a potential economic downturn in Israel.
Also, the interruption or curtailment of trade between Israel and its present
trading partners or a significant downturn in the economic or financial
condition of Israel could reduce Galileo's sales and its financial results. A
number of countries restrict business with Israel or Israeli companies, and if
the countries in which Galileo's customers or potential customers conduct their
businesses adopt restrictive laws or policies toward Israel or Israeli
businesses this could harm Galileo's ability to retain or increase its sales.
Most of Galileo's net sales are generated in U.S. dollars, and a
substantial portion of Galileo's operating expenses are incurred in New Israeli
Shekels, or NIS. As a result, Galileo is exposed to risk to
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the extent that the rate of inflation in Israel exceeds the rate of devaluation
of the NIS in relation to the U.S. dollar, or the timing of any devaluation lags
behind inflation in Israel. In the future, Galileo may enter into currency
hedging transactions to decrease the risk of fluctuations in the exchange rate
of the dollar against the NIS. Galileo cannot be sure that these measures will
be sufficient to adequately protect Galileo from the impact of inflation in
Israel.
ASSERTING AND DEFENDING INTELLECTUAL PROPERTY RIGHTS MAY HARM GALILEO'S RESULTS
OF OPERATIONS REGARDLESS OF SUCCESS.
Galileo's future success and ability to compete depend, in part, upon its
proprietary technology. Galileo primarily relies on patent, trade secret,
trademark and copyright law to protect its intellectual property. Patents issued
pursuant to Galileo's current or future patent applications may be invalidated,
circumvented, challenged or licensed to others. In addition, such patents may
not be adequate to safeguard and maintain Galileo's proprietary rights, deter
misappropriation or prevent an unauthorized third-party from copying Galileo's
technology, designing around the patents owned by Galileo or otherwise obtaining
and using Galileo's products, designs or other information. Others may also
develop technologies that are similar or superior to Galileo's technology.
Galileo also relies on confidentiality agreements to protect its proprietary
rights. Galileo requires employees and consultants and, when possible, suppliers
to execute confidentiality agreements upon the commencement of their
relationships with Galileo. However, there is no guarantee that these
agreements, if any, will be adequate to protect Galileo's proprietary rights.
Moreover, litigation may be necessary to enforce Galileo's intellectual property
rights and protect Galileo's trade secrets, and such efforts may not be
successful. Galileo's inability to protect its proprietary rights effectively
would harm its competitive position and operating results.
Many participants in the semiconductor and data communications industries
have a significant number of patents and have commenced litigation based on
allegations of patent and other intellectual property infringement. Although
Galileo is not aware of any current claim of infringement or misappropriation
against Galileo, third parties may assert such claims in the future with respect
to Galileo's current or future products. Galileo expects that companies will
increasingly be subject to infringement claims as the number of products and
competitors in Galileo's industry segment grows and the functionality of
products in different industry segments overlaps. Responding to such claims,
regardless of merit, could cause product shipment delays or require Galileo to
enter into royalty or licensing arrangements. Any claims could also lead to
time-consuming, protracted and costly litigation that would require significant
expenditures of time, capital and other resources by Galileo and its management.
In addition, any necessary royalty or licensing agreement may not be available
or, if available, such agreement may not be obtained on commercially reasonable
terms.
TAX BENEFITS GALILEO RECEIVES THROUGH OPERATING IN ISRAEL MAY BE TERMINATED OR
REDUCED IN THE FUTURE, WHICH WOULD INCREASE GALILEO'S COSTS.
Galileo is entitled to substantial tax benefits in Israel on income derived
from certain investment programs in its facilities in Israel which were granted
"approved enterprise" status by the Investment Center in the Israeli Ministry of
Industry and Trade. These benefits provide for tax holidays and reduced tax
rates commencing when Galileo begins to generate net income derived from these
investment programs. To be eligible for these tax benefits, Galileo must
continue to meet specified conditions, including making investments in fixed
assets in Israel. Galileo believes that it is in compliance with all applicable
conditions. If Galileo fails to meet such conditions in the future, the tax
benefits could be canceled and Galileo would be required to refund the tax
benefits already received with an Israeli customer price index linkage
adjustment and interest. These tax benefits may not continue in the future at
their current levels, if at all. Israeli authorities have indicated that the
government may reduce or eliminate these benefits in the future. The termination
or reduction of certain tax benefits would substantially harm Galileo's
financial condition and results of operations. Galileo may, from time to time,
submit requests for expansion of its Approved Enterprise programs or for new
programs. Galileo cannot be sure that any such requests will be approved.
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FORWARD-LOOKING STATEMENTS
We have each made forward-looking statements in this joint proxy
statement/prospectus and in other documents to which we refer you that are
subject to risks and uncertainties. These forward-looking statements include
information about possible or assumed future results of our operations, the
expected benefits from the merger or the performance of Marvell and Galileo
after the merger is completed. When we use any of the words "believes,"
"expects," "anticipates," "intends," "estimates," "should," "will," "may" or
similar expressions, we are making forward-looking statements. Many possible
events or factors could affect the actual financial results and performance of
each of our companies after the merger, and these factors or events could cause
those results or performance to differ materially from those expressed in our
forward-looking statements. These possible events or factors include the
following:
- we could lose customers as a result of the merger;
- our revenues after the merger may be lower than we currently expect;
- we may have more difficulty integrating our businesses than we currently
expect;
- competition among companies in our industries may increase or a
significant new competitor may emerge;
- technology-related changes may be harder for either of us to make or more
expensive than we currently expect, or we may not be able to make them as
fast as our competitors;
- actions taken or failed to be taken by our third-party suppliers or
service providers may have an adverse impact on our operations;
- third parties may infringe our proprietary intellectual property rights
or patents;
- litigation involving matters such as intellectual property, antitrust and
consumer issues may adversely affect our business;
- general economic and political conditions in the United States, Israel or
elsewhere may change or be worse than we currently expect;
- legislative or regulatory changes may adversely affect our business;
- changes may occur in the securities markets; and
- the factors described in the section entitled "Risk Factors" in this
joint proxy statement/prospectus.
We cannot assure you that projected results or events will be achieved, and
we do not have any obligation to update any forward-looking statements to
reflect subsequent events, changes or circumstances.
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MARVELL SPECIAL GENERAL MEETING
GENERAL
We are sending you this joint proxy statement/prospectus as part of the
solicitation of proxies by Marvell's board of directors for use at the special
general meeting of Marvell shareholders and any adjournments or postponements of
the meeting. We are first mailing this joint proxy statement/prospectus,
including a notice of the special general meeting of Marvell shareholders and a
form of proxy, around , 2000.
The special meeting is scheduled to be held on:
------------------------------------------
at
--------------------------- .m, local time
at
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------------
PURPOSE OF THE SPECIAL GENERAL MEETING
The purpose of the Marvell special general meeting is to vote on the
adoption of the merger agreement, the issuance of Marvell common stock to
Galileo shareholders in the merger, and the assumption and adoption by Marvell
of the stock option plans of Galileo, and to transact any other business that
properly comes before the special general meeting or any adjournment. We know of
no other matters to be brought before the special general meeting. However, if
any other matters are properly presented for action at the Marvell special
general meeting, including a motion to adjourn the meeting to another time or
place, the persons named in the enclosed proxy form will have the discretion,
unless otherwise noted on any proxy form, to vote on those matters, subject to
applicable law. No proxy form that is voted against the merger will be voted in
favor of any adjournment or postponement of the special meeting.
RECOMMENDATION OF MARVELL'S BOARD OF DIRECTORS
MARVELL'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND THE PROPOSED MERGER. MARVELL'S BOARD BELIEVES THAT THE MERGER AGREEMENT IS
ADVISABLE AND IN THE BEST INTERESTS OF MARVELL AND ITS SHAREHOLDERS AND
RECOMMENDS THAT THE MARVELL SHAREHOLDERS VOTE FOR THE MERGER PROPOSAL. SEE "THE
MERGER -- RECOMMENDATION OF THE MARVELL BOARD OF DIRECTORS AND MARVELL'S REASONS
FOR THE MERGER" BEGINNING ON PAGE 44.
REQUIRED VOTE FOR ADOPTION OF THE MERGER PROPOSAL
Adoption of the merger proposal requires the affirmative vote of 66 2/3% of
the outstanding shares of Marvell common stock present in person or by proxy and
voting at the special general meeting and 66 2/3% in number of record
shareholders present in person or by proxy. Each outstanding share Marvell
common stock entitles its holder to one vote.
As of the record date, Dr. Sehat Sutardja, Ms. Weili Dai, Dr. Pantas
Sutardja, Mr. Diosdado P. Banatao and Mr. Kuo Wei Chang, each of whom is a
director of Marvell and an owner of more than 5% of Marvell's common stock,
beneficially owned in the aggregate [49,684,437] shares of Marvell's outstanding
common stock, entitling them to exercise approximately 58% of the voting power
of the Marvell common stock. As part of the transaction, these five shareholders
have agreed to vote all of their shares in favor of the merger. For further
information on the voting agreements, see "The Merger Agreement -- Other
Agreements Related to the Merger -- Voting Agreement Executed by Certain Marvell
Shareholders" on page 88. In addition, as of the record date, the executive
officers and directors of Marvell own approximately [62.3]% of the outstanding
shares of common stock of Marvell.
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RECORD DATE
Marvell's board of directors has fixed , 2000 as the
record date for the Marvell special general meeting. Only shareholders of record
at the close of business on that date will receive notice of and be able to vote
at the Marvell special general meeting. At the close of business on the record
date, there were shares of Marvell common stock outstanding held
by approximately record holders.
QUORUM
Two persons representing more than 50% of the total issued and outstanding
voting shares of Marvell must be continuously present in person in order for
there to be a quorum at the special general meeting. There must be a quorum in
order for the vote on the merger to occur.
We will count the following shares of Marvell common stock as present at
the special meeting for purposes of determining whether a quorum exists:
- shares held by persons who attend or are represented at the Marvell
special general meeting regardless of whether the shares are voted;
- shares for which Marvell has received properly executed proxies; and
- shares held by brokers in nominee or "street name" for beneficial owners
who have not given their brokers specific instructions on how to vote
shares.
PROXIES
You should complete and return the accompanying proxy card regardless of
whether you plan to attend the special general meeting in person. All properly
executed proxies received by Marvell before the special general meeting that are
not revoked will be voted at the special general meeting in accordance with the
instructions indicated on the proxies or, if no direction is indicated, FOR
approval of the merger agreement and the other proposals. Properly executed
proxies, other than proxies voting against the merger, also will be voted for
any adjournment or postponement of the Marvell special general meeting for the
purpose of soliciting additional votes to approve the merger agreement, if
necessary.
Properly executed proxies marked "Abstain" will not be voted at the special
general meeting. In addition, a broker cannot vote shares of Marvell common
stock it holds in "street name" for the beneficial owners without specific
instructions from the beneficial owner. MARVELL'S BOARD OF DIRECTORS URGES YOU
TO COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN
THE ENCLOSED, POSTAGE-PAID ENVELOPE. IF YOUR SHARES OF MARVELL COMMON STOCK ARE
HELD IN "STREET NAME" BY YOUR BROKER YOU MUST FOLLOW THE DIRECTIONS YOUR BROKER
PROVIDES TO YOU REGARDING HOW TO INSTRUCT YOUR BROKER TO VOTE YOUR SHARES OF
MARVELL COMMON STOCK. You cannot vote shares of Marvell common stock held in
"street name" by returning a proxy card to Marvell.
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REVOCATION OF PROXIES
Your grant of a proxy on the enclosed proxy card does not prevent you from
voting in person or otherwise revoking your proxy at any time before it is voted
at the special general meeting. To revoke your proxy, either:
- deliver a signed notice of revocation or a properly executed new proxy
card bearing a later date to:
Marvell Technology Group Ltd.
c/o First Union National Bank
Attn: Proxy Tabulation NC-1153
P.O. Box 217950
Charlotte, NC 28254-3555; or
- attend the Marvell special general meeting and vote your shares in
person.
Attendance at the special general meeting will not, in and of itself, have
the effect of revoking the proxy. If you have instructed a broker to vote your
shares, you must follow the directions received from your broker to change your
vote.
SOLICITATION OF PROXIES
Marvell will pay the entire cost of soliciting proxies. In addition to the
solicitation of proxies by mail, Marvell will ask banks, brokers and other
record holders to send proxies and proxy materials to the beneficial owners of
the stock and secure their voting instructions, if necessary. Marvell will
reimburse these record holders for their reasonable expenses in forwarding these
proxy materials. Marvell may also use several of its employees, who will not be
specially compensated, to solicit proxies from Marvell's shareholders.
Representatives of PricewaterhouseCoopers LLP, Marvell's independent
accountants, are expected to be present at the Marvell special general meeting.
They will have the opportunity to make a statement at the meeting if they desire
to do so, and they will be available to respond to questions from Marvell
shareholders.
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GALILEO EXTRAORDINARY GENERAL MEETING
GENERAL
We are sending you this joint proxy statement/prospectus as part of the
solicitation of proxies by Galileo's board of directors for use at the
extraordinary general meeting of Galileo shareholders and any adjournments or
postponements of the meeting. We are first mailing this joint proxy
statement/prospectus, including a notice of the extraordinary general meeting of
Galileo shareholders and a form of proxy, around , 2000.
The extraordinary general meeting is scheduled to be held on:
, 2000
at .m, Israel time
at Galileo Technology Ltd.
Moshav Manof
D.N. Misgav 20184
Israel
PURPOSE OF THE EXTRAORDINARY GENERAL MEETING
The purpose of the Galileo extraordinary general meeting is to vote on the
adoption, approval and ratification of the merger and the merger agreement and
to transact any other business that properly comes before the meeting or any
adjournment or postponement of the meeting. We know of no other matters to be
brought before the meeting. However, if any other matters are properly presented
for action at the Galileo extraordinary general meeting, including a motion to
adjourn the meeting to another time or place, the persons named in the enclosed
proxy form will have the discretion, unless otherwise noted on any proxy form,
to vote on those matters, subject to applicable law.
RECOMMENDATION OF GALILEO'S BOARD OF DIRECTORS
GALILEO'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND THE PROPOSED MERGER. GALILEO'S BOARD OF DIRECTORS BELIEVES THAT THE MERGER
AND THE MERGER AGREEMENT ARE ADVISABLE AND IN THE BEST INTERESTS OF GALILEO AND
ITS SHAREHOLDERS AND RECOMMENDS THAT THE GALILEO SHAREHOLDERS VOTE FOR THE
ADOPTION, APPROVAL AND RATIFICATION OF THE MERGER AND THE MERGER AGREEMENT. SEE
"THE MERGER -- RECOMMENDATION OF THE GALILEO BOARD OF DIRECTORS AND GALILEO'S
REASONS FOR THE MERGER" BEGINNING ON PAGE 46.
REQUIRED VOTE FOR ADOPTION OF THE MERGER AND THE MERGER AGREEMENT
Each Galileo ordinary share is entitled to one vote on all matters to be
considered at the extraordinary general meeting. Adoption, approval and
ratification of the merger and the merger agreement requires the affirmative
vote of 75% of the shares of Galileo present and voting in person or by proxy at
the extraordinary general meeting.
Pursuant to the Israeli Companies Law, a Galileo ordinary share may be
voted at the extraordinary general meeting only if the holder of the ordinary
share indicates whether the share voted by such shareholder is held by Toshack
Acquisitions or any of its affiliates. An "affiliate" of Toshack Acquisitions
includes:
- any person or entity holding at least 25% of the voting rights in Toshack
Acquisitions;
- any person or entity holding at least 25% of the rights to appoint
directors of Toshack Acquisitions;
- any representative or relative of Toshack Acquisitions or the person or
entity holding at least 25% of the voting rights or rights to appoint
directors of Toshack Acquisitions; or
- any corporation controlled by Toshack Acquisitions or such 25% holder.
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The term "controls" means the ability to direct the operations of a
corporate entity. Shareholders of Galileo who wish to vote at the meeting by
proxy must confirm on the proxy card that they are not affiliates of Toshack
Acquisitions or any of its affiliates. A shareholder of Galileo that does not
indicate whether the shares voted by such shareholder are held by Toshack
Acquisitions may not vote at the meeting. If Galileo ordinary shares held by
Toshack Acquisitions or its affiliates are voted at the meeting, the majority
required for the approval of the merger will be, in addition to the 75% majority
described above, a majority of the shares present and voting, in person or by
proxy, that are not held by Toshack Acquisitions or its affiliates.
As of the record date, Avigdor Willenz, the Chairman of the Board and Chief
Executive Officer of Galileo, and Manuel Alba, a director of Galileo and
President of Galileo Technology, Inc., who in the aggregate beneficially owned
approximately 10,191,978 ordinary shares of Galileo entitling them to exercise
approximately 23.7% of the voting power of Galileo, have executed an irrevocable
proxy in which they have instructed and authorized the proxy holder to vote all
their shares eligible to vote at the extraordinary general meeting in favor of
the merger. For further information on these proxies, see "The Merger
Agreement -- Other Agreements Related to the Merger -- Irrevocable Proxies
Executed by Certain Galileo Shareholders" on page 88.
RECORD DATE
Galileo's board of directors has fixed , 2000 as
the record date for the Galileo extraordinary general meeting. Only shareholders
of record at the close of business on that date will receive notice of and be
able to vote at the Galileo extraordinary general meeting. At the close of
business on the record date, there were Galileo ordinary shares
outstanding held by approximately record holders.
QUORUM
Two shareholders, holding at least 60% of the Galileo ordinary shares, must
be present at the extraordinary general meeting, either in person or by proxy,
in order to constitute a quorum. There must be a quorum in order for the vote on
the merger and the merger agreement to occur.
We will count the following ordinary shares of Galileo as present at the
extraordinary general meeting for purposes of determining whether a quorum
exists:
- shares held by persons who attend or are represented at the meeting
regardless of whether the shares are voted,
- shares for which Galileo has received properly executed proxies, and
- shares held by brokers in nominee or "street name" for beneficial owners
who have not given their brokers specific instructions on how to vote
shares. These shares will not be included in the number of shares that
are deemed to have voted at the meeting.
If within half an hour after the time that the extraordinary general
meeting is scheduled to commence a quorum is not present, the meeting will
automatically be adjourned to the same day one week later at the same time and
place or to such other day, time and place as the board of directors of Galileo
may determine by notice to the shareholders and at such adjourned meeting the
necessary quorum will be two shareholders present in person or by proxy and
holding at least 34% of the Galileo ordinary shares.
PROXIES
You should complete and return the accompanying proxy card regardless of
whether you plan to attend the meeting in person. All properly executed proxies
received by Galileo before the extraordinary general meeting that are not
revoked will be voted at the meeting in accordance with the instructions
indicated on the proxies or, if no direction is indicated, FOR approval of the
merger and the merger agreement. Properly executed proxies also will be voted
for any adjournment or postponement of the meeting for the purpose of soliciting
additional votes to approve the merger and the merger agreement, if necessary.
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Properly executed proxies marked "Abstain" will not be voted at the
extraordinary general meeting or counted as part of the entire votes in the
extraordinary general meeting for the purpose of determining if the merger and
the merger agreement are approved, but will be counted as part of the required
quorum. GALILEO'S BOARD OF DIRECTORS URGES YOU TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED, POSTAGE-PAID
ENVELOPE. IF YOUR GALILEO SHARES ARE HELD IN "STREET NAME" BY YOUR BROKER YOU
MUST FOLLOW THE DIRECTIONS YOUR BROKER PROVIDES TO YOU REGARDING HOW TO INSTRUCT
YOUR BROKER TO VOTE YOUR SHARES OF GALILEO. You cannot vote ordinary shares of
Galileo held in "street name" by returning a proxy card to Galileo.
You should not send your Galileo share certificates with your proxies. A
letter of transmittal for your Galileo shares will be mailed to you after the
merger is complete.
REVOCATION OF PROXIES
Your grant of a proxy on the enclosed proxy card does not prevent you from
voting in person or otherwise revoking your proxy at any time before it is voted
at the extraordinary general meeting. To revoke your proxy, either:
- deliver a signed notice of revocation or a properly executed new proxy
card bearing a later date to:
Galileo Technology Ltd.
---------------------------------------
---------------------------------------
---------------------------------------
--------------------------------------- ; or
- attend the Galileo extraordinary general meeting and vote your shares in
person.
Attendance at the extraordinary general meeting will not, in and of itself,
have the effect of revoking the proxy. If you have instructed a broker to vote
your shares, you must follow the directions received from your broker to change
your vote.
SOLICITATION OF PROXIES
Galileo will pay the entire cost of soliciting proxies. In addition to the
solicitation of proxies by mail, Galileo will ask banks, brokers and other
record holders to send proxies and proxy materials to the beneficial owners of
the stock and secure their voting instructions, if necessary. Galileo will
reimburse these record holders for their reasonable expenses in forwarding these
proxy materials. Galileo has engaged Corporate Investor Communications, Inc. to
assist it in soliciting proxies from banks, brokers and nominees and has agreed
to pay to Corporate Investor Communications, Inc. approximately $6,000 plus
reasonable out-of-pocket expenses for these services. Galileo may also use
several of its employees, who will not be specially compensated, to solicit
proxies from Galileo's shareholders.
NO APPRAISAL RIGHTS
Under Israeli law, holders of Galileo ordinary shares are not entitled to
appraisal rights.
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THE MERGER
GENERAL
The board of directors of each of Marvell and Galileo has unanimously
approved the merger and the merger agreement, which provides for the acquisition
by Marvell of Galileo through a merger. The merger will be effected through
Toshack Acquisitions, a direct wholly-owned subsidiary of Marvell, merging into
Galileo, and as a result Galileo will become a wholly-owned subsidiary of
Marvell. Upon completion of the merger, each shareholder of Galileo will be
entitled to receive 0.674 shares of common stock of Marvell for each outstanding
ordinary share of Galileo they hold.
BACKGROUND OF THE MERGER
Following the completion of its initial public offering in June 2000,
Marvell began reviewing strategic alternatives that would allow it to further
exploit its position as a leader in broadband communications technologies.
Marvell studied, analyzed and reviewed data and market segment information
relating to various alternatives, including potential acquisitions of public and
private companies that design higher layer network-switching products.
On August 17, 2000, representatives of a third party contacted
representatives of Galileo to inquire whether Galileo would be interested in
meeting to discuss possible strategic relationships with the third party. At a
meeting of the Galileo board of directors held on August 22, 2000, the Galileo
board determined, in light of the third party's inquiry and the trend towards
consolidation within Galileo's industry, to review and evaluate various possible
strategic alternatives for Galileo, including possible combinations with other
companies, that would allow Galileo to further exploit its position as a leader
in switching and internetworking products and technologies. On September 6,
2000, representatives of Galileo met with representatives of the third party. At
that meeting, the third party's representatives raised the possibility of a
business combination between Galileo and the third party, and indicated that the
third party would proceed with its evaluation of such a combination with a view
to formulating and delivering a proposal to Galileo in approximately six to
eight weeks.
On September 7, 2000, Galileo had discussions with Salomon Smith Barney in
connection with exploring and evaluating various possible strategic
alternatives, including possible combinations with other companies.
On September 14, 2000, Avigdor Willenz, Chairman of the Board of Directors
and Chief Executive Officer of Galileo, and George Hervey, Chief Financial
Officer of Marvell, held a breakfast meeting at the request of Mr. Hervey.
During this meeting, Mr. Hervey expressed an interest in entering into
discussions about a possible combination of Marvell and Galileo.
On September 15, 2000, representatives of Salomon Smith Barney discussed
with Mr. Willenz, Manuel Alba, a director of Galileo and President of Galileo
Technology, Inc., Ed Rodriguez, Chief Operating Officer of Galileo, and Michael
Tate, Chief Financial Officer of Galileo, Salomon Smith Barney's analyses of
various possible strategic alternatives which Galileo might consider.
On September 16, 2000, Dr. Sehat Sutardja, President, Chief Executive
Officer and Co-Chairman of Marvell, Mr. Hervey, Mr. Willenz and Mr. Alba held a
breakfast meeting to discuss each company's technologies, business operations,
financial condition and a possible combination of Marvell and Galileo. Mr.
Willenz and Mr. Alba informed Dr. Sutardja and Mr. Hervey that Galileo would be
prepared to discuss a possible business combination with Marvell.
On September 19, 2000, Dr. Sutardja, Mr. Hervey and Mr. Alba held a meeting
to discuss their respective impressions and opinions of each company's
technologies, business operations and financial condition. During this meeting,
the participants continued to discuss the operational, financial and other
benefits that could result from a combination of Marvell and Galileo. Also on
September 19, 2000, Dr. Sutardja, Ms. Weili Dai, Marvell's Executive Vice
President and a member of Marvell's board of directors, and Mr. Hervey met with
representatives of Marvell's financial advisor, Goldman, Sachs & Co.,
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to study the financial details of a proposed combination of Marvell and Galileo.
Marvell's board of directors decided to retain Goldman Sachs based upon its
satisfaction with Goldman Sachs' past services rendered for Marvell along with
Goldman Sachs' experience and reputation as a financial advisor in connection
with merger transactions. Thereafter, Marvell developed an initial offer to
present to Galileo regarding a proposed combination.
On September 20, 2000, Marvell held a special meeting of its board of
directors. Dr. Sutardja presented the combination proposal to the board of
directors. After discussion among the directors, Mr. Hervey and representatives
of Goldman Sachs, the Marvell board unanimously authorized Dr. Sutardja to
present an initial offer to Galileo regarding a proposed combination.
On September 21, 2000, Dr. Sutardja, Ms. Dai and Mr. Hervey met with Mr.
Willenz, Mr. Alba and Mr. Rodriguez to communicate the terms of the proposed
combination.
On September 22, 2000, Dr. Sutardja, Ms. Dai, Mr. Hervey, Mr. Willenz, Mr.
Alba and Mr. Rodriquez met telephonically to further discuss the terms of
Marvell's proposal. During this conference call, the Galileo representatives
indicated that they needed additional time to analyze Marvell's offer before
formally responding.
On September 24, 2000, Galileo held a special telephonic meeting of its
board of directors during which Mr. Willenz and Mr. Alba apprised the other
members of the Galileo board of directors of the September 6 meeting with the
third party and the subsequent discussions initiated by Marvell with respect to
possible business combinations, and the terms of Marvell's proposal. The Galileo
board of directors reconvened telephonically on September 25, 2000 and, together
with Mr. Rodriguez and Mr. Tate, further discussed the terms of Marvell's
proposal. At the conclusion of that meeting, the Galileo board of directors
authorized management to reject Marvell's offer as inadequate, but to continue
negotiations relating to a possible business combination with a view to
obtaining offer terms that were more favorable to Galileo shareholders. In
addition, the Galileo board of directors instructed management to keep the board
apprised of developments in connection with discussions between Galileo's
representatives and the respective representatives of Marvell and the third
party. Galileo's management proposed to retain Salomon Smith Barney as Galileo's
financial advisor. The Galileo board of directors ratified the retention of
Salomon Smith Barney as Galileo's financial advisor.
During the week of September 25, 2000, Mr. Hervey and Mr. Alba held several
telephone conversations to further discuss Marvell's offer terms. Dr. Sutardja,
Ms. Dai and Mr. Hervey also continued to develop additional analytical
information and financial models in support of Marvell's initial offer to
Galileo. In addition, during this period, Mr. Willenz and Mr. Alba held
discussions with representatives of Salomon Smith Barney to evaluate Marvell's
offer, and representatives of Goldman Sachs and of Salomon Smith Barney held
several conversations during which they discussed various aspects of the
proposed transaction on behalf of their respective clients.
On September 28, 2000, Marvell convened a special meeting of its board of
directors to update the directors on the status of the discussions regarding the
proposed transaction. On September 29, 2000, Mr. Willenz, Mr. Alba and Mr.
Rodriguez informed Dr. Sutardja and Mr. Hervey that Marvell's initial offer was
inadequate to secure the approval of Galileo's board of directors.
During the weekend of September 30, 2000 and October 1, 2000, Dr. Sutardja,
Ms. Dai and Mr. Hervey met with representatives of Goldman Sachs to further
develop Marvell's combination proposal. After receiving authorization from the
Marvell board of directors for amended offer terms, Dr. Sutardja, Ms. Dai and
Mr. Hervey presented a revised merger proposal to Mr. Willenz and Mr. Alba on
October 2, 2000. Mr. Willenz and Mr. Alba then held discussions with
representatives of Salomon Smith Barney to evaluate Marvell's revised proposal.
On October 3, 2000, Mr. Alba and Mr. Hervey held a telephone conference
during which Mr. Alba rejected as inadequate the terms of Marvell's revised
offer of October 2, 2000 and Mr. Alba communicated to Mr. Hervey the bases of a
business combination proposal that might be acceptable to Galileo's board. At a
special meeting of Marvell's board later on October 3, Dr. Sutardja presented
the
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Marvell directors with an update on the status of the transaction discussions
with Galileo. During this meeting, Dr. Sutardja summarized the terms
communicated by Mr. Alba. After discussion among the directors, Mr. Hervey and
representatives of Goldman Sachs, the Marvell board of directors authorized
Marvell's management to communicate a further revised combination proposal to
Galileo. In a telephone conversation between Mr. Alba and Mr. Hervey after the
October 3 special meeting of Marvell's board of directors, Mr. Hervey
communicated the further revised offer authorized by Marvell's board of
directors to Mr. Alba, and Messrs. Hervey and Alba discussed the terms of the
revised offer. Following that discussion, a special telephonic meeting of the
Galileo board of directors was convened at which the directors, with input from
Mr. Rodriguez and Mr. Tate, discussed the terms of Marvell's revised offer. At
the conclusion of the meeting, the Galileo board authorized management to
proceed with due diligence of Marvell and to negotiate the terms of definitive
agreements with respect to the proposed combination. Telephone conversations
ensued among members of senior management of Marvell and Galileo during which
Marvell's revised offer was further discussed and the parties determined to
commence due diligence and the negotiation of definitive agreements in
connection with the proposed merger on an expedited basis.
On October 6, 2000, counsel for Marvell delivered to counsel for Galileo a
preliminary draft of the merger agreement.
From October 4, 2000 through October 9, 2000, Marvell's representatives and
advisors conducted numerous telephone conferences and meetings with Galileo's
representatives and advisors to negotiate the terms and conditions of the merger
agreement and various other legal, financial and regulatory matters related to
the merger. During this period, both party's representatives and advisors began
their due diligence investigations.
On Tuesday, October 10, 2000, representatives of Marvell informed
representatives of Galileo that, due to the recent changes in the companies'
respective stock prices, Marvell had reservations concerning the ratio that had
been proposed on October 3 for exchanging shares of Marvell common stock for
Galileo ordinary shares in the merger, in light of the increased merger premium
to Galileo's stock price that would now result from that exchange ratio. At a
special meeting of the Marvell board of directors on October 10, Marvell's
directors, Mr. Hervey and representatives of Goldman Sachs discussed the status
of the proposed merger and the Marvell board of directors directed management to
proceed with negotiations through the following trading day and to attempt to
reach a definitive agreement at such time, subject to the parties' agreement on
the exchange ratio. Later on October 10, the Galileo board of directors convened
a special telephonic meeting (that was adjourned and resumed later that
afternoon) at which Galileo's senior management and advisors updated the board
on the status of the negotiations with Marvell and of Marvell's issues with
respect to the proposed exchange ratio. At the Galileo board of directors
meeting, representatives of Salomon Smith Barney made a presentation to the
Galileo board of directors with respect to the material financial analyses
performed by Salomon Smith Barney in connection with its evaluation of the
fairness to Galileo shareholders, from a financial point of view, of the
exchange ratio proposed on October 3, and Galileo's legal counsel discussed with
the board various legal considerations in connection with the proposed merger.
At the conclusion of the meeting, the Galileo board of directors authorized
management to continue negotiations with Marvell relating to the proposed merger
but did not authorize any change of the proposed exchange ratio. Following these
board meetings, the parties, based on the analyses of their respective advisors,
concluded that it was necessary to delay further negotiations concerning the
exchange ratio; however, the parties continued to negotiate and discuss various
other terms of the proposed merger.
Between October 5 and 10, 2000, representatives of Salomon Smith Barney
contacted representatives of the third party who on September 6 had indicated an
interest in pursuing a business combination with Galileo. The representatives of
Salomon Smith Barney advised the third party that Galileo was nearing agreement
on the principal terms of a business combination with another company and that,
if the third party intended to make a formal offer with respect to a business
combination with Galileo, it would have to do so imminently. The representatives
of the third party informed Salomon Smith Barney's representatives that it was
unlikely that the third party would be in a position to make a formal offer
within such a short time.
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From Wednesday, October 11, 2000, through Friday, October 13, 2000, Dr.
Sutardja, Ms. Dai, Mr. Hervey, Mr. Willenz and Mr. Alba continued to have
telephone discussions concerning the proposed combination of Marvell and
Galileo. During this time, each company's legal counsel continued to negotiate
the definitive agreements. On Friday, October 13, 2000, the Marvell board of
directors held a telephonic meeting. At that meeting, the Marvell board of
directors received a full report on the status of negotiations from Marvell's
management and financial advisor and the directors discussed the significant
open issues separating the parties.
On Monday, October 16, 2000, Dr. Sutardja, Ms. Dai, Mr. Hervey, Mr. Willenz
and Mr. Alba met telephonically to discuss the movement in the respective share
prices of each company's stock on that day and the change in the total merger
consideration resulting from that movement.
On October 16, 2000, the board of directors of Marvell held a meeting.
Goldman Sachs delivered its oral opinion, subsequently confirmed in writing, to
the board of directors of Marvell that, as of October 16, 2000, the exchange
ratio of 0.674 shares of common stock of Marvell to be exchanged for each
ordinary share of Galileo pursuant to the merger agreement was fair from a
financial point of view to Marvell. The full text of the written opinion of
Goldman Sachs, dated October 16, 2000, which identifies assumptions made,
matters considered and limitations on the review undertaken in connection with
the opinion, is attached as Appendix C to this joint proxy statement/prospectus.
Marvell's legal counsel explained additional terms of the merger agreement and
various other legal matters regarding the proposed transaction to the board.
After full discussion, the Marvell board of directors unanimously concluded that
the merger was in the best interests of Marvell shareholders, declared the
merger advisable, unanimously approved the terms of the merger and the merger
agreement and resolved to recommend that Marvell shareholders vote to adopt the
merger agreement and approve the merger.
A special telephonic meeting of the Galileo board of directors was convened
the evening of October 16, 2000. At that meeting, Galileo's management and
advisors updated the board on the events that had transpired since the October
10 board meeting. In addition, representatives of Salomon Smith Barney delivered
to the Galileo board of directors a verbal opinion, subsequently confirmed in
writing, that, as of the date of the opinion and based on and subject to the
matters described in the opinion, the exchange ratio was fair, from a financial
viewpoint, to the holders of Galileo ordinary shares, and Galileo's legal
counsel reviewed with the board the material final terms and conditions of the
merger agreement and the related agreements and various other legal matters
regarding the proposed merger. After full discussion, the Galileo board of
directors unanimously concluded that the merger was advisable and in the best
interests of Galileo and its shareholders, approved the terms of the merger and
the merger agreement and resolved to recommend that Galileo shareholders vote to
adopt the merger agreement and approve the merger.
Late in the evening on October 16, 2000, Marvell and Galileo executed the
merger agreement and related agreements. Before the opening of business on
October 17, 2000, the parties issued a joint press release announcing the
merger.
RECOMMENDATION OF THE MARVELL BOARD OF DIRECTORS AND MARVELL'S REASONS FOR THE
MERGER
The Marvell board of directors believes that the merger is advisable, fair
to and in the best interests of Marvell and its shareholders. Accordingly,
Marvell's board of directors has unanimously approved the merger agreement and
unanimously recommends that Marvell shareholders vote for the merger, the
adoption of the merger agreement, the issuance of Marvell common stock to
Galileo shareholders in connection with the merger and the assumption and
adoption by Marvell of the stock option plans of Galileo. In reaching its
decision to approve the agreement and to recommend that Marvell shareholders
vote to approve the proposals, Marvell's board of directors consulted with
senior management and its financial and legal advisors and considered a number
of factors, including:
- the opinion of Goldman Sachs, Marvell's financial advisor, that, as of
October 16, 2000, the exchange ratio of 0.674 shares of common stock of
Marvell to be exchanged for each ordinary share of Galileo pursuant to
the merger agreement was fair from a financial point of view to Marvell;
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- the terms of the merger agreement and stock option agreement and the
total merger consideration to be paid by Marvell; and
- historical information concerning Marvell's and Galileo's respective
businesses, financial performance and condition, operations, technology,
management and competitive position, to the extent such information was
publicly available with respect to Galileo.
Among other historical information, the board of directors considered the
following information regarding Galileo:
- the increases in, and composition of, revenues for the combined company;
- Galileo's historical success in the market for Internetworking and
switching products;
- Galileo's research and development personnel and, in particular, their
strength in the area of higher-layer packet processing, switching,
routing and system management;
- the ability of the combined company to offer complete end-to-end silicon
solutions to communications equipment vendors;
- that the combined company will be the only supplier shipping both Gigabit
Ethernet physical layer devices, and switching integrated circuits in
volume production;
- the combined company will possess the core semiconductor technologies
required for future communications systems in MAN, WAN and storage area
networks, or SAN; and
- the combination will create a communications integrated circuit
powerhouse able to more rapidly bring high-speed broadband quality
solutions to the communications market.
In view of the variety of factors considered in connection with the
evaluation of the merger, the Marvell board of directors did not find it
practicable to, and did not, quantify or otherwise assign relative weights to
the specific factors considered in reaching its determination. However, the
board's decision was substantially based upon the following factors:
- the belief that Galileo's strength in designing switching products and
system architecture complements one of Marvell's core strengths in
designing products which enable the movement of data at high transfer
rates;
- the belief that the proposed combination of the companies represents a
unique opportunity to combine complementary products, enabling the
integration of multiple product functions on single chips which will
decrease the cost and increase the performance of the combined company's
products;
- the belief that, on a combined basis, the companies will be better
positioned to develop and market products for the broadband data
communication markets;
- the value to Marvell of Galileo's research and development personnel; and
- that Marvell senior management has worked closely with the senior
management of Galileo in the past and as a result believes that the
companies have compatible cultures and should be able to effectively
combine their respective research, design and sales functions.
The Marvell board of directors also identified and considered in its
deliberations a number of factors weighing against the proposed merger,
including:
- the possibility that the merger might not be consummated, due to, among
other things, the possible failure of Galileo's shareholders to approve
the merger, and the effect on Marvell's stock price and the amount of
resources that would be expended and wasted if that were the case;
- the possibility that Marvell may have to pay liquidated damages of $80
million to Galileo if the merger agreement is terminated under certain
conditions;
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- if the merger is completed, the possibility that the integration of
Marvell and Galileo will be a complex, time consuming and expensive
process that may disrupt the business of either or both companies if not
completed in a timely and efficient manner;
- even if the merger is completed, the possibility that the anticipated
benefits may not be realized;
- the unstable political situation in Israel, where most of Galileo's
research and development personnel are located, which could expose the
combined enterprise to significant risk;
- the significant limitations under Israeli law on the ability of the
combined enterprise to shift its operations out of Israel if the
political situation worsens, due to Galileo's funding from the Israeli
Investment Center and the Israeli Office of the Chief Scientist; and
- the limits on Marvell's ability to terminate the merger agreement if
Galileo's business or financial prospects are harmed as a result of
changes generally affecting the industries in which Galileo operates, and
changes in general economic, capital-market, regulatory or political
conditions, including changes in Israel.
The Marvell board was also aware of the fact that Mr. George Hervey,
Marvell's Vice President of Finance and Chief Financial Officer, served as
Senior Vice President, Chief Financial Officer and Secretary for Galileo from
March 1997 to April 2000 and owns 112,000 ordinary shares of Galileo. Mr. Hervey
exercised options to purchase 69,500 ordinary shares of Galileo from September
7, 2000 through September 18, 2000. Mr. Hervey sold 14,500 of these shares on
the date of exercise at prevailing market prices. The options were granted to
Mr. Hervey during his employment with Galileo and would have terminated had they
not been exercised within six months after Mr. Hervey left his employment at
Galileo.
After considering the various factors weighing against the proposed merger,
the Marvell board of directors concluded that the factors in favor of the merger
outweighed the negative factors.
RECOMMENDATION OF THE GALILEO BOARD OF DIRECTORS AND GALILEO'S REASONS FOR THE
MERGER
The board of directors of Galileo believes that the merger is advisable and
in the best interests of Galileo and its shareholders and unanimously recommends
that Galileo shareholders vote in favor of the merger and the merger agreement.
In reaching the conclusion that the merger is in the best interests of
Galileo and its shareholders, the Galileo board of directors consulted with
senior members of Galileo's management team regarding the strategic and
operational aspects of the merger and the results of the due diligence conducted
with respect to Marvell. In addition, the Galileo board of directors consulted
with representatives of Salomon Smith Barney, financial advisor to Galileo,
regarding selected financial aspects of Marvell's business, as well as the
fairness, from a financial point of view, to Galileo's shareholders of the
proposed ratio for exchanging Galileo ordinary shares for shares of Marvell
common stock in the merger. In considering the information provided by Galileo's
senior management team and representatives of Salomon Smith Barney, in analyzing
the terms of the merger agreement, and in coming to its endorsement of the
merger, the Galileo board of directors considered a variety of factors. The key
factors considered by the Galileo board of directors are summarized below. In
addition, the Galileo board noted that Galileo has not yet appointed external
directors as required by the Israeli Companies Law. Considering the legal
requirements applicable to the approval of the merger, the Galileo board
believes that such failure does not derogate the authority of the Galileo board
to approve the merger or from the legal effect of such approval.
Strategic Advantages. The board of directors of Galileo considered
presentations from senior members of Galileo's management team regarding the
anticipated strategic advantages of a combination with Marvell, including the
following:
- Communications equipment manufacturers, which represent Galileo's and
Marvell's key customer base, are increasingly looking for suppliers that
are able to simultaneously deliver both system architecture expertise and
physical signal transmission solutions. The combination of Galileo's
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strengths in designing controllers, switching products and system
architecture with Marvell's strengths in designing physical signal
handling products will enable the combined company to offer customers an
integrated package of complementary state-of-the-art solutions. This
packaging responds to the needs of the communications equipment market
and should create a significant competitive advantage over separate
products that a customer would have to integrate itself. In addition, the
merger will enable Galileo and Marvell to better coordinate the inclusion
of their products in industry reference designs, which should facilitate
the inclusion of the combined company's products in equipment based on
the reference design and thereby lead to increased sales.
- The merger will allow Galileo's controller and switching solutions to
benefit from Marvell's advanced physical signal handling technology and
will allow Marvell's physical signal handling solutions to benefit from
Galileo's world-class controller and switching technology. This should
help drive the combined company's development of improved, complementary
and next-generation products and technologies.
- The merger will provide each company with increased access to the other's
existing customer base and will enable the combined company to market its
broadened offering of solutions to an expanded customer base.
- The integration of the best features of each company's sales force and
customer service and research & development departments should strengthen
the combined company's ability to effectively sell and service its
products and develop new products and solutions to anticipate and meet
the evolving needs of the marketplace.
- The merger should create improved economies of scale, thereby reducing
the combined company's purchasing and manufacturing costs and increasing
the combined company's access to foundry capacity and raw materials
supplies. In this regard, the Galileo board of directors noted that
Marvell and Galileo each currently rely on Taiwan Semiconductor
Manufacturing Company and its subcontractors for the manufacture and
assembly of a substantial portion of their products.
Potential for Growth. The Galileo board of directors considered the view of
senior members of Galileo's management team that the merger is expected to
strengthen the ability of the combined company to compete effectively in the
marketplace, generate growth in revenue, earnings before interest, taxes,
depreciation and amortization, or "EBITDA," and cash flow, and create
shareholder value. In particular, the Galileo board of directors considered
information and analyses regarding the financial condition and results of
operations of Marvell, information regarding Marvell's business, technology,
products and customers and information regarding the prospects for, and
challenges facing, the industries in which Galileo and Marvell operate.
Opinion of Salomon Smith Barney. The Galileo board of directors reviewed a
detailed presentation by representatives of Salomon Smith Barney regarding the
financial aspects of the proposed merger, and considered the opinion of Salomon
Smith Barney that, as of the date of the opinion and subject to the
considerations described in the opinion, the ratio for exchanging Galileo
ordinary shares for shares of Marvell common stock in the merger was fair, from
a financial point of view, to the holders of Galileo ordinary shares.
Exchange Ratio. The Galileo board of directors considered the fact that the
proposed ratio for exchanging Galileo ordinary shares for shares of Marvell
common stock in the merger would provide Galileo's shareholders with a
substantial premium when comparing Galileo's and Marvell's respective stock
prices at the time of execution of the merger agreement. The Galileo board also
considered the fact that the value of the Marvell common stock to be received by
Galileo shareholders in the merger could change depending upon the performance
of Marvell common stock between the time of the execution of the merger
agreement and the time of the completion of the merger, as well as other
factors. In addition, the Galileo board considered the fact that the merger
agreement does not contain any provisions that limit the effect of declines in
the market price of Marvell common stock prior to the completion of the merger
on the value of the consideration to be received in the merger by holders of
Galileo ordinary shares. The
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<PAGE> 54
Galileo board noted that, while the absence of these provisions exposes Galileo
shareholders to some market risk, the risk is mitigated by several factors,
including that (1) holders of Galileo ordinary shares will participate in any
appreciation in the value of Marvell common stock between the time of the
execution of the merger agreement and the time of the completion of the merger,
(2) the exchange ratio will maintain the relative share of Marvell's stock held
immediately after the merger by Galileo's shareholders and (3) any protection in
the merger agreement against declines in the market price of Marvell common
stock would likely be coupled with a cap on the benefit Galileo shareholders
would enjoy as a result of increases in the market price of Marvell common
stock.
Continuing Equity Interest of Galileo Shareholders in Marvell. The Galileo
board of directors considered the fact that, by providing for the exchange of
Galileo ordinary shares for shares of Marvell common stock, the merger agreement
provides for holders of Galileo ordinary shares to participate in the value that
may be generated by the combination of Galileo and Marvell through their
continued equity participation in Marvell, while realizing through the exchange
of shares a premium for their Galileo shares, based on stock prices at the time
of execution of the merger agreement, and while obtaining tax-free treatment.
The Galileo board also noted that the proposed exchange ratio would result in
holders of Galileo ordinary shares receiving a significant equity stake in
Marvell, equal to approximately 25% of the common stock of Marvell after
completion of the merger on a fully-diluted basis.
Corporate Governance Arrangements. The Galileo board of directors noted
that the merger agreement provides that two current members of the Galileo board
of directors will be appointed to the board of directors of Marvell upon
completion of the merger.
Alternatives to the Merger. The Galileo board of directors considered the
accelerated trend towards consolidation in the industry within which Galileo
operates and Galileo's prospects should it remain an independent company. The
Galileo board then considered information presented by senior members of
Galileo's management team as to alternatives to the merger that senior
management had explored, including possible acquisitions by or of other
businesses and management's view that the merger represented the most favorable
alternative for Galileo and its shareholders.
Experience with Marvell. The Galileo board of directors took note of the
fact that the merger is with a company with whom Galileo has experienced
successful collaborations, including the creation of coordinated reference
designs to enable customers to more effectively and efficiently design equipment
that used both Galileo and Marvell products. Galileo and Marvell have in the
past also discussed the possibility of integrating certain of their respective
technologies into one chip. As a result of having worked closely with Marvell
senior management on these projects, Galileo senior management was able to
develop and relay to the Galileo board their first-hand impressions of Marvell's
business and management.
Integration of Galileo and Marvell. The Galileo board of directors
considered the fact that the combination of the businesses of Galileo and
Marvell would be challenging, and the success of the combination is not certain.
The Galileo board noted, however, that the management teams of Galileo and
Marvell have worked together successfully in the past and have a shared vision
of the opportunities and potential created by the merger. The Galileo board
further noted that these positive experiences and similarities in views are
likely to facilitate the efforts of the management teams of Galileo and Marvell
to integrate their businesses effectively and efficiently.
Conditions, Termination Provisions, Termination Fee and Option
Agreement. The Galileo board of directors reviewed the conditions to the
completion of the merger and the circumstances under which Galileo or Marvell
would have the right to terminate the merger agreement. In addition, the Galileo
board reviewed the provisions of the merger agreement that prohibit Galileo from
soliciting any proposal or offer regarding any acquisition of Galileo. The
Galileo board also reviewed the provisions of the merger agreement that require
the Galileo board to recommend approval of the merger by the shareholders of
Galileo and prohibit the board from withdrawing or modifying its recommendation
unless, subject to specified conditions, it has received an unsolicited
acquisition proposal which would, if completed, result in a transaction that is
more favorable to its shareholders than the merger and which is reasonably
capable of being completed. In addition, the Galileo board reviewed the amounts
that might be payable in the event
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<PAGE> 55
the merger agreement is terminated under specified circumstances. The Galileo
board also considered the terms of the option agreement to be entered into by
Galileo and Marvell in connection with the merger agreement. The Galileo board
noted that each of these provisions could have an impact on a third-party
considering an unsolicited acquisition proposal for Galileo. However, the
Galileo board also noted that Marvell had specified that Galileo's agreement to
each of these provisions was a condition to Marvell's willingness to enter into
the merger agreement. The Galileo board also noted that the merger agreement
allowed the Galileo board to terminate the merger agreement, subject to Galileo
paying Marvell the specified termination fees and satisfying other specified
conditions, in order to approve or recommend an unsolicited acquisition proposal
for Galileo which would, if completed, result in a transaction that is more
favorable to its shareholders than the merger and which is reasonably capable of
being completed. Further, the Galileo board found reasonable the views of its
legal and financial advisors that the termination fees were within the range of
fees payable in comparable transactions, and the Galileo board determined, based
in part on the advice of its advisors, that all of these provisions taken
together were reasonable in the context of the proposed merger and would not be
expected to preclude an unsolicited acquisition proposal for Galileo.
Voting Agreement, Irrevocable Proxies and Lock-up Agreements. The Galileo
board of directors considered the terms of the voting agreement to be entered
into by Dr. Sehat Sutardja, Dr. Pantas Sutardja, Weili Dai, Diosdado Banatao and
Kuo Wei Chang (the "Marvell Holders"), and the irrevocable proxies to be
delivered by Avigdor Willenz and Manuel Alba (the "Galileo Holders"), in
connection with the merger agreement. The Galileo board noted that, pursuant to
the voting agreement the Marvell Holders would agree to vote all of their shares
of Marvell common stock (representing approximately 58% of the outstanding
Marvell shares), and pursuant to the irrevocable proxies the Galileo Holders
would grant a third-party the authority to vote all of their Galileo ordinary
shares (representing approximately 23.7% of the outstanding Galileo shares), in
favor of the transactions contemplated by the merger agreement. The Galileo
board also considered the terms of the lock-up agreements to be entered into by
the Marvell Holders and the Galileo Holders in connection with the merger
agreement. The Galileo board noted that, pursuant to the lock-up agreements,
each of the Marvell Holders and Galileo Holders would agree not to offer for
sale, sell or otherwise dispose of any shares of Marvell common stock owned by
them for a period of 45 days after the completion of the merger.
Regulatory Matters. In addition to considering the various conditions that
must be satisfied prior to the completion of the merger, the Galileo board
specifically considered the various regulatory filings and approvals that would
be necessary to complete the merger, including expiration or termination of the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act and, to
the extent required by applicable law, approvals from the Israeli Office of the
Chief Scientist, the Israel Investment Center and the Israeli Securities
Authority. The Galileo board noted the view of members of senior management of
Galileo that the various regulatory filings were expected to be timely made and
that the various regulatory approvals were expected to be granted in due course.
Expected Tax and Accounting Treatment. The Galileo board considered the
expected tax treatment of the merger for United States federal income tax and
Israeli tax purposes. The Galileo board noted that receipt of specified rulings
from the Israeli Income Tax Commissioner and the receipt of specified legal
opinions from Galileo's United States counsel relating to such expected tax
treatment were conditions to the merger. The Galileo board also considered the
accounting treatment of the merger as a "purchase" transaction, including the
goodwill that will be recorded on the financial statements of Marvell.
Certain Risks. The Galileo board considered several risks associated with
the combination of Galileo and Marvell. These included:
- the risk that the attention and efforts of senior members of Galileo's
management team may be diverted from Galileo's businesses while they are
working to implement the merger, and that valuable strategic
opportunities may be lost;
- risks associated with the various restrictions imposed under the merger
agreement on Galileo's operational flexibility during the pendency of the
merger;
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<PAGE> 56
- the risk that the merger may not be completed and that, even if the
merger is completed, the anticipated benefits of the merger may not be
realized;
- the risk that key employees may decide not to remain with the combined
company after completion of the merger;
- the risk that if the merger agreement is terminated under certain
circumstances and Galileo subsequently agrees to be acquired by a third
party, Galileo may become obligated to pay Marvell specified liquidated
damages;
- the risk that if the merger agreement is terminated under certain
circumstances, Marvell may be able to purchase a significant number of
Galileo ordinary shares pursuant to the option agreement, which could
impair the ability of Galileo to complete another business combination;
and
- the various factors set forth in the section entitled "Risk Factors" that
begins on page 13 of this joint proxy statement/prospectus.
In addition, in analyzing the historical stock price information for
Marvell, the Galileo board noted that Marvell has been a publicly traded company
for less than a year and that, as a result, the ability to perform meaningful
analyses of Marvell's stock performance over an extended period of time is
limited. The Galileo board also noted that Marvell common stock has historically
been thinly traded. The Galileo board further noted that, upon completion of the
merger, Dr. Sehat Sutardja, Dr. Pantas Sutardja and Weili Dai would continue to
own, in the aggregate, approximately 31% of the outstanding shares of Marvell
common stock and thereby continue to have the ability to effectively exert
considerable control over Marvell's affairs.
The Galileo board also considered the fact that certain directors and
executive officers of Galileo have interests in the merger that could be deemed
to be different from, or in addition to, the interests of Galileo shareholders
generally, including as described in the section entitled "The
Merger -- Interests of Certain Persons in the Merger" below. In addition, the
Galileo board was aware of Mr. George Hervey's interests in the merger described
in the section entitled "The Merger -- Recommendation of the Marvell Board of
Directors and Marvell's Reasons for the Merger."
This summary of the factors considered by the board of directors of Galileo
in evaluating the merits of the merger is not intended to be exhaustive but is
believed to include all material factors considered by the Galileo board. Due to
the wide variety of the factors that the Galileo board considered in evaluating
the merits of the merger, the Galileo board did not find it practicable to, and
did not attempt to, quantify or otherwise assign relative weights to the
specific factors considered in its evaluation. In addition, the Galileo board
did not undertake to make any specific determination as to whether any
particular factor, or any aspect of any particular factor, should be regarded as
favorable or unfavorable; instead the Galileo board analyzed all of the factors
as a whole and determined that, overall, the factors support its conclusion that
the merger is in the best interests of Galileo and its shareholders. Individual
members of the Galileo board may have considered some factors to be more
important than other factors and may have considered some factors, or aspects of
some factors, to be favorable while other members considered them to be
unfavorable.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Galileo board that Galileo
shareholders vote to approve the merger, you should be aware that certain
members of the Galileo board and Galileo's management have interests in the
merger that could be deemed to be different from, or in addition to, the
interests of Galileo shareholders generally. These differing or additional
interests are summarized below. The Galileo board was aware of these interests
and considered them, among other matters, when voting to approve the merger.
Board of Directors. Marvell has agreed to appoint two current members of
the Galileo board to the board of directors of Marvell upon completion of the
merger. These individuals will be assigned to the
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class of directors of Marvell whose term expires in 2001. Marvell has also
agreed to nominate each of these individuals for re-election at Marvell's 2001
annual meeting of shareholders. It is currently Galileo's intention that these
individuals will be Avigdor Willenz and Manuel Alba.
Indemnification and Directors' and Officers' Insurance. In the merger
agreement, Marvell has agreed that, from and after completion of the merger,
- Marvell and the surviving corporation of the merger will indemnify each
person who is or was an officer or director of Galileo or Galileo's
subsidiaries from all liabilities (including with respect to negligent
acts and omissions) in connection with their being an officer or director
or arising out of the merger agreement or the merger, in each case to the
fullest extent permitted by law;
- Marvell will cause the surviving corporation to honor all of Galileo's
indemnification obligations under agreements with its directors and
officers and under Galileo's articles of association; and
- Marvell will, for a period of six years after completion of the merger,
maintain or cause to be maintained in effect policies of directors' and
officers' liability insurance covering persons who are covered by
Galileo's current insurance policies on terms no less favorable to those
individuals than those of Galileo's current insurance policies, although
Marvell will not be required to expend in any one year in excess of 200%
of the annual premium currently paid by Galileo for such coverage.
Stock Option Plans. At the effective time of the merger, each outstanding
option to purchase Galileo ordinary shares issued pursuant to the Galileo 1997
Employees' Stock Option Plan, the Galileo 1997 GTI Stock Option Plan and the
Galileo 1998 Non-Employee Directors' Stock Option Plan will be converted into an
option to purchase, on the same terms and conditions as applied to the Galileo
stock option, a number of shares of Marvell common stock (rounded up to the
nearest whole share) equal to the number of shares of Marvell common stock that
the holder of such Galileo stock option would have been entitled to receive in
the merger had such holder exercised the option in full immediately prior to the
merger. The exercise price per share of Marvell common stock for these converted
options will be equal to the former per share exercise price for Galileo
ordinary shares that otherwise could have been purchased under the Galileo stock
option, divided by 0.674 (the ratio for exchanging Galileo ordinary shares for
shares of Marvell common stock in the merger), rounded down to the nearest whole
cent. However, in the case of options intended to be treated as "incentive stock
options" under the United States Internal Revenue Code, the option price, the
number of shares that could be purchased and the terms and conditions of
exercise will be determined in order to comply with the applicable provisions of
that Code. Directors and officers of Galileo (seven persons) hold in the
aggregate options to purchase approximately [1,728,985] ordinary shares of
Galileo. Under the terms of the merger agreement, these options will be
converted into options to purchase approximately [1,165,336] shares of Marvell
common stock as described above.
OPINION OF MARVELL'S FINANCIAL ADVISOR
Goldman Sachs has acted as financial advisor to Marvell in connection with
the merger. On October 16, 2000, Goldman Sachs delivered its oral opinion,
subsequently confirmed in writing, to the board of directors of Marvell that, as
of the date of such opinion, the exchange ratio of 0.674 shares of common stock
of Marvell to be exchanged for each ordinary share of Galileo pursuant to the
merger agreement was fair from a financial point of view to Marvell.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS, DATED OCTOBER 16,
2000, WHICH IDENTIFIES ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON
THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS APPENDIX C
TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED INTO THIS JOINT
PROXY STATEMENT/PROSPECTUS BY REFERENCE. SHAREHOLDERS OF MARVELL ARE URGED TO,
AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY.
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In connection with its opinion, Goldman Sachs reviewed, among other things:
- the merger agreement;
- the registration statement on Form S-1, including the prospectus
contained therein dated June 26, 2000, relating to Marvell's initial
public offering of 6,900,000 shares of common stock;
- the quarterly report on Form 10-Q of Marvell for the quarter ended July
31, 2000;
- the registration statement on Form F-1 of Galileo, including the
prospectus contained therein dated July 28, 1997, relating to Galileo's
initial public offering of 6,900,000 ordinary shares;
- the annual report on Form 20-F of Galileo for the year ended December 31,
1999;
- the reports on Form 6-K of Galileo for the months of June 2000 and August
2000;
- certain other communications from Marvell and Galileo to their respective
shareholders; and
- certain internal financial analyses and forecasts for Galileo prepared by
the management of Galileo.
Goldman Sachs also held discussions with members of the senior management
of Marvell and Galileo regarding their assessment of the strategic rationale
for, and the potential benefits of, the transaction contemplated by the merger
agreement and the past and current business operations, financial condition and
future prospects of their respective companies. In addition, Goldman Sachs
reviewed the reported price and trading activity for Marvell's common stock and
Galileo's ordinary shares, which like many technology-related stocks have been
and are likely to continue to be subject to significant short-term price and
trading volatility, compared certain financial and stock market information for
Marvell and Galileo with similar information for certain other companies the
securities of which are publicly traded, reviewed the financial terms of certain
recent business combinations in the semiconductor industry specifically and in
other industries generally and performed such other studies and analyses as it
considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information discussed with or reviewed by it and assumed
such accuracy and completeness for purposes of rendering its opinion. The
Marvell board informed Goldman Sachs that Marvell has not prepared current
forecasts of its future financial performance for the year 2001 or beyond. As a
result, Goldman Sachs' review of such matters was limited to discussions with
senior management of Marvell regarding certain reports and estimates of research
analysts, including one report for Marvell that the Marvell board instructed
Goldman Sachs to use for purposes of rendering its opinion and that, in the
judgment of Marvell's management, represented the best currently available
estimates of the future financial performance of Marvell. In addition, for
purposes of analyzing the future financial performance of Galileo and rendering
its opinion, the Marvell board instructed Goldman Sachs to use the report of a
certain research analyst that, in the judgment of Marvell's management,
represented the best currently available estimates of the future financial
performance of Galileo. In addition, Goldman Sachs has not made an independent
evaluation or appraisal of the assets and liabilities of Marvell or Galileo or
any of their subsidiaries and Goldman Sachs has not been furnished with any such
evaluation or appraisal. Goldman Sachs' advisory services and Goldman Sachs'
opinion were provided for the information and assistance of the Marvell board in
connection with its consideration of the transaction contemplated by the merger
agreement and such opinion does not constitute a recommendation as to how any
holder of Marvell common stock should vote with respect to the merger.
The following is a summary of the material financial analyses presented by
Goldman Sachs to the Marvell board on October 16, 2000. SOME OF THE SUMMARIES OF
THE FINANCIAL ANALYSES INCLUDE INFORMATION PRESENTED IN TABULAR FORMAT. THE
TABLES MUST BE READ TOGETHER WITH THE TEXT ACCOMPANYING EACH SUMMARY.
TRANSACTION PREMIUM ANALYSIS
Goldman Sachs compared the historical stock prices of Marvell common stock
and Galileo ordinary shares on the basis of the respective closing prices per
share on October 16, 2000, and the respective
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closing prices and period averages for the prior five days, 10 days, one month
and the period since the initial public offering, or IPO, of Marvell common
stock. The following table presents:
- the implied exchange ratio between the closing prices of Marvell common
stock and Galileo ordinary shares on October 16, 2000 and the implied
exchange ratio between the average of the closing prices of Marvell
common stock and Galileo ordinary shares for the specified periods; and
- the premiums over those implied exchange ratios implied by the actual
exchange ratio in the merger.
<TABLE>
<CAPTION>
PREMIUM OVER IMPLIED
DATE OR PERIOD IMPLIED EXCHANGE RATIO EXCHANGE RATIO
-------------- ---------------------- --------------------
<S> <C> <C>
October 16, 2000..................... 0.38x 79.1%
5 day average........................ 0.33 102.9
10 day average....................... 0.36 85.8
One month average.................... 0.35 90.6
Average since Marvell IPO............ 0.36 86.5
</TABLE>
Goldman Sachs also reviewed the historical closing prices of Galileo
ordinary shares on October 16, 2000 and the closing prices and period averages
for the prior five days, 10 days, one month, three months, six months and one
year. The following table presents:
- the closing price of Galileo ordinary shares on October 16, 2000 and the
average of the closing prices of Galileo ordinary shares for the
specified periods; and
- the premium over the closing price of Galileo ordinary shares on October
16, 2000 and the average closing prices of Galileo ordinary shares for
the specified periods implied by the actual exchange ratio in the merger.
<TABLE>
<CAPTION>
PREMIUM OVER CLOSING PRICE OR
CLOSING PRICE OR AVERAGE CLOSING PRICE OF
AVERAGE CLOSING GALILEO ORDINARY SHARES
PRICE OF GALILEO IMPLIED BY THE
DATE OR PERIOD ORDINARY SHARES EXCHANGE RATIO
-------------- ---------------- -----------------------------
<S> <C> <C>
October 16, 2000..................... $30.77 79.1%
5 day average........................ 27.90 97.5
10 day average....................... 29.05 89.7
One month average.................... 29.19 88.7
Three month average.................. 25.25 118.2
Six month average.................... 21.80 152.8
One year average..................... 21.43 157.1
</TABLE>
MARGIN ANALYSIS
Goldman Sachs analyzed and compared the projected gross margin percentage,
operating margin percentage and net margin percentage of each of Marvell and
Galileo to the projected gross margin percentage, operating margin percentage
and net margin percentage of the combined company on a pro forma basis for 2000
and 2001, in each case based on selected publicly available research analysts'
estimates for Marvell and Galileo. This analysis was performed using Marvell's
fiscal year end of January 31 and Galileo's fiscal year end of December 31. The
projected gross margin, operating margin and net margin were calculated by
adding the relevant research analyst estimates of revenues, operating
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income and net income for the two companies before taking into account any of
the possible benefits that may be realized following the merger. The following
table presents the results of that analysis:
<TABLE>
<CAPTION>
COMBINED
MARVELL GALILEO COMPANY
------- ------- --------
<S> <C> <C> <C>
GROSS MARGIN
2000..................................................... 54.0% 60.5% 56.8%
2001..................................................... 54.0 60.0 56.4
OPERATING MARGIN
2000..................................................... 10.8% 18.4% 14.1%
2001..................................................... 18.0 20.5 19.0
NET MARGIN
2000..................................................... 10.0% 22.6% 15.4%
2001..................................................... 15.2 23.3 18.5
</TABLE>
REVENUE GROWTH IMPACT ANALYSIS
Goldman Sachs compared the projected revenue of each of Marvell and Galileo
to the projected revenue of the combined company on a pro forma basis, in each
case based on publicly available research analysts' estimates for Marvell and
Galileo. This analysis was performed using Marvell's fiscal year end of January
31 and Galileo's fiscal year end of December 31. Based on this analysis and
before taking into account any of the possible benefits that may be realized
following the merger, Goldman Sachs observed that the proposed transaction would
result in a reduction of the annual growth rate of projected revenue over the
revenue or projected revenue for the immediately preceding year on a pro forma
basis, for Marvell in 2000 from 73.4% to 52.1% and in 2001 from 59.5% to 53.0%.
SELECTED COMPANIES ANALYSIS
Goldman Sachs compared specified publicly-available financial information
of Marvell and Galileo with specified publicly-available financial information
for the following semiconductor companies:
<TABLE>
<S> <C>
Applied Micro Circuits Corporation Microtune, Inc.
Broadcom Corporation PMC-Sierra, Inc.
Centillim Communications, Inc. Texas Instruments Incorporated
Conexant Systems, Inc. TranSwitch Corporation
GlobeSpan, Inc. Virata Corporation
Integrated Device Technology, Inc. Vitesse Semiconductor Corporation
Intersil Corporation Xilinx, Inc.
</TABLE>
The following table presents for Marvell and Galileo and the group of
semiconductor companies:
- Projected 2000 and 2001 price to earnings per share, or PE, ratios;
- Levered market capitalization as a multiple of projected 2000 and 2001
revenue, or revenue multiple;
- Five-year forecasted compound annual growth rate of earnings per share,
or EPS; and
- Actual gross margins for the second quarter of 2000.
The analysis was performed using stock prices on October 16, 2000. In
addition, this analysis was performed using Marvell's fiscal year end of January
31 and Galileo's fiscal year end of December 31. Levered market capitalization
is a company's equity market capitalization plus outstanding indebtedness less
cash. Forecasted PE ratios and revenue multiples were based on publicly
available research analysts'
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estimates. Compound annual growth rates of EPS are from estimates provided by
the Institutional Brokers Estimate System, or IBES.
<TABLE>
<CAPTION>
REVENUE IBES
PE RATIO MULTIPLE 5 YEAR EPS
------------- ----------- COMPOUND ANNUAL SECOND QUARTER 2000
2000 2001 2000 2001 GROWTH RATE GROSS MARGIN
----- ----- ---- ---- --------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Marvell............................ 510.9x 227.1x 55.6x 34.9x N/A 53.1%
Galileo............................ 65.6 38.7 13.0 8.5 35.0% 60.6
Galileo at proposed merger price... 108.0 73.5 24.9 17.2 35.0 60.6
Semiconductor companies mean....... 145.1 91.8 32.0 19.3 37.6 56.2
Semiconductor companies median..... 132.2 81.5 32.4 20.5 40.0 57.9
</TABLE>
CONTRIBUTION ANALYSIS
Goldman Sachs analyzed and compared the respective contributions of each of
Marvell and Galileo to the combined company's projected revenue, gross profit,
operating profit and net income for 2000 and 2001, based on publicly available
research analysts' estimates for Marvell and Galileo, to the percentage
ownerships of the combined company by the shareholders of each of Marvell and
Galileo. This analysis was performed using Marvell's fiscal year end of January
31 and Galileo's fiscal year end of December 31. The following table presents
the results of that analysis:
<TABLE>
<CAPTION>
CONTRIBUTIONS TO TOTAL
----------------------
% MARVELL % GALILEO
--------- ---------
<S> <C> <C>
REVENUE
2000.................................................... 57.6% 42.4%
2001.................................................... 60.0 40.0
GROSS PROFIT
2000.................................................... 54.8% 45.2%
2001.................................................... 57.4 42.6
OPERATING PROFIT
2000.................................................... 44.3% 55.7%
2001.................................................... 56.8 43.2
NET INCOME
2000.................................................... 37.6% 62.4%
2001.................................................... 49.5 50.5
</TABLE>
Goldman Sachs observed that the contribution analyses gave rise to implied
exchange ratios ranging from 1.38 to 3.43. In addition, Goldman Sachs analyzed
and compared the equity market capitalization of each of Marvell and Galileo on
a standalone basis to the estimated market capitalization of the combined
company on a pro forma basis. The analysis was performed using stock prices on
October 16, 2000. Goldman Sachs observed that this analysis gave rise to an
implied exchange ratio of 0.38.
PRO FORMA MERGER ANALYSIS
Goldman Sachs prepared pro forma analyses of the financial impact of the
merger using publicly available research analysis revenue and earnings estimates
for Marvell and Galileo. For each of 2000 and 2001, Goldman Sachs compared the
estimated revenue per share of Marvell common stock on a stand-alone basis to
the estimated revenue per share of Marvell common stock on a pro forma basis.
For each of 2000 and 2001, Goldman Sachs compared the estimated earnings per
share of Marvell common stock on a stand-alone basis to the estimated earnings
per share of Marvell common stock on a pro forma basis. In addition, for each of
2000 and 2001, Goldman Sachs compared the estimated earnings before non-cash
expenses per share of Marvell common stock on a stand-alone basis to the
estimated earnings before
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<PAGE> 62
non-cash expenses per share of Marvell common stock on a pro forma basis.
Earnings before non-cash expenses per share is earnings per share plus
amortization of goodwill and stock compensation on a per share basis. This
analysis was performed using Marvell's fiscal year end of January 31 and
Galileo's fiscal year end of December 31. Based on such analyses and before
taking into account any of the possible benefits that may be realized following
the merger, Goldman Sachs estimated that the proposed transaction (a) would give
rise to accretion to Marvell's shareholders on a revenue per share basis of
27.7% in 2000 and 24.3% in 2001, (b) would give rise to accretion to Marvell's
shareholders on an earnings per share before non-cash expenses basis of 95.4% in
2000 and 50.7% in 2001 and (c) would give rise to dilution to Marvell's
shareholders on an earnings per share basis of 1764.4% in 2000 and 729.2% in
2001.
COMPARABLE TRANSACTION PREMIUM ANALYSIS
Goldman Sachs analyzed certain information relating to the following 42
selected semiconductor transactions:
ACQUIROR/TARGET
Applied Micro Circuits Corporation/MMC Networks, Inc.
PMC-Sierra, Inc./Quantum Effect Devices, Inc.
Conexant Systems, Inc./HotRail, Inc.
Texas Instruments Incorporated/Alantro Communications
Texas Instruments Incorporated/Burr-Brown Corporation
PMC-Sierra, Inc./Malleable Technologies
Broadcom Corporation/Innovent Systems, Inc.
Broadcom Corporation/Pivotal Technologies Corp.
LSI Logic Corporation/DataPath Systems, Inc.
Vitesse Semiconductor Corporation/Siera Incorporated
Vitesse Semiconductor Corporation/Orologic, Inc.
Intel Corporation/Giga A/S
Motorola, Inc. (Motorola-Semiconductor Group)/Cherry Semiconductor
PMC-Sierra, Inc./AANetcom, Inc.
PMC-Sierra, Inc./Extreme Packet Devices Inc.
GlobeSpan, Inc./PairGain Technologies, Inc.
Conexant Systems, Inc./Maker Communications, Inc.
Flextronics International Ltd./Dii Group, Inc.
Intel Corporation/DSP Communications, Inc.
Solectron Corporation/SMART Modular Technologies, Inc.
PMC-Sierra, Inc./Abrizio, Inc.
Texas Instrument Incorporated/Unitrode Corporation
Lucent Technologies Inc./Cirent Semiconductor
Texas Pacific Group/ON Semiconductor Corporation
Broadcom Corporation/Epigram, Inc.
Lattice Semiconductor Corporation/Vantis Corporation
Intel Corporation/Level One Communications, Inc.
Applied Micro Circuits Corporation/Cimaron Communications Corporation
Koninklijke Philips Electronics N.V./VLSI Technology, Inc.
Lucent Technologies Inc./Sybarus Technologies
Broadcom Corporation/Maverick Networks
Micron Technology, Inc./Texas Instruments Incorporated -- DRAM assets
LSI Logic Corporation/Symbios, Inc.
National Semiconductor Corporation/ComCore Semiconductor, Inc.
International Business Machines Corporation/CommQuest Technologies, Inc.
Intel Corporation/Digital Equipment Corporation (Semiconductor Group)
National Semiconductor Corporation/Cyrix Corporation
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<PAGE> 63
Intel Corporation/Chips and Technologies, Inc.
Texas Pacific Group/Zilog, Inc.
National Semiconductor Corporation/Mediamatics, Inc.
Rockwell International Corporation/Brooktree Corporation
Texas Instruments Incorporated/Silicon Systems, Inc.
The semiconductor transactions were chosen because they involved
semiconductor companies since June 1996. The following table presents the
ranges, means and medians of the price premiums paid in the transactions in
relation to the closing price of the target the day before the transaction was
announced, the weighted average price of the target in the 30 days prior to the
announcement and the 52-week high closing price of the target prior to the
announcement. The premium was calculated based on the equity consideration paid
for the target by the acquiror in the transactions.
<TABLE>
<CAPTION>
SELECTED SEMICONDUCTOR TRANSACTIONS
------------------------------------
MEAN MEDIAN RANGE
----- ------- ----------------
<S> <C> <C> <C>
PRICE PREMIUM TO
Day prior closing price.................................... 39.4% 38.5% 11.7% - 68.2%
Average of prior 30-day closing prices..................... 67.8 75.9 23.5 - 107.3
52-week high............................................... (0.3) (7.4) (36.7) - 49.8
</TABLE>
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company or
transaction used in the above analyses as a comparison is directly comparable to
Marvell or Galileo or the merger. The analyses were prepared solely for purposes
of Goldman Sachs' providing its opinion to the Marvell board as to the fairness
from a financial point of view of the exchange ratio pursuant to the merger
agreement to Marvell. The analyses do not purport to be appraisals or
necessarily reflect the prices at which the business or securities actually may
be sold. Analyses based upon forecasts of future results, which are inherently
subject to uncertainty, are not necessarily indicative of actual future results,
which may be significantly more or less favorable than suggested by such
analyses. As described above, Goldman Sachs' opinion to the Marvell board was
one of many factors taken into consideration by the Marvell board in making its
determination to approve the merger agreement. The foregoing summary describes
material financial analyses used by Goldman Sachs in connection with providing
its opinion to Marvell's board of directors on October 16, 2000, but does not
purport to be a complete description of the analysis performed by Goldman Sachs
in connection with such opinion and is qualified by reference to the written
opinion of Goldman Sachs set forth in Appendix C.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. Goldman Sachs is
familiar with Marvell, having acted as managing underwriter of its initial
public offering of 6,900,000 shares of Marvell common stock in June 2000,
provided certain investment banking services to Marvell from time to time,
including having acted as its financial advisor in connection with, and having
participated in certain of the negotiations leading to, the merger agreement.
Goldman Sachs provides a full range of financial advisory and securities
services and, in the course of its normal trading activities, may from time to
time effect transactions and hold securities, including derivative securities,
of Marvell or Galileo for its own account and for the accounts of customers.
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<PAGE> 64
Pursuant to a letter agreement dated September 22, 2000, Marvell engaged
Goldman Sachs to act as its financial advisor in connection with the possible
acquisition of all or a portion of the stock or assets of Galileo. Marvell has
agreed to pay Goldman Sachs a transaction fee of $13,500,000 of which $4,500,000
was payable upon the execution of the merger agreement by Marvell and Galileo.
The balance of such fee will be payable upon consummation of the merger. Marvell
has agreed to reimburse Goldman Sachs for its reasonable out-of-pocket expenses,
including attorneys' fees, and to indemnify Goldman Sachs against certain
liabilities, including certain liabilities under the federal securities laws.
OPINION OF GALILEO'S FINANCIAL ADVISOR
Salomon Smith Barney was retained to act as financial advisor to Galileo in
connection with the merger. Pursuant to Salomon Smith Barney's engagement letter
with Galileo, dated September 25, 2000, Salomon Smith Barney rendered an opinion
to the Galileo board of directors on October 16, 2000, to the effect that, based
upon and subject to the considerations and limitations set forth in the opinion,
its work described below and other factors it deemed relevant, as of that date,
the ratio for exchanging Marvell common stock for Galileo ordinary shares in the
merger was fair, from a financial point of view, to the holders of Galileo
ordinary shares.
The full text of Salomon Smith Barney's opinion, which sets forth the
assumptions made, general procedures followed, matters considered and limits on
the review undertaken, is included as Appendix D to this joint proxy
statement/prospectus. The summary of Salomon Smith Barney's opinion set forth
below is qualified in its entirety by reference to the full text of the opinion.
SHAREHOLDERS ARE URGED TO READ SALOMON SMITH BARNEY'S OPINION CAREFULLY AND IN
ITS ENTIRETY.
In arriving at its opinion, Salomon Smith Barney reviewed a draft of the
merger agreement dated October 7, 2000, and held discussions with certain senior
officers, directors and other representatives and advisors of each of Galileo
and Marvell concerning the businesses, operations and prospects of Galileo and
Marvell. Salomon Smith Barney examined publicly available business and financial
information relating to Galileo and Marvell as well as financial forecasts and
other information and data for Galileo and Marvell which were provided to or
otherwise discussed with Salomon Smith Barney by the managements of Galileo and
Marvell, including information regarding certain strategic implications and
operational benefits anticipated to result from the merger. Salomon Smith Barney
reviewed the financial terms of the merger as set forth in the merger agreement
in relation to, among other things:
- current and historical market prices and trading volumes of Galileo
ordinary shares and Marvell common stock;
- the historical and estimated earnings and other operating data of Galileo
and Marvell; and
- the historical and estimated capitalization and financial condition of
Galileo and Marvell.
Salomon Smith Barney also considered, to the extent publicly available, the
financial terms of other similar transactions recently effected that Salomon
Smith Barney considered relevant in evaluating the exchange ratio and analyzed
financial, stock market and other publicly available information relating to the
businesses of other companies whose operations Salomon Smith Barney considered
relevant in evaluating those of Galileo and Marvell. Salomon Smith Barney also
evaluated the pro forma financial impact of the merger on Marvell. In addition,
Salomon Smith Barney conducted such other analyses and examinations and
considered such other information and financial, economic and market criteria as
it deemed appropriate in arriving at its opinion.
In rendering its opinion, Salomon Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information and data publicly available or furnished to or otherwise
reviewed by or discussed with Salomon Smith Barney and further relied on the
assurances of management of Galileo and Marvell that they were not aware of any
facts that would make any of such information inaccurate or misleading. With
respect to financial forecasts and other information and data provided to or
otherwise reviewed by or discussed with it, Salomon Smith Barney was advised by
the managements of Galileo and Marvell that such forecasts and other information
and data had been
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<PAGE> 65
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the managements of Galileo and Marvell as to the future
financial performance of Galileo and Marvell. Salomon Smith Barney expressed no
view with respect to such forecasts and other information and data or the
assumptions on which they were based. Salomon Smith Barney assumed, with the
consent of the Galileo board of directors, that the merger will be treated as a
tax-free reorganization for U.S. federal income tax purposes. Salomon Smith
Barney did not make and was not provided with an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of Galileo or
Marvell nor did Salomon Smith Barney make any physical inspection of the
properties or assets of Galileo or Marvell. Salomon Smith Barney assumed, with
the consent of the Galileo board of directors, that the final terms of the
merger agreement would not vary materially from those set forth in the draft
reviewed by Salomon Smith Barney. Salomon Smith Barney also assumed, with the
consent of Galileo's board of directors, that the terms of the merger set forth
in the merger agreement were in compliance with Israeli law. Salomon Smith
Barney further assumed that the merger will be consummated in a timely fashion
in accordance with the terms of the merger agreement without the waiver of any
of the conditions precedent to the merger contained in the merger agreement.
Salomon Smith Barney did not express any opinion as to what the value of
Marvell common stock actually will be when issued in the merger or the price at
which Marvell common stock will trade subsequent to the merger. Salomon Smith
Barney was not asked to consider, and its opinion did not address, the relative
merits of the merger as compared to any alternative business strategies that
might exist for Galileo or the effect of any other transaction in which Galileo
might engage. Salomon Smith Barney's opinion necessarily was based on
information available to it, and financial, stock market and other conditions
and circumstances existing and disclosed to Salomon Smith Barney as of the date
of the opinion.
SALOMON SMITH BARNEY'S ADVISORY SERVICES AND OPINION WERE PROVIDED FOR THE
INFORMATION OF GALILEO'S BOARD OF DIRECTORS IN ITS EVALUATION OF THE PROPOSED
MERGER AND DID NOT CONSTITUTE A RECOMMENDATION OF THE MERGER TO GALILEO OR A
RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW THAT SHAREHOLDER SHOULD VOTE ON ANY
MATTERS RELATING TO THE PROPOSED MERGER.
In connection with rendering its opinion, Salomon Smith Barney made a
presentation to the Galileo board of directors on October 10, 2000, with respect
to the material analyses performed by Salomon Smith Barney in evaluating the
fairness of the exchange ratio. The following is a summary of that presentation.
The summary includes information presented in tabular format. IN ORDER TO
UNDERSTAND FULLY THE FINANCIAL ANALYSES USED BY SALOMON SMITH BARNEY, THESE
TABLES MUST BE READ TOGETHER WITH THE TEXT OF EACH SUMMARY. THE TABLES ALONE DO
NOT CONSTITUTE A COMPLETE DESCRIPTION OF THE FINANCIAL ANALYSES. The following
quantitative information, to the extent it is based on market data, is, except
as otherwise indicated, based on market data as it existed at or prior to
October 6, 2000, and is not necessarily indicative of current or future market
conditions.
* * *
IMPLIED HISTORICAL EXCHANGE RATIO
Salomon Smith Barney derived implied historical exchange ratios by dividing
the closing price of a Galileo ordinary share by the closing price of a share of
Marvell common stock for each trading day in the period from June 27, 2000
through October 6, 2000. Salomon Smith Barney calculated that the implied
exchange ratio as of October 6, 2000 was 0.39x, the highest implied exchange
ratio during the period was 0.51x, the lowest implied exchange ratio during the
period was 0.25x, and the average implied exchange ratio during the period was
0.38x. Salomon Smith Barney also calculated the average implied exchange ratio
for each of the following periods ended October 6, 2000:
<TABLE>
<S> <C>
Last 10 trading days........................................ 0.389x
Last 30 trading days........................................ 0.343x
Last 60 trading days........................................ 0.363x
</TABLE>
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<PAGE> 66
Salomon Smith Barney noted that in each case described above, the implied
exchange ratio derived by Salomon Smith Barney was lower than the exchange ratio
in the merger of 0.674x.
COMPARABLE COMPANIES ANALYSIS
Salomon Smith Barney compared financial, operating and stock market
information, and forecasted financial information for Galileo and Marvell, with
the same information for selected publicly traded companies that operate in the
Communication Integrated Circuits sector. The selected comparable companies
considered by Salomon Smith Barney were:
- Broadcom Corporation
- GlobeSpan, Inc.
- Applied Micro Circuits Corporation
- PMC-Sierra, Inc.
- TranSwitch Corporation
- Vitesse Semiconductor Corporation
- Silicon Laboratories, Inc.
- PLX Technology, Inc.
- hi/fn, inc.
The forecasted financial information used by Salomon Smith Barney for the
selected comparable companies in the course of these analyses was based on
information published by certain investment banking firms and First Call
Corporation. First Call Corporation compiles summaries of financial forecasts
published by various investment banking firms. With respect to Galileo and
Marvell, the forecasted financial information was based on equity research
reports prepared by certain investment banks. The financial information was
adjusted to eliminate unusual and nonrecurring items.
For Galileo, Marvell and each of the selected comparable companies Salomon
Smith Barney derived and compared, among other things:
- the ratio of each company's firm value as of October 6, 2000, to (a) its
estimated revenue for 2000; and (b) its estimated revenue for 2001;
- the ratio of each company's closing stock price on October 6, 2000 to (a)
its estimated earnings per share (EPS) for 2000, and (b) its estimated
EPS for 2001;
- the estimated annual growth rate of each company's EPS for the five years
commencing 2000;
- the percentage represented by the ratio of each company's firm value as
of October 6, 2000 to its estimated revenue for 2001, relative to its
estimated growth rate through 2001; and
- the percentage represented by each company's closing price per common
share on October 6, 2000, relative to its highest closing price during
the 52-week period ended October 6, 2000.
Firm value was calculated as the sum of the value of:
- all common shares assuming the exercise of all in-the-money options,
warrants and convertible securities, less the proceeds from such
exercise; plus
- non-convertible indebtedness; plus
- minority interests; plus
- non-convertible preferred stock; plus
- out-of-the-money convertible securities; minus
- investments in unconsolidated affiliates and cash.
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The following table sets forth the results of these analyses.
<TABLE>
<CAPTION>
COMPARABLE COMPANIES AT OCTOBER 6,
2000 CLOSING PRICE GALILEO AT MARVELL AT
----------------------------------- OCTOBER 6, 2000 OCTOBER 6,
RANGE MEDIAN MEAN CLOSING PRICE CLOSING PRICE
--------------- ------- ------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
RATIO OF FIRM VALUE TO:
(a) Estimated revenue for 49.7x
2000.................... 8.3x - 77.9x 40.0x 39.2x 12.0x
(b) Estimated revenue for 31.1x
2001.................... 5.8x - 48.2x 26.8x 25.1x 7.8x
RATIO OF CLOSING STOCK
PRICE TO:
(a) Estimated EPS for No EPS forecast
2000.................... 43.8x - 263.4x 158.5x 160.0 55.8x
for 2000
(b) Estimated EPS for 197.0x
2001.................... 29.1x - 178.0x 125.3x 113.6x 34.9x
ESTIMATED EPS GROWTH
RATE FOR NEXT FIVE YEARS...... 25% - 50% 40% 37.9% 35.0% Not available
PERCENTAGE OF RATIO OF
2001 REVENUE MULTIPLE TO
REVENUE GROWTH RATE........... 13.5% - 78.4% 54.2% 45.6% 14.4% 49.0%
PERCENTAGE OF CLOSING
STOCK PRICE TO 52 WEEK
HIGH.......................... 36.4% - 91.9% 76.7% 67.2% 81.2% 66.4%
</TABLE>
Based on the ratios derived for the comparable companies and the investment
bank estimates for Galileo and Marvell, Salomon Smith Barney derived a reference
range for the implied equity value per Galileo ordinary share of $28.90 to
$35.30, and for a share of Marvell common stock of $68.10 to $92.20. Based on
these ranges, Salomon Smith Barney derived a range of 0.383x to 0.424x for the
implied exchange ratio. Salomon Smith Barney noted that the exchange ratio in
the merger of 0.674x exceeded the upper limit of this range.
PREMIUMS PAID ANALYSIS
Salomon Smith Barney reviewed publicly available information for 27 merger
or acquisition transactions involving publicly traded companies in the
technology sector announced since January 12, 2000. For these transactions,
Salomon Smith Barney derived the implied premium paid per common share of the
acquired company based on the closing price of a common share of the acquired
company (1) one-month prior to the announcement of the transaction, and (2)
one-day prior to the announcement of the transaction.
The following table sets forth the results of these analyses.
<TABLE>
<CAPTION>
TRANSACTIONS
-----------------------------------
RANGE AVERAGE MEDIAN
-------------- ------- ------
<S> <C> <C> <C>
Premium to closing price 1-day prior to
announcement.................................... 5.3% - 92.8% 34.1% 25.6%
Premium to closing price 1-month prior to
announcement.................................... (0.7)% - 91.6% 36.4% 29.3%
</TABLE>
Based on the exchange ratio in the merger of 0.674x and the closing price
per share of Marvell common stock on October 6, 2000, Salomon Smith Barney noted
that the implied premium in the merger was 71.6% of the closing price of a
Galileo ordinary share on October 6, 2000 and 95.9% of the average closing price
of a Galileo ordinary share over the 30-trading-day period ended October 6,
2000. Salomon Smith Barney noted that the premiums derived for the merger were
higher than the comparable average and median premiums derived for the 27
transactions.
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Based on the reference range derived by Salomon Smith Barney for the
implied equity value per Galileo ordinary share using the comparable companies
analysis described above and an assumed transaction premium ranging from 30% to
35%, Salomon Smith Barney derived a reference range for the implied equity value
per Galileo ordinary share of $37.40 to $47.50. Based on this range, and the
reference range derived by Salomon Smith Barney for the implied equity value per
share of Marvell common stock using the comparable companies analysis described
above, Salomon Smith Barney derived a range of 0.515x to 0.549x for the implied
exchange ratio. Salomon Smith Barney noted that the exchange ratio in the merger
of 0.674x exceeded the upper limit of this range.
PRECEDENT TRANSACTION ANALYSIS
Salomon Smith Barney reviewed publicly available information for seven
completed merger or acquisition transactions involving publicly traded companies
in the Communication Integrated Circuits sector announced since November 19,
1997. The precedent transactions considered by Salomon Smith Barney were the
following (in each case, the acquiror's name is listed first and the acquired
company's name is listed second):
- Applied Micro Circuits Corporation/MMC Networks Inc.
- PMC-Sierra, Inc./Quantum Effect Devices, Inc.
- Conexant Systems, Inc./Maker Communications, Inc.
- Intel Corporation/DSP Communications, Inc.
- Intel Corporation/Level One Communications, Incorporated
- LSI Logic Corporation/SEEQ Technology Incorporated
- Texas Instruments Incorporated/Amati Communications Corporation
For each precedent transaction, Salomon Smith Barney derived the ratio of
the firm value of the acquired company based on the consideration paid or
proposed to be paid in the transaction (the Transaction Value) to:
- the revenue of the acquired company for the last twelve-month period
prior to the announcement of the transaction for which financial results
were available;
- the earnings of the acquired company before interest expense and taxes
(EBIT) for the last twelve-month period prior to the announcement of the
transaction for which financial results were available; and
- the estimated revenue of the acquired company for the twelve-month period
following the announcement of the transaction.
Salomon Smith Barney also derived the same ratios for Galileo based on the
exchange ratio in the merger of 0.674x and a price per share of Marvell common
stock equal to (1) the closing price per share of Marvell common stock on
October 6, 2000, (2) the average price per share of Marvell common stock over
the 30-trading-day period ended October 6, 2000, and (3) the average price per
share of Marvell common stock over the 60-trading-day period ended October 6,
2000.
With respect to the financial information for the companies involved in the
precedent transactions, Salomon Smith Barney relied on information in publicly
available documents. With respect to estimates projected for Galileo, Salomon
Smith Barney relied on investment bank equity research reports.
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<PAGE> 69
The following table sets forth the results of these analyses.
<TABLE>
<CAPTION>
GALILEO
------------------------------
MARVELL
CLOSING MARVELL MARVELL
PRECEDENT TRANSACTIONS PRICE ON 30-DAY 60-DAY
------------------------------ OCTOBER 6, AVERAGE AVERAGE
RANGE MEDIAN MEAN 2000 PRICE PRICE
------------- ------ ----- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
RATIO OF TRANSACTION VALUE TO:
(a) Revenue for last twelve-month
period prior to announcement....... 3.8x - 68.2x 29.6x 35.6x 24.8x 28.7x 23.2x
(b) EBIT for last twelve-month period
prior to announcement.............. 53.7x - 58.2x 55.9x 55.9x 117.7x 135.9x 110.0x
(c) Estimated revenue for twelve month
period following announcement...... 4.6x - 59.0x 40.3x 31.0x 14.1x 16.3x 13.2x
</TABLE>
Based on the ratios derived for the precedent transactions and estimates
for Galileo contained in certain investment bank equity research reports,
Salomon Smith Barney derived a reference range for the implied equity value per
Galileo ordinary share of $45.40 to $55.40. Based on this range, and the
reference range derived by Salomon Smith Barney for the implied equity value per
share of Marvell common stock using the comparable companies analysis described
above, Salomon Smith Barney derived a range of 0.601x to 0.667x for the implied
exchange ratio. Salomon Smith Barney noted that the exchange ratio in the merger
of 0.674x exceeded the upper limit of this range.
CONTRIBUTION ANALYSIS
Salomon Smith Barney analyzed the relative contribution of each of Galileo
and Marvell to the pro forma merged entity with respect to estimated revenue,
EBIT, and net income, in each case for 2000 and 2001. In performing this
analysis, Salomon Smith Barney did not take into account any anticipated cost
savings, revenue enhancements or other similar potential effects of the merger.
Estimated financial data for Galileo and Marvell were based on estimates
contained in equity research reports published by certain investment banks.
The following table sets forth the results of Salomon Smith Barney's
relative contribution analysis.
<TABLE>
<CAPTION>
CONTRIBUTION
------------------
GALILEO MARVELL
------- -------
<S> <C> <C>
REVENUE
Estimated revenue for 2000................................ 43.3% 56.7%
Estimated revenue for 2001................................ 41.8% 58.2%
EBIT
Estimated EBIT for 2000................................... 56.1% 43.9%
Estimated EBIT for 2001................................... 44.4% 55.6%
NET INCOME
Estimated Net Income for 2000............................. 60.1% 39.9%
Estimated Net Income for 2001............................. 51.7% 48.3%
</TABLE>
Salomon Smith Barney compared the results set forth above to the implied
25% pro forma fully diluted ownership interest in the merged entity that the
former shareholders of Galileo will have immediately following the completion of
the merger.
* * *
The preceding discussion is a summary of the material financial analyses
furnished by Salomon Smith Barney to the Galileo board of directors, but it does
not purport to be a complete description of the analyses performed by Salomon
Smith Barney or of its presentations to the Galileo board of directors. The
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<PAGE> 70
preparation of financial analyses and fairness opinions is a complex process
involving subjective judgments and is not necessarily susceptible to partial
analysis or summary description. Salomon Smith Barney made no attempt to assign
specific weights to particular analyses or factors considered, but rather made
qualitative judgments as to the significance and relevance of all the analyses
and factors considered and determined to give its fairness opinion as described
above. Accordingly, Salomon Smith Barney believes that its analyses, and the
summary set forth above, must be considered as a whole and that selecting
portions of the analyses and of the factors considered by Salomon Smith Barney
without considering all of the analyses and factors could create a misleading or
incomplete view of the processes underlying the analyses conducted by Salomon
Smith Barney and its opinion. With regard to the comparable companies and
precedent transactions analyses summarized above, Salomon Smith Barney selected
comparable public companies and transactions on the basis of various factors,
including the size and similarity of the relevant companies as compared to
Galileo and Marvell; however, no company or transaction utilized as a comparison
in these analyses is identical to Galileo or Marvell or the merger,
respectively. As a result, these analyses are not purely mathematical, but also
take into account differences in financial and operating characteristics of the
subject companies and other factors that could affect the transaction or public
trading value of the subject companies to which Galileo and Marvell are being
compared or the transaction to which the merger is being compared. In its
analyses, Salomon Smith Barney made numerous assumptions with respect to
Galileo, Marvell, industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
Galileo and Marvell. Any estimates contained in Salomon Smith Barney's analyses
are not necessarily indicative of actual values or predictive of future results
or values, which may be significantly more or less favorable than those
suggested by these analyses. Estimates of values of companies do not purport to
be appraisals or necessarily to reflect the prices at which companies may
actually be sold. Because these estimates are inherently subject to uncertainty,
none of Galileo, Marvell, the Galileo board of directors, Salomon Smith Barney
or any other person assumes responsibility if future results or actual values
differ materially from the estimates. Salomon Smith Barney's analyses were
prepared solely as part of Salomon Smith Barney's analysis of the fairness of
the exchange ratio in the merger and were provided to the Galileo board of
directors in that connection. The opinion of Salomon Smith Barney was only one
of the factors taken into consideration by the Galileo board of directors in
making its determination to approve the merger agreement and the merger. Please
see "The Merger -- Recommendation of the Galileo Board of Directors and
Galileo's Reasons for the Merger" beginning at page 46.
Salomon Smith Barney is an internationally recognized investment banking
firm engaged in, among other things, the valuation of businesses and their
securities in connection with mergers and acquisitions, restructurings,
leveraged buyouts, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. Galileo selected Salomon
Smith Barney to act as its financial advisor on the basis of Salomon Smith
Barney's international reputation and Salomon Smith Barney's familiarity with
Galileo. Salomon Smith Barney and its predecessors and affiliates have
previously provided and currently are providing investment banking services to
Galileo unrelated to the merger, for which Salomon Smith Barney has received and
will receive customary compensation. In the ordinary course of its business,
Salomon Smith Barney and its affiliates, including Citigroup Inc. and its
affiliates, may actively trade or hold the securities of both Galileo and
Marvell for its own account and for the account of customers and, accordingly,
may at any time hold a long or short position in those securities. Salomon Smith
Barney and its affiliates, including Citigroup Inc. and its affiliates, may
maintain relationships with Galileo and Marvell and their respective affiliates.
Pursuant to Salomon Smith Barney's engagement letter, Galileo agreed to pay
Salomon Smith Barney the following fees for its services rendered in connection
with the merger: (i) $1,000,000 that became payable following delivery by
Salomon Smith Barney of its opinion to the board of directors of Galileo, (ii)
$12,500,000 that will become payable promptly upon consummation of the merger,
and (iii) 10% of (A) any termination, break-up, topping, or similar fee or
payment received in connection with the merger agreement and (B) any profit
arising from any shares of Marvell or any of its affiliates acquired in
connection with the merger, that will become payable promptly upon receipt of
any such compensation by Galileo. Galileo has also agreed to reimburse Salomon
Smith Barney for its reasonable travel and other
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out-of-pocket expenses incurred in connection with its engagement, including the
reasonable fees and disbursements of its counsel, and to indemnify Salomon Smith
Barney against specific liabilities and expenses relating to or arising out of
its engagement, including liabilities under the federal securities laws.
GOVERNMENT AND REGULATORY MATTERS
GENERAL
Marvell and Galileo have each agreed to use their reasonable best efforts
to do all things necessary under applicable laws to complete the merger. These
things include:
- obtaining consents of all third parties and governmental authorities
necessary or advisable to complete the merger; and
- contesting any legal action opposing or adverse to the merger.
UNITED STATES ANTITRUST APPROVALS
Under the Hart-Scott-Rodino Antitrust Improvements Act, and the U.S.
Federal Trade Commission's rules, Marvell and Galileo may not complete the
merger until they and Mr. Avigdor Willenz and Mr. Manuel Alba, two officers,
directors and major shareholders of Galileo, have filed the required
notifications with the Federal Trade Commission and the Antitrust Division of
the U.S. Department of Justice, and have waited a specified period of time. On
November 9, 2000, Marvell and Galileo each filed their notifications and other
information required under the Hart-Scott-Rodino Act with the Federal Trade
Commission and the Department of Justice. Mr. Willenz and Mr. Alba made their
individual filings on November 17, 2000. The Hart-Scott-Rodino waiting period
has not expired. There is no guarantee that the Federal Trade Commission or the
Department of Justice will permit the waiting period to expire without a request
for additional documents or information, and the Federal Trade Commission or the
Department of Justice may ultimately seek to enjoin the merger or seek Marvell's
divestiture of Galileo or Marvell's divestiture of all or part of its or
Galileo's businesses. In addition, even if the Federal Trade Commission and the
Department of Justice permit expiration of the waiting period, at any time
before or after the merger, the Department of Justice, the Federal Trade
Commission or any state or foreign governmental authority could take action
under antitrust laws as it deems necessary in the public interest. This action
could include, prior to the merger, seeking to enjoin the merger, or before or
after completion of the merger, seeking Marvell's divestiture of Galileo or
Marvell's divestiture of all or part of its or Galileo's businesses. Also, under
some circumstances, private parties, state antitrust agencies, and foreign
governmental authorities also may seek to take legal action under the antitrust
laws. We cannot assure you that there will not be a challenge to the merger on
antitrust grounds or that, if this type of challenge were made, we would
prevail.
ISRAELI GOVERNMENTAL APPROVALS
Israeli Companies Law. Under the Israeli Companies Law, Marvell and Galileo
may not complete the merger without making certain filings and notifications to
the Israeli Companies Registrar.
- Merger Proposal. Each merging company is required to file with the
Israeli Companies Registrar, jointly with the other merging company, a
"merger proposal" setting forth certain details with respect to the
merger. Galileo and Toshack Acquisitions filed the required merger
proposals with the Companies Registrar on November 6, 2000.
- Notice to Creditors. In addition, each merging company is required to
notify its creditors of the proposed merger. Pursuant to the Companies
Law, a copy of the merger proposal must be sent to the secured creditors
of each company, and unsecured creditors must be informed of the merger
by publication in daily newspapers in Israel and where necessary, in the
United States, and by making the merger proposal available for review.
Creditors are entitled to apply to the appropriate court to request a
delay or an order preventing the merger. Galileo and Toshack Acquisitions
notified their respective creditors of the merger in accordance with the
foregoing requirements.
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- Shareholder Approval Notice. The merger must then be approved by the
shareholders of each merging company. After shareholder approval, each of
the merging companies will file a shareholder approval notice with the
Israeli Companies Registrar. Assuming that all of these statutory
procedures and requirements have been complied with, after filing of the
shareholder approval notice, and so long as at least 70 days from the
date of the filing of the merger proposal with the Israeli Companies
Registrar have lapsed, the Companies Registrar is required to declare the
merger effective and issue a certificate to that effect.
Office of the Chief Scientist. To the extent that a company has been funded
by the Office of the Chief Scientist, the Office of the Chief Scientist's
consent will be required for the company's acquisition by a non-Israeli
shareholder. The Office of the Chief Scientist is a part of Israel's Ministry of
Trade and Industry and provides research and development grants to high-tech
companies, subject to an obligation to repay the grants by means of royalties on
the sale of products funded by the grants. Galileo has obtained grants from the
Office of the Chief Scientist for different development programs. Therefore, the
approval of the Office of the Chief Scientist to the merger is required.
Pursuant to the merger agreement, Marvell has agreed to comply with the laws and
regulations of the Office of the Chief Scientist and to confirm to the Office of
the Chief Scientist that after the completion of the merger Galileo will
continue its operations in an manner consistent with Galileo's previous
undertakings to the Office of the Chief Scientist. However, we cannot assure you
that these actions will be sufficient for the consent of the Office of the Chief
Scientist to be granted. The conditions of the Office of the Chief Scientist
grants also generally place limitations on the transfer outside of Israel of the
technology and the manufacture of products funded by the grants.
Israeli Investment Center in the Israeli Ministry of Industry and
Commence. To the extent that a company has received benefits from the Israeli
Investment Center, the Investment Center's consent will be required to the
company's acquisition by a non-Israeli shareholder. The Investment Center, which
is also a part of Israel's Ministry of Trade and Industry, provides various
benefits to Israeli companies, including grants to finance capital investments
and tax benefits ranging from reduced rates of company tax to a full tax holiday
for a fixed period, depending on a number of factors. Galileo has received tax
benefits from the Investment Center, and therefore the approval of the
Investment Center to the merger is required. Marvell has also agreed to comply
with the laws and regulations of the Investment Center and to confirm to the
Investment Center that after the completion of the merger Galileo will continue
its operations in a manner consistent with Galileo's previous undertakings to
the Investment Center. However, we cannot assure you that these actions will be
sufficient for the consent to be granted.
Israeli Income Tax Authorities. Under the merger agreement, a ruling of the
Israeli Income Tax Commissioner will be required as a condition for Galileo to
complete the merger. The ruling will be required to provide for the following
determinations:
- with respect to certain shareholders of Galileo that acquired their
Galileo shares prior to Galileo's initial public offering, deferral of
any obligation to pay Israeli capital gains tax on the exchange of the
Galileo ordinary shares in the merger until the earlier of two years
after the closing of the merger or the date on which such shareholder
sells the shares of Marvell common stock received in the merger, and
- confirming that the exchange in the merger of the options to purchase
Galileo ordinary shares for options to purchase shares of Marvell common
stock will not result in a requirement for an immediate Israeli tax
payment and that the Israeli taxation will be deferred until the exercise
of the options to purchase Marvell common stock, or in the case of
Galileo options which are part of a stock option plan which is subject to
Section 102 of the Israeli Income Tax Ordinance, until the actual sale of
the shares of Marvell common stock by the option holders,
provided that Marvell is reasonably satisfied that, in light of such ruling,
Marvell is not required to withhold any Israeli taxes in respect of the issuance
of Marvell common stock to any holder of Galileo ordinary shares in connection
with the merger. In addition, Marvell will be obligated to complete the merger
only if Galileo receives the Israeli tax ruling outlined above or,
alternatively, Marvell receives
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confirmation of a mechanism, reasonably acceptable to Marvell, for withholding
taxes in connection with the merger.
The merger agreement also provides that Galileo shall be allowed to comply
with any conditions contained in the ruling or reasonable requests made by the
Israeli Tax Commissioner in connection with its delivery of such ruling. Galileo
is expected to file the application for the ruling with the Israeli income tax
authorities in the near future.
Israeli Securities Authority. In connection with the merger, Marvell will
require an exemption, pursuant to Section 15D of the Israeli Securities Law
1968, from the requirement to publish a prospectus in respect of the exchange of
the Galileo options for the Marvell options. Marvell filed the application for
such exemption with the Israeli Securities Authority on November 14, 2000.
Israeli Restrictive Practices Law. Under Israel's Restrictive Trade
Practices Law, 1968, a merger which meets certain conditions is subject to the
approval of the Commissioner of Restrictive Trade Practices. However, Marvell
and Galileo believe that the proposed merger will be exempt from the requirement
to obtain the consent of the Commissioner of Restrictive Trade Practices.
If any additional governmental approvals or actions are required, we intend
to try to obtain them. We cannot assure you, however, that we will be able to
obtain any approvals or actions.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a general discussion of the material United States federal
income tax consequences of the merger to the U.S. Holders (as defined below) of
Galileo ordinary shares, and to Marvell, Toshack Acquisitions and Galileo. This
discussion is based on the opinions of Weil, Gotshal & Manges LLP, United States
counsel to Galileo, and Gibson, Dunn & Crutcher LLP, counsel to Marvell. A U.S.
Holder is defined as:
- a citizen or resident of the United States, including an alien individual
who is a lawful permanent resident of the United States or meets the
"substantial presence" test under Section 7701(b) of the Internal Revenue
Code;
- a corporation created or organized in the United States or under the laws
of the United States or of any political subdivision thereof;
- an estate whose income is includible in gross income for United States
federal income tax purposes regardless of its source; or
- a trust, if a United States court is able to exercise primary supervision
over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the
trust.
The discussion is based upon current provisions of the Code, existing
regulations promulgated under the Code and current administrative rulings and
court decisions, all of which are subject to change, possibly with retroactive
effect. No attempt has been made to comment on all United States federal income
tax consequences of the merger that may be relevant to particular holders,
including holders that are subject to special tax rules, for example, dealers in
securities, non-U.S. Holders, banks, mutual funds, insurance companies,
financial services entities, tax-exempt entities, and holders who do not hold
their shares as capital assets, who acquired their shares through stock option
or stock purchase programs or otherwise as compensation, who are subject to
alternative minimum tax, or who hold their shares as part of a hedge, straddle
or other risk reduction transaction and persons who hold, directly,
constructively or by attribution, 5% or more of either the total voting power or
total value of the capital stock of Marvell immediately after the merger, or 10%
or more of the total voting power of the capital stock of Marvell at any time.
U.S. HOLDERS OF GALILEO ORDINARY SHARES ARE ADVISED TO CONSULT THEIR OWN TAX
ADVISORS REGARDING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER IN LIGHT OF THEIR PERSONAL CIRCUMSTANCES AND THE CONSEQUENCES UNDER
APPLICABLE STATE, LOCAL AND FOREIGN TAX LAWS.
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Galileo has received from its counsel, Weil, Gotshal & Manges LLP, and
Marvell has received from its counsel, Gibson, Dunn & Crutcher LLP, an opinion
to the effect that the merger will be treated for United States federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Code. In rendering their opinions, Weil, Gotshal & Manges LLP and Gibson, Dunn &
Crutcher LLP have relied upon representations made by Galileo, Marvell and
Toshack Acquisitions.
Assuming the merger is treated as a reorganization within the meaning of
Section 368(a) of the Code
- no gain or loss will be recognized for United States federal income tax
purposes by Marvell, Toshack Acquisitions Ltd. or Galileo as a result of
the merger;
- except as described below with respect to cash received by holders of
Galileo ordinary shares instead of fractional shares, a U.S. Holder of
Galileo ordinary shares will not recognize gain or loss for United States
federal income tax purposes on the exchange of Galileo ordinary shares
for Marvell common stock pursuant to the merger;
- the aggregate tax basis of the Marvell common stock received by a U.S.
Holder of Galileo ordinary shares, including any fractional share deemed
received, will be the same as the aggregate tax basis of the ordinary
shares surrendered therefor; and
- the holding period of the Marvell common stock received by a holder of
Galileo ordinary shares in the merger, including any fractional share
deemed received, will include the holding period of the Galileo ordinary
shares surrendered therefor, provided that the Galileo ordinary shares
are held as capital assets at the time of the merger.
Notwithstanding the foregoing, if Galileo is or has been a passive foreign
investment company ("PFIC") at any time since 1986, the merger may constitute a
taxable transaction for United States federal income tax purposes. In general,
under Section 1297 of the Code, a foreign corporation may be a PFIC if 75% or
more of its gross income is passive or if at least 50% of its assets produce or
are held for the production of passive income. Galileo does not believe that it
is or has been a PFIC for any tax year to date. U.S. Holders are urged to
consult their tax advisors regarding the specific tax consequences if Galileo is
or was a PFIC.
Cash Instead of a Fractional Share. Cash received by a U.S. Holder of
Galileo ordinary shares instead of a fractional share of Marvell common stock
will be treated as received in exchange for such fractional share interest, and
gain or loss will be recognized for United States federal income tax purposes,
measured by the difference between the amount of cash received and the portion
of the basis of the Galileo ordinary shares allocable to the fractional share
interest. The gain or loss will be capital gain or loss, provided that the
Galileo ordinary shares were held as capital assets and will be long-term
capital gain or loss if the Galileo ordinary shares had been held for more than
one year at the time of the merger.
Backup Withholding. Under the Code, a holder of Galileo ordinary shares may
be subject, under certain circumstances, to backup withholding at a rate of 31%
with respect to the amount of cash, if any, received instead of fractional share
interests unless the holder provides proof of an applicable exemption or a
correct taxpayer identification number and otherwise complies with applicable
requirements of the backup withholding rules. Any amounts withheld under the
backup withholding rules are not an additional tax and may be refunded or
credited against the holder's United States federal income tax liability,
provided the required information is furnished to the Internal Revenue Service.
United States Federal Income Tax Implications of Holding Marvell Common
Stock. A U.S. Holder of Marvell common stock will be required to include in
gross income as foreign source dividend income for United States federal income
tax purposes the amount of any distributions (including constructive
distributions) paid on the Marvell common stock (including any foreign taxes
withheld from the amount received) on the date such distribution is received, to
the extent such distributions are paid out of Marvell's current or accumulated
earnings and profits. Distributions in excess of such earnings and profits will
be applied against and will reduce the U.S. Holder's basis in the Marvell common
stock and, to the extent in excess of such basis, will be treated as gain from
the sale or exchange of the Marvell common
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stock. Dividends paid on the Marvell common stock generally will not qualify for
the dividends-received deduction available to corporations. Dividends paid by
Marvell generally will be foreign source "passive income" for United States
foreign tax credit purposes.
For United States federal income tax purposes, a U.S. Holder will recognize
taxable gain or loss on any sale, exchange or other disposition of Marvell
common stock in an amount equal to the difference between the United States
dollar value of the amount realized on such sale, exchange or other disposition
and such U.S. Holder's basis in such shares. Any such gain or loss will be
capital gain or loss provided that the shares are held as capital assets and
will be long-term capital gain or loss if the stock is held for more than one
year. The deductibility of capital losses is subject to limitations. Any gain or
loss generally will be treated as United States source income or loss for U.S.
foreign tax credit purposes.
U.S. Holders, other than corporations, generally are subject to annual
information reporting requirements with respect to dividends paid in the United
States on shares of Marvell common stock. U.S. Holders are subject to
information reporting and backup withholding at a rate of 31% on proceeds paid
from the disposition of Marvell common stock unless the U.S. Holder provides and
IRS Form W-9 or otherwise establishes an exemption. Treasury regulations
effective January 1, 2001 may alter these rules regarding information reporting
and backup withholding. The amount of any backup withholding would be allowed as
a credit against a U.S. Holder's United States federal income tax liability and
may entitle such holder to a refund, provided that the holder provides required
information to the IRS.
U.S. HOLDERS OF GALILEO ORDINARY SHARES SHOULD CONSULT THEIR OWN TAX
ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM FROM THE MERGER AND FROM
HOLDING MARVELL COMMON STOCK, INCLUDING THE APPLICABILITY AND EFFECT OF STATE,
LOCAL, FOREIGN AND OTHER TAX LAWS AND THE EFFECT OF ANY PROPOSED CHANGES IN THE
TAX LAWS.
MATERIAL ISRAELI TAX CONSEQUENCES OF THE MERGER
The following is a summary discussion of certain Israeli tax considerations
in connection with the consummation of the merger. The following summary is
based upon the Israeli Income Tax Ordinance (New Version) 1961, as amended, and
other laws and regulations, all as in effect as of the date of this joint proxy
statement/prospectus. No assurance can be given that future legislation,
regulations or interpretations will not significantly change the tax
considerations described below, and any such change may apply retroactively.
This summary does not discuss all aspects of Israeli tax consequences which may
apply to particular holders of Galileo ordinary shares in light of their
particular circumstances, such as investors subject to special tax rules or
other investors referred to below. HOLDERS OF GALILEO ORDINARY SHARES SHOULD
CONSULT THEIR OWN TAX ADVISORS AS TO THE ISRAELI TAX CONSEQUENCES OF THE MERGER
APPLICABLE TO THEM.
In general, under the Israeli Income Tax Ordinance, the exchange of shares
of an Israeli company for shares of another company is deemed to be a sale of
capital assets.
Israeli law generally imposes a capital gains tax on the sale of capital
assets located in Israel by both residents and non-residents of Israel unless a
treaty between Israel and the country of the non-resident provides otherwise.
Nevertheless, as set forth below, holders of Galileo's ordinary shares who
acquired their shares at the time of the initial public offering of Galileo, or
any time thereafter, and are referred to as qualified holders, will be exempt
from Israeli capital gains tax in connection with the exchange of Galileo's
ordinary shares for Marvell's common stock pursuant to the merger unless trading
in securities is their business, as referred to under Israeli law. The foregoing
exemption does not apply to shareholders that are subject to the Inflationary
Adjustments Law -- 1985.
Regulations promulgated under the Israeli Income Tax Ordinance currently
provide for an exemption from Israeli capital gains tax on gains derived from
the sale by qualified sellers of shares of "Industrial Companies" or "Industrial
Holding Companies" which are traded in certain United States securities markets,
including Nasdaq. Galileo believes that it is currently an "Industrial Company",
and that, as a
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result, the exchange of Galileo's ordinary shares in the merger under the merger
agreement by qualified holders will qualify for that exemption.
In addition to the exemption from capital gains tax described above, the
U.S. - Israel Tax Treaty will exempt persons who qualify under this treaty as
residents of the United States, referred to as the treaty U.S. residents, from
Israeli capital gains tax in connection with the exchange of the Galileo
ordinary shares in the merger provided that such treaty U.S. resident has not
held, directly or indirectly, shares representing 10% or more of the voting
rights of Galileo at any time during the twelve-month period preceding the
merger and that the Galileo ordinary shares were not purchased through a
permanent establishment of such person in Israel.
Under the merger agreement, a ruling of the Israeli Income Tax Authorities
will be required as a condition for Galileo to complete the merger. The ruling
will be required to provide for the following determinations:
- with respect to certain shareholders of Galileo that acquired their
Galileo shares prior to Galileo's initial public offering, deferral of
any obligation to pay Israeli capital gains tax on the exchange of the
Galileo ordinary shares in the merger until the earlier of two years
after the closing of the merger or the date on which such shareholder
sells the shares of Marvell common stock received in the merger, and
- confirming that the exchange of the options to purchase Galileo shares
for options to purchase shares of Marvell common stock will not result in
a requirement for an immediate Israeli tax payment and that the Israeli
taxation will be deferred until the exercise of the options to purchase
Marvell common stock, or in the case of Galileo options which are part of
a stock option plan which is subject to Section 102 of the Israeli Income
Tax Ordinance, until the actual sales of the shares of Marvell common
stock by the option holders;
provided that Marvell is reasonable satisfied that, in light of such ruling,
Marvell is not required to withhold any Israeli taxes in respect of the issuance
of Marvell common stock to any holder of Galileo ordinary shares in connection
with the merger. In addition, Marvell will be obligated to complete the merger
only if Galileo receives the Israeli tax ruling outlined above or,
alternatively, Marvell receives confirmation of a mechanism, reasonably
acceptable to Marvell, for withholding taxes in connection with the merger.
The merger agreement also provides that Galileo shall be allowed to comply
with any conditions contained in the ruling or reasonable requests made by the
Israeli Tax Commission in connection with its delivery of such ruling. Galileo
is expected to file the application for the ruling with the Israeli income tax
authorities in the near future.
RESTRICTIONS ON RESALES BY AFFILIATES
The shares of Marvell common stock issuable to Galileo shareholders in the
merger and upon exercise of outstanding Galileo stock options in connection with
the merger are being registered under the Securities Act. Therefore, these
shares of Marvell common stock may be traded freely without restriction by those
Galileo shareholders and holders of Galileo stock options who are not
"affiliates" of Galileo as defined under the Securities Act. An "affiliate" of
Galileo is a person who controls, is controlled by, or is under common control
with, Galileo. Any subsequent transfer of these shares by a person who is an
affiliate of Galileo at the time the merger is voted on by the Galileo
shareholders will require one of the following:
- the further registration of these shares under the Securities Act;
- compliance with Rule 145 under the Securities Act, or, in the case of
those persons who become affiliates of Marvell, Rule 144 under the
Securities Act; or
- the availability of another exemption from registration under the
Securities Act.
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These restrictions are expected to apply to Galileo's directors and
executive officers and others who may be deemed "affiliates" of Galileo for
purposes of the Securities Act. Marvell will give stop transfer instructions to
its transfer agent and place restrictive legends on certificates representing
the Marvell common stock to be received by affiliated persons.
In addition, as a condition to the execution of the merger agreement,
Marvell required Messrs. Avigdor Willenz and Manuel Alba to enter into a lockup
agreement with Marvell. The lockup agreement provides that without the prior
written consent of Marvell, the shares of Marvell common stock received in the
merger by Messrs. Willenz and Alba will not be sold or transferred for a period
of 45 days after the merger.
DELISTING AND DEREGISTERING OF SHARES OF GALILEO; LISTING OF MARVELL COMMON
STOCK ISSUED IN CONNECTION WITH THE MERGER
Galileo ordinary shares are currently quoted on the Nasdaq National Market
under the symbol "GALT." Upon completion of the merger, Galileo ordinary shares
will be delisted from the Nasdaq National Market and deregistered under the
Securities Exchange Act of 1934.
Marvell common stock is quoted on the Nasdaq National Market under the
symbol "MRVL." Marvell has agreed to cause the shares of Marvel common stock to
be issued in the merger to be approved for listing on the Nasdaq National
Market.
ACCOUNTING TREATMENT
Marvell will account for the merger as a "purchase" transaction for
accounting and financial reporting purposes, in accordance with generally
accepted accounting principles. Accordingly, Marvell will make a determination
of the fair value of Galileo's assets and liabilities in order to allocate the
purchase price to the assets acquired and the liabilities assumed in the merger.
NO APPRAISAL RIGHTS
Under Israeli law, holders of Galileo ordinary shares are not entitled to
appraisal rights. Objections to the merger may be filed by creditors of Galileo
or Toshack Acquisitions, if any, with the Israeli court. The court in its
discretion may provide a remedy to any creditor who so objects if there is a
reasonable concern that, as a result of the merger, Galileo will not be able to
perform its obligations or satisfy its liabilities to its creditors.
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THE MERGER AGREEMENT
This section is a summary of the material provisions of the merger
agreement. Because it is a summary, it does not include all the information that
may be important to you. We encourage you to read carefully the entire copy of
the merger agreement, which, with the exception of some schedules and exhibits,
is attached as Appendix A to this joint proxy statement/prospectus, before you
decide how to vote.
STRUCTURE OF THE MERGER
The merger agreement provides that following receipt of the requisite
approvals by the shareholders of Galileo and Marvell and the satisfaction or
waiver of the other conditions to the merger, Toshack Acquisitions, which is a
direct wholly-owned Israeli subsidiary of Marvell, will be merged into Galileo,
Galileo will continue as the surviving corporation in the merger, and as a
result of the merger, Galileo will become a direct wholly-owned subsidiary of
Marvell. The merger will be effected under the Israeli Companies Law and its
regulations.
CLOSING; EFFECTIVE TIME
The merger agreement provides that the closing of the merger will take
place at a time and on a date not later than the second business day after
satisfaction or waiver of all the closing conditions set forth in the merger
agreement, unless Marvell and Galileo agree upon another time. The closing of
the merger is expected to take place shortly after the approval of the merger by
Marvell shareholders and Galileo shareholders at their respective shareholder
meetings, which are expected to occur on . Before the closing date
of the merger, Toshack Acquisitions and Galileo will deliver notices to the
Israeli Companies Registrar notifying the Companies Registrar of the approval of
the merger by their respective shareholders. The merger will be completed and
effective upon the issuance by the Israeli Companies Registrar of a certificate
of merger. If the merger does not occur on or before March 31, 2001, the merger
agreement may be terminated by either Marvell or Galileo, unless the failure to
complete the merger by that date is principally due to the failure of the party
seeking to terminate the merger agreement to perform its obligations under the
merger agreement.
SURVIVING CORPORATION
Galileo will be the surviving corporation of the merger, and the separate
corporate existence of Toshack Acquisitions will be terminated at the effective
time of the merger. The initial directors of the surviving corporation
immediately following the merger will be Sehat Sutardja, Weili Dai and Avigdor
Willenz, and these individuals will be directors until their successors are
elected and qualified.
CONVERSION OF SHARES
The merger agreement provides that at the effective time of the merger,
each Galileo ordinary share outstanding at the effective time of the merger will
be automatically converted into the right to receive 0.674 shares of Marvell
common stock, subject to customary provisions providing for modification of the
exchange ratio in the event of stock dividends, stock splits or other similar
transactions effected by Marvell or Galileo with respect to their stock. Shares
held in Galileo's treasury and shares held by Marvell or Toshack Acquisitions
are not eligible to participate in the exchange.
FRACTIONAL SHARES
No certificates representing fractional shares of Marvell common stock will
be issued in connection with the merger. If a former Galileo shareholder would
otherwise be entitled to receive a fractional share of Marvell common stock
pursuant to the merger, he or she will receive, instead, a cash payment, without
interest, equal to that fraction multiplied by the closing price for Marvell
common stock on the Nasdaq National Market on the effective date of the merger.
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EXCHANGE OF CERTIFICATES; RECEIPT OF MERGER CONSIDERATION
At the effective time of the merger, Marvell will deliver to the exchange
agent, expected to be Marvell's transfer agent First Union National Bank,
certificates representing the appropriate number of shares of Marvell common
stock and cash to be paid in lieu of fractional shares of Marvell. As soon as
reasonably practicable after the effective time of the merger, the exchange
agent will mail to each former record holder of Galileo ordinary shares:
- a letter of transmittal specifying the circumstances under which the risk
of loss and title to certificates evidencing Galileo shares will pass and
having such form and provisions as Marvell and Galileo reasonably
specify; and
- instructions for use in surrendering Galileo certificates in exchange for
certificates representing shares of Marvell common stock.
Upon surrender of Galileo share certificates for cancellation to the
exchange agent, together with a properly executed letter of transmittal, the
holder of the surrendered certificates will be entitled to receive, following
the effective time of the merger, a certificate representing that number of
whole shares of Marvell common stock as determined according to the provisions
of the merger agreement and a check representing the cash amount for fractional
shares that he or she has a right to receive in accordance with the merger
agreement.
Until a holder of Galileo shares surrenders his or her certificates
representing those shares together with a properly executed letter of
transmittal, the holder will not receive any shares of Marvell common stock the
holder is entitled to receive in the merger or any dividends or other
distributions with respect to those shares that are declared or made after the
effective time of the merger. In addition, no cash payment in lieu of fractional
shares of Marvell common stock will be paid to any such holder until he or she
surrenders his or her certificate representing the Galileo shares together with
the properly executed letter of transmittal. No interest will be paid or accrued
on any merger consideration to be received in cash.
All cash paid and shares of Marvell common stock issued in exchange for
Galileo ordinary shares in connection with the merger will have been paid and
issued in full satisfaction of all rights pertaining to Galileo ordinary shares,
subject to any obligations of Galileo to pay any dividends or make any other
distributions with a record date prior to October 16, 2000, that remain unpaid
at the effective time of the merger.
If a Galileo shareholder has lost his or her certificate, or it has been
stolen or destroyed, the Galileo shareholder should notify the exchange agent in
the appropriate space on the letter of transmittal. Once the Galileo shareholder
has executed an affidavit in a form reasonably satisfactory to Marvell of the
fact that the certificate has been lost, stolen or destroyed, the Galileo
shareholder will be entitled to receive the merger consideration for his or her
shares. However, in that case, Marvell or the exchange agent may first require
the Galileo shareholder to deliver a suitable bond or indemnity.
Any merger consideration delivered to the exchange agent that remains
unclaimed by former Galileo shareholders for one year after the time the merger
becomes effective will be returned to Marvell, and any former Galileo
shareholders who have not made an exchange by that time must then look to
Marvell for payment of their claim for merger consideration.
TRANSFERS OF SHARES
No transfers of shares of Galileo, other than transfers by Marvell, will be
made on the stock transfer books of Galileo after the merger becomes effective.
STOCK OPTIONS
At the effective time of the merger, each outstanding option or other right
to purchase ordinary shares of Galileo issued pursuant to any plan, agreement or
arrangement, whether vested or unvested, will be exchanged into an option or
other right to purchase Marvell common stock. Each option or other right to
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purchase ordinary shares of Galileo shall be deemed to constitute an option to
acquire, on the same terms as under the previous plans, agreements or
arrangements, a number of shares of Marvell common stock equal to the number of
ordinary shares multiplied by 0.674. The exercise price of each outstanding
option or other right to purchase ordinary shares of Galileo will be divided by
0.674. In the case of incentive stock options qualified under Section 422 of the
Internal Revenue Code, the option price, the number of shares that may be
purchased and the terms and conditions of exercise shall be determined to comply
with Section 424(a) of the Internal Revenue Code. Marvell is required to give
holders of Galileo options and other rights notice of the terms of the new
options within 15 days after the merger becomes effective. Furthermore, the
merger agreement provides that Galileo, at or before the effective time of the
merger, will amend its option plans, agreements or arrangements, to the extent
necessary, to enable this conversion of options.
Marvell is also required to reserve for issuance a sufficient number of its
shares for delivery upon exercise of the converted stock options or other rights
and file a registration statement with the Securities and Exchange Commission
covering the shares issuable pursuant to the converted options.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties of
Galileo, with respect to itself and its subsidiaries, relating to, among other
things:
- organization, good standing, qualification and similar corporate matters;
- capital structure;
- authorization, execution, delivery and enforceability of the merger
agreement and the option agreement, approval and recommendation of its
board with respect to the merger agreement, the option agreement and the
required shareholder vote to approve the merger;
- proper filing of all required Securities and Exchange Commission reports
and the accuracy of information contained in those documents;
- the accuracy of information to be provided in this joint proxy
statement/prospectus;
- governmental approvals necessary for consummation of the merger;
- absence of violation of governing documents, material notes, leases,
licenses or contracts and applicable law as a result of the merger
agreement or the merger;
- absence of default under governing documents, agreements and laws
applicable to itself or its subsidiaries;
- absence of undisclosed liabilities and absence of changes or events since
December 31, 1999 that have had or reasonably would be expected to have a
material adverse effect on Galileo and its subsidiaries, other than
liabilities incurred in the ordinary course of business consistent with
past practice;
- absence of pending or threatened material litigation;
- compliance with applicable laws and the holding of and compliance with
required licenses, permits, orders, variances, exemptions and approvals
of governmental entities;
- relationships with foundries for the manufacture or purchase of
integrated circuits;
- absence of use or storage of hazardous materials on Galileo property,
compliance with applicable environmental regulations, and the absence of
pending or reasonably anticipated actions against Galileo for
environmental violations;
- timely filing of tax returns, timely payment of taxes, the absence of any
penalties or tax-sharing agreements, and compliance of Galileo with the
terms under which it receives material tax incentives;
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- ownership and protection of its intellectual property, and the absence of
infringement by Galileo and the absence of claims of others against
Galileo's use of its intellectual property, in each case including
Galileo's trademarks, patents, trade secrets, software and licenses for
the same;
- insurance;
- absence of any unlawful payments, including contributions, gifts or other
unlawful uses of funds related to political activities or in violation of
the Foreign Corrupt Practices Act of 1977;
- title to its assets;
- absence of deviations from standard product warranties;
- grants, incentives or subsidies by the State of Israel or other foreign
governments;
- receipt of an opinion of Galileo's financial advisor that the merger
exchange ratio is fair from a financial point of view to Galileo's
shareholders;
- brokers' or finders' fees and expenses;
- material compliance with the terms of its employee benefit plans, the
absence of any prohibited transactions, or judicial, regulatory,
investigational or arbitration proceedings with respect to its plans, and
the absence of any acceleration of benefits under any plan as a result of
the merger; and
- absence of any collective bargaining agreements, labor disputes, or civil
rights charges.
The merger agreement also contains customary representations and warranties
of Marvell and Toshack Acquisitions, with respect to themselves and their
subsidiaries, relating to, among other things:
- organization, good standing, qualification and similar corporate matters;
- capital structure;
- authorization, execution, delivery and enforceability of the merger
agreement and the option agreement, approval and recommendation of its
board with respect to the merger agreement, the merger and the option
agreement and required shareholder vote to approve the merger;
- proper filing of all required Securities and Exchange Commission reports
and the accuracy of information contained in those documents;
- the accuracy of information to be provided in this joint proxy
statement/prospectus;
- governmental approvals necessary for consummation of the merger;
- absence of violation of governing documents, agreements and laws
applicable to Marvell or its subsidiaries as a result of the merger
agreement or the merger;
- absence of default under its governing documents, agreements and laws
applicable to Marvell and Toshack Acquisitions;
- receipt of an opinion of Marvell's financial advisor that the
consideration offered to Galileo shareholders is fair from a financial
point of view to Marvell's shareholders;
- brokers' or finders' fees and expenses;
- no prior business activities by Toshack Acquisitions unrelated to the
merger;
- absence of pending or threatened material litigation;
- the absence of undisclosed liabilities, and the absence of changes or
events since June 26, 2000 which have had or would reasonably be expected
to have a material adverse effect on Marvell or its subsidiaries, other
than liabilities incurred in the ordinary course of business consistent
with past practice;
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- compliance with applicable laws and the holding of and compliance with
required material licenses, permits, orders, variances, exceptions and
approvals of governmental entities;
- the ownership and protection of its intellectual property, and the
absence of infringement by Marvell and the absence of claims of others
against Marvell's use of its intellectual property, including, in each
case, Marvell's trademarks, patents, trade secrets, software and licenses
for the same;
- absence of use or storage of hazardous materials on Marvell property,
compliance with applicable environmental regulations, and the absence of
pending or reasonably anticipated actions against Marvell for
environmental violations;
- timely filing of tax returns and payment of taxes, and the absence of any
penalties or tax-sharing agreements;
- material compliance with the terms of its employee benefit plans, the
absence of any prohibited transactions, or judicial, regulatory,
investigational or arbitration proceedings with respect to its plans, and
the absence of any acceleration of benefits under any plan as a result of
the merger; and
- the absence of any unlawful payments including contributions, gifts or
other unlawful uses of funds related to political activities or in
violation of the Foreign Corrupt Practices Act of 1977.
The representations and warranties in the merger agreement are not easily
summarized. In addition, many of the representations and warranties are subject
to various qualifications and limitations, including qualifications as to
materiality. You are urged to read the merger agreement sections titled
"Representations and Warranties of the Company" and "Representations and
Warranties of Parent and Acquisition" in Appendix A. The representations and
warranties in the merger agreement do not survive the closing of the merger or
termination of the merger agreement.
CONDUCT OF BUSINESS OF GALILEO PRIOR TO THE MERGER
The merger agreement contains restrictions on Galileo's conduct of its
business pending the effective time of the merger or the termination of the
merger agreement. These restrictions are designed to prevent major changes in
Galileo until the merger takes place, except to the extent Marvell or Toshack
Acquisitions consent to the changes. In general, Galileo has agreed that it and
each of its subsidiaries will:
- conduct its business in the ordinary course consistent with past practice
and to the extent consistent with its past practice:
- seek to preserve intact its current business organizations;
- keep available the services of its current officers and employees; and
- preserve its relationships with customers, suppliers and others having
business dealings with it.
Galileo has further agreed that neither Galileo nor its subsidiaries will:
- amend its governing documents;
- issue or agree to issue any stock of any class or any other debt or
equity securities or equity equivalents, except for Galileo ordinary
shares issued and sold under previously granted options or warrants and
the issuance of stock options to new employees in the ordinary course of
business consistent with the Galileo stock option plans and past
practice;
- split, combine or reclassify any shares of its capital stock, or declare,
set aside or pay any dividend or other distribution in respect of its
capital stock, except dividends declared or paid by a wholly-owned
subsidiary to Galileo or another of its subsidiaries, or make any other
actual, constructive or deemed distribution in respect of its capital
stock;
- redeem or otherwise acquire any of its securities or any securities of
any of its subsidiaries;
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- adopt a plan of complete or partial liquidation, dissolution, merger or
other reorganization, other than the merger with Marvell;
- alter any subsidiary's corporate structure or ownership;
- incur, assume or issue any debt, except for borrowings under existing
lines of credit in the ordinary course of business, or modify the terms
of any existing debt;
- become liable or responsible for the obligations of any other person,
except for obligations of Galileo's subsidiaries incurred in the ordinary
course of business;
- make any loans, advances or capital contributions to or investments in
any other person, other than to subsidiaries or customary loans or
advances to employees, in each case in the ordinary course of business
consistent with past practice;
- pledge or encumber shares of capital stock of Galileo or its
subsidiaries;
- mortgage or pledge any of its material assets or create any material lien
upon its assets, other than in the ordinary course of business;
- unless required by law or by any existing agreement, adopt, amend or
terminate any employee compensation, benefit or similar plan, or any
trust or other fund for the benefit or welfare of any director, officer
or employee;
- acquire, sell, lease or otherwise dispose of any material assets in any
single transaction or series of related transactions having a fair market
value in excess of $100,000 in the aggregate, other than sales of its
products in the ordinary course of business consistent with past
practice, or enter into any exclusive license, distribution, marketing,
sales or other agreement;
- change any of its accounting principles or practices, unless required by
a change in law or in generally accepted accounting principles;
- revalue in any material respect any of its assets, other than in the
ordinary course of business;
- acquire any business entity or any equity interest in a business entity;
- enter into any significant agreement, other than in the ordinary course
of business consistent with past practice;
- amend, modify or waive any significant right under any material contract;
- modify standard product warranty terms or modify any product warranties
in effect as of October 16, 2000 in any manner that is significantly
adverse to Galileo or its subsidiaries;
- authorize new capital expenditures not included in the current budget
that individually exceed $500,000, or in the aggregate exceed $1,000,000,
except for capital expenditures required under existing customer
contracts consistent with past practices;
- make any material tax election or settle or compromise any significant
income tax liability;
- permit any significant insurance policy naming it as a beneficiary to be
cancelled or terminated;
- settle or compromise any legal action that relates to the merger or
involves the payment of more than $100,000 by Galileo or would otherwise
be significant to Galileo or its subsidiaries;
- except as permitted under the merger agreement, take any action that
would reasonably be expected to prevent, impair or materially delay the
ability of any party to the merger to complete the transactions
contemplated by the merger agreement;
- take any action that would prevent the merger from qualifying as a
tax-free reorganization; or
- take any action that would make any of Galileo's representations or
warranties contained in the merger agreement untrue or incorrect.
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CONDUCT OF BUSINESS OF MARVELL PRIOR TO THE MERGER
The merger agreement contains certain restrictions on the conduct of
Marvell's and its subsidiaries' businesses pending the effective time of the
merger or the termination of the merger agreement. In general, Marvell has
agreed that it and each of its subsidiaries will:
- conduct its business in the ordinary course consistent with past
practice, and to the extent consistent with its past practice:
- seek to preserve intact its current business organizations;
- keep available the services of its current officers and employees; and
- preserve its relationships with customers, suppliers and others having
business dealings with it.
Marvell has further agreed that neither Marvell nor its subsidiaries will:
- amend its governing documents;
- issue or agree to issue any stock of any class or any other debt or
equity securities or equity equivalents, except for shares of Marvell
common stock issued and sold under previously granted options or warrants
and the issuance of stock options to new employees in the ordinary course
of business consistent with Marvell stock option plans and past practice;
- split, combine or reclassify any shares of its capital stock, or declare,
set aside or pay any dividend or other distribution in respect of its
capital stock, or make any other actual, constructive or deemed
distribution in respect of its capital stock;
- redeem or otherwise acquire any of its securities or any securities of
any of its subsidiaries;
- adopt a plan of complete or partial liquidation, dissolution, merger or
other reorganization, other than the merger with Galileo;
- incur any debt except for borrowings under existing lines of credit in
the ordinary course of business;
- change any accounting principles, except as may be required by a change
in law or U.S. generally accepted accounting principles;
- take any action that would or reasonably would be expected to prevent,
impair or delay the transactions contemplated by the merger agreement;
- enter into any material new lines of business or lines of business not
strategically related to the current business of Marvell;
- engage in any merger, consolidation or other reorganization, or any
transaction by which any third party may acquire 10% of the voting
securities of Marvell;
- engage in any disposition of material assets, or acquire any interest or
assets of another entity for aggregate consideration greater than
$1,000,000,000;
- take any action that would prevent the merger from qualifying as a
tax-free reorganization; or
- take any action that would make any of Marvell's representations or
warranties contained in the merger agreement untrue or incorrect.
NO SOLICITATION OF TRANSACTIONS
The merger agreement prohibits Galileo and its officers, directors,
employees and agents from providing non-public information to or having
discussions or negotiations with anyone other than Marvell or Toshack
Acquisitions with respect to a potential third-party acquisition of Galileo,
unless Galileo's board of directors decides in good faith, based on the advice
of its legal counsel, that its actions are necessary to comply with the board of
directors' fiduciary duties. In such a case, Galileo may respond to
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an unsolicited proposal from a third party, if the board of directors determines
based on consultation with its financial advisor that the third party is capable
of consummating a superior proposal, and only for so long as the board of
directors determines that its actions are reasonably likely to lead to a
superior proposal. The merger agreement defines a superior proposal as any bona
fide proposal:
- to acquire all the outstanding shares or substantially all the assets of
Galileo for cash and/or freely tradable securities;
- that is fully financed or financeable;
- that the Galileo board of directors determines in its good faith
judgment, based on the advice of its financial advisor, by a majority
vote to be more favorable to Galileo shareholders than the Marvell
merger;
- that is determined by the Galileo board by a majority vote, based on the
advice of its financial advisor, to be reasonably capable of being
completed; and
- that does not contain a "right of first refusal" or "right of first
offer."
If the board of directors determines that it is necessary to respond to
such an unsolicited proposal to comply with its fiduciary duties, it may:
- furnish information only of the type and scope with respect to Galileo
that it provided Marvell prior to the execution of the merger agreement
and only pursuant to a confidentiality agreement in the form executed by
Marvell; and
- participate in the discussions and negotiations regarding the offer.
The merger agreement does not prohibit Galileo's board of directors from
taking and disclosing to Galileo's shareholders a position contemplated by Rules
14d-9 and 14e-2 under the Securities Exchange Act with regard to a tender or
exchange offer made by someone other than Marvell.
Galileo has agreed that it will promptly notify Marvell of any proposal,
inquiry or request for confidential information concerning a third-party
acquisition, keep Marvell advised concerning the status of any proposal
concerning a third-party acquisition, and provide Marvell with copies of written
agreements, proposals or other materials Galileo receives from potential third
party acquirors.
The merger agreement defines a third-party acquisition to mean any of the
following:
- the acquisition of Galileo by merger by a party other than Marvell,
Toshack Acquisitions or any of their affiliates;
- the acquisition of 30% or more of Galileo's assets by a party other than
Marvell, Toshack Acquisitions or any one of their affiliates;
- the acquisition by a party other than Marvell, Toshack Acquisitions or
any of their affiliates of 30% or more of the outstanding Galileo
ordinary shares;
- Galileo's adoption of a plan of liquidation or declaration or payment of
an extraordinary dividend; or
- Galileo's repurchase of more than 30% of its outstanding shares.
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Galileo's board of directors has agreed not to withdraw or modify its
recommendation of the merger with Marvell or approve or recommend any
third-party acquisition, or cause Galileo to enter into any agreement for a
third-party acquisition, unless:
- the Galileo board decides in its good faith judgment, after consultation
with and based upon the advice of its legal counsel, that it is required
to do so in order to comply with its fiduciary duties, in which case:
- the Galileo board may withdraw its recommendation of the merger with
Marvell; and
- approve or recommend a superior proposal; but the Galileo board may
only approve or recommend the superior proposal if:
- Galileo has provided written notice to Marvell specifying the
terms, conditions and identity of the person making the superior
proposal; and
- Marvell has not made an equally favorable proposal within three
business days of Marvell's receiving notice of the superior
proposal.
However, Galileo may not enter into an agreement with respect to the
superior proposal until the merger agreement is terminated and Galileo has paid
Marvell the liquidated damages.
ADDITIONAL COVENANTS
Each of Marvell and Galileo has undertaken additional covenants in the
merger agreement. The following summarizes the principal additional covenants.
Marvell and Galileo have each agreed to:
- promptly notify the other party of any events or circumstances that would
cause or likely cause any representations or warranties by the party
giving notice to become substantially untrue, and notify the other party
of changes needed to be made to its disclosure schedules;
- promptly notify the other party of any material failure to comply with or
satisfy in any material respect any covenant condition or obligation;
- execute and deliver tax certificates to the legal counsel of each party
in connection with the delivery of opinions of the legal counsel as to
the tax-free nature of the merger;
- use reasonable best efforts to take all actions and to do all things
reasonably necessary under applicable law to complete the merger,
including cooperating to make all filings and obtain the consents of all
third parties and governmental authorities, including the Israeli Office
of the Chief Scientist, Restrictive Trade Practices Commissioner,
Securities Authority, the Investment Center and Income Tax Commissioner,
necessary to complete the merger, contesting any legal proceedings
relating to the merger and executing any additional instruments;
- consult with each other before issuing press releases or public
statements regarding the merger;
- cause a merger proposal to be executed and delivered to the Israeli
Companies Registrar, the secured creditors of Galileo and Toshack
Acquisitions, and give notice of the merger to the non-secured creditors
of each company, as required by the Israeli Companies Law;
- take all actions necessary to call and convene shareholder meetings,
solicit proxies and effect the necessary SEC filings; and
- provide each other party with reasonable access to information about
themselves.
Marvell has also agreed to the following:
- to use all reasonable best efforts to list the Marvell shares to be
issued to Galileo shareholders in the merger on the Nasdaq National
Market;
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- to the fullest extent permitted under applicable law, to indemnify and to
continue in force any agreements or obligations by Galileo to indemnify,
to the extent not covered by insurance, each person who is now, has been
or becomes prior to the effective time of the merger an officer or
director of Galileo or its subsidiaries, against all claims arising out
of any suit, action or proceeding against such persons arising out of the
fact of their position as an officer or director of Galileo or its
subsidiaries, including in connection with the merger;
- to maintain for six years after the merger directors' and officers'
liability insurance on terms no less favorable than Galileo's current
insurance policy, subject to a limitation on the amount of the premium
required to be paid for the insurance to 200% of the current premium;
- to expand the size of its board of directors by two members prior to the
effective time of the merger, and appoint, as of the effective time, two
members of Galileo's board of directors to serve as directors of the
expanded board of directors of Marvell;
- for at least one year immediately following the effective time of the
merger, to provide the employees of Galileo and its subsidiaries
compensation in the aggregate at rates no less favorable than those in
place on October 16, 2000, subject to the personnel and compensation
policies and practices of Marvell applicable to Marvell's similarly
situated employees; and
- to cause the surviving corporation to provide employee benefits to
employees of Galileo and its subsidiaries no less favorable in the
aggregate than benefits provided to similarly situated Marvell employees.
Galileo has also agreed to the following:
- to provide Marvell with monthly and quarterly unaudited financial
statements.
CONDITIONS TO COMPLETING THE MERGER
The obligations of Marvell, Toshack Acquisitions and Galileo to complete
the merger depend on the following conditions being fulfilled:
- Galileo's and Marvell's shareholders must have approved the merger and
the merger agreement and Marvell's shareholders must have approved the
issuance of Marvell shares by the required vote;
- there must be no law or order by any United States or foreign court or
governmental entity that prohibits, restrains or enjoins the completion
of the merger;
- any applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act must have terminated or expired;
- any governmental or regulatory notices, consents, approvals or other
requirements necessary to complete the merger and to operate the business
of Galileo and its subsidiaries after the effective time of the merger in
all material respects as it was operated before completion of the merger
must have been given, obtained or complied with;
- Marvell, Galileo and Toshack Acquisitions must have obtained approval of
the merger from the Israeli Office of the Chief Scientist, the Israeli
Investment Center and the Israeli Commissioner of Restrictive Trade
Practices, if required by applicable law;
- the registration statement containing this joint proxy
statement/prospectus must not be subject to any stop order or proceeding
seeking a stop order by the SEC, and Marvell must have received all state
securities law permits and authorizations necessary to issue shares of
Marvell common stock in exchange for Galileo ordinary shares in the
merger; and
- Marvell must have received from the Israeli Securities Authority an
exemption from the requirement to publish a prospectus in respect of the
exchange of Galileo options for new options to purchase Marvell common
stock.
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Galileo's obligation to complete the merger also depends on the following
conditions being fulfilled:
- Marvell's and Toshack Acquisitions' representations and warranties in the
merger agreement must be true and correct at the effective time of the
merger except for defects that would not, in the aggregate, have a
material adverse effect on Marvell;
- Marvell and Toshack Acquisitions must have performed in all material
respects each of their covenants and obligations under the merger
agreement to be performed before the effective time of the merger;
- the Marvell common stock issuable to Galileo shareholders in the merger
must have been authorized for listing on the Nasdaq National Market;
- Galileo must have received an opinion from Weil, Gotshal & Manges LLP,
which shall not have been withdrawn or modified in any material respect,
to the effect that the merger constitutes a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code; and
- Galileo must have received a ruling from the Israeli Income Tax
Commissioner to the effect that:
- any obligation to pay capital gains tax on the exchange of Galileo
shares for Marvell shares will be deferred until the earlier of (1)
two years after the closing of the merger and (2) the date on which a
shareholder sells the shares of Marvell common stock; and
- the exchange of Galileo options for Marvell options will not result in
immediate Israeli tax liability, and that the tax liability will be
deferred until actual exercise of the options or, in the case of
certain options, until the sale of the Marvell shares; and
in light of such ruling, Marvell is reasonably satisfied that it is not required
to withhold any taxes with respect to the issuance of shares of Marvell common
stock to holders of Galileo ordinary shares in the merger.
Marvell and Toshack Acquisitions' obligation to complete the merger also
depends on the following conditions being fulfilled:
- Galileo's representations and warranties contained in the merger
agreement must be true at the effective time of the merger except for
defects as would not, in the aggregate, have a material adverse effect on
Galileo;
- Galileo must have performed in all material respects each of its
covenants and obligations under the merger agreement to be performed
before the effective time of the merger;
- Marvell must have received lock-up letters from each executive officer
and director of Galileo and any other person deemed an "affiliate" of
Galileo for purposes of Rule 145 under the Securities Act;
- Marvell must have received a written opinion, which shall not have been
withdrawn or modified in any material respect, from Herzog, Fox and
Neeman, its Israeli counsel, that as of the date the proxy statement is
mailed to Galileo shareholders the merger will not constitute a taxable
event to Galileo;
- Marvell must have received an opinion from Gibson, Dunn & Crutcher LLP,
which shall not have been withdrawn or modified in any material respect,
to the effect that the merger will be treated as a tax-free
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code; and
- Galileo must have received the ruling from the Israeli Income Tax
Commissioner, as discussed above, as to the deferral of certain capital
gains taxes in connection with the transaction, or, alternatively,
confirmation of a mechanism, reasonably acceptable to Marvell, for
withholding any applicable taxes.
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As defined in the merger agreement, a "material adverse effect" is any
circumstance or change that is or is reasonably likely to be materially adverse
to the operations, assets, liabilities, earnings, prospects or business of
either Marvell and its subsidiaries taken as a whole or Galileo and its
subsidiaries taken as a whole, as the case may be, but excludes effects
resulting from or arising in connection with:
- the merger agreement, the transactions contemplated by the merger
agreement, or the announcement of the merger agreement or those
transactions;
- changes or conditions generally affecting the industries in which Marvell
and Galileo operate;
- general changes in economic, capital market, regulatory or political
conditions; and
- shareholder class action litigation arising from allegations of breach of
fiduciary duty related to the merger agreement.
TERMINATION OF THE MERGER AGREEMENT
TERMINATION
The merger agreement may be terminated at any time before the merger's
completion:
- by the mutual written consent of Marvell, Toshack Acquisitions and
Galileo;
- by either Marvell and Toshack Acquisitions or Galileo if:
- a court of competent jurisdiction or other United States federal or
state or foreign governmental authority issues a non-appealable, final
ruling prohibiting the merger;
- the merger is not completed by March 31, 2001, unless the failure by
the party seeking to terminate to fulfill its obligations under the
merger agreement is a principal reason for the delay; or
- by Galileo if:
- Marvell or Toshack Acquisitions breaches any representation or
warranty in the merger agreement that is not capable of being
rectified by March 31, 2001, so long as Galileo has not breached any
of its obligations under the merger agreement in a significant way;
- Marvell or Toshack Acquisitions breaches any covenant or agreement in
the merger agreement that significantly harms Marvell or significantly
harms or delays the ability of Marvell, Toshack Acquisitions or
Galileo to complete the merger, and the breach has not been cured
within five business days after Galileo gives Marvell notice of such
breach, so long as Galileo has not breached any of its obligations
under the merger agreement in a significant way;
- Galileo's shareholders fail to approve the merger at the extraordinary
general meeting called for the purpose of voting on the merger;
- Marvell ceases using its reasonable best efforts to call and convene
the special general meeting of its shareholders to obtain approval of
the merger or adopts a resolution to cease its efforts;
- Marvell's shareholders fail to approve the merger at the special
general meeting;
- Galileo's board receives a superior proposal and recommends the
superior proposal to its shareholders or withdraws its recommendation
of the merger agreement or merger after providing Marvell an
opportunity to make an equally favorable proposal, and has paid
Marvell $75 million in liquidated damages; or
- by Marvell and Toshack Acquisitions if:
- Galileo breaches any representation or warranty in the merger
agreement that is not capable of being rectified by March 31, 2001, so
long as neither Marvell nor Toshack Acquisitions has breached any of
their respective obligations under the merger agreement in a
significant way;
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- Galileo breaches any covenant or obligation in the merger agreement
that significantly harms Galileo or significantly harms or delays the
ability of Marvell, Toshack Acquisitions or Galileo to complete the
merger and the breach has not been cured within five business days
after Marvell gives Galileo notice of the breach, as long as Marvell
or Toshack Acquisitions has not breached any of their respective
obligations under the merger agreement in a significant way;
- Galileo's board recommends to its shareholders a superior proposal;
- Galileo's board withdraws or adversely modifies its recommendation of
the merger agreement or merger;
- Galileo ceases using reasonable best efforts to call and convene the
extraordinary general meeting to vote on the merger or adopts a
resolution to cease its efforts;
- Galileo shareholders fail to approve the merger at the extraordinary
general meeting called for the purpose of voting on the merger; or
- Marvell shareholders fail to approve the merger at the special general
meeting called for the purpose of voting on the merger.
EFFECT OF TERMINATION
Termination of the merger agreement by the parties as described above will
void the agreement without any liability or obligations to Marvell, Toshack
Acquisitions or Galileo or any of their affiliates, other than:
- any liability for breach of the merger agreement;
- the obligation of the parties to keep confidential all nonpublic
information furnished in connection with the merger; and
- the liquidated damages and expense provisions described immediately
below.
LIQUIDATED DAMAGES AND EXPENSES
Galileo has agreed to pay Marvell $75 million as liquidated damages, if the
merger agreement is terminated by:
- Galileo because Galileo receives a superior proposal and responds in a
way that permits termination of the merger agreement;
- Marvell and Toshack Acquisitions because Galileo's board of directors
recommends a superior proposal to its shareholders;
- either Marvell and Toshack Acquisitions or Galileo because Galileo
shareholders fail to approve the merger at the extraordinary general
meeting, and within six months after termination of the merger agreement
Galileo enters into an agreement with respect to or consummates an
acquisition by a third-party who had an outstanding offer at the time the
Galileo shareholders rejected the merger;
- Marvell and Toshack Acquisitions because Galileo willfully breaches its
representations and warranties contained in the merger agreement or acts
or fails to act in such a way that breaches its covenants in the merger
agreement, and within six months after termination of the merger
agreement Galileo enters into an agreement with respect to or consummates
an acquisition by a third-party who had an outstanding offer at the time
of the breach; or
- if it is terminated by Marvell and Toshack Acquisitions because Galileo's
board withdraws or adversely modifies its approval or recommendation of
the merger or merger agreement, or Galileo ceases using reasonable best
efforts to call and convene the extraordinary general meeting to vote on
the merger, and within six months after termination of the merger
agreement Galileo enters into an agreement with respect to or consummates
an acquisition by a third-party.
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Marvell has agreed to pay Galileo $80 million as liquidated damages if the
merger agreement is terminated by:
- Galileo because Marvell ceases using its reasonable best efforts to call
and convene the special general meeting of its shareholders to approve
the merger, and within six months after termination of the merger
agreement Marvell enters into an agreement to be acquired by or merged
with a third-party, or Marvell or any of its subsidiaries repurchases
more than 30% of Marvell's outstanding stock;
- either Galileo or Marvell because Marvell's shareholders fail to approve
the merger at the special general meeting called to vote upon the merger,
and within six months after termination of the merger agreement Marvell
enters into an agreement to be acquired by or merged with a third-party,
or Marvell or any of its subsidiaries repurchases more than 30% of
Marvell's outstanding stock; or
- Galileo because Marvell willfully breaches its representations or
warranties contained in the merger agreement or acts or fails to act in
such a way that breaches its covenants in the merger agreement, and
within six months after the termination of the merger agreement Marvell
enters into an agreement with respect to or consummates an acquisition by
a third party who had an outstanding offer for Marvell at the time of the
breach.
In addition, Galileo has agreed to pay Marvell $5 million as reimbursement
of its fees and expenses if the merger agreement is terminated by Marvell
because:
- Galileo has breached its representations or warranties in the merger
agreement or its representations and warranties became untrue such that
the conditions to Marvell's obligation to complete the merger could not
be satisfied by March 31, 2001, so long as neither Marvell nor Toshack
Acquisitions has seriously breached any of their respective obligations
under the merger agreement;
- Galileo has breached any covenant or obligation in the merger agreement
that significantly harms Galileo or significantly harms or delays the
ability of Marvell, Toshack Acquisitions or Galileo to complete the
merger and the breach has not been cured within five business days after
Marvell gives Galileo notice of the breach, as long as Marvell or Toshack
Acquisitions has not breached any of their respective obligations under
the merger agreement in a significant way;
- Galileo's board of directors recommended that shareholders approve a
superior proposal;
- Galileo's board of directors withdrew or negatively modified its
recommendation of the merger; or
- Galileo stopped using all reasonable best efforts to call or convene the
extraordinary general meeting to vote on the merger.
Further, Marvell has agreed to pay Galileo $5 million as reimbursement of
its fees and expenses if the merger agreement is terminated by Galileo because:
- Marvell breached its representations or warranties in the merger
agreement or its representations and warranties became untrue such that
the conditions to Galileo's obligation to complete the merger could not
be satisfied by March 31, 2001, so long as Galileo has not seriously
breached its own obligations under the merger agreement;
- Marvell has breached any covenant or obligation in the merger agreement
that significantly harms Marvell or significantly harms or delays the
ability of Marvell, Toshack Acquisitions or Galileo to complete the
merger and the breach has not been cured within five business days after
Galileo gives Marvell notice of the breach, as long as Galileo has not
breached any of its obligations under the merger agreement in a
significant way;
- Marvell stopped using all reasonable best efforts to hold the special
general meeting to vote on the merger; or
- Marvell held the special general meeting to vote on the merger but did
not obtain shareholder approval.
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Except for the liquidated damages and expense reimbursements described
above, each party will pay its own expenses in connection with the merger
agreement.
EXTENSION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENT
EXTENSION AND WAIVER
At any time before the merger occurs, each party may agree, in writing, to:
- extend the time for the performance of any of the obligations or other
acts of the other party;
- waive any inaccuracies in the other party's representations and
warranties; or
- waive the other party's compliance with any of the agreements or
conditions in the merger agreement.
AMENDMENT
The merger agreement may be changed by written agreement of the parties at
any time before or after the Galileo shareholders approve the merger. Any change
after the shareholders approve the merger that by law requires the approval of
Galileo shareholders, however, will require their subsequent approval to be
effective.
OPTION AGREEMENT
Marvell and Galileo have also entered into a stock option agreement that
permits Marvell to purchase up to 5,371,720 ordinary shares of Galileo, or such
other number of shares equal to 12.5% of the issued and outstanding Galileo
shares on the date of exercise.
The option becomes exercisable by Marvell, in whole or in part, upon the
occurrence of a "triggering event," which is defined in the option agreement to
mean a termination of the merger agreement in a manner that could result in
Galileo being obligated to pay Marvell $75 million in liquidated damages. See
"The Merger Agreement -- Termination of the Merger Agreement -- Liquidated
Damages and Expenses" beginning at page 84. Marvell's option expires at the
earliest of:
- the effective time of the merger;
- the termination of the merger agreement other than as a result of a
triggering event; and
- six months after the occurrence of a triggering event.
If after the option becomes exercisable and before the option expires:
- any third party acquires 30% or more of the then-outstanding shares of
Galileo, or
- Galileo enters into a definitive written agreement with any third party
providing for:
- the acquisition of Galileo by merger;
- the acquisition of 30% or more of Galileo's assets;
- the acquisition of 30% or more of Galileo's outstanding shares;
- the adoption of a plan of liquidation by Galileo;
- the payment of an extraordinary dividend; or
- Galileo's repurchase of more than 30% of its outstanding shares,
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then Marvell shall have the right instead of exercising its option to request
that Galileo pay cash in an amount equal to the lesser of the following:
- $5,000,000; and
- the product of:
- the excess over the option exercise price of the greater of (1) the
last sale price for Galileo ordinary shares quoted on the Nasdaq
National Market on the day preceding exercise of the option; and (2)
the highest price per share of Galileo offered to be paid by any
person pursuant to the third-party transaction or, if an asset
purchase, the aggregate consideration for a purchase of Galileo assets
divided by the number of outstanding Galileo shares; and
- the number of shares covered by the option.
The exercise price of the option is $55.10 per ordinary share of Galileo.
Marvell's total profit upon exercise of the option may not exceed $80 million.
For purposes of the option agreement, "total profit" means the sum of (1) the
cash payment instead of exercise described immediately above, (2) amounts
received from the sale of shares acquired by Marvell by exercising the option
that are in excess of the purchase price; and (3) the liquidated damages and
expense reimbursement received from Galileo pursuant to the merger agreement.
Any amounts in excess of $80 million must be paid back to Galileo, or Marvell
may limit the shares it exercises under the option. In addition, at no time may
Marvell exercise its option such that its total profit, as defined above but
assuming all option shares acquired by Marvell were sold for cash at the
then-current market price, exceeds $80 million. If upon exercise of the option
Marvell's total profit in this case would exceed $80 million, Galileo can
increase the exercise price per share until Marvell's profit would be no greater
than $80 million.
The ability of Marvell to exercise its option is conditioned on Marvell not
willfully breaching any of its representations, warranties or covenants
contained in the merger agreement. Additionally, Galileo's obligations under the
option agreement accrue only if there is no legal or regulatory restriction on
the exercise of the option, and all applicable waiting periods under applicable
laws have expired.
If Marvell exercises its option to purchase shares, Galileo has the right,
under specified conditions, to repurchase those shares from Marvell at a price
equal to the option exercise price plus interest of 10% per annum, less any
dividends paid on the shares during the period after the exercise. Galileo's
repurchase right begins at any time after April 16, 2001, and ends six months
after the date of exercise of the option. Galileo's repurchase right is subject
to there not being at any time during the six month period after October 16,
2000 any pending acquisition by a third party of Galileo that is subject to the
affirmative vote of Galileo shareholders.
The option agreement provides that, for one year after the date of exercise
of the option, Marvell may request that Galileo register under the Securities
Act the offering and sale by Marvell of the Galileo shares acquired by Marvell
upon exercise of the option. Marvell may make two requests for registration. In
addition, Marvell has the right for one year after exercising its option,
subject to certain conditions, to have its shares registered along with other
ordinary shares of Galileo to be registered pursuant to an underwritten
offering. Marvell's registration rights expire when it is eligible to sell all
of its remaining option shares under Rule 144(k) of the Securities Act. The
expenses of preparing and filing any registration statement for the Galileo
option shares and any sale covered by it will generally be paid by Galileo,
except for underwriting discounts or commissions or brokers' fees, and the fees
of and disbursements to Marvell's counsel. For each registration of option
shares, Galileo and Marvell have agreed to customary indemnification provisions
for losses and liabilities under the Securities Act and otherwise. However,
Marvell will not be required to indemnify Galileo beyond Marvell's proceeds from
the offering of its option shares. Upon the issuance of option shares, Galileo
will promptly list the shares on the Nasdaq National Market or any other
exchange on which Galileo ordinary shares are then listed.
The above description is only a summary of the material provisions of the
option agreement. Because it is a summary it does not include all terms of the
option agreement. We have attached the option
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agreement to this joint proxy statement/prospectus as Appendix B, and we urge
you to read the option agreement.
OTHER AGREEMENTS RELATED TO THE MERGER
Shareholder Undertakings Executed by Certain Galileo Shareholders. In order
to induce Marvell to enter into the merger agreement, two shareholders of
Galileo, Mr. Avigdor Willenz and Mr. Manuel Alba, each executed a shareholder
undertaking in favor of Marvell with respect to Galileo ordinary shares owned or
later acquired by them. The undertaking executed by each shareholder prohibits
the shareholder, at any time before the effective time of the merger or the
termination of the merger agreement, from transferring or agreeing to transfer
his Galileo ordinary shares, or depositing his Galileo ordinary shares into a
voting trust or granting a proxy with respect to his shares, other than the
proxy described below entered into in connection with the merger agreement. As
of October 16, 2000, Mr. Willenz and Mr. Alba owned, in the aggregate,
10,191,178 Galileo ordinary shares.
Irrevocable Proxies Executed by Certain Galileo Shareholders. In order to
induce Marvell to enter into the merger agreement, Mr. Avigdor Willenz and Mr.
Manuel Alba each executed an irrevocable proxy with respect to the Galileo
ordinary shares owned by them as of, or acquired by them after, October 16,
2000. The proxy expires upon the earlier of the termination of the merger
agreement or the effective date of the merger with Marvell. The proxy instructs
and authorizes the proxy holder to:
- appear at shareholder meetings of Galileo for the purpose of establishing
a quorum,
- vote all the Galileo ordinary shares subject to the proxy in favor of the
merger with Marvell and any transactions related to the merger with
Marvell, and
- to vote all the Galileo ordinary shares subject to the proxy against any
proposal involving the merger or sale of Galileo to a party other than
Marvell.
Voting Agreement Executed by Certain Marvell Shareholders. In order to
induce Galileo to enter into the merger agreement, five holders of Marvell
common stock each executed a voting agreement pursuant to which they agreed to:
- vote all of their respective Marvell shares in favor of the merger and
adoption of the merger agreement,
- not transfer or otherwise dispose, or agree to transfer or otherwise
dispose, of any of their respective Marvell shares, and
- not grant any proxies or enter into any voting agreements (other than the
voting agreement with Galileo) with respect to their respective Marvell
shares.
The agreements terminate upon the earlier of the termination of the merger
agreement or the effective date of the merger. The five shareholders of Marvell
executing the agreements were Dr. Suhat Sutardja, Ms. Weili Dai, Dr. Pantas
Sutardja, Mr. Diosdado P. Banatao and Mr. Kuo Wei Chang. These shareholders
currently own, in the aggregate, 49,802,660 shares of Marvell common stock.
Lock-up Letter Agreements. In connection with the merger agreement, Dr.
Sehat Sutardja, Ms. Weili Dai, Dr. Pantas Sutardja, Mr. Diosdado P. Banatao, Mr.
Kuo Wei Chang, Mr. Avigdor Willenz and Mr. Manuel Alba, holders of either
Marvell common stock or Galileo ordinary shares, each executed a lock-up
agreement for the benefit of Marvell. The lock-up agreement provides that none
of the signatories of the lock-up agreements will, for a period of 45 days after
the effective date of the merger, sell or transfer economic benefits in shares
of Marvell common stock or securities convertible into shares of Marvell common
stock owned by them on October 16, 2000 or at the effective time of the merger.
The shareholders will be released from their obligations under the lock-up
agreement if the merger agreement is terminated.
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MANAGEMENT AFTER THE MERGER
BOARD OF DIRECTORS
Immediately prior to the effective time of the merger, the board of
directors of Marvell will be expanded in size from eight to ten members. Two
current members of the board of directors of Galileo will fill the two newly
created positions. Galileo currently expects that these two individuals will be
Messrs. Avigdor Willenz and Manuel Alba. The new directors will be up for
election at Marvell's 2001 annual general meeting. Marvell has agreed to
nominate each new director for reelection at this annual general meeting.
Immediately after the Merger, the Galileo board of directors will be
reduced to three members selected by Marvell.
MANAGEMENT
The composition of Marvell's executive management is not expected to change
as a result of the merger. Avigdor Willenz and Manuel Alba will remain with
Galileo after the merger with responsibilities comparable to those of their
current positions.
Information about the current Galileo directors and executive officers can
be found in Galileo's annual report on Form 20-F for the fiscal year ended
December 31, 1999, which is incorporated by reference into this joint proxy
statement/prospectus. See "Where You Can Find More Information" on page 107.
Information about the current Marvell directors and executive officers can be
found in Appendix E attached to this joint proxy statement/prospectus.
INFORMATION ABOUT THE COMPANIES
MARVELL
Marvell designs, develops and markets integrated circuits for
communications-related markets. Marvell's products provide the critical
interface between real world, analog signals and the digital information used in
computing and communications systems. Marvell's products enable its customers to
store and transmit digital information reliably and at high speeds. Marvell
initially focused its core technology on the data storage market, where Marvell
provides high performance products to Seagate, Samsung, Hitachi, Fujitsu and
Toshiba, who as a group accounted for 99% of Marvell's sales in fiscal 1999, 98%
of Marvell's sales in fiscal 2000 and 92% of Marvell's sales in the first six
months of fiscal 2001. Recently, Marvell applied its technology to the high
speed, or broadband, data communications market by introducing products that are
used in network access equipment to provide the interface between communications
systems and data transmission media. Marvell believes that its core technology
can be used to improve performance across a wide range of data communications
applications. For example, Marvell is committing resources to the development of
products for the wireless communications and cable modem markets. For the fiscal
year ended January 31, 2000, Marvell generated $81.4 million in net revenue and
$13.1 million in net income. For the six months ended July 31, 2000, Marvell
generated $61.8 million in net revenue and $2.7 million in net income.
GALILEO
Galileo defines, develops and markets advanced digital semiconductor
devices that perform critical functions for new-world converged network systems,
in which voice, video, and data are handled using Internet Protocol techniques.
Galileo's core competencies include various LAN technologies, WAN technologies,
and high performance CPU subsystem technologies. Galileo is organized around two
principal product groups: Internetworking Products, consisting of system
controllers and WAN communications controllers, and switching products, which
consists of switched Ethernet controllers and switched PoS/ AMT controllers.
Galileo is a pioneer in the development of "communications systems on silicon,"
providing network system vendors with semiconductor devices that perform
critical functions in their
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systems. Galileo's semiconductor devices are characterized by high-performance
features and comply with established network standards. Galileo's customers
include Accton Technology Corp., Alcatel, Cabletron Systems, Inc., Cisco Systems
Inc., D-Link Systems Inc., Ericsson LM Telephone Company, Intel Corporation,
Lucent Technologies Inc. and Northern Telecom Inc. During 1999, sales to Cisco,
D-Link and Accton accounted for 22%, 14% and 13% of Galileo's total net sales,
respectively. For the fiscal year ended December 31, 1999, Galileo generated
$79.7 million in net sales and $26.1 million in net income. For the six months
ended June 30, 2000, Galileo generated $44.5 million in net sales and $7.7
million in net income.
TOSHACK ACQUISITIONS
Toshack Acquisitions is a direct wholly-owned subsidiary of Marvell. It was
incorporated in Israel solely for use in the merger and has never conducted any
other business.
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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following tables show summarized historical and unaudited pro forma
financial data for Marvell and Galileo. Per share data have been adjusted for
Galileo's stock dividend on September 20, 1999.
The following unaudited pro forma combined condensed financial information
combines Marvell's historical results for the six months ended July 31, 2000 and
the fiscal year ended January 31, 2000 with Galileo's results for the six months
ended June 30, 2000 and the fiscal year ended December 31, 1999, giving effect
to the merger as if it had occurred as of the beginning of each period for
statement of operations purposes and on July 31, 2000 for balance sheet purposes
by combining Galileo's balance sheet as of June 30, 2000 with Marvell's balance
sheet as of July 31, 2000. This pro forma information, while helpful in
illustrating the financial characteristics of the combined company under one set
of assumptions, does not attempt to predict or suggest future results. It also
does not necessarily reflect what the historical results of the combined company
would have been had Marvell and Galileo actually been combined during the
periods presented, or results that may be achieved in the future.
The allocation of the purchase price will be finalized following
consummation of the merger. Based on an analysis of fair value, the excess of
the purchase price over the net tangible assets on Galileo's balance sheet will
then be allocated to identifiable intangible assets and goodwill. Marvell is
currently gathering the data necessary for determining the value of identifiable
intangible assets, including in-process research and development. For both
in-process and developed technology, Marvell's data gathering efforts are
focused on determining Galileo's forecasted revenues and costs as well as their
stage of completion or remaining product life by individual project or product.
Marvell will acquire Galileo's technology in the merger. The principal
products that use Galileo's technology relate to digital semiconductor devices
that provide connections for high speed networking applications, in which voice,
video and data are handled seamlessly using Internet Protocol techniques.
We assumed the total amount of goodwill and identifiable intangible assets
to be $1.9 billion and to have an average useful life of approximately five
years. Because the valuation analysis has not been completed, the actual amount
of goodwill and identifiable intangible assets, and the related average useful
life, could vary from these assumptions.
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MARVELL TECHNOLOGY GROUP LTD.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------- PRO FORMA
MARVELL GALILEO ADJUSTMENTS PRO FORMA
AT JULY 31, 2000 AT JUNE 30, 2000 (NOTE 2) COMBINED
---------------- ---------------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......... $112,298 $ 57,070 $ -- $ 169,368
Short-term investments............. -- 50,396 -- 50,396
Restricted cash.................... 3,068 -- -- 3,068
Accounts receivable, net........... 15,820 10,584 -- 26,404
Inventories........................ 10,819 11,545 2,771(e) 25,135
Prepaid expenses and other current
assets.......................... 5,221 2,287 -- 7,508
-------- -------- ---------- ----------
Total current assets............ 147,226 131,882 2,771 281,879
Property and equipment, net.......... 10,324 12,462 -- 22,786
Goodwill and other intangibles....... -- -- 1,937,872(a) 1,937,872
Other noncurrent assets.............. 3,500 8,091 -- 11,591
-------- -------- ---------- ----------
Total assets.................... $161,050 $152,435 $1,940,643 $2,254,128
======== ======== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................... $ 10,207 $ 8,134 $ -- $ 18,341
Accrued liabilities................ 9,566 8,517 29,130(b) 47,213
Income taxes payable............... 6,295 1,900 -- 8,195
Capital lease obligations.......... 62 -- -- 62
-------- -------- ---------- ----------
Total current liabilities....... 26,130 18,551 29,130 73,811
Other liabilities.................... 10 2,406 -- 2,416
-------- -------- ---------- ----------
Total liabilities.................... 26,140 20,957 29,130 76,227
Shareholders' equity:
Common stock....................... 171 76,133 (76,075)(c)(d) 229
Additional paid-in capital......... 143,061 -- 2,412,934(d) 2,555,995
Deferred stock-based
compensation.................... (13,173) (186) (195,805)(f)(c) (209,164)
Accumulated other comprehensive
income.......................... -- 388 (388)(c) --
Retained earnings.................. 4,851 55,143 (229,153)(c) (169,159)
-------- -------- ---------- ----------
Total shareholders' equity...... 134,910 131,478 1,911,513 2,177,901
-------- -------- ---------- ----------
Total liabilities and
shareholders'
equity........................ $161,050 $152,435 $1,940,643 $2,254,128
======== ======== ========== ==========
</TABLE>
See accompanying notes.
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MARVELL TECHNOLOGY GROUP LTD.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------
MARVELL GALILEO PRO FORMA
YEAR ENDING YEAR ENDING ADJUSTMENTS PRO FORMA
JANUARY 31, 2000 DECEMBER 31, 1999 (NOTE 3) COMBINED
---------------- ----------------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenue............................ $81,375 $79,717 $ -- $ 161,092
Cost of product revenue................ 33,773 28,041 -- 61,814
------- ------- --------- ---------
Gross profit........................... 47,602 51,676 -- 99,278
Operating expenses:
Research and development............. 14,452 16,175 -- 30,627
Marketing and selling................ 10,436 7,849 -- 18,285
General and administrative........... 3,443 4,323 -- 7,766
Amortization of goodwill and
purchased intangibles............. -- -- 387,574(a) 387,574
Amortization of stock compensation... 2,175 509 99,861(b) 102,545
------- ------- --------- ---------
Total operating expenses.......... 30,506 28,856 487,435 546,797
------- ------- --------- ---------
Operating income (loss)................ 17,096 22,820 (487,435) (447,519)
Interest income, net................... 330 4,669 -- 4,999
------- ------- --------- ---------
Income (loss) before provision for
income taxes......................... 17,426 27,489 (487,435) (442,520)
Provision for income taxes............. 4,356 1,380 -- 5,736
------- ------- --------- ---------
Net income (loss)...................... $13,070 $26,109 $(487,435) $(448,256)
======= ======= ========= =========
Net income (loss) per share:
Basic................................ $ 0.32 $ (6.40)
======= =========
Diluted.............................. $ 0.16 $ (6.40)
======= =========
Weighted average common shares
outstanding:
Basic................................ 41,094 28,964 70,058
======= ========= =========
Diluted.............................. 81,545 (11,487) 70,058
======= ========= =========
</TABLE>
See accompanying notes.
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MARVELL TECHNOLOGY GROUP LTD.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------
MARVELL GALILEO PRO FORMA
SIX MONTHS ENDING SIX MONTHS ENDING ADJUSTMENTS PRO FORMA
JULY 31, 2000 JUNE 30, 2000 (NOTE 3) COMBINED
----------------- ----------------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenue......................... $61,839 $44,470 $ -- $ 106,309
Cost of product revenue............. 28,260 18,819 -- 47,079
------- ------- --------- ---------
Gross profit........................ 33,579 25,651 -- 59,230
Operating expenses:
Research and development.......... 13,930 11,758 -- 25,688
Marketing and selling............. 9,679 5,707 -- 15,386
General and administrative........ 2,931 2,216 -- 5,147
Amortization of goodwill and
purchased intangibles.......... -- -- 193,787(a) 193,787
Amortization of stock
compensation................... 4,484 246 49,930(b) 54,660
------- ------- --------- ---------
Total operating expenses....... 31,024 19,927 243,718 294,669
------- ------- --------- ---------
Operating income (loss)............. 2,555 5,724 (243,718) (235,439)
Interest income, net................ 1,034 2,406 -- 3,440
------- ------- --------- ---------
Income (loss) before provision for
income taxes...................... 3,589 8,130 (243,718) (231,999)
Provision for income taxes.......... 897 408 -- 1,305
------- ------- --------- ---------
Net income (loss)................... $ 2,692 $ 7,722 $(243,718) $(233,304)
======= ======= ========= =========
Net income (loss) per share:
Basic.......................... $ 0.05 $ (2.93)
======= =========
Diluted........................ $ 0.03 $ (2.93)
======= =========
Weighted average common shares
outstanding:
Basic............................. 50,702 28,964 79,666
======= ========= =========
Diluted........................... 87,426 (7,760) 79,666
======= ========= =========
</TABLE>
See accompanying notes.
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NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
NOTE 1 -- THE TRANSACTION
On October 16, 2000, Marvell signed a definitive agreement to acquire
Galileo in a purchase transaction. Subject to the qualifications discussed
below, under the merger agreement, Marvell will issue approximately 29.0 million
shares of its common stock and options to purchase 6.1 million shares of its
common stock in exchange for the outstanding ordinary shares and options of
Galileo.
The purchase price of the Galileo acquisition is estimated to be
approximately $2.4 billion, which has been determined as follows (in thousands):
<TABLE>
<S> <C>
Shares of common stock...................................... $2,081,272
Fair value of options....................................... 331,720
Estimated transaction costs................................. 29,130
----------
Total..................................................... $2,442,122
==========
</TABLE>
Common stock has been valued using an average price of Marvell common stock
for a few days before and after the announcement of the merger. The fair value
of options assumed was determined using the Black-Scholes method. In accordance
with Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions
Involving Stock Compensation -- an Interpretation of APB 25," the intrinsic
value of unvested options of Galileo has been allocated to deferred
compensation. Deferred compensation will be amortized over the estimated vesting
period of the related options using an accelerated method. For purposes of
preparing the pro forma financial statements, Marvell estimated the intrinsic
value of the unvested options using the average stock price used for valuing the
common stock. Upon consummation of the merger, Marvell will determine the final
amount of deferred compensation based on the closing price of its common stock
on the date of consummation of the merger.
The purchase price for pro forma purposes has been allocated to tangible
assets acquired and liabilities assumed based on the book value of Galileo's
assets and liabilities, with the exception of inventories, which have been
recorded at estimated fair value, which management believes approximate their
fair value. Marvell's management has engaged an independent appraiser to value
the intangible assets, including amounts allocable to Galileo's in-process
research and development, which will be expensed immediately. For the purposes
of these unaudited pro forma condensed combined financial statements, the
acquired in-process research and development has been assigned a value of
approximately $174.0 million for presentation purposes only. The exact amount of
the in-process research and development charge will be determined upon
completion of the independent appraisal and will be different from the amount
presented in these unaudited pro forma condensed combined financial statements.
The in-process research and development charge relates to Galileo's products in
development for which technological feasibility has not been established.
The allocation of the purchase price is estimated as follows (in
thousands):
<TABLE>
<S> <C>
Property and equipment...................................... $ 12,462
Current and other assets.................................... 142,744
Liabilities assumed......................................... (20,957)
Intangible assets, including goodwill....................... 1,937,872
Deferred compensation....................................... 195,991
Acquired in-process research and development................ 174,010
----------
Total..................................................... $2,442,122
==========
</TABLE>
The exact number of shares and options to be issued for the purchase of
Galileo will be affected by option grants to new Galileo employees, and
exercises of currently outstanding options, and, therefore, the
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NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
final purchase price will be different from the amounts presented in these
unaudited pro forma condensed and combined financial statements.
The unaudited pro forma combined condensed balance sheet reflects the
acquisition of Galileo as of July 31, 2000. The unaudited pro forma combined
condensed statements of operations reflect the acquisition of Galileo as if such
acquisition had occurred at the beginning of the periods presented.
NOTE 2 -- UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
The following adjustments were applied to the historical balance sheets of
Marvell and Galileo at July 31, 2000 to arrive at the unaudited pro forma
combined condensed balance sheet:
(a) To record intangible assets, including goodwill.
(b) To record the estimated transaction costs of $29.1 million.
Estimated transaction costs include all costs directly incurred as a result
of the merger including, but not limited to, fees for the financial
advisors, accountants, and attorneys and other related costs.
(c) To reflect the estimated one time charge for acquired in-process
research and development of $174.0 million and to eliminate the historical
retained earnings, deferred stock-based compensation, common stock and
accumulated other comprehensive income of Galileo as a result of the
purchase transaction.
(d) To record the increase in shareholders' equity of Marvell as a
result of the issuance of common shares and fair value of the Marvell
options issued in exchange for options of Galileo option holders.
(e) To increase inventory to its estimated fair value.
(f) To record deferred compensation with respect to unvested Galileo
options assumed.
NOTE 3 -- UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
The following adjustments were applied to the historical statements of
operations for Marvell and Galileo for the year ended January 31, 2000 and the
six months ended July 31, 2000 to arrive at the unaudited pro forma combined
condensed statement of operations as though the acquisition took place on
February 1, 1999:
(a) Adjustment to recognize amortization of identified intangibles
arising from the merger over their average estimated useful lives of five
years.
(b) Adjustment to recognize amortization of deferred compensation with
respect to unvested Galileo options assumed.
NOTE 4 -- UNAUDITED PRO FORMA COMBINED NET LOSS PER SHARE
Shares used in the pro forma per share calculation reflect the addition of
approximately 29.0 million shares of Marvell voting common stock estimated to be
issued to shareholders of Galileo as if they were outstanding from the beginning
of each period presented. Pro forma basic and diluted weighted average shares
exclude convertible preferred stock, employee stock options and warrants
outstanding in each period because they are anti-dilutive.
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PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of Marvell common stock as of November 13, 2000, by:
- each person known by Marvell to own beneficially more than 5% of
Marvell's outstanding shares;
- each director and executive officer of Marvell; and
- all directors and executive officers of Marvell as a group.
The percentage of beneficial ownership for the following table is based on
85,477,766 shares of Marvell common stock outstanding on November 13, 2000.
Unless otherwise indicated, to Marvell's knowledge, all persons listed below
have sole voting and investment power with respect to their shares of Marvell
common stock, except to the extent authority is shared by spouses under
applicable law.
The number of shares beneficially owned by each shareholder is determined
in accordance with the rules of the Securities and Exchange Commission and are
not necessarily indicative of beneficial ownership for any other purpose. Under
these rules, beneficial ownership includes those shares of Marvell common stock
that the shareholder has sole or shared voting or investment power and any
shares of common stock that the shareholder has a right to acquire within 60
days after November 13, 2000 through the exercise of any option, warrant or
other right. The percentage ownership of the outstanding common stock, however,
is based on the assumption, expressly required by the rules of the Securities
and Exchange Commission, that only the person or entity whose ownership is being
reported has converted options or warrants into shares of Marvell common stock.
Unless otherwise indicated, the address of each person owning more than 5%
of our outstanding shares is c/o Marvell Semiconductor, Inc., 645 Almanor
Avenue, Sunnyvale, CA 94086.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
--------------------------------
PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OUTSTANDING SHARES
------------------------------------ ---------- ------------------
<S> <C> <C>
EXECUTIVE OFFICERS, DIRECTORS AND 5% SHAREHOLDERS:
Entities Affiliated with InveStar Capital, Inc.(1).......... 8,373,524 9.8%
3600 Pruneridge Avenue, Suite 300
Santa Clara, CA 95051
Sehat Sutardja(2)........................................... 24,092,312 28.2%
Weili Dai(2)................................................ 24,092,312 28.2%
Pantas Sutardja(3).......................................... 11,776,000 13.8%
Gordon M. Steel(4).......................................... 480,000 *
George Hervey(5)............................................ 760,000 *
Diosdado P. Banatao(6)...................................... 6,879,208 8.0%
635 Waverley Street
Palo Alto, CA 94301
Herbert Chang(7)............................................ 8,739,140 10.2%
3600 Pruneridge Avenue, Suite 300
Santa Clara, CA 95051
John M. Cioffi.............................................. 180,000 *
Paul R. Gray(8)............................................. 180,000 *
Ron Verdoorn................................................ 662,312 *
Executive Officers and Directors as a Group (9
persons)(9)............................................... 53,268,972 62.3%
</TABLE>
-------------------------
* Less than one percent
(1) Represents 646,156 shares held by InveStar Dayspring Venture Capital, Inc.,
184,616 shares of held by InveStar Excelsus Venture Capital (Int'l), Inc.,
4,665,412 shares held by InveStar Semiconductor Development Fund, Inc.,
2,826,544 shares held by InveStar Burgeon Venture Capital, Inc., and
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50,796 shares held by InveStar Capital, Inc. Herbert Chang is the President
of InveStar Capital, Inc., which is the investment manager of each of
InveStar Dayspring Venture Capital, Inc., InveStar Excelsus Venture Capital
(Int'l), Inc., InveStar Semiconductor Development Fund, Inc., and InveStar
Burgeon Venture Capital, Inc. InveStar Capital, Inc. disclaims beneficial
ownership of these shares, except to the extent of its pecuniary interest,
if any.
(2) Dr. Sutardja and Ms. Dai are husband and wife. Includes 8,950,000 shares
held by Dr. Sutardja, of which Ms. Dai may be deemed to be a beneficial
owner, although Ms. Dai disclaims such beneficial ownership, 8,950,000
shares held by Ms. Dai, of which Dr. Sutardja may be deemed to be a
beneficial owner, although Dr. Sutardja disclaims such beneficial ownership,
92,312 shares held jointly by Dr. Sutardja and Ms. Dai, and 6,100,000 shares
held by the Sutardja Family Partners of which Dr. Sutardja and Ms. Dai are
the general partners. Dr. Sutardja and Ms. Dai disclaim beneficial ownership
of the 6,100,000 shares held by the Sutardja Family Partners, except to the
extent of their pecuniary interest, if any.
(3) Includes 4,000 shares held by Dr. Pantas Sutardja's mother-in-law. Dr.
Sutardja disclaims beneficial ownership of the 4,000 shares held by his
mother-in-law, except to the extent of his pecuniary interest therein, if
any.
(4) Includes 240,000 shares held by each of Mr. Steel's two children. Mr. Steel
disclaims beneficial ownership of the 480,000 shares held by his children,
except to the extent of his pecuniary interest therein, if any. Mr. Steel's
employment with Marvell terminated in April 2000.
(5) Includes 760,000 shares subject to stock options that are currently
exercisable or will become exercisable within 60 days of November 13, 2000.
(6) Includes 15,711 shares held by Mr. Banatao's minor children. Mr. Banatao may
be deemed to be a beneficial owner of these shares, although Mr. Banatao
disclaims such beneficial ownership. Also includes 1,680,000 shares subject
to stock options that are currently exercisable or will become exercisable
within 60 days of November 13, 2000.
(7) Represents 646,156 shares held by InveStar Dayspring Venture Capital, Inc.,
184,616 shares held by InveStar Excelsus Venture Capital (Int'l), Inc.,
4,665,412 shares held by InveStar Semiconductor Development Fund, Inc.,
2,826,544 shares held by InveStar Burgeon Venture Capital, Inc., 184,616
shares held by Forefront Venture Partners L.P., and 50,796 shares held by
InveStar Capital, Inc. Herbert Chang is the President of InveStar Capital,
Inc., which is the investment manager of each of InveStar Dayspring Venture
Capital, Inc., InveStar Excelsus Venture Capital (Int'l), Inc., InveStar
Semiconductor Development Fund, Inc., and InveStar Burgeon Venture Capital,
Inc. Mr. Chang is also the managing director of Forefront Associates LLC,
which is the general partner of Forefront Venture Partners, L.P. Mr. Chang
disclaims beneficial ownership of these shares, except to the extent of his
pecuniary interest, if any.
(8) Includes 144,000 shares subject to stock options that are currently
exercisable or will become exercisable within 60 days of November 13, 2000.
(9) Includes 2,584,000 shares subject to stock options that are currently
exercisable or will become exercisable within 60 days of November 13, 2000.
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DESCRIPTION OF MARVELL CAPITAL STOCK
When Marvell and Galileo complete the merger, Galileo shareholders will
become Marvell shareholders. The following is a description of Marvell's capital
stock and the Marvell common stock to be issued in the merger.
MARVELL CAPITAL STOCK
Marvell's authorized share capital consists of $500,000, divided into
242,000,000 shares of common stock, $0.002 par value per share, and 8,000,000
shares of preferred stock, $0.002 par value per share.
MARVELL COMMON STOCK
As of November 13, 2000, there were 85,477,766 shares of common stock of
Marvell issued and outstanding, held of record by approximately 358
shareholders. In the event of Marvell's liquidation, dissolution or winding up,
holders of Marvell common stock would be entitled to receive all of Marvell's
assets, pro rata, after payment of all Marvell's debts and liabilities, and any
liquidation payment that it may be required to pay to its preferred shareholders
on the date of liquidation. The shares of Marvell common stock do not have
preemptive or conversion rights or other subscription rights and there are no
redemption or sinking fund provisions. The outstanding shares of Marvell common
stock are, and the shares of Marvell common stock issuable in the merger will,
at the effective time of the merger, be, fully paid and nonassessable.
MARVELL PREFERRED STOCK
Marvell's board of directors is authorized to issue up to 8,000,000 shares
of preferred stock in one or more series. The board of directors may, without
any further approval of Marvell's shareholders:
- fix the rights, preferences, privileges and restrictions of the preferred
stock, including dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption, redemption prices, and liquidation
preferences; and
- fix the number of shares and designation of any series of preferred
stock.
Although Marvell's board of directors presently does not intend to do so,
it could issue shares of preferred stock with voting and conversion rights which
could adversely affect the voting power and other rights of the holders of
Marvell common stock, including the loss of voting control to others, without
obtaining further approval of Marvell's shareholders. The issuance of shares of
preferred stock could delay or prevent a change in control of Marvell, without
further action by its shareholders.
WARRANTS
Marvell has issued the following warrants:
- a warrant to purchase 180,000 shares of its common stock; and
- a warrant to purchase 60,000 shares of its common stock.
REGISTRATION RIGHTS
Pursuant to the terms of the Investor Rights Agreement dated September 10,
1999, with preferred shareholders of Marvell on that date and warrant holders on
that date and their subsequent transferees receiving at least 200,000 shares,
the holders of 27,044,912 shares of common stock have rights with respect to the
registration of their respective shares under the Securities Act. Under the
terms of the agreement, if Marvell proposes to register any of its securities
under the Securities Act, either for its own account or for the account of other
security holders exercising registration rights, these holders are entitled to
notice of such registration and are entitled to include their Marvell common
stock in the registration. From and after December 27, 2000, these shareholders
may also require Marvell to file a registration
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<PAGE> 106
statement under the Securities Act at Marvell's expense with respect to their
shares of Marvell common stock, and Marvell is required to use its best efforts
to effect such registration. These shareholders have the right to request up to
two such registration statements. Further, such shareholders may require Marvell
to file additional registration statements on Form S-3 or its equivalent at
Marvell's expense. Each of these rights is subject to conditions and
limitations, including the right of the underwriters of an offering to limit the
number of shares included in such offering under various circumstances.
ANTI-TAKEOVER PROVISIONS
Marvell's Bye-laws contain provisions that may have the effect of delaying,
deferring or discouraging another person from acquiring control of Marvell.
These provisions include:
- a requirement that holders of the shares present in person or by proxy
and voting and 66 2/3% in number of record shareholders present in person
or by proxy approve any amendment to or repeal of Marvell's Bye-laws
regarding the election and removal of directors;
- the division of Marvell's board of directors into three classes, each
serving staggered three-year terms, which means that only one class of
directors will be elected at each annual meeting of shareholders, with
the other classes continuing for the remainder of their respective terms;
- a provision that Marvell's directors may only be removed for cause by the
holders of 66 2/3% of the shares present in person or by proxy and voting
and 66 2/3% in number of record shareholders present in person or by
proxy vote for removal; and
- the indemnification of Marvell's officers and directors against losses
that they may incur in investigations and legal proceedings resulting
from their services to Marvell, which may include services in connection
with takeover defense measures.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Marvell common stock is First Union
National Bank.
LISTING
Marvell common stock is listed for quotation on the Nasdaq National Market
under the trading symbol "MRVL."
COMPARISON OF SHAREHOLDERS' RIGHTS
Until the effective time of the merger, the rights of Galileo shareholders
are governed by the Israeli Companies Law and the Galileo Articles of
Association and Memorandum of Association. At the effective time of the merger,
the shareholders of Galileo will become shareholders of Marvell, an exempted
Bermuda company under The Companies Act, 1981 of Bermuda, governed by the
Bermuda Companies Act and the Marvell Memorandum of Association and Bye-laws.
The rights of Galileo shareholders differ in some material respects from the
rights they would have as shareholders of Marvell. The following discussion
summarizes the material differences between the rights of holders of ordinary
shares of Galileo and holders of shares of Marvell common stock and,
additionally, summarizes certain provisions of the Bermuda Companies Act,
Marvell's Memorandum of Association and Bye-laws, the Israeli Companies Law and
Galileo's Articles of Association.
CAPITAL STOCK
Bermuda Companies Act and Marvell Governing Documents. Marvell's Bye-laws
provide for the division of the share capital of Marvell into two classes of
shares: common stock and preferred stock. The rights, preferences, privileges
and restrictions of the holders of preferred stock may be determined or altered
by the board of directors. The preferred stock may be issued from time to time
in one or more series. Although the board of directors presently does not intend
to do so, it could issue shares of preferred
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<PAGE> 107
stock with voting and conversion rights which could adversely affect the voting
power and other rights of the holders of common stock, including the loss of
voting control to others, without obtaining further approval of its
shareholders. The issuance of preferred stock could delay or prevent a change in
control of Marvell, without further action by its shareholders.
The holders of common stock are entitled to:
- one vote per share;
- such dividends as declared by the board, after the annual dividends due
on preferred stock have been paid and so long as an equivalent dividend
is declared on preferred stock; and
- in the event of a winding-up, dissolution or liquidation of Marvell, the
surplus assets of Marvell, subject to the rights of the preferred stock
and after payment of all debts and liabilities.
The holders of Marvell's common stock do not have preemptive or conversion
rights or other subscription rights, and there are no redemption or sinking fund
provisions.
Israeli Companies Law and Galileo Articles of Association. All Galileo
shareholders hold ordinary shares. Under the Companies Law, holders of ordinary
shares of Galileo are entitled:
- to one vote in any annual general meeting or extraordinary general
meeting of the shareholders of Galileo;
- to receive dividends when and if declared by the board of directors; and
- in the event of a winding up or a liquidation of Galileo, to receive the
surplus assets of Galileo, subject to the rights of secured creditors and
satisfaction in full of claims of creditors in the manner provided in the
Companies Ordinance (New Version), on a pro-rata basis.
DIVIDENDS
Bermuda Companies Act and Marvell Governing Documents. Under the Bermuda
Companies Act, a company can declare or pay a dividend or make a distribution
out of contributed surplus, unless:
- the company would not be able to pay its debts as they become due; or
- the realizable value of the company's total assets would become less than
the aggregate of its liabilities and its issued share capital and share
premium accounts.
The board of directors may, subject to the bye-laws and the Bermuda
Companies Act, declare a dividend to its shareholders in proportion to the
number of shares they hold. Such dividend may be paid in cash or wholly or
partially in specie, in which case the board of directors may fix the value of
any assets for distribution in specie. No unpaid dividend can bear interest.
Israeli Companies Law and Galileo Articles of Association. Under the
Companies Law, a company can declare or pay a dividend or make a distribution
either out of its aggregate retained earnings, or its earnings derived during
the two most recent fiscal years, whichever is higher. However, a company may
not pay dividends out of the above earnings unless its board of directors
determines that it has no reasonable doubt as to the company's ability to pay
its debts as they become due. Under the Companies Law, the declaration of
dividends does not require the approval of a company's shareholders, unless the
company's articles of association require otherwise. In accordance with
Galileo's Articles of Association, its board of directors may declare an interim
dividend without obtaining prior shareholder consent. However, a final dividend
requires shareholder approval.
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VOTING RIGHTS
Bermuda Companies Act and Marvell Governing Documents. Unless a company's
bye-laws provide otherwise, under Bermuda law, questions brought before a
general meeting of shareholders are decided by the vote of a majority of the
shareholders present at the meeting. Each shareholder has one vote regardless of
the number of shares he or she holds, unless a poll is requested. If a poll is
requested, each shareholder present in person or by proxy has one vote for each
share held. A poll may be requested by:
- the chairman of the meeting;
- at least three shareholders present in person or by proxy;
- any shareholders present in person or represented by proxy and holding
among them not less than one-tenth of the total voting rights of all the
shareholders having the right to vote; or
- any shareholders present in person or represented by proxy, if the total
amount paid up on those shares is equal to at least one-tenth of the
total sum paid up on all shares conferring the right to vote at the
meeting.
Marvell's Bye-laws provide that the holders of preferred stock are entitled
to the number of votes equal to the number of shares of common stock into which
his or her shares of preferred stock could be converted at the record date for
determination of the shareholders entitled to vote on such matters. Such votes
are counted together with all other shares of stock of Marvell and not
separately as a class.
Israeli Companies Law and Galileo Articles of Association. Unless a
company's articles of association or applicable law provide otherwise, under the
Companies Law, each shareholder has one vote for each share he or she holds, and
generally all matters brought before a general meeting of shareholders of a
company are decided by the majority of the shares present and voting at the
meeting. Galileo's Articles of Association generally provide that all
shareholder resolutions must be approved by a majority of the shares present and
voting at the meeting, subject to applicable law. However, for companies
incorporated before February 1, 2000, such as Galileo, some resolutions,
including resolutions to amend a company's articles of association or to effect
a merger, require the approval of 75% or more of the shares present and voting
at the meeting.
Under the Companies Law, a shareholder has a duty to act in a good faith
towards the company and the other shareholders and to refrain from abusing his
or her power when voting his or her shares on matters brought before the general
meeting including those in connection with:
- any amendment to the articles of association;
- a merger;
- any increase in the company's authorized share capital; and
- approval of certain related party transactions.
A shareholder has a general duty to refrain from depriving other shareholders of
their rights. Any controlling shareholder, any shareholder who knows that it
possesses the power to determine the outcome of a shareholder vote, and any
shareholder that under the provisions of a company's articles of association has
the power to appoint an office holder of the company, is under a duty to act in
fairness towards the company. The Companies Law does not describe the substance
of this duty.
MEETINGS OF SHAREHOLDERS
Bermuda Companies Act and Marvell Governing Documents. Under the Bermuda
Companies Act, a company is required to convene at least one general
shareholders' meeting per calendar year. The Companies Act provides that a
special general meeting can be called by the board of directors or upon the
request of shareholders holding not less than 10% of the paid-up capital of the
company having the right to vote. Bermuda law also requires that shareholders be
given at least five days' advance notice of a
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general meeting, but the accidental omission of notice to any person does not
invalidate the proceedings at such meeting. Marvell's Bye-laws require at least
five days' notice be given to each shareholder of the annual general meeting and
of any special general meeting.
Under Bermuda law, the number of shareholders constituting a quorum at any
general meeting of shareholders is determined by the bye-laws of the company.
Marvell's Bye-laws provide that two persons continuously present in person and
representing in person or by proxy more than 50% of the total issued voting
shares of Marvell constitutes a quorum.
Israeli Companies Law and Galileo Articles of Association. Under the
Companies Law, a company is required to convene an annual general shareholders
meeting once in every calendar year and not later than fifteen months after the
last annual general shareholders meeting. The Companies Law provides that, for a
publicly traded company, an extraordinary general meeting must be convened by
the board of directors upon the request of: (1) the board of directors, (2) two
directors or 25% or more of the directors, (3) one or more shareholders holding
at least 5% of the company's issued share capital and 1% or more of the voting
rights or (4) one or more shareholders holding at least 5% of the company's
voting rights.
Under Galileo's Articles of Association, two shareholders holding at least
60% of the voting power of Galileo present at a general meeting, either in
person or by proxy, constitute a quorum. If a quorum is not present within half
an hour after the time a general meeting is scheduled to commence, the meeting
will automatically be adjourned to the same day one week later at the same time
and place or to another day, time and place as the board of Galileo may
determine by notice to the shareholders. At the adjourned meeting, the necessary
quorum will be two shareholders present in person or by proxy and holding at
least 34% of the Galileo voting power.
ADVANCE NOTICE PROVISIONS
Bermuda Companies Act and Marvell Governing Documents. Marvell's Bye-laws
require not less than 60 nor more than 90 days advance notice in writing for the
nomination of candidates for election as directors, as well as any other
proposals, statements or resolutions to be put forward by the shareholders for
consideration at an annual general meeting or special general meeting. The
notice of a proposal for an annual general meeting must be received by Marvell
not less than 60 nor more than 90 days prior to the anniversary of the prior
year's annual general meeting.
Israeli Companies Law and Galileo Articles of Association. Under the
Companies Law, a shareholder holding 1% or more of a company's voting power may
ask the company's board to include a proposal in the agenda of the company's
next general meeting, provided the proposal is appropriate to the general
meeting.
SHAREHOLDERS APPROVAL OF CERTAIN TRANSACTIONS
Bermuda Companies Act and Marvell Governing Documents. Marvell's Bye-laws
require that any scheme of arrangement, reconciliation, amalgamation, takeover
or similar business combination involving Marvell or any of its subsidiaries and
any other person require the approval of the shareholders by special resolution.
A special resolution is a resolution which must be approved by both (1) not less
than 66 2/3% of the votes cast by shareholders voting in person or by proxy and
(2) not less than 66 2/3% in number of the record shareholders present or by
proxy at a general meeting of which not less than 21 day's notice has been
given. When shares are held by members of another entity and such persons act
together, or when shares are held by or for a group of shareholders who act
together, such persons are considered to be one shareholder.
The Marvell Bye-laws further provide that Marvell may increase, alter,
reduce or change the currency denomination of its share capital only by
resolution of the shareholders.
Israeli Companies Law and Galileo Articles of Association. The Companies
Law requires that certain related-party transactions which qualify under the
Companies Law as "extraordinary transactions" be approved by a general meeting
of the shareholders. Extraordinary transactions include transactions which
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(1) are not in the ordinary course of business, (2) are not made on fair market
terms, or (3) may materially affect a company's profits, assets or liabilities.
SHAREHOLDER PROPOSALS AND ACTION BY WRITTEN CONSENT
Bermuda Companies Act and Marvell Governing Documents. Marvell's Bye-laws
provide that anything which may be done by resolution of the company at a
general meeting or by resolution of the shareholders at a general meeting may be
done without a meeting and any previous notice by resolution in writing signed
by all the shareholders who at the date of the resolution would be entitled to
attend the meeting and vote on the resolution.
However, a written resolution of the shareholders may not be used to remove
any auditor before the expiration of his or her term of office or for the
purpose of removing a director before the expiration of his or her term of
office.
Israeli Companies Law and the Galileo Articles of Association. The
Companies Law does not expressly allow public companies such as Galileo to
execute a written consent of the company's shareholders in lieu of a general
meeting.
ELECTION OR REMOVAL OF DIRECTORS
Bermuda Companies Act and Marvell Governing Documents. Marvell's Bye-laws
provide that its board of directors must have no less than two directors. The
Bye-laws provide for a classified board. Marvell's board of directors is divided
into three classes, with each class of directors elected for a period of three
years or until their successors are elected or appointed. Marvell's directors
may only be removed by its shareholders for cause at a special general meeting
of the shareholders called for the purpose of removing the director. The
resolution removing the director must be passed by special resolution of the
shareholders. No more than one-third of the directors of Marvell can be removed
at any general meeting.
Israeli Companies Law and Galileo Articles of Association. Galileo's
Articles of Association provide that its board of directors must have no less
than three and no more than eleven directors. Directors are elected and replaced
by a majority vote at the general meeting of Galileo shareholders. At each
annual general meeting of Galileo shareholders, the appointment of all directors
who were appointed prior to the meeting expires. Galileo's board of directors or
the shareholders at a general meeting may appoint any person as a director to
fill a vacated seat. The appointed director remains in office until Galileo's
next annual general meeting. The Companies Law requires every publicly traded
company, such as Galileo, to appoint two external directors.
AMENDMENT OF GOVERNING DOCUMENTS
Bermuda Companies Act and Marvell Governing Documents. Bermuda law provides
that the memorandum of association of a company may be amended by a resolution
passed at a general meeting of shareholders after due notice has been given.
Amendments to the memorandum of association, other than amendments altering or
reducing a company's share capital, require the approval of the Bermuda Minister
of Finance, who may grant or withhold approval at his or her discretion. The
directors may amend the bye-laws, but the amendment must be approved by the
shareholders at a general meeting.
Under the Bermuda Companies Act, the holders of a total of at least 20% in
par value of any class of a company's issued share capital have the right to
apply to the Bermuda courts for an annulment of any amendment of the memorandum
of association adopted by shareholders at any general meeting, other than an
amendment altering or reducing a company's share capital as provided in the
Companies Act. Where such an application is made, the amendment becomes
effective only to the extent that it is confirmed by the Bermuda courts. An
application for annulment of any amendment of the memorandum of association must
be made within 21 days after the date on which the resolution altering the
company's memorandum is passed, and may be made on behalf of the persons
entitled to make the application by one or more persons appointed in writing for
that purpose. Persons voting in favor of the amendment may not make an
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application for annulment. The Bermuda Companies Act does not specify the
grounds on which an annulment would be granted.
Marvell's Bye-laws provide that no bye-law can be rescinded, altered or
amended and no bye-law can be made until the action has been approved by a
resolution of the board of directors of Marvell and by a special resolution of
its shareholders.
Israeli Companies Law and Galileo Articles of Association. The Companies
Law provides that a company incorporated after February 1, 2000 may amend its
articles of association by a majority vote at its general meeting, unless
otherwise specified in the company's articles of association. Companies formed
prior to February 1, 2000, such as Galileo, may amend their articles of
association by a shareholders resolution approved by 75% or more of the shares
present and voting, unless otherwise determined in its articles of association.
Certain changes to a company's articles of association, such as a change in a
company's name or objectives, are subject to approval by the Israeli Companies
Registrar.
APPRAISAL RIGHTS, SHAREHOLDER SUITS AND LIABILITY AND INDEMNIFICATION OF
DIRECTORS
Bermuda Companies Act and Marvell Governing Documents. Under Bermuda law,
if two companies consolidate or amalgamate, a shareholder who is not satisfied
that fair value has been offered for his or her shares may apply to the Bermuda
courts to appraise the fair value of his or her shares. The amalgamation of a
company with another company requires the approval of the amalgamation agreement
by the board of directors and by the shareholders.
Class actions and derivative actions are not available to shareholders
under Bermuda law except in the circumstances described below. The Bermuda
courts would ordinarily be expected to permit a shareholder to commence an
action in the name of a company to remedy a wrong done to the company where the
act complained of is alleged to:
- be beyond the corporate power of the company;
- be illegal;
- violate the company's memorandum of association or bye-laws;
- involve the fraud or dishonesty of a director or officer;
- be a fraud against the minority shareholders; or
- be a corporate act which requires the approval of a greater percentage of
the company's shareholders than those who actually approved it.
When the affairs of a company are being conducted in a manner oppressive or
prejudicial to the interests of some of the shareholders, one or more
shareholders may apply to the Bermuda courts for an order from the court with a
view to bringing the matters complained of to an end. The court may order the
regulation of the company's conduct of its affairs in the future or order the
purchase of the shares of any shareholder by the company or any other
shareholder.
Claims other than those involving the fraud or dishonesty of a director or
officer may be asserted against Marvell, but not against its officers and
directors because of the waiver of these claims contained in Marvell's Bye-laws.
However, claims arising under the United States federal securities laws may be
asserted against Marvell and its officers and directors. For a description of
the risks associated with asserting claims against Marvell or its directors and
officers, see the discussion in the "Risk Factors" section of this joint proxy
statement/prospectus.
Israeli Companies Law and Galileo Articles of Association. Under Israeli
law, holders of Galileo ordinary shares are not entitled to appraisal rights.
Under the Companies Law, a shareholder may apply to an Israeli district court to
recognize his or her individual claim against the company as a class action
which, if approved, will include a class of shareholders determined by the
court. The court has the authority to designate such action as a "class action"
if certain criteria are met, including good faith by the
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plaintiff. The plaintiff in a class action may request the Israeli Securities
Authority to bear his or her legal expenses, and may be awarded damages
exceeding his or her pro rata portion of the entire award.
Under the Companies Law, a shareholder or a director may apply to the court
to commence a derivative action in the name of a company to remedy a wrong done
to the company, after giving notice to the company. A derivative action has to
be approved by the court, and is subject to certain criteria, including that the
shareholder has good faith towards the company, and that the action itself and
the manner the action is conducted benefits the company. Under the Companies
Law, a shareholder or a director in specified circumstances may apply to the
court to assume a defense in the name of the company.
Under the Companies Law, a company may not exempt an office holder from
liability for a breach of his or her duty of loyalty, but may, under certain
circumstances, exempt an office holder in advance from his or her liability to
the company for a breach of his or her duty of care, provided the company's
articles of association expressly permit such exemption.
ANTI-TAKEOVER PROVISIONS
Bermuda Companies Act and Marvell Governing Documents. The effect of the
anti-takeover provisions in Marvell's Bye-laws is to delay, defer or discourage
another person from acquiring control of Marvell. Pursuant to these provisions:
- approval by special resolution of Marvell shareholders is required
to adopt, amend or repeal Marvell's Bye-laws regarding the election and
removal of directors;
- shareholders may only fill vacancies on the board of directors when
no quorum of directors remains;
- the board of directors is divided into three classes, each serving
staggered three year terms, which results in only one class of directors
being elected at each annual general meeting of shareholders, with the
other classes continuing for the remainder of their respective terms;
- directors may only be removed for cause, and then only by special
resolution of Marvell shareholders; and
- officers and directors are indemnified against losses that they may
incur in investigations and legal proceedings resulting from their services
to the company, which may include services in connection with takeover
defense measures.
Israeli Companies Law and Galileo Articles of Association. The Companies
Law provides that an acquisition of shares of a public company on the open
market must be made by means of a tender offer:
- if as a result of the acquisition the purchaser would become a holder of
shares entitling the purchaser to 25% of the voting rights in the company
and there are no other holders of shares entitled to 25% of the voting
rights in the company; or
- if there is already a holder of shares entitled to 25% of the voting
rights in the company, if as a result of the acquisition the purchaser
would hold more than 45% of the voting rights in the company's shares and
there is no other majority shareholder in the company.
In addition, under the Companies Law, an acquisition may not be made other
than through a tender offer to acquire all of the shares or class of shares, if
following an acquisition of shares the purchaser would hold more than 90% of a
company's shares or class of shares.
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ADDITIONAL INFORMATION
LEGAL MATTERS
Conyers Dill & Pearman, Bermuda, will pass upon the validity of the Marvell
common stock to be issued in connection with the merger.
EXPERTS
The consolidated financial statements of Marvell, as of January 31, 2000
and 1999 and for each of the three years in the period ended January 31, 2000,
included in this joint proxy statement/prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants
given on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of Galileo Technology Ltd. appearing
in Galileo Technology Ltd.'s Annual Report on Form 20-F for the year ended
December 31, 1999 have been audited by Ernst & Young LLP, independent auditors,
as set forth thereon in their report included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
SHAREHOLDER PROPOSALS
Galileo will hold a 2000 annual meeting of shareholders only if the merger
is not completed before March 31, 2001, although Galileo would have been
required to hold such a meeting in November 2000 had the merger agreement not
been entered into.
If the merger is consummated, the first annual meeting of the shareholders
of Marvell after such consummation is expected to be held on or about June 30,
2001.
If any Marvell shareholder intends to present a proposal at the 2001
Marvell annual meeting and wishes to have that proposal considered for inclusion
in the proxy materials for the meeting, the shareholder must have submitted the
proposal to the Secretary of Marvell in writing so as to be received at the
executive offices of Marvell by February 10, 2001. Such proposals must also meet
the other requirements of the rules of the Securities and Exchange Commission
relating to shareholders' proposals.
OTHER MATTERS
As of the date of this joint proxy statement/prospectus, neither Marvell's
nor Galileo's board of directors knows of any matters that will be presented for
consideration at their respective general meetings other than as described in
this joint proxy statement/prospectus. If any other matters properly come before
the Marvell special general meeting or the Galileo extraordinary general meeting
or any adjournment or postponement of the respective meeting and are voted upon,
the enclosed proxies will be deemed to confer discretionary authority on the
individuals named as proxies in the enclosed proxies to vote the shares
represented by those proxies as to any such matters. The individuals named as
proxies intend to vote or not to vote in accordance with the recommendation of
Marvell's management or Galileo's management, as the case may be.
WHERE YOU CAN FIND MORE INFORMATION
Marvell has filed with the Securities and Exchange Commission a
registration statement on Form S-4 under the Securities Act, that registers the
shares of Marvell common stock to be issued in exchange for shares of Galileo in
connection with the merger. The registration statement, including the attached
exhibits and schedules, contains additional relevant information about Marvell
and its capital stock. The rules and regulations of the Securities and Exchange
Commission allow us to omit certain information included in the registration
statement from this joint proxy statement/prospectus.
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In addition, Marvell, since June 30, 2000, and Galileo file annual,
quarterly and special reports and other information with the Securities and
Exchange Commission under the Exchange Act. You may read and copy any of these
filings at the following public reference rooms and locations of the Securities
and Exchange Commission:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661-2511
</TABLE>
You may also obtain copies of this information by mail from the Public
Reference Section of the Securities and Exchange Commission, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, at prescribed rates. You may obtain
information on the operation of the public reference rooms by calling the
Securities and Exchange Commission at 1-800-SEC-0330.
The Securities and Exchange Commission also maintains an Internet website
that contains reports and other information about issuers, like Marvell and
Galileo, who file electronically with the Securities and Exchange Commission.
The address of that website is www.sec.gov.
THE SECURITIES AND EXCHANGE COMMISSION ALLOWS MARVELL TO ENCLOSE
INFORMATION WITH THIS JOINT PROXY STATEMENT/PROSPECTUS AND ALLOWS GALILEO TO
INCORPORATE BY REFERENCE INFORMATION INTO THIS JOINT PROXY STATEMENT/PROSPECTUS.
THIS MEANS THAT GALILEO CAN DISCLOSE IMPORTANT BUSINESS AND FINANCIAL
INFORMATION TO YOU BY REFERRING YOU TO ANOTHER DOCUMENT FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION AND THAT MARVELL CAN SIMILARLY DISCLOSE
IMPORTANT BUSINESS AND FINANCIAL INFORMATION VIA ATTACHMENTS TO THIS JOINT PROXY
STATEMENT/PROSPECTUS. SUCH INFORMATION IS CONSIDERED TO BE A PART OF THIS JOINT
PROXY STATEMENT/PROSPECTUS, EXCEPT FOR ANY INFORMATION THAT IS SUPERSEDED BY
INFORMATION THAT IS INCLUDED DIRECTLY IN THIS DOCUMENT.
This joint proxy statement/prospectus incorporates by reference the
documents listed below for Galileo that have been previously filed with the
Securities and Exchange Commission. These documents contain important
information about Galileo and its financial condition.
<TABLE>
<CAPTION>
GALILEO SEC FILINGS PERIOD
------------------- ------
<S> <C>
Annual Report on Form 20-F.................................. Year ended December 31, 1999
Reports on Form 6-K......................................... For the quarters ended March
31, 2000 and June 30, 2000
Report on Form 6-K.......................................... Filed: October 17, 2000
</TABLE>
Galileo incorporates by reference additional documents that it may file
with the Securities and Exchange Commission between the date of this joint proxy
statement/prospectus and the date of the Galileo extraordinary general meeting.
Marvell has supplied all information contained in this joint proxy
statement/prospectus relating to Marvell, Galileo has supplied all information
contained or incorporated by reference relating to Galileo, and both companies
have supplied the pro forma financial information.
We have not authorized anyone to give any information or make any
representation about the merger or our companies that is different from, or in
addition to, that contained in this joint proxy statement/ prospectus or in any
of the materials that we have incorporated into this document. Therefore, if
anyone does give you information of this sort, you should not rely on it. If you
are in a jurisdiction where offers to exchange or sell, or solicitations of
offers to exchange or purchase, the securities offered by this document or the
solicitation of proxies is unlawful, or if you are a person to whom it is
unlawful to direct these types of activities, then the offer presented in this
document does not extend to you. The information contained in this document
speaks only as of the date of this document unless the information specifically
indicates that another date applies.
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This joint proxy statement/prospectus incorporates important business and
financial information about Galileo from documents that are not included in or
delivered with this joint proxy statement/prospectus. This information is
available to you without charge upon your written or oral request. You can
obtain documents incorporated by reference in this joint proxy
statement/prospectus by requesting them in writing or by telephone from Galileo
at the following location:
Galileo Technology Ltd.
Investor Relations
142 Charcot Avenue
San Jose, California 95131
(408) 367-1400
If you request any incorporated documents from Galileo, we will mail them
to you by first class mail, or another equally prompt means, promptly after we
receive your request. TO ENSURE TIMELY DELIVERY, WE SUGGEST YOU REQUEST THE
INFORMATION AT LEAST FIVE BUSINESS DAYS BEFORE THE DATE YOU MUST MAKE YOUR
INVESTMENT DECISION.
You can also obtain any of the documents incorporated by reference in this
document through Galileo or from the Securities and Exchange Commission through
the Securities and Exchange Commission's website at the address given above.
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APPENDIX
A
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AGREEMENT OF MERGER
DATED AS OF OCTOBER 16, 2000
AMONG
MARVELL TECHNOLOGY GROUP LTD.,
GALILEO TECHNOLOGY LTD.
AND
TOSHACK ACQUISITIONS LTD.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 117
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE 1 THE MERGER........................................................ A-1
Section 1.1. The Merger.................................................. A-1
Section 1.2. Effective Time.............................................. A-2
Section 1.3. Closing of the Merger....................................... A-2
Section 1.4. Conversion of Shares........................................ A-2
Section 1.5. Exchange of Certificates.................................... A-2
Section 1.6. Stock Options............................................... A-4
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................... A-5
Section 2.1. Organization and Qualification; Subsidiaries; Investments... A-5
Section 2.2. Capitalization of the Company and its Subsidiaries.......... A-5
Section 2.3. Authority Relative to this Agreement; Recommendation........ A-6
Section 2.4. SEC Reports; Financial Statements........................... A-7
Section 2.5. Information Supplied........................................ A-8
Section 2.6. Consents and Approvals; No Violations....................... A-8
Section 2.7. No Default.................................................. A-9
Section 2.8. No Undisclosed Liabilities; Absence of Changes.............. A-9
Section 2.9. Litigation.................................................. A-10
Section 2.10. Compliance with Applicable Law.............................. A-10
Section 2.11. Foundry Relationships....................................... A-11
Section 2.12. Environmental Laws and Regulations.......................... A-11
Section 2.13. Taxes....................................................... A-12
Section 2.14. Intellectual Property....................................... A-13
Section 2.15. Insurance................................................... A-15
Section 2.16. Certain Business Practices.................................. A-15
Section 2.17. Title to Properties......................................... A-15
Section 2.18. Product Warranties.......................................... A-16
Section 2.19. Suppliers and Customers..................................... A-16
Section 2.20. Grants, Incentives and Subsidies............................ A-16
Section 2.21. Opinion of Financial Adviser................................ A-16
Section 2.22. Affiliates.................................................. A-16
Section 2.23. Brokers..................................................... A-16
Section 2.24. Employee Benefits........................................... A-17
Section 2.25. Labor and Employment Matters................................ A-19
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION..........
A-20
Section 3.1. Organization................................................ A-20
Section 3.2. Capitalization of Parent and its Subsidiaries............... A-20
Section 3.3. Authority Relative to this Agreement........................ A-21
Section 3.4. SEC Reports; Financial Statements........................... A-21
Section 3.5. Information Supplied........................................ A-22
Section 3.6. Consents and Approvals; No Violations....................... A-22
Section 3.7. Litigation.................................................. A-23
Section 3.8. No Default.................................................. A-23
Section 3.9. Opinion of Financial Advisor................................ A-23
Section 3.10. Brokers..................................................... A-23
Section 3.11. No Prior Activities......................................... A-23
Section 3.12. No Undisclosed Liabilities; Absence of Changes.............. A-23
Section 3.13. Compliance with Applicable Law.............................. A-23
Section 3.14. Affiliates.................................................. A-24
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
Section 3.15. Intellectual Property....................................... A-24
Section 3.16. Environmental Laws and Regulations.......................... A-26
Section 3.17. Taxes....................................................... A-26
Section 3.18. Employee Benefits........................................... A-27
Section 3.19. Certain Business Practices.................................. A-28
ARTICLE 4 COVENANTS......................................................... A-28
Section 4.1. Conduct of Business of the Company.......................... A-28
Section 4.2. Conduct of Business of Parent............................... A-30
Section 4.3. Merger Proposal; Shareholders' Meetings; Preparation of Form
S-4 and the Proxy Statement................................. A-31
Section 4.4. Other Potential Acquirers................................... A-32
Section 4.5. Israeli Approvals........................................... A-34
Section 4.6. Israeli Income Tax Ruling................................... A-35
Section 4.7. Israeli Securities Law Exemption............................ A-35
Section 4.8. Nasdaq National Market...................................... A-35
Section 4.9. Access to Information....................................... A-35
Section 4.10. Certain Filings; Reasonable Best Efforts.................... A-36
Section 4.11. Public Announcements........................................ A-37
Section 4.12. Indemnification and Directors' and Officers' Insurance...... A-37
Section 4.13. Notification of Certain Matters............................. A-38
Section 4.14. Affiliates; Tax Representations............................. A-38
Section 4.15. Additions to and Modification of Disclosure Schedules....... A-38
Section 4.16. Parent Board of Directors................................... A-38
Section 4.17. Certain Employee Matters.................................... A-39
ARTICLE 5 CONDITIONS TO CONSUMMATION OF THE MERGER.......................... A-39
Section 5.1. Conditions to Each Party's Obligations to Effect the
Merger...................................................... A-39
Section 5.2. Conditions to the Obligations of the Company................ A-40
Section 5.3. Conditions to the Obligations of Parent and Acquisition..... A-40
ARTICLE 6 TERMINATION; AMENDMENT; WAIVER.................................... A-41
Section 6.1. Termination................................................. A-41
Section 6.2. Effect of Termination....................................... A-42
Section 6.3. Fees and Expenses........................................... A-42
Section 6.4. Amendment................................................... A-44
Section 6.5. Extension; Waiver........................................... A-44
ARTICLE 7 MISCELLANEOUS..................................................... A-44
Section 7.1. Nonsurvival of Representations and Warranties............... A-44
Section 7.2. Entire Agreement; Assignment................................ A-44
Section 7.3. Validity.................................................... A-45
Section 7.4. Notices..................................................... A-45
Section 7.5. Governing Law and Venue; Waiver of Jury Trial............... A-46
Section 7.6. Descriptive Headings........................................ A-47
Section 7.7. Parties in Interest......................................... A-47
Section 7.8. Certain Definitions......................................... A-47
Section 7.9. Personal Liability.......................................... A-48
Section 7.10. Specific Performance........................................ A-48
Section 7.11. Counterparts................................................ A-48
</TABLE>
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TABLE OF EXHIBITS
<TABLE>
<S> <C>
Exhibit A..................... Form of Stock Option Agreement
Exhibit B..................... Form of Irrevocable Proxy
Exhibit C..................... Form of Parent Voting Agreement
Exhibit D..................... [Intentionally omitted]
Exhibit E-1................... Form of Representations related to Tax Matters of the
Company
Exhibit E-2................... Form of Representations related to Tax Matters of Parent and
Acquisition
</TABLE>
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TABLE OF DEFINED TERMS
<TABLE>
<CAPTION>
CROSS REFERENCE
TERM IN AGREEMENT PAGE
---- -------------------- ------
<S> <C> <C>
Acquisition Preamble........................................ 1
Affiliate................................................... Section 7.8(a) 62
Agreement Preamble.......................................... 1
Applicable Law.............................................. Section 7.8(b) 62
Business Day................................................ Section 7.8(c) 62
Capital Stock............................................... Section 7.8(d) 62
Certificates................................................ Section 1.5(b) 3
Claims...................................................... Section 3.16 34
Closing Date................................................ Section 1.3 2
Closing..................................................... Section 1.3 2
Companies Law............................................... Section 1.1 2
Company Affiliates.......................................... Section 2.22 22
Company Approval Matters.................................... Section 4.3(b) 41
Company Board............................................... Section 2.3(a) 8
Company Disclosure Schedule................................. Article 2 6
Company Employee Plan....................................... Section 2.24(a)(iii) 22
Company Financial Adviser................................... Section 2.21 22
Company Permits............................................. Section 2.10 14
Company Plans............................................... Section 1.6(a) 5
Company Preamble............................................ 1
Company Property............................................ Section 2.12 14
Company SEC Reports......................................... Section 2.4(a) 9
Company Securities.......................................... Section 2.2(a) 7
Company Shareholder Meeting................................. Section 2.5 10
Company Stock Option(s)..................................... Section 1.6(a) 5
Copyrights.................................................. Section 2.14(a) 17
DOL......................................................... Section 2.24(b) 23
Effect of Transaction....................................... Section 3.18(e) 36
Effective Time.............................................. Section 1.2 2
Employee Agreement.......................................... Section 2.24(a)(vi) 22
Employee Plan Compliance.................................... Section 3.18(c) 36
Employee Plan............................................... Section 2.24(a)(iv) 22
Employee Plans.............................................. Section 3.18(b) 35
Employee.................................................... Section 2.24(a)(v) 22
Environmental Claims........................................ Section 2.12 15
Environmental Claims........................................ Section 3.16 34
Environmental Law........................................... Section 2.12 15
Environmental Law........................................... Section 3.16 34
ERISA Affiliate............................................. Section 2.24(a)(ii) 22
ERISA....................................................... Section 2.24(a)(i) 22
Excess Parachute Payment.................................... Section 2.24(f)(2) 24
Exchange Act................................................ Section 2.2(c) 8
Exchange Agent.............................................. Section 1.5(a) 3
Exchange Fund............................................... Section 1.5(a) 3
Exchange Ratio.............................................. Section 1.4(b) 3
Final Date.................................................. Section 6.1(b) 55
Foreign Plan................................................ Section 2.24(k) 24
Foreign Plan................................................ Section 3.18(k) 36
Foreign Plans............................................... Section 3.18(f) 36
</TABLE>
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<TABLE>
<CAPTION>
CROSS REFERENCE
TERM IN AGREEMENT PAGE
---- -------------------- ------
<S> <C> <C>
Form S-4.................................................... Section 2.5 10
Governmental Entity......................................... Section 2.6(a) 11
Hazardous Materials......................................... Section 2.12 14
Hazardous Materials......................................... Section 3.16 34
HSR Act..................................................... Section 2.6(a) 10
Inbound License Agreements.................................. Section 2.14(e) 18
Incentive Stock Options (ISOs).............................. Section 1.6(a) 6
Include (including)......................................... Section 7.8(f) 62
Indemnified Liabilities..................................... Section 4.12(a) 49
Indemnified Persons......................................... Section 4.12(a) 48
Insured Parties............................................. Section 4.12(c) 50
Intellectual Property....................................... Section 2.14(a) 17
IRS......................................................... Section 2.24(a)(vii) 23
Israeli Income Tax Ruling................................... Section 4.6 46
Israeli Securities Exemption................................ Section 4.7 46
Knowledge or Known.......................................... Section 7.8(e) 62
License Agreements.......................................... Section 2.14(e) 18
Lien........................................................ Section 2.2(b) 8
Material Adverse Effect..................................... Section 7.8(g) 62
Merger Consideration........................................ Section 1.4(a) 3
Merger Proposal............................................. Section 4.3(a) 41
Merger...................................................... Section 1.1 2
Notice of Superior Proposal................................. Section 4.4(b) 44
OCS......................................................... Section 2.6(a) 10
Opinion of Parent Financial Advisor......................... Section 3.9 30
Other Interests............................................. Section 2.1(c 7
Outbound License Agreements................................. Section 2.14(e) 18
Parent Affiliates........................................... Section 3.14 31
Parent Approval Matters..................................... Section 4.3(c) 42
Parent Bye-Laws............................................. Section 3.3(c) 27
Parent Common Stock......................................... Section 3.2(a) 26
Parent Common Stock......................................... Section 1.4(a) 3
Parent Employee Plan........................................ Section 3.18(a)(i) 35
Parent Financial Advisor.................................... Section 3.9 30
Parent Permits.............................................. Section 3.13 31
Parent Preamble............................................. 1
Parent Property............................................. Section 3.16 34
Parent Requisite Vote....................................... Section 3.3(c) 28
Parent SEC Reports.......................................... Section 3.4(a) 28
Parent Special Meeting...................................... Section 4.3(c) 42
Patents..................................................... Section 2.14(a) 17
Pension Plans............................................... Section 3.18(d) 36
Person...................................................... Section 7.8(h) 63
Prohibited Transaction...................................... Section 2.24(c) 23
Prohibited Transaction...................................... Section 3.18(c) 36
Proxy Statement............................................. Section 4.3(d) 42
Release..................................................... Section 2.12 15
Release..................................................... Section 3.16 34
SEC......................................................... Section 2.4(a) 9
Securities Act.............................................. Section 2.4(a) 9
Share(s).................................................... Section 1.4(a) 2
</TABLE>
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<TABLE>
<CAPTION>
CROSS REFERENCE
TERM IN AGREEMENT PAGE
---- -------------------- ------
<S> <C> <C>
Shareholder Approval Notice................................. Section 4.3(b) 42
Shareholder Approval Notices................................ Section 1.2 2
Software.................................................... Section 2.14(l), 20 33
Stock Option Agreement...................................... Section 2.3(a) 8
Subsidiary or subsidiaries.................................. Section 7.8(i) 63
Superior Proposal........................................... Section 4.4(c) 44
Supply Contracts............................................ Section 2.11 14
Surviving Corporation....................................... Section 1.1 2
Tax or Taxes................................................ Section 2.13(a)(i) 15
Tax Return.................................................. Section 2.13(a)(ii) 16
Third Party Acquisition..................................... Section 4.4(c) 44, 57
Third Party................................................. Section 4.4(c) 44, 57
Trade Secrets............................................... Section 2.14(a) 17
Trademarks.................................................. Section 2.14(a) 17
</TABLE>
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AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER (this "Agreement") dated as of October 16, 2000,
is by and among GALILEO TECHNOLOGY LTD., an Israeli corporation (the "Company"),
MARVELL TECHNOLOGY GROUP LTD., a Bermuda corporation ("Parent"), and TOSHACK
ACQUISITIONS LTD., an Israeli corporation and a direct wholly-owned subsidiary
of Parent ("Acquisition"). Capitalized terms not otherwise defined herein shall
have the meanings ascribed to such terms in Section 7.8 of this Agreement.
WHEREAS, Parent, the Company and Acquisition intend to effect a Merger (as
defined below) of Acquisition into the Company in accordance with this Agreement
and the Israeli Companies Law-5759-1999 (the "Companies Law") pursuant to which
Acquisition will cease to exist, and the Company will become a wholly-owned
subsidiary of Parent;
WHEREAS, the Boards of Directors of the Company, Parent and Acquisition
have each (i) determined that the Merger is advisable and fair and in the best
interests of their respective companies and shareholders and (ii) approved the
Merger upon the terms and subject to the conditions set forth in this Agreement;
WHEREAS, the Merger is intended to constitute a reorganization for United
States federal income tax purposes within the meaning of Section 368(a) of the
Code (as defined below);
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to Parent's willingness to enter into this
Agreement, Parent and the Company have entered into a Stock Option Agreement,
dated as of the date of this Agreement, in the form attached hereto as Exhibit A
(the "Stock Option Agreement"), pursuant to which the Company has granted to
Parent an option to purchase ordinary shares of the Company under certain
circumstances;
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to the Parent's willingness to enter into this
Agreement, certain shareholders of the Company have entered into an Irrevocable
Proxy, dated as of the date of this Agreement, in the form attached hereto as
Exhibit B, pursuant to which such shareholders have directed the proxyholder to
vote all voting securities of the Company beneficially owned by them in favor of
approval and adoption of this Agreement and the Merger; and
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to the Company's willingness to enter into this
Agreement, certain shareholders of Parent have entered into a Voting Agreement,
dated as of the date of this Agreement, in the form attached hereto as Exhibit
C, pursuant to which such shareholders have agreed to vote all voting securities
of Parent beneficially owned by them in favor of approval and adoption of this
Agreement and the Merger.
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the Company, Parent and Acquisition hereby
agree as follows:
ARTICLE 1
THE MERGER
SECTION 1.1. The Merger. At the Effective Time (as defined below) and upon
the terms and subject to the conditions of this Agreement and in accordance with
the Companies Law, Acquisition (as the target company (Chevrat Ha 'Ya'ad)) shall
be merged with and into the Company (as the absorbing company (HaChevra Ha
'Koletet)) (the "Merger"). Following the Merger, the Company (a) shall continue
as the surviving corporation (the "Surviving Corporation") and the separate
corporate existence of Acquisition shall cease, (b) shall be governed by the
laws of the State of Israel, (c) shall maintain a registered office in the State
of Israel, and (d) shall succeed to and assume all of the rights, properties and
obligations of Acquisition and the Company in accordance with the Companies Law.
Parent, as the sole
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shareholder of Acquisition, hereby undertakes to approve the Merger and this
Agreement at the general shareholders meeting of Acquisition.
SECTION 1.2. Effective Time. The Merger shall become effective after the
delivery of shareholder approval notices (the "Shareholder Approval Notices") of
both the Company and Acquisition to the Companies Registrar and upon the
issuance of a certificate of merger by the Companies Registrar in accordance
with Section 323(5) of the Companies Law after the expiration of the 70 day
waiting period set forth in such Section 323 (the "Effective Time"). The parties
agree to deliver the Shareholder Approval Notices to the Companies Registrar in
accordance with the Companies Law on or before the Closing Date (as defined
below) so that the certificate of merger may issue on the Closing Date.
SECTION 1.3. Closing of the Merger. The closing of the Merger (the
"Closing") will take place at a time and on a date (the "Closing Date") to be
specified by the parties, which shall be no later than the second business day
after satisfaction (or waiver) of the latest to occur of the conditions set
forth in Article 5 (other than conditions that by their nature are to be
satisfied at the Closing, but subject to the satisfaction or waiver of those
conditions), at the offices of Gibson, Dunn & Crutcher LLP, 1530 Page Mill Road,
Palo Alto, California 94304, unless another time, date or place is agreed to in
writing by the parties hereto.
SECTION 1.4. Conversion of Shares.
(a) At the Effective Time, by virtue of the Merger and without any further
action by Parent, the Company, Acquisition, or any shareholder of Parent,
Company and Acquisition, each ordinary share of the Company, par value NIS 0.01
per share (individually a "Share" and collectively the "Shares"), issued and
outstanding immediately prior to the Effective Time (other than (i) Shares held
in the Company's treasury and (ii) Shares held by Parent or Acquisition) shall,
by virtue of the Merger and without any action on the part of Acquisition, the
Company or the holder thereof, be exchanged into and shall become a number of
fully paid and nonassessable shares of common stock, par value $0.002 per share,
of Parent ("Parent Common Stock") equal to the Exchange Ratio (as defined below)
(the "Merger Consideration"). Notwithstanding the foregoing, if, between the
date of this Agreement and the Effective Time, the outstanding shares of Parent
Common Stock or the Shares shall have been changed into a different number of
shares or a different class by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination, exchange of shares or
similar event, then the Exchange Ratio shall be correspondingly adjusted to
reflect such stock dividend, subdivision, reclassification, recapitalization,
split, combination, exchange of shares or similar event.
(b) The "Exchange Ratio" shall be 0.674.
(c) At the Effective Time, by virtue of the Merger and without any further
action by Parent, the Company, Acquisition, or any shareholder of Parent, the
Company and Acquisition, each outstanding ordinary share of Acquisition shall be
converted into one ordinary share of the Surviving Corporation and shall be
registered in the name of Parent in the shareholders register of the Surviving
Corporation.
(d) At the Effective Time, each Share held in the treasury of the Company
and each Share held by Parent and Acquisition immediately prior to the Effective
Time shall remain outstanding, shall not be exchanged under Section 1.4(a) and
no shares of Parent Common Stock shall be delivered with respect thereto.
SECTION 1.5. Exchange of Certificates.
(a) At the Effective Time, Parent shall deliver to its transfer agent, or a
depository or trust institution of recognized standing selected by Parent and
Acquisition and reasonably acceptable to the Company (the "Exchange Agent") for
the benefit of the holders of Shares for exchange in accordance with this
Article I: (i) certificates representing the appropriate number of shares of
Parent Common Stock issuable pursuant to Section 1.4; and (ii) cash to be paid
in lieu of fractional shares of Parent Common Stock (such shares of Parent
Common Stock and such cash are hereinafter referred to as the "Exchange Fund"),
in exchange for outstanding Shares.
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(b) As soon as reasonably practicable after the Effective Time (but not
later than five business days thereafter), the Exchange Agent shall mail to each
holder of record of a certificate or certificates that immediately prior to the
Effective Time represented outstanding Shares (the "Certificates") and whose
Shares were converted into the right to receive shares of Parent Common Stock
pursuant to Section 1.4: (i) a letter of transmittal (which shall specify that
delivery shall be effected and risk of loss and title to the Certificates shall
pass only upon delivery of the Certificates to the Exchange Agent and shall be
in such form and have such other provisions as Parent and the Company may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing shares of Parent
Common Stock. Upon surrender of a Certificate for cancellation to the Exchange
Agent together with such letter of transmittal duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of Parent Common Stock and, if
applicable, a check representing the cash consideration to which such holder may
be entitled on account of a fractional share of Parent Common Stock that such
holder has the right to receive pursuant to the provisions of this Article I,
and the Certificate so surrendered shall forthwith be canceled. In the event of
a transfer of ownership of Shares that is not registered in the transfer records
of the Company, a certificate representing the proper number of shares of Parent
Common Stock may be issued to a transferee if the Certificate representing such
Shares is presented to the Exchange Agent accompanied by all documents required
to evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this Section
1.5, each Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the certificate
representing shares of Parent Common Stock and cash in lieu of any fractional
shares of Parent Common Stock as contemplated by this Section 1.5.
(c) No dividends or other distributions declared or made after the
Effective Time with respect to Parent Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of Parent Common Stock represented thereby, and no cash
payment in lieu of fractional shares shall be paid to any such holder pursuant
to Section 1.5(f), until the holder of record of such Certificate shall
surrender such Certificate. Subject to the effect of Applicable Law, following
surrender of any such Certificate there shall be paid to the record holder of
the certificates representing whole shares of Parent Common Stock issued in
exchange therefor without interest (i) the amount of any cash payable in lieu of
a fractional share of Parent Common Stock to which such holder is entitled
pursuant to Section 1.5(f) and the amount of dividends or other distributions
with a record date after the Effective Time theretofore paid with respect to
such number of whole shares of Parent Common Stock and (ii) at the appropriate
payment date the amount of dividends or other distributions with a record date
after the Effective Time but prior to surrender and a payment date subsequent to
surrender that is payable with respect to such whole shares of Parent Common
Stock.
(d) In the event that any Certificate shall have been lost, stolen or
destroyed, the Exchange Agent shall issue in exchange therefor upon the making
of an affidavit of that fact by the holder thereof such shares of Parent Common
Stock and cash in lieu of fractional shares, if any, as may be required pursuant
to this Agreement; provided, however, that Parent or the Exchange Agent may, in
its reasonable discretion, require the delivery of a suitable bond or indemnity
against any claim that may be made against it with respect to such Certificate.
(e) All shares of Parent Common Stock issued upon the surrender for
exchange of Shares in accordance with the terms hereof and any cash paid
pursuant to Section 1.5(c) or 1.5(f) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such Shares; subject, however, to the
Surviving Corporation's obligation to pay any dividends or make any other
distributions with a record date prior to the date hereof that remain unpaid at
the Effective Time. From and after the Effective Time, there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the Shares that were outstanding immediately prior to the
Effective Time, other than transfers by Parent. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article I.
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(f) No fractions of a share of Parent Common Stock shall be issued in the
Merger but in lieu thereof each holder of Shares otherwise entitled to a
fraction of a share of Parent Common Stock shall upon surrender of his or her
Certificate or Certificates be entitled to receive an amount of cash (without
interest) determined by multiplying the closing price for a share of Parent
Common Stock on the Nasdaq National Market (as reported in the New York City
edition of the Wall Street Journal or, if not reported thereby, another
nationally recognized source) on the date of the Effective Time by the
fractional share interest to which such holder would otherwise be entitled. The
parties acknowledge that payment of the cash consideration in lieu of issuing
fractional shares was not separately bargained for consideration, but merely
represents a mechanical rounding off for purposes of simplifying the corporate
and accounting complexities that would otherwise be caused by the issuance of
fractional shares.
(g) Any portion of the Exchange Fund that remains undistributed to the
former shareholders of the Company upon the expiration of three hundred and
sixty five (365) days after the Effective Time shall be delivered to Parent upon
demand and any former shareholders of the Company who have not theretofore
complied with this Article 1 shall thereafter look only to Parent as general
creditors for payment of their claim for Parent Common Stock and cash in lieu of
fractional shares, as the case may be, and any applicable dividends or
distributions with respect to Parent Common Stock.
(h) Neither Parent nor the Company shall be liable to any holder of Shares
or Parent Common Stock for such shares (or dividends or distributions with
respect thereto) or cash from the Exchange Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or similar Applicable
Law.
SECTION 1.6. Stock Options.
(a) At the Effective Time, each outstanding option, warrant or other right
to purchase Shares (a "Company Stock Option" or collectively "Company Stock
Options") issued pursuant to the Galileo 1997 Employees' Stock Option Plan, the
Galileo 1997 GTI Stock Option Plan and the Galileo 1998 Non Employee Directors'
Stock Option Plan, or other agreement or arrangement, whether vested or
unvested, shall be converted as of the Effective Time into an option, warrant or
right, as applicable, to purchase shares of Parent Common Stock in accordance
with the terms of this Section 1.6. All plans or agreements described above
pursuant to which any Company Stock Option has been issued or may be issued
other than outstanding warrants or rights are referred to collectively as the
"Company Plans." Each Company Stock Option shall be deemed to constitute an
option to acquire, on the same terms and conditions as were applicable under
such Company Stock Option, a number of shares of Parent Common Stock equal to
the number of shares of Parent Common Stock (rounded up to the nearest whole
share) that the holder of such Company Stock Option would have been entitled to
receive pursuant to the Merger had such holder exercised such option or warrant
in full immediately prior to the Effective Time at a price per share of Parent
Common Stock (rounded down to the nearest whole cent) equal to (x) the former
per share exercise price for the Shares otherwise purchasable pursuant to such
Company Stock Option divided by (y) the Exchange Ratio; provided, however, that
in the case of any option to which Section 421 of the Code applies by reason of
its qualification under Section 422 of the Code ("incentive stock options" or
"ISOs"), the option price, the number of shares purchasable pursuant to such
option and the terms and conditions of exercise of such option shall be
determined in order to comply with Section 424(a) of the Code.
(b) Within fifteen (15) business days after the Effective Time, Parent
shall deliver to the holders of Company Stock Options appropriate notices
setting forth such holders' rights pursuant to the relevant Company Plan and
that the agreements evidencing the grants of such Company Stock Options shall
continue in effect on the same terms and conditions (subject to the adjustments
required by this Section 1.6 after giving effect to the Merger). Parent shall
assume and comply with the terms of the Company Plans and ensure, to the extent
required by and subject to the provisions of such Company Plans, that Company
Stock Options that qualified as incentive stock options prior to the Effective
Time continue to qualify as incentive stock options after the Effective Time.
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(c) Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Parent Common Stock for delivery upon
exercise of Company Stock Options assumed in accordance with this Section 1.6.
As soon as practicable after the Effective Time, Parent shall, if no
registration statement is in effect covering such Parent shares, file a
registration statement on Form S-8 (or any successor form) with respect to the
shares of Parent Common Stock subject to any Company Stock Options to the extent
registrable on Form S-8 (or any successor form) and shall use all reasonable
efforts to maintain the effectiveness of such registration statement or
registration statements (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such options remain outstanding.
(d) At or before the Effective Time, the Company shall, to the extent
reasonably necessary, cause to be effected, in a manner reasonably satisfactory
to Parent, amendments to the Company Plans to give effect to the foregoing
provisions of this Section 1.6.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of Parent and
Acquisition, subject to the exceptions set forth in the Disclosure Schedule (the
"Company Disclosure Schedule") delivered by the Company to Parent in accordance
with Section 4.15 that:
SECTION 2.1. Organization and Qualification; Subsidiaries; Investments.
(a) Section 2.1(a) of the Company Disclosure Schedule sets forth a true and
complete list of all the Company's directly or indirectly owned subsidiaries and
foreign branch offices, together with the jurisdiction of incorporation of each
subsidiary and the percentage of each subsidiary's outstanding capital stock or
other equity interests owned by the Company or another subsidiary of the
Company. Each of the Company and its subsidiaries is duly organized, validly
existing and (to the extent such concept exists under the laws of its
jurisdiction of incorporation) in good standing under the laws of the
jurisdiction of its incorporation or organization and has all requisite power
and authority to own, lease and operate its properties and to carry on its
businesses as now being conducted.
(b) Each of the Company and its subsidiaries is duly qualified or licensed
and, to the extent such concept exists under applicable law, in good standing to
do business in each jurisdiction in which the property owned, leased or operated
by it or the nature of the business conducted by it makes such qualification or
licensing necessary, except in such jurisdictions where the failure to be so
duly qualified or licensed and in good standing would not, individually or in
the aggregate, have a Material Adverse Effect on the Company.
(c) Except as otherwise disclosed in the Company SEC Reports (as defined
below) or Section 2.1(c) of the Company Disclosure Schedule, none of the Company
or any of its subsidiaries have any equity investment in an amount of Five
Hundred Thousand Dollars ($500,000) or more or that represents a five percent
(5%) or greater ownership interest in the subject of such investment made by the
Company or any of its subsidiaries in any person other than the Company's
subsidiaries ("Other Interests"). The Other Interests are owned by the Company,
by one or more of the Company's subsidiaries or by the Company and one or more
of its subsidiaries, in each case free and clear of all Liens (as defined
below).
SECTION 2.2. Capitalization of the Company and its Subsidiaries.
(a) The authorized share capital of the Company consists of 1,000,000 NIS,
divided into 100,000,000 Shares, of which, as of October 6, 2000, 42,973,767
Shares were issued and outstanding. Between October 6, 2000 and the date hereof,
no Shares have been issued other than pursuant to Company Stock Options already
in existence on such first date, and between October 6, 2000 and the date
hereof, except as disclosed in Section 2.2(a) of the Company Disclosure
Schedule, no stock options have been granted. All of the outstanding Shares have
been validly issued and are fully paid, nonassessable and free of
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preemptive rights. As of October 3, 2000, approximately 9,254,772 Shares were
reserved for issuance and 8,999,472 Shares were issuable upon or otherwise
deliverable in connection with the exercise of outstanding Company Stock
Options. Except as set forth above, there are outstanding (i) no shares or other
voting securities of the Company, (ii) no securities of the Company or any of
its subsidiaries convertible into or exchangeable or exercisable for shares or
other securities of the Company, (iii) no options, preemptive or other rights to
acquire from the Company or any of its subsidiaries, and, except as described in
the Company SEC Reports, no obligations of the Company or any of its
subsidiaries to issue, any shares, voting securities or securities convertible
into or exchangeable or exercisable for shares or other securities of the
Company and (iv) no equity equivalent interests in the ownership or earnings of
the Company or its subsidiaries or other similar rights (collectively "Company
Securities"). As of the date hereof, there are no outstanding rights or
obligations of the Company or any of its subsidiaries to repurchase, redeem or
otherwise acquire any Company Securities. Except as set forth in Section 2.2(a)
of the Company Disclosure Schedule, there are no voting agreements, voting
trusts or other agreements or understandings to which the Company is a party or
by which it is bound relating to the voting or registration of any shares of
capital stock of the Company.
(b) All of the outstanding capital stock of the Company's subsidiaries is
owned by the Company, directly or indirectly, free and clear of any Lien or any
other limitation or restriction (including any restriction on the right to vote
or sell the same except as may be provided as a matter of Applicable Law). There
are no (i) securities of the Company or any of its subsidiaries convertible into
or exchangeable or exercisable for, (ii) options or (iii) other rights to
acquire from the Company or any of its subsidiaries any capital stock or other
ownership interests in or any other securities of any subsidiary of the Company,
and there exists no other contract, understanding, arrangement or obligation
(whether or not contingent) providing for the issuance or sale, directly or
indirectly, of any such capital stock. There are no outstanding contractual
obligations of the Company or its subsidiaries to repurchase, redeem or
otherwise acquire any outstanding shares of capital stock or other ownership
interests in any subsidiary of the Company. For purposes of this Agreement,
"Lien" means, with respect to any asset (including any security), any mortgage,
lien, pledge, charge, claim, security interest or encumbrance of any kind in
respect of such asset; provided, however, that the term "Lien" shall not include
(i) statutory liens for Taxes (as defined below) that are not yet due and
payable, (ii) statutory liens for Taxes that are being contested in good faith
by appropriate proceedings and are disclosed in Section 2.13 of the Company
Disclosure Schedule or Section 3.2 of Parent Disclosure Schedule, as applicable,
or that are otherwise not material, (iii) statutory or common law liens to
secure obligations to landlords, lessors or renters under leases or rental
agreements confined to the premises rented, (iv) deposits or pledges made in
connection with, or to secure payment of, workers' compensation, unemployment
insurance, old age pension or other social security programs mandated under
Applicable Laws, (v) statutory or common law liens in favor of carriers,
warehousemen, mechanics and materialmen, to secure claims for labor, materials
or supplies and other like liens, and (vi) restrictions on transfer of
securities imposed by applicable state and federal (United States or foreign)
securities laws or the governing documents of the Company or Parent, as
applicable. The record list of shareholders of the Company contains less than 35
shareholders whose addresses are in Israel and the Company does not have records
of beneficial ownership of shares that would show that, in the aggregate, there
are more than 35 holders of Shares resident in Israel.
(c) The Shares constitute the only class of equity securities of the
Company or its subsidiaries registered or required to be registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
SECTION 2.3. Authority Relative to this Agreement; Recommendation.
(a) The Company has all necessary corporate power and authority to execute
and deliver this Agreement and the Stock Option Agreement, to perform its
obligations under this Agreement and the Stock Option Agreement, and, subject to
receipt of the required shareholder vote (as described below), to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the Stock Option Agreement, and the consummation of the
transactions contemplated hereby and thereby, have been duly and validly
authorized by the Board of Directors of the Company (the
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"Company Board"), and no other corporate proceedings on the part of the Company
are necessary to authorize this Agreement or the Stock Option Agreement, or to
consummate the transactions contemplated hereby or thereby, except the receipt
of the required shareholder vote. This Agreement and the Stock Option Agreement
have been duly and validly executed and delivered by the Company and constitute
the valid, legal and binding agreements of the Company, enforceable against the
Company in accordance with their terms, except that (i) such enforcement may be
subject to any bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or other Applicable Laws, now or hereafter in effect, relating to or
limiting creditors' rights generally and (ii) the remedy of specific performance
and injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceedings
therefor may be brought.
(b) Without limiting the generality of the foregoing, the Board of
Directors of the Company has unanimously (i) approved this Agreement, the Stock
Option Agreement, and the transactions contemplated thereby and hereby, (ii)
resolved to recommend approval and adoption of this Agreement and the
transactions contemplated hereby to the Company's shareholders, and (iii) as of
the date hereof has not withdrawn or modified such approval or resolution to
recommend.
(c) Assuming neither Parent nor Acquisition, nor any of their affiliates
(as such term is described in Section 320(c) of the Companies Law), (i) own or
hold any Shares, or (ii) vote any Shares they own, the affirmative vote of 75%
of the voting power of the Shares present and voting at the Company Shareholder
Meeting is the only vote of the holders of any securities of the Company
necessary to approve the Merger (the "Company Requisite Vote"). The quorum
required for the Company Shareholder Meeting is two shareholders who hold at
least 60% of the voting rights of the issued share capital of the Company. No
vote or approval of (i) any creditor of the Company or its subsidiaries (subject
to the rights of creditors under Section 319 of the Companies Law), (ii) any
holder of any option or warrant granted by the Company or its subsidiaries, or
(iii) any shareholder of the Company's subsidiaries is necessary in order to
approve or permit the consummation of the Merger.
SECTION 2.4. SEC Reports; Financial Statements.
(a) The Company has filed all required forms, reports and documents
("Company SEC Reports") with the Securities and Exchange Commission (the "SEC")
since July 28, 1997, each of which complied at the time of filing in all
material respects with all applicable requirements of the Securities Act of
1933, as amended (the "Securities Act"), and the Exchange Act, as in effect on
the dates such forms, reports and documents were filed. None of such Company SEC
Reports, including any financial statements or schedules included or
incorporated by reference therein, contained when filed any untrue statement of
a material fact or omitted to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make the statements
therein in light of the circumstances under which they were made not misleading,
except to the extent superseded by a Company SEC Report filed subsequently and
prior to the date hereof. The audited consolidated financial statements of the
Company included in the Company SEC Reports fairly present in all material
respects, in conformity with United States generally accepted accounting
principles applied on a consistent basis (except as may be indicated in the
notes thereto), the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and their consolidated results
of operations and changes in financial position for the periods then ended.
Notwithstanding the foregoing, the Company shall not be deemed to be in breach
of any of the representations or warranties in this Section 2.4(a) as a result
of any changes to the Company SEC Reports that the Company may make in response
to comments received from the SEC on the Form S-4. The Company is a "foreign
private issuer" as such term is defined under Rule 3b-4(c) promulgated by the
SEC under the Exchange Act.
(b) The Company has heretofore made, and hereafter will make, available to
Acquisition or Parent a complete and correct copy of any amendments or
modifications that are required to be filed with the SEC but have not yet been
filed with the SEC to agreements, documents or other instruments that previously
had been filed by the Company with the SEC pursuant to the Exchange Act.
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SECTION 2.5. Information Supplied. None of the information supplied or to
be supplied by the Company specifically for inclusion or incorporation by
reference in (i) the registration statement on Form S-4 to be filed with the SEC
by Parent in connection with the issuance of shares of Parent Common Stock in
the Merger, and any amendment or supplement thereto (the "Form S-4") will, at
the time it becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they are made or (ii) the Proxy Statement
relating to the general meeting of the Company's shareholders to be held in
connection with the Merger (the "Company Shareholder Meeting") will, at the date
mailed to shareholders of the Company and at the time of the Company Shareholder
Meeting, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein in light of the circumstances under which they are made not
misleading. The Proxy Statement insofar as it relates to the Company Shareholder
Meeting to vote on the Merger will comply as to form in all material respects
with the provisions of applicable Israeli law. Notwithstanding the foregoing,
the Company makes no representation, warranty or covenant with respect to any
information supplied or required to be supplied by Parent or Acquisition that is
contained in or omitted from any of the foregoing documents.
SECTION 2.6. Consents and Approvals; No Violations.
(a) Except as set forth in Section 2.6(a) of the Company Disclosure
Schedule, and except for filings, permits, authorizations, consents and
approvals as may be required under applicable requirements of the Securities
Act, the Exchange Act, state securities or blue sky laws, and the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), any filings under similar merger notification laws or regulations of
non-Israeli or U.S. Governmental Entities (as defined below), to the extent
required by Applicable Law, the consent of the Israeli Controller of Restrictive
Trade Practices, to the extent required pursuant to the Restrictive Trade
Practices Law (1968), the filing and recordation of the Merger Proposal and the
Shareholders Approval Notice and other filings as required by the Companies Law,
and the approval of the Office of the Chief Scientist in the Israeli Ministry of
Industry and Commerce (the "OCS") and the approval of the Israeli Investment
Center in the Israeli Ministry of Industry and Commerce (the "Investment
Center"), no filing with or notice to and no permit, authorization, consent or
approval of any Israeli, United States (federal, state or local) or foreign
court or tribunal, or administrative, governmental or regulatory body, agency or
authority (a "Governmental Entity") is necessary for the execution and delivery
by the Company of this Agreement or the consummation by the Company of the
transactions contemplated hereby except for such filings, notices, permits,
authorizations, consents or approvals the failure of which to make or obtain
would not, individually or in the aggregate, prevent or delay the transactions
contemplated hereby or have a Material Adverse Effect on the Company.
(b) Except as set forth in Section 2.6(b) of the Company Disclosure
Schedule, neither the execution, delivery and performance of this Agreement or
the Stock Option Agreement by the Company nor the consummation by the Company of
the transactions contemplated hereby or thereby will (i) conflict with or result
in any breach of any provision of the respective memorandum of association and
articles of association and other charter documents (or similar governing
documents) of the Company or any of its subsidiaries, (ii) result in a violation
or breach of or constitute (with or without due notice or lapse of time or both)
a default (or give rise to any right of termination, amendment, cancellation or
acceleration or Lien) under any of the terms, conditions or provisions of any
material note, bond, mortgage, indenture, lease, license, contract (including
any material Supply Contract (as defined below)), agreement or other instrument
or obligation to which the Company or any of its subsidiaries is a party or by
which any of them or any of their respective properties or assets may be bound,
(iii) violate any material order, writ, injunction, decree, law, statute, rule
or regulation applicable to the Company or any of its subsidiaries or any of
their respective properties or assets, (iv) contravene, conflict with or result
in a violation of, or give any Governmental Entity or other person the right to
exercise any remedy or obtain any relief under, any legal requirement or any
order, writ, injunction, judgment or decree to which the Company or its
subsidiaries, or any of the assets owned or used by the Company or its
subsidiaries, is subject, (v) contravene, conflict with or result in a violation
of any of the terms or requirements of, or give
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any Governmental Entity the right to revoke, withdraw, suspend, cancel,
terminate, modify or exercise any right or remedy or require any refund or
recapture with respect to, any Grant (as hereinafter defined) given by any
Governmental Entity (or any benefit provided or available thereunder) or other
permit, license, consent, authorization, grant, benefit, right that is held by
the Company or that otherwise relates to the business or assets of the Company,
or (vi) with the passage of time, the giving of notice, or the taking of any
action by a third person, have any of the effects set forth in clauses (i)
through (v) of this Section; in each case (other than clause (i) hereof) other
than such violations, breaches or defaults as could not reasonably be expected
to have a Material Adverse Effect on the Company. Section 2.6 of the Company
Disclosure Schedule lists all holders of any material indebtedness of the
Company or its subsidiaries, the lessors of any material property leased by the
Company or its subsidiaries and the other parties to any material agreements to
which the Company or its subsidiaries is a party in each case whose consent to
the Merger is required.
SECTION 2.7. No Default. Except as set forth in Section 2.7 of the Company
Disclosure Schedule, neither the Company nor any of its subsidiaries is in
breach, default or violation (and no event has occurred that with notice or the
lapse of time or both would constitute a breach, default or violation) of any
term, condition or provision of (a) its memorandum of association and articles
of association and other charter documents (or similar governing documents), (b)
any material note, bond, mortgage, indenture, lease, license, contract
(including any material Supply Contract), agreement or other instrument or
obligation to which the Company or any of its subsidiaries is now a party or by
which it or any of its properties or assets may be bound or (c) any material
Applicable Law, the consequence of which breach, default or violation does or
would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company.
SECTION 2.8. No Undisclosed Liabilities; Absence of Changes. The Company
has provided Parent true and accurate copies of its material agreements as
described in Item 601(b)(10) of Regulation S-K promulgated under the Securities
Act. Except as and to the extent publicly disclosed by the Company in the
Company SEC Reports or as set forth in Section 2.8 of the Company Disclosure
Schedule, or as incurred by the Company in the ordinary and usual course of
business consistent with past practice, neither the Company nor any of its
subsidiaries has any liabilities or obligations of any nature, whether or not
accrued, contingent or otherwise, that would be required by United States
generally accepted accounting principles to be reflected on a consolidated
balance sheet of the Company (including the notes thereto), except for such
liabilities or obligations which do or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
Except as publicly disclosed by the Company in the Company SEC Reports or as set
forth in Section 2.8 of the Company Disclosure Schedule, since December 31,
1999, there have been no events, changes or effects with respect to the Company
or its subsidiaries that, individually or in the aggregate, have had or
reasonably would be expected to have a Material Adverse Effect on the Company.
Without limiting the generality of the foregoing, except as and to the extent
publicly disclosed by the Company in the Company SEC Reports or as set forth in
Section 2.8 of the Company Disclosure Schedule or as otherwise permitted
pursuant to this Agreement, since December 31, 1999, the Company and its
subsidiaries have conducted their respective businesses in all material respects
in the ordinary and usual course of such businesses consistent with past
practices, and there has not been (other than under this Agreement) any:
(i) material damage, destruction or other casualty loss with respect
to any material asset or property owned, leased or otherwise used by the
Company or any of its subsidiaries, not covered by insurance;
(ii) declaration, setting aside or payment of any dividend or other
distribution in respect of the capital stock of the Company or any of its
subsidiaries (other than wholly-owned subsidiaries) or any repurchase,
redemption or other acquisition by the Company or any of its subsidiaries
of any outstanding shares of capital stock or other securities of, or other
ownership interests in, the Company or any of its subsidiaries;
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(iii) amendment of any material term of any outstanding security of
the Company or any of its subsidiaries;
(iv) incurrence, assumption or guarantee by the Company or any of its
subsidiaries of any indebtedness for borrowed money other than in the
ordinary course of business and in amounts and on terms consistent with
past practices;
(v) creation or assumption by the Company or any of its subsidiaries
of any Lien on any material asset other than in the ordinary course of
business consistent with past practices;
(vi) loan, advance or capital contributions made by the Company or any
of its subsidiaries to, or investment in, any person other than (x) loans
or advances to employees in connection with business-related travel, (y)
loans made to employees consistent with past practices that are not in the
aggregate in excess of Fifty Thousand Dollars ($50,000), and (z) loans,
advances or capital contributions to or investments in wholly-owned
subsidiaries, and in each case made in the ordinary course of business
consistent with past practices;
(vii) transaction or commitment made, or any contract or agreement
entered into, by the Company or any of its subsidiaries relating to its
assets or business (including the acquisition (by sale, license or
otherwise) or disposition (by sale, license or otherwise) of any assets) or
any relinquishment by the Company or any of its subsidiaries of any
contract, agreement or other right, in any such case, material to the
Company and its subsidiaries, taken as a whole, other than transactions and
commitments in the ordinary course of business consistent with past
practices and those contemplated by this Agreement;
(viii) labor dispute, other than routine individual grievances, or any
activity or proceeding by a labor union or representative thereof to
organize any employees of the Company or any of its subsidiaries, or any
lockouts, strikes, slowdowns, work stoppages or threats thereof by or with
respect to such employees; or
(ix) change by the Company or any of its subsidiaries in its
accounting principles, practices or methods.
Since December 31, 1999, except as disclosed in the Company SEC Reports
filed prior to the date hereof or increases in the ordinary course of business
consistent with past practices, there has not been any increase in the
compensation or other consideration payable or that could become payable by the
Company or any of its subsidiaries to (a) executive officers of the Company or
any of its subsidiaries or (b) any employee of the Company or any of its
subsidiaries whose annual compensation is One Hundred Thousand Dollars
($100,000) or more.
SECTION 2.9. Litigation. Except as publicly disclosed by the Company in the
Company SEC Reports or as set forth in Section 2.9 of the Company Disclosure
Schedule, to the knowledge of the Company there is no suit, claim, action,
arbitration, proceeding or investigation pending or threatened against the
Company or any of its subsidiaries or any of their respective properties or
assets before any Governmental Entity or brought by any person that could, if
adversely determined, have a Material Adverse Effect on the Company or would
reasonably be expected to prevent or delay the consummation of the transactions
contemplated by this Agreement beyond the Final Date. Except as publicly
disclosed by the Company in the Company SEC Reports, neither the Company nor any
of its subsidiaries is subject to any outstanding order, writ, injunction or
decree that would reasonably be expected to prevent or delay the consummation of
the transactions contemplated hereby or have a Material Adverse Effect on the
Company.
SECTION 2.10. Compliance with Applicable Law. Except as publicly disclosed
by the Company in the Company SEC Reports, the Company and its subsidiaries hold
all material permits, licenses, variances, exemptions, orders and approvals of
all Governmental Entities necessary for the lawful conduct of their respective
businesses (the "Company Permits") except where the failure to hold any Permit
could not reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect on the
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Company. Except as publicly disclosed by the Company in the Company SEC Reports,
(a) the Company and its subsidiaries are in compliance with the terms of the
Company Permits, (b) the businesses of the Company and its subsidiaries have
been and are being conducted in compliance with all Applicable Laws and (c) no
investigation or review by any Governmental Entity with respect to the Company
or any of its subsidiaries is pending or, to the knowledge of the Company,
threatened, nor, to the knowledge of the Company, has any Governmental Entity
indicated an intention to conduct the same, except to the extent that any
noncompliance could not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect on the Company.
SECTION 2.11. Foundry Relationships. Section 2.11 of the Company Disclosure
Schedule sets forth a complete and correct description of each and every (a)
foundry relationship, wafer manufacturing and fabricating agreement,
understanding or commitment, and (b) integrated circuit die or device purchase,
supply or service agreement, understanding or commitment, used by or in
connection with the Company's business, in whole or in part, whether written or
oral ("Supply Contracts").
SECTION 2.12. Environmental Laws and Regulations.
Except as could not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect on the Company, (a) Hazardous
Materials have not been generated, used, treated or stored on, transported to or
from or released or disposed of on, any Company Property, except in compliance
with applicable Environmental Laws; (b) each of the Company and each of its
subsidiaries is in compliance with all applicable Environmental Laws and the
requirements of any Permits issued under such Environmental Laws with respect to
any Company Property; (c) there are no past, pending or, to the Company's
knowledge, threatened Environmental Claims against the Company or any of its
subsidiaries or any Company Property; and (d) to the Company's knowledge there
are no facts or circumstances, conditions or occurrences regarding the business,
assets or operations of the Company or any Company Property that could
reasonably be anticipated to form the basis of an Environmental Claim against
the Company or any of its subsidiaries or any Company Property.
For purposes of this Agreement, (a) "Company Property" means any real
property and improvements owned, leased or operated by the Company or any of its
Subsidiaries; (b) "Hazardous Materials" means (i) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could become
friable, transformers or other equipment that contain dielectric fluid
containing levels of polychlorinated biphenyls, and radon gas; (ii) any
chemicals, materials or substances defined as or included in the definition of
"hazardous substances," "hazardous wastes," "hazardous materials," "extremely
hazardous wastes," "extremely hazardous substances," "restricted hazardous
wastes," "toxic substances," "toxic pollutants," or words of similar import,
under any applicable Environmental Law; and (iii) any other chemical, material
or substance, exposure to which is prohibited, limited or regulated by any
Governmental Entity; (c) "Environmental Law" means any federal, state, foreign
or local statute, law, rule, regulation, ordinance, code or rule of common law
and any judicial or administrative interpretation thereof binding on the Company
or its operations or property as of the date hereof and the Closing Date,
including any judicial or administrative order, consent decree or judgment,
relating to the environment, health or Hazardous Materials, including, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, 42 U.S.C. sec.sec. 9601 et seq.; the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. sec.sec. 6901 et seq.; the
Federal Water Pollution Control Act, as amended, 33 U.S.C. sec.sec. 1251 et
seq.; the Toxic Substances Control Act, 15 U.S.C. sec.sec. 2601 et seq.; the
Clean Air Act, 42 U.S.C. sec.sec. 7401 et seq.; the Oil Pollution Act of 1990,
33 U.S.C. sec.sec. 2701 et seq.; the Safe Drinking Water Act, 42 U.S.C.
sec.sec. 300(f) et seq.; and their state and local counterparts and equivalents;
(d) "Environmental Claims" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigations or proceedings under any
Environmental Law or any permit issued under any such Environmental Law (for
purposes of this subclause (e), "Claims"), including, without limitation, (i)
any and all Claims by Governmental Entities for enforcement, cleanup, removal,
response, remedial or other actions or damages pursuant to any applicable
Environmental Law and (ii) any and all Claims by any third party seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from
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Hazardous Materials or arising from alleged injury or threat of injury to
health, safety or the environment; and (f) "Release" means disposing,
discharging, injecting, spilling, leaking, leaching, dumping, emitting,
escaping, emptying or seeping into or upon any land or water or air, or
otherwise entering into the environment.
SECTION 2.13. Taxes.
(a) Definitions. For purposes of this Agreement:
(i) the term "Tax" (including "Taxes") means (A) all federal, state,
local, foreign and other net income, gross income, gross receipts, sales,
use, value added, purchase, ad valorem, transfer, franchise, profits,
license, lease, service, service use, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property, windfall profits,
customs, duties or other taxes, fees, assessments or charges of any kind
whatsoever, whether disputed or not, together with any interest and any
penalties, additions to tax or additional amounts with respect thereto, (B)
any liability for payment of amounts described in clause (A) whether as a
result of transferee liability, of being a member of an affiliated,
consolidated, combined or unitary group for any period, or otherwise
through operation of law, and (C) any liability for the payment of amounts
described in clauses (A) or (B) as a result of any tax sharing, tax
indemnity or tax allocation agreement or any other express or implied
agreement to indemnify any other person; and
(ii) the term "Tax Return" means any return, declaration, report,
statement, information statement and other document required to be filed
with respect to Taxes.
(b) Except as set forth in Section 2.13(b) of the Company Disclosure
Schedule, the Company and its subsidiaries have duly and timely filed all
material Tax Returns required to be filed (after taking into account all
available extensions) and have timely paid or adequately provided for in
accordance with United States generally accepted accounting principles all Taxes
due in respect of the periods covered by such Tax Returns, except, in each case,
where the failure so to file, pay or provide would not have a Material Adverse
Effect on the Company.
(c) No material penalty, interest or other charge is due or has been
asserted in writing as of the date of this Agreement, with respect to the late
filing of any Tax Return or late payment of any Tax, except where such penalty,
interest or other charges will not have a Material Adverse Effect on the
Company. Except as set forth in Section 2.13(c) of the Company Disclosure
Schedule, as of the date of this Agreement no material claim for assessment or
collection of Taxes is presently being asserted against the Company or its
subsidiaries and neither the Company nor any of its subsidiaries is a party to
any pending action, proceeding, or investigation by any governmental taxing
authority relating to a material Tax nor does the Company have knowledge of any
such threatened action, proceeding or investigation.
(d) Except as set forth in Section 2.13(d) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries is a party to or bound
by any obligation under any written Tax sharing, Tax allocation, Tax indemnity
or similar agreement or arrangement.
(e) Section 2.13(e) of the Company Disclosure Schedule, together with the
Company's annual report on Form 20-F for the year ended December 31, 1999, lists
each material tax incentive granted to the Company and its subsidiaries under
the laws of the State of Israel, the period for which such tax incentive
applies, and the nature of such tax incentive. The Company and its subsidiaries
have complied with all material requirements of Israeli law to be entitled to
claim all such incentives. Subject to the receipt of the approvals set forth in
Section 2.6 of the Company's Disclosure Schedule and compliance by the Surviving
Corporation with the applicable requirements and conditions, to the Company's
knowledge, the consummation of the Merger will not adversely affect the
remaining duration of the incentive or require any recapture of any previously
claimed incentive, and no consent or approval of any Governmental Entity is
required, other than as contemplated by Section 2.6, prior to the consummation
of the Merger in order to preserve the entitlement of the Surviving Corporation
or its subsidiaries to any such incentive.
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SECTION 2.14. Intellectual Property.
(a) Section 2.14(a) of the Company Disclosure Schedule sets forth a
complete and accurate list of all of the Company's and each of its subsidiary's
United States and foreign (i) patents and patent applications; (ii) Trademark
registrations and applications and material unregistered Trademarks; and (iii)
copyright registrations and applications, indicating for each, the applicable
jurisdiction, registration number (or application number) and date issued (or
date filed) owned, in whole or in part, including jointly with others, by the
Company or any of its subsidiaries. For purposes of this Agreement,
"Intellectual Property" means: (A) trademarks and service marks (whether
registered or unregistered), trade names, designs and general intangibles of
like nature, together with all goodwill related to the foregoing (collectively,
"Trademarks"); (B) patents (including any continuations, continuations in part,
renewals and applications for any of the foregoing) (collectively "Patents");
(C) copyrights (including any registrations and applications therefor and
whether registered or unregistered) (collectively "Copyrights"); (D) computer
software; databases; works of authorship; mask works; technology; trade secrets
and other confidential information, know-how, proprietary processes, formulae,
algorithms, models, user interfaces, customer lists, inventions, discoveries,
concepts, ideas, techniques, methods, source codes, object codes, methodologies
and (E) with respect to all of the foregoing, related confidential data or
information (collectively, "Trade Secrets"). The Company's and each of its
subsidiary's Trademarks, Patents, Copyrights and Trade Secrets are sometimes
referred to hereinafter as the "Company Trademarks," "Company Patents," "Company
Copyrights" and "Company Trade Secrets," respectively.
(b) Trademarks.
(i) All Company Trademark registrations are currently in compliance in
all material respects with all legal requirements (including, where
applicable, the timely post-registration filing of affidavits of use and
incontestability and renewal applications) other than any requirement that,
if not satisfied, would not result in a cancellation of any such
registration or otherwise materially affect the priority and enforceability
of the Company Trademark in question.
(ii) No material registered Company Trademark has been within the last
three (3) years or is now involved in any opposition or cancellation
proceeding in the United States Patent and Trademark Office or other
applicable Governmental Entity. To the Company's knowledge, no such action
has been threatened in writing within the one (1)-year period prior to the
date of this Agreement.
(iii) To the knowledge of the Company, there has been no prior use of
any material Company Trademark by any third party that confers upon such
third party superior rights in any such Company Trademark.
(c) Patents.
(i) All Company Patents are currently in compliance with legal
requirements (including payment of filing, examination, and maintenance
fees and proofs of working or use) other than any requirement that, if not
satisfied, would not result in a revocation or otherwise materially affect
the enforceability of the Company Patent in question.
(ii) No Company Patent has been or is now involved in any
interference, reissue, reexamination or opposition proceeding in the United
States Patent and Trademark Office or other applicable Governmental Entity.
To the Company's knowledge, no such action has been threatened in writing
within the one (1)-year period prior to the date of this Agreement.
(iii) To the knowledge of the Company, there is no patent or patent
application of any person that conflicts in any material respect with any
Company Patent or invalidates any claim the Company has in any Company
Patent.
(d) Trade Secrets.
(i) The Company has taken reasonable steps in accordance with normal
industry practice to protect the Company's rights in confidential
information and Company Trade Secrets.
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(ii) Without limiting the generality of Section 2.14(d)(i) and except
as would not be materially adverse to the Company or its business, the
Company enforces and has enforced a policy of requiring each relevant
employee, consultant and contractor to execute "work for hire" (or similar
arrangements under Applicable Law), proprietary information,
confidentiality and assignment agreements substantially in the Company's
standard forms that effectively and exclusively assign to the Company or
one of its subsidiaries rights to any Intellectual Property relating to the
business of the Company or its subsidiaries created in the course of
performance of work for the Company or one of its subsidiaries. Except
under confidentiality obligations, to the knowledge of the Company there
has been no disclosure by the Company or any subsidiary of material
confidential information or Company Trade Secrets. The Company has provided
Parent a copy of its trade secret protection policy.
(e) License Agreements. Section 2.14(e)(1) of the Company Disclosure
Schedule sets forth a complete and accurate list of all license agreements
granting to the Company or any of its subsidiaries any material right to use or
practice any rights under any Intellectual Property, other than software
commercially available on reasonable terms to any person for a license fee of no
more than One Hundred Thousand Dollars ($100,000) in the aggregate
(collectively, the "Company Inbound License Agreements"), indicating for each
the title and the parties thereto. Section 2.14(e)(2) of the Company Disclosure
Schedule sets forth a complete and accurate list of all license agreements under
which the Company or any of its subsidiaries licenses software or grants other
rights in or rights to use or practice under any Intellectual Property,
excluding licenses with customers that in the twelve-month period prior to the
date hereof have purchased or licensed products for which the total payments to
the Company and its subsidiaries did not exceed One Hundred Thousand Dollars
($100,000) in the aggregate (collectively, the "Company Outbound License
Agreements," and with the Company Inbound License Agreements, the "Company
License Agreements"), indicating for each the title and the parties thereto.
There is no material outstanding or, to the Company's knowledge, threatened
dispute or disagreement with respect to any Company Inbound License Agreement or
any Company Outbound License Agreement.
(f) Ownership; Sufficiency of IP Assets. The Company or one of its
subsidiaries owns or possesses adequate licenses or other rights to use, free
and clear of Liens, orders and arbitration awards, all of its Intellectual
Property used in their respective businesses as currently conducted. The
Intellectual Property identified in Section 2.14(a) of the Company Disclosure
Schedule, together with the Company's and its subsidiaries' rights under the
licenses granted to the Company or any of its subsidiaries under the Company
Inbound License Agreements, constitute all the material Intellectual Property
rights used or necessary in the operation of the Company's and its subsidiaries'
businesses as they are currently conducted.
(g) Protection of IP. The Company has taken reasonable and customary steps
to protect the Intellectual Property of the Company and its subsidiaries.
(h) No Infringement by the Company. The products used, manufactured,
marketed, sold or licensed by the Company, and all Intellectual Property used in
the conduct of the Company's and its subsidiaries' businesses as currently
conducted, do not infringe upon, violate or constitute the unauthorized use of
any rights owned or controlled by any third party, including any Intellectual
Property of any third party.
(i) No Pending or Threatened Infringement Claims. Except and to the extent
publicly disclosed in the Company SEC Reports, no litigation is now or, within
the three (3) years prior to the date of this Agreement, was pending and, to the
Company's knowledge, no notice or other claim has been received by the Company
within the one (1) year prior to the date of this Agreement, nor is the Company
aware of any facts or circumstances that in the Company's reasonable judgment
could be expected to give rise to any material claim, (i) alleging that the
Company or any of its subsidiaries has engaged in any activity or conduct that
infringes upon, violates or constitutes the unauthorized use of the Intellectual
Property rights of any third party or (ii) challenging the ownership, use,
validity or enforceability of any Intellectual Property owned or exclusively
licensed by or to the Company. Except as specifically disclosed in one or more
Sections of the Company Disclosure Schedules pursuant to this Section 2.14, no
Intellectual Property owned or licensed by the Company or any of its
subsidiaries is subject to any outstanding order,
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judgment, decree, stipulation or agreement restricting the use thereof by the
Company or any such subsidiary or, in the case of any Intellectual Property
licensed to others, restricting the sale, transfer, assignment or licensing
thereof by the Company or any of its subsidiaries to any person.
(j) No Infringement by Third Parties. Except as and to the extent publicly
disclosed in the Company SEC Reports or as set forth in Section 2.14(j) of the
Company Disclosure Schedule, to the knowledge of the Company, no third party is
misappropriating, infringing, diluting or violating any Intellectual Property
owned or exclusively licensed by the Company or any of its subsidiaries, and no
such claims have been brought against any third party by the Company or any of
its subsidiaries.
(k) Assignment; Change of Control. The execution, delivery and performance
by the Company of this Agreement, and the consummation of the transactions
contemplated hereby, will not result in the loss or impairment of, or give rise
to any right of any third party to terminate, any of the Company's or any of its
subsidiaries' rights to own any of its Intellectual Property or their respective
rights under the Company License Agreements, nor require the consent of any
Governmental Authority or third party in respect of any such Intellectual
Property.
(l) Software. The Software owned or purported to be owned by the Company or
any of its subsidiaries, was either (i) developed by employees of the Company or
any of its subsidiaries within the scope of their employment; (ii) developed by
independent contractors who have assigned their rights to the Company or any of
its subsidiaries pursuant to written agreements; or (iii) otherwise acquired by
the Company or a subsidiary from a third party. Except as set forth in Section
2.14(l) of the Company Disclosure Schedule, to the Company's knowledge, the
Software does not contain any programming code, documentation or other materials
or development environments that embody Intellectual Property rights of any
person other than the Company or any of its subsidiaries, except for such
materials or development environments obtained by the Company or any of its
subsidiaries from other persons who make such materials or development
environments commercially available to purchasers or end-users. For purposes of
this Section 2.14(l), "Software" means any and all (i) computer programs,
including any and all software implementations of algorithms, models and
methodologies, whether in source code or object code, (ii) databases and
compilations, including any and all data and collections of data, whether
machine readable or otherwise, (iii) descriptions, flow-charts and other work
product used to design, plan, organize and develop any of the foregoing, and
(iv) all documentation, including user manuals and training materials, relating
to any of the foregoing.
SECTION 2.15. Insurance. The insurance policies maintained by the Company
and its subsidiaries have been issued by insurers which, to the Company's
knowledge, are reputable and financially sound. Such policies provide coverage
for the operations conducted by the Company and its subsidiaries of a scope and
coverage consistent with customary industry practice of similarly situated
companies in the same or similar businesses.
SECTION 2.16. Certain Business Practices. None of the Company, any of its
subsidiaries or any directors, officers, agents or employees of the Company or
any of its subsidiaries has (a) used any funds for unlawful contributions,
gifts, entertainment or other unlawful expenses related to political activity,
(b) made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns or violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended, or (c)
made any other unlawful payment.
SECTION 2.17. Title to Properties. Except as set forth in Section 2.17 of
the Company Disclosure Schedule, and except for merchandise and other property
sold, used or otherwise disposed of in the ordinary course of business, the
Company and each of its subsidiaries has good and marketable title to, or, in
the case of leased properties and assets a valid leasehold interest in, the real
and personal property reflected in the Company's most recent balance sheet
included in the Company SEC Reports, except where the failure to have such good,
valid and marketable title or leasehold interest could not reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect on
the Company, in each case, subject to no Liens, except for (a) Liens reflected
in the Company SEC Reports, (b) Liens consisting of zoning or planning
restrictions, easements, permits and other restrictions or limitations on the
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use of real property or irregularities in title thereto which do not materially
detract from the value of, or impair the use of, such property by the Company or
any of its subsidiaries in the operation of their respective businesses, (c)
Liens for current Taxes, assessments or governmental charges or levies on
property not yet due or which are being contested in good faith and (d) Liens
which could not reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect on the Company. Except as could not reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect on
the Company, each of the Company and its subsidiaries is in compliance with the
terms of all leases of real or personal properties to which it is a party or
under which it is in occupancy, and all such leases are in full force and
effect.
SECTION 2.18. Product Warranties. Except as set forth in Section 2.18 of
the Company Disclosure Schedule, there have not been any material deviations
from any warranties and guaranties of the Company or any of its subsidiaries
currently in effect with respect to its products, and neither the Company, any
of its subsidiaries nor any of their respective salesmen, employees,
distributors and agents is authorized to undertake obligations to any customer
or to other third parties materially in excess of such warranties or guaranties.
To the Company's knowledge, neither the Company nor any of its subsidiaries has
made any material oral warranty or guaranty with respect to its products.
SECTION 2.19. Suppliers and Customers. The documents and information
supplied by the Company to Parent or any of its representatives in connection
with this Agreement with respect to relationships and volumes of business done
with its significant suppliers and customers are accurate in all material
respects.
SECTION 2.20. Grants, Incentives and Subsidies. Section 2.20 of the Company
Disclosure Schedule provides a complete list of all pending and outstanding
grants, incentives and subsidies (collectively, "Grants") from the Government of
the State of Israel or any agency thereof, or from any foreign governmental or
administrative agency, granted to the Company, including, without limitation,
(i) Approved Enterprise Status from the Investment Center and (ii) grants from
the Office of the Chief Scientist (the "OCS"). The Company has made available to
Parent, prior to the date hereof, correct copies of all documents evidencing
Grants submitted by the Company and of all letters of approval, and supplements
thereto, granted to the Company (except for OCS grants, with respect to which
such documents will be provided within five (5) days after the date hereof).
Without limiting the generality of the above, Section 2.20 of the Company
Disclosure Schedule includes the aggregate amounts of each Grant, and the
aggregate outstanding obligations thereunder of the Company with respect to
royalties, or the outstanding amounts to be paid by the OCS to the Company. The
Company is in compliance, in all material respects, with the terms and
conditions of their respective Grants and, except as disclosed in Section 2.20
of the Company Disclosure Schedule hereto, have duly fulfilled, in all material
respects, all the undertakings relating thereto. Other than the transactions
contemplated by this Agreement, the Company is not aware of any event or other
set of circumstances which might lead to the revocation or material modification
of any of the Grants.
SECTION 2.21. Opinion of Financial Adviser. Salomon Smith Barney (the
"Company Financial Adviser") has delivered to the Company Board its opinion to
the effect that, as of the date hereof, the Exchange Ratio is fair, from a
financial point of view, to the holders of Shares, a written copy of which will
be received prior to the Closing, and a true and accurate copy of which will be
delivered to Parent as soon as available but no later than the Closing. Such
opinion has not been withdrawn, revoked or modified.
SECTION 2.22. Affiliates. Except for the directors and executive officers
of the Company, each of whom is listed in Section 2.22 of the Company Disclosure
Schedule, there are no persons who, to the knowledge of the Company, may be
deemed to be affiliates of the Company under Rule 145 of the Securities Act
("Company Affiliates").
SECTION 2.23. Brokers. No broker, finder or investment banker (other than
the Company Financial Adviser, a true and correct copy of whose engagement
agreement has been provided to Parent) is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Company.
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SECTION 2.24. Employee Benefits.
(a) Definitions. For purposes of this Agreement, the following terms shall
have the meanings set forth below:
(i) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended;
(ii) "ERISA Affiliate" shall mean, with respect to any person, any
other person under common control with the first person within the meaning
of Section 414(b), (c), (m) or (o) of the Code and the regulations
thereunder;
(iii) "Company Employee Plan" shall mean any Employee Plan for the
benefit of any Employee with respect to the Company and pursuant to which
the Company or any of its ERISA Affiliates has any liability contingent or
otherwise;
(iv) "Employee Plan" shall refer to each "employee benefit plan,"
within the meaning of Section 3(3) of ERISA and each stock option, stock
purchase, stock bonus, retirement, health, disability insurance, or
dependent care plan, policy or agreement;
(v) "Employee" shall mean, with respect to any person, any current,
former, or retired employee, director, or officer of the person or any of
its ERISA Affiliates;
(vi) "Employee Agreement" shall, with respect to any person, refer to
each management, employment and consulting agreement as to which
unsatisfied obligations (contingent or otherwise) of the person or any of
its ERISA Affiliates are greater than Fifty Thousand Dollars ($50,000) and
each signing bonus, relocation, repatriation, expatriation, or similar
agreement between the person or any of its ERISA Affiliates and any
Employee or consultant, as to which unsatisfied obligations (contingent or
otherwise) of the person or any of its ERISA Affiliates are greater than
Fifty Thousand Dollars ($50,000); and
(vii) "IRS" shall mean the Internal Revenue Service.
(b) Employee Plans. Section 2.24(b) of the Company Disclosure Schedule
contains an accurate and complete list of each Company Employee Plan and each
Employee Agreement. Except as and to the extent publicly disclosed in the
Company SEC Reports or as set forth in Section 2.24(b) of the Company Disclosure
Schedule, the Company has also made available to Parent or its counsel, where
applicable, true, complete and correct copies of (i) the most recent plan
documents, related trust documents, adoption agreements, summary plan
descriptions, and all amendments thereto for each Company Employee Plan, (ii)
the most recent actuarial and audit reports for each Pension Plan, and (iii) the
most recent IRS determination letters and rulings received by the Company and
copies of all applications and correspondence to or from the IRS or the
Department of Labor ("DOL") with respect to any Company Employee Plan.
(c) Employee Plan Compliance. Except in each case for which non-compliance
would not have a Material Adverse Effect (i) each Company Employee Plan has been
established and maintained in accordance with its terms and all Applicable Laws,
including ERISA and the Code; (ii) no "prohibited transaction," within the
meaning of Section 4975 of the Code or Section 406 of ERISA, has occurred with
respect to any Company Employee Plan; (iii) no Employee of the Company has
committed a material breach of any responsibility imposed upon fiduciaries by
Title I of ERISA with respect to any Company Employee Plan; (iv) there are no
judicial, regulatory, arbitration or similar proceedings pending, or, to the
Company's knowledge, threatened or anticipated (other than routine claims for
benefits) against any Company Employee Plan or against the assets of any Company
Employee Plan; (v) there are no inquiries, investigations, audits or proceedings
pending or, to the Company's knowledge, threatened by the IRS or DOL with
respect to any Company Employee Plan or any related trust; (vi) neither the
Company nor any ERISA Affiliate is subject to any penalty or tax with respect to
any Company Employee Plan under Sections 4975 through 4980 of the Code; (vii)
each Pension Plan that is intended to be qualified under Section 401(a) of the
Code is so qualified and has received a favorable determination opinion,
notification or advisory letter with respect to such status from the IRS or has
time remaining to apply under applicable
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Treasury Regulation or IRS pronouncement for a determination or opinion letter
and to make any necessary amendments, and no event has occurred and no condition
or circumstance has existed or exists which may reasonably be expected to result
in the disqualification of such Pension Plan.
(d) Pension Plans. None of the Company Employee Plans is or was subject to
Code Section 412 or ERISA Section 302, or is a plan described in Sections 3(37),
4063 or 4064 of ERISA.
(e) Post-Employment Obligations. Except as set forth in Section 2.24(e) of
the Company Disclosure Schedule, no Company Employee Plan provides, or has any
liability to provide, life insurance, medical or other employee welfare benefits
coverage to any Employee upon his or her retirement or termination of employment
for any reason, except as (i) may be required by statute, (ii) to benefits the
full cost of which are borne by Employees of the Company (or such Employees'
beneficiaries or dependents), (iii) death or disability benefits under any of
the Company Employee Plans, (iv) life insurance benefits for any Employee who
dies while in service with the Company, or (v) continuing coverage until the end
of the month in which retirement or termination of employment occurs.
(f) Effect of Transaction.
(i) Except as set forth in Section 2.24(f)(1) of the Company
Disclosure Schedule, the execution of this Agreement and the consummation
of the transactions contemplated hereby will not constitute an event under
any Company Employee Plan, Employee Agreement, trust or loan that will or
may result in any payment (whether of severance pay or otherwise and
including forgiveness of indebtedness), acceleration, vesting,
distribution, increase in benefits under any Company Employee Plan or
Employee Arrangement or compensation to any Employee, or obligation to fund
compensation benefits with respect to any Employee.
(ii) Except as set forth in Section 2.24(f)(2) of the Company
Disclosure Schedule, no payment or benefit which will or may be made under
any Company Employee Plan or Company Employee Agreement in connection with
the consummation of the transactions contemplated hereby by the Company or
Parent or any of their respective affiliates with respect to any Employee
will be characterized as an "excess parachute payment," within the meaning
of Section 280G(b)(1) of the Code.
(g) Stock Options. Section 2.24(g) of the Company Disclosure Schedule lists
all outstanding Stock Options as of October 1, 2000, identifying for each such
option: (i) the number of shares issuable, (ii) the number of vested shares,
(iii) the date of expiration and (iv) the exercise price. Other than the
automatic vesting of Stock Options that may occur without any action on the part
of the Company or its officers or directors, the Company has not taken any
action that would result in any Stock Options that are unvested becoming vested
or their terms being extended in connection with or as a result of the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby.
(h) Foreign Plans. Except as set forth in Section 2.24(h) of the Company
Disclosure Schedule, with respect to any Company Employee Plan maintained for
Employees outside of the United States (each a "Foreign Plan"): (i) each Foreign
Plan and the manner in which it has been administered satisfies all Applicable
Laws, (ii) all contributions to each Foreign Plan required through the Closing
have been and will be made by the Company, (iii) each Foreign Plan is either
fully funded (or fully insured) based upon generally accepted local actuarial
and accounting practices and procedures or adequate accruals for each Foreign
Plan have been made in the Company's financial statements in accordance with
United States generally accepted accounting principles, (iv) there are no
pending investigations by any Governmental Entity involving any Foreign Plan nor
any pending claims (except for claims for benefits payable in the normal
operation of the Foreign Plans), suits or proceedings against any Foreign Plan
or asserting any rights or claims to benefits under any Foreign Plan; and (v)
the consummation of the transactions contemplated by this Agreement will not by
itself create or otherwise result in any material liability with respect to any
Foreign Plan. Without derogating from the above, the Company's obligations to
provide severance pay to its employees are fully funded or have been properly
provided for in the Company's financial statements attached to the Company SEC
Reports in accordance with United States
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generally accepted accounting principles. All other liabilities of the Company
relating to its employees (excluding liabilities for illness pay) were properly
accrued in the Company's financial statements in accordance with United States
generally accepted accounting principles.
SECTION 2.25. Labor and Employment Matters. Except as set forth in Section
2.25 of the Company Disclosure Schedule:
(a) Neither the Company nor any of its subsidiaries are a party to or
bound by any collective bargaining contract, collective labor agreement or
other contract or arrangement with a labor union, trade union or other
organization involving any of its employees, or, except for Company Benefit
Plans and Employee Agreements listed in Section 2.24 of the Company's
Disclosure Schedule is otherwise required (under any legal requirement,
under any contract or otherwise) to provide benefits or working conditions
beyond the minimum benefits and working conditions required by law to be
provided pursuant to rules and regulations of any jurisdiction in which the
Company and its subsidiaries have employees, including without limitation
the Histadrut (General Federation of Labor), the Coordinating Bureau of
Economic Organization and the Industrialists' Association, and the Company
has not been officially apprised that any petition has been filed or
proceeding instituted by an employee or group of employees of the Company,
or any of its subsidiaries, with any Governmental Entity seeking
recognition of a bargaining representative. Except as set forth in Section
2.24 or 2.25 of the Company Disclosure Schedule, neither the Company nor
any of its subsidiaries have or are subject to, and no employee of the
Company or any of its subsidiaries benefits from, any extension order
(tzavei harchava) or any contract or arrangement with respect to
termination of employment. All of the employees of the Company and its
subsidiaries are "at will" employees subject to the termination notice
provisions included in employment agreements or Applicable Law.
(b)(i) To the Company's knowledge, there is no labor strike, dispute,
slow down or stoppage pending or threatened against the Company or any of
its subsidiaries;
(ii) Neither the Company nor any of its subsidiaries has received in
the last twenty-four (24) months any demand letters, civil rights charges,
suits or drafts of suits with respect to claims made by or on behalf of any
of their respective employees which would have a Material Adverse Effect on
Company; and
(iii) Neither the Company nor any of its subsidiaries is aware of any
pending claims, civil rights charges, suits or drafts of suits with respect
to claims made by or on behalf of their respective employees.
(c) All amounts that the Company or any subsidiary is legally or
contractually required either (i) to deduct from its employees' salaries or
to transfer to such employees' pension or provident, life insurance,
incapacity insurance, continuing education fund or other similar fund or
(ii) to withhold from their employees' salaries and pay to any Governmental
Entity as required by the Israeli Income Tax Ordinance [New Version] and
other applicable laws have, in each case, been duly deducted, transferred,
withheld and paid, and the Company does not have any outstanding obligation
to make any such deduction, transfer, withholding or payment.
(d) The Company is not liable for any material payment to any trust or
other fund or to any Governmental Entity, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
Employees (other than routine payments to be made in the normal course of
business and consistent with past practice).
(e) The Company and its subsidiaries are in compliance with all
material laws and regulations pertaining to the payment of wages and
overtime.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
PARENT AND ACQUISITION
Parent and Acquisition hereby represent and warrant to the Company, subject
to the exceptions set forth in the Disclosure Schedule delivered by Parent to
the Company (the "Parent Disclosure Schedule") as follows:
SECTION 3.1. Organization.
(a) Parent is duly organized, validly existing and in good standing under
the laws of Bermuda. Acquisition is duly organized and validly existing under
the laws of the State of Israel. Each of Parent and Acquisition has all
requisite power and authority to own, lease and operate its properties and to
carry on its business as now being conducted. Parent has heretofore made
available to the Company accurate and complete copies of the organizational
documents and bye-laws (or similar governing documents) as currently in full
force and effect, of Parent and Acquisition.
(b) Each of Parent and Acquisition is duly qualified or licensed and in
good standing to do business in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification or licensing necessary, except in such jurisdictions where
the failure to be so duly qualified or licensed and in good standing would not
have a Material Adverse Effect on Parent.
(c) Acquisition is a newly incorporated Israeli corporation. Except in
connection with this Agreement, Acquisition has not and will not prior to the
Effective Time conducted any operations, entered into any agreements and has no
and will not have prior to the Effective Time or the earlier termination of this
Agreement any obligations or liabilities, either accrued, absolute, contingent
or otherwise.
SECTION 3.2. Capitalization of Parent and its Subsidiaries.
(a) The authorized share capital of Parent consists of $500,000, divided
into 242,000,000 shares of Parent common stock, $0.002 par value per share
("Parent Common Stock"), and 8,000,000 shares of preferred stock, $0.002 per
share, of which, as of October 16, 2000, 85,468,166 shares of Parent Common
Stock were issued and outstanding. All of the outstanding shares of Parent
Common Stock have been validly issued and are fully paid, nonassessable and free
of preemptive rights. The shares of Parent Common Stock to be issued in the
Merger or upon exercise of any Assumed Option will be validly issued, fully paid
and nonassessable and free of preemptive rights. As of October 16, 2000,
30,640,000 shares of Parent Common Stock were reserved for issuance and
12,943,958 were issuable upon or otherwise deliverable in connection with the
exercise of outstanding options and warrants. Except as set forth above or in
Parent SEC Reports, there are outstanding (i) no shares or other voting
securities of Parent, (ii) no securities of Parent or any of its subsidiaries
convertible into or exchangeable or exercisable for shares or other securities
of Parent, (iii) no options, preemptive or other rights to acquire from Parent
or any of its subsidiaries, and no obligations of Parent or any of its
subsidiaries to issue, any shares, voting securities or securities convertible
into or exchangeable or exercisable for shares or other securities of Parent and
(iv) no equity equivalent interests in the ownership or earnings of Parent or
its subsidiaries or other similar rights (collectively "Parent Securities"). As
of the date hereof, there are no outstanding rights or obligations of Parent or
any of its subsidiaries to repurchase, redeem or otherwise acquire any Parent
Securities. Except as set forth in Section 3.1(a) of Parent Disclosure Schedule
or in Parent SEC Reports, there are no voting agreements, voting trusts or other
agreements or understandings to which Parent is a party or by which it is bound
relating to the voting or registration of any shares of capital stock of Parent.
(b) All of the outstanding capital stock of Parent's subsidiaries is owned
by Parent, directly or indirectly, free and clear of any Lien or any other
limitation or restriction (including any restriction on the right to vote or
sell the same except as may be provided as a matter of Applicable Law). There
are no (i) securities of Parent or any of its subsidiaries convertible into or
exchangeable or exercisable for, (ii) options or (iii) other rights to acquire
from Parent or any of its subsidiaries any capital stock or other
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ownership interests in or any other securities of any subsidiary of Parent, and
there exists no other contract, understanding, arrangement or obligation
(whether or not contingent) providing for the issuance or sale, directly or
indirectly, of any such capital stock. There are no outstanding contractual
obligations of Parent or its subsidiaries to repurchase, redeem or otherwise
acquire any outstanding Parent Common Stock of capital stock or other ownership
interests in any subsidiary of Parent.
(c) The Parent Common Stock constitutes the only class of equity securities
of Parent or its subsidiaries registered or required to be registered under the
Exchange Act.
(d) The authorized share capital of Acquisition consists of 39,100 NIS,
divided into 39,100 ordinary shares, of which 100 shares were issued and
outstanding as of the date hereof. All of the issued and outstanding ordinary
shares of Acquisition are owned by Parent and there are no other outstanding
shares or other voting securities of Acquisition or rights to acquire the same.
SECTION 3.3. Authority Relative to this Agreement.
(a) Each of Parent and Acquisition has all necessary corporate power and
authority to execute and deliver this Agreement and the Stock Option Agreement,
to perform its obligations under this Agreement and the Stock Option Agreement
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the Stock Option Agreement and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by the boards of directors of Parent and Acquisition and
by Parent as the sole shareholder of Acquisition, and, subject to receipt of the
required shareholder vote (as described below), no other corporate proceedings
on the part of Parent or Acquisition are necessary to authorize this Agreement
or the Stock Option Agreement or to consummate the transactions contemplated
hereby or thereby. This Agreement has been duly and validly executed and
delivered by each of Parent and Acquisition and constitutes, assuming the due
authorization, execution and delivery hereof by the Company, a valid, legal and
binding agreement of each of Parent and Acquisition enforceable against each of
Parent and Acquisition in accordance with its terms, subject to any applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws now or
hereafter in effect relating to creditors' rights generally or to general
principles of equity.
(b) Without limiting the generality of the foregoing, each of the Board of
Directors of Parent and Acquisition has (i) determined that the Merger is fair
to, and in the best interests of Parent and Parent's shareholders, (ii) approved
this Agreement, the Stock Option Agreement, the Merger and the other
transactions contemplated hereby, and (iii) has not withdrawn or modified such
approval.
(c) The affirmative votes of both (i) 66 2/3% of votes cast by such Members
of Parent (as such term is defined in the Amended and Restated Bye-Laws of
Parent (the "Parent Bye-Laws")) as, being entitled to do so, vote in person or
by proxy or by duly authorized corporate representative and (ii) 66 2/3% in
number of the Members present in person or by proxy or by duly authorized
corporate representative at the Parent Special Meeting (as hereinafter defined)
of which not less than twenty-one (21) Clear Days' notice (as such term is
defined in the Parent Bye-Laws) has been duly given in accordance with the
Parent Bye-Laws (the "Parent Requisite Vote"), are the only votes of the holders
of any securities of Parent necessary to approve (A) the Merger and (B) the
issuance of Parent Common Stock pursuant to the rules of Nasdaq National Market.
The quorum required for the Parent Special Meeting is two persons present in
person and representing in excess of 50% of the total issued voting shares in
Parent throughout the meeting. No vote or approval of (x) any creditor of Parent
or its subsidiaries, (y) any holder of any option or warrant granted by Parent
or its subsidiaries, or (z) any shareholder of Parent's subsidiaries is
necessary in order to approve or permit the consummation of the Merger or the
issuance of Parent Shares pursuant to the rules of Nasdaq National Market.
SECTION 3.4. SEC Reports; Financial Statements.
(a) Parent has filed all required forms, reports and documents ("Parent SEC
Reports") with the SEC since June 26, 2000, each of which, complied at the time
of filing in all material respects with all applicable requirements of the
Securities Act and the Exchange Act, each law as in effect on the dates such
forms, reports and documents were filed. None of such Parent SEC Reports,
including any financial
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statements or schedules included or incorporated by reference therein, contained
when filed any untrue statement of a material fact or omitted to state a
material fact required to be stated or incorporated by reference therein or
necessary in order to make the statements therein in light of the circumstances
under which they were made not misleading, except to the extent superseded by a
Parent SEC Report filed subsequently and prior to the date hereof. The audited
consolidated financial statements of Parent included in the Parent SEC Reports
fairly present in all material respects in conformity with United States
generally accepted accounting principles applied on a consistent basis (except
as may be indicated in the notes thereto) the consolidated financial position of
Parent and its consolidated subsidiaries as of the dates thereof and their
consolidated results of operations and changes in financial position for the
periods then ended. Notwithstanding the foregoing, Parent shall not be deemed to
be in breach of any of the representations or warranties in this Section 3.4 as
a result of any changes to the Parent SEC Reports that Parent may make in
response to comments received from the SEC on the Form S-4.
(b) Parent has heretofore made available, and hereafter will promptly make,
available to the Company a complete and correct copy of any amendments or
modifications that are required to be filed with the SEC but have not yet been
filed with the SEC to agreements documents or other instruments that previously
had been filed by Parent with the SEC pursuant to the Exchange Act.
SECTION 3.5. Information Supplied. None of the information supplied or to
be supplied by Parent or Acquisition for inclusion or incorporation by reference
to (i) the Form S-4 will at the time the Form S-4 is filed with the SEC and at
the time it becomes effective under the Securities Act contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading or
(ii) the Proxy Statement will at the date mailed to shareholders and at the
times of the meeting or meetings of shareholders of the Parent to be held in
connection with the Merger contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein in light of the circumstances under which
they are made not misleading. The Form S-4 will comply as to form in all
material respects with the provisions of the Securities Act and the rules and
regulations thereunder. Notwithstanding the foregoing, Parent makes no
representation, warranty or covenant with respect to any information supplied or
required to be supplied by the Company that is contained in or omitted from any
of the foregoing documents.
SECTION 3.6. Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under and
other applicable requirements of the Securities Act, the Exchange Act, state
securities or blue sky laws, the HSR Act, and any filings under similar merger
notification laws or regulations of foreign Governmental Entities and the filing
and recordation of the Merger Proposal, the Shareholder Approval Notices and the
other filings listed in Section 4.5(d) as required by the Companies Law, the
exemption from the Israeli Securities Authority from the requirement to publish
a prospectus in respect of the issuance of options to acquire Parent Common
Stock to Israeli resident holders of Company Stock Options, to the extent
required by Applicable Law, the consent of the Israeli Controller of Restrictive
Trade Practices pursuant to the Restrictive Trade Practices Law (1968), no
material filing with or notice to, and no material permit, authorization,
consent or approval of any Governmental Entity is necessary for the execution
and delivery by Parent or Acquisition of this Agreement or the consummation by
Parent or Acquisition of the transactions contemplated hereby. Neither the
execution, delivery and performance of this Agreement by Parent or Acquisition
nor the consummation by Parent or Acquisition of the transactions contemplated
hereby will (a) conflict with or result in any breach of any provision of the
respective Certificates of Incorporation or bylaws (or similar governing
documents) of Parent or Acquisition, (b) result in a violation or breach of or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, amendment, cancellation or acceleration
or Lien) under any of the terms, conditions or provisions of any material note,
bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which Parent or Acquisition or any of Parent's other
subsidiaries is a party or by which any of them or any of their respective
properties or assets may be bound or (c) violate any material order,
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writ, injunction, decree, law, statute, rule or regulation applicable to Parent
or Acquisition or any of Parent's other subsidiaries or any of their respective
properties or assets.
SECTION 3.7. Litigation. Except as publicly disclosed by Parent in the
Parent SEC Reports or as set forth in Section 3.7 of the Parent Disclosure
Schedule, there is no suit, claim, action, arbitration, proceeding pending or,
to the knowledge of Parent, investigation pending or threatened, against Parent
or any of its subsidiaries or any of their respective properties or assets
before any Governmental Entity that could, if adversely determined, have a
Material Adverse Effect on Parent or would reasonably be expected to prevent or
delay the consummation of the transactions contemplated by this Agreement beyond
the Final Date. Except as publicly disclosed by Parent in the Parent SEC
Reports, Parent nor any of its subsidiaries is subject to any outstanding order,
writ, injunction or decree that could reasonably be expected to prevent or delay
the consummation of the transactions contemplated hereby.
SECTION 3.8. No Default. Except as set forth in Section 3.8 of the Parent
Disclosure Schedule, neither Parent nor any of its subsidiaries is in material
breach, default or violation (and no event has occurred that with notice or the
lapse of time or both would constitute a breach, default or violation) of any
term, condition or provision of (a) its Certificate of Incorporation or bylaws
(or similar governing documents), (b) any material note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or obligation
to which Parent or any of its subsidiaries is now a party or by which it or any
of its properties or assets are bound or (c) any material order, writ,
injunction, decree, law, statute, rule or regulation applicable to Parent or any
of its subsidiaries or any of its properties or assets.
SECTION 3.9. Opinion of Financial Advisor. Goldman Sachs & Co. (the "Parent
Financial Advisor") has delivered to the Board of Directors of Parent its
opinion to the effect that, as of the date hereof, the Exchange Ratio is fair,
from a financial point of view, to Parent ("Opinion of Parent Financial
Advisor"), a written copy of which will be received prior to the Closing, and a
true and correct copy of which will be delivered to the Company as soon as
available but no later than the Closing.
SECTION 3.10. Brokers. No broker finder or investment banker (other than
the Parent Financial Advisor) is entitled to any brokerage, finder's or other
fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of Parent or Acquisition.
SECTION 3.11. No Prior Activities. Except for obligations incurred in
connection with its incorporation or organization or the negotiation and
consummation of this Agreement and the transactions contemplated hereby,
Acquisition has neither incurred any obligation or liability nor engaged in any
business or activity of any type or kind or entered into any agreement or
arrangement with any person.
SECTION 3.12. No Undisclosed Liabilities; Absence of Changes. Except as and
to the extent publicly disclosed by Parent in the Parent SEC Reports, neither
Parent nor any of its subsidiaries has any material liabilities or obligations
of any nature, whether or not accrued, contingent or otherwise, that would be
required by United States generally accepted accounting principles to be
reflected on a consolidated balance sheet of Parent (including the notes
thereto) other than (a) liabilities specifically described in this Agreement or
in the Parent Disclosure Schedule, and (b) normal or recurring liabilities
incurred since June 26, 2000 in the ordinary course of business consistent with
past practices. Except as publicly disclosed by Parent in the Parent SEC Reports
or as set forth in Section 3.12 of the Parent Disclosure Schedule, since June
26, 2000, there have been no events, changes or effects with respect to Parent
or its subsidiaries that, individually or in the aggregate, have had or
reasonably would be expected to have a Material Adverse Effect on Parent.
SECTION 3.13. Compliance with Applicable Law. Except as publicly disclosed
by Parent in the Parent SEC Reports, (a) Parent and its subsidiaries hold all
permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities necessary for the lawful conduct of their respective
businesses (the "Parent Permits"), (b) Parent and its subsidiaries are in
material compliance with the terms of the Parent Permits, and (c) to the
knowledge of Parent, the businesses of Parent and its subsidiaries have been and
are being conducted in compliance with all Applicable Laws except to the
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extent that the failure to hold any such permit or such noncompliance could not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect on Parent.
SECTION 3.14. Affiliates. Except for the directors and executive officers
of Parent, each of whom is listed in Section 3.14 of the Parent Disclosure
Schedule, there are no persons who, to the knowledge of Parent, may be deemed to
be affiliates of Parent within the meaning of Rule 145 of the Securities Act
("Parent Affiliates").
SECTION 3.15. Intellectual Property. The Parent's and each of its
subsidiary's Trademarks, Patents, Copyrights and Trade Secrets are sometimes
referred to hereinafter as the "Parent Trademarks," "Parent Patents," "Parent
Copyrights" and "Parent Trade Secrets," respectively.
(a) Trademarks.
(i) All Parent Trademark registrations are currently in compliance
in all material respects with all legal requirements (including, where
applicable, the timely post-registration filing of affidavits of use and
incontestability and renewal applications) other than any requirement
that, if not satisfied, would not result in a cancellation of any such
registration or otherwise materially affect the priority and
enforceability of the Parent Trademark in question.
(ii) No material registered Parent Trademark has been within the
last three (3) years or is now involved in any opposition or
cancellation proceeding in the United States Patent and Trademark Office
or other applicable Governmental Entity. To the Parent's knowledge, no
such action has been threatened in writing within the one (1)-year
period prior to the date of this Agreement.
(iii) To Parent's knowledge, there has been no prior use of any
material Parent Trademark by any third party that confers upon such
third party superior rights in any such Parent Trademark.
(b) Patents.
(i) All Parent Patents are currently in compliance with legal
requirements (including payment of filing, examination, and maintenance
fees and proofs of working or use) other than any requirement that, if
not satisfied, would not result in a revocation or otherwise materially
affect the enforceability of the Parent Patent in question.
(ii) No Parent Patent has been or is now involved in any
interference, reissue, reexamination or opposition proceeding in the
United States Patent and Trademark Office or other applicable
Governmental Entity. To Parent's knowledge, no such action has been
threatened in writing within the one (1)-year period prior to the date
of this Agreement.
(iii) To Parent's knowledge, there is no patent or patent
application of any person that conflicts in any material respect with
any Parent Patent or invalidates any claim Parent has in any Parent
Patent.
(c) Trade Secrets.
(i) Parent has taken reasonable steps in accordance with normal
industry practice to protect Parent's rights in confidential information
and Parent Trade Secrets.
(ii) Without limiting the generality of Section 3.15(c)(i) and
except as would not be materially adverse to Parent or its business,
Parent enforces and has enforced a policy of requiring each relevant
employee, consultant and contractor to execute "work for hire" (or
similar arrangements under Applicable Law), proprietary information,
confidentiality and assignment agreements substantially in Parent's
standard forms that effectively and exclusively assign to Parent or one
of its subsidiaries rights to any Intellectual Property relating to the
business of Parent or its subsidiaries created in the course of
performance of work for Parent or one of its subsidiaries. Except under
confidentiality obligations, there has been no disclosure by
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Parent or any subsidiary of material confidential information or Parent
Trade Secrets. Parent has provided the Company a copy of its trade
secret protection policy.
(d) License Agreements. There is no material outstanding or, to
Parent's knowledge, threatened dispute or disagreement with respect to (i)
any license agreements granting to the Parent or any of its subsidiaries
any material right to use or practice any rights under any Intellectual
Property, other than software commercially available on reasonable terms to
any person for a license fee of no more than One Hundred Thousand Dollars
($100,000) in the aggregate or (ii) any license agreements under which the
Parent or any of its subsidiaries licenses software or grants other rights
in or rights to use or practice under any Intellectual Property, excluding
licenses with customers that in the twelve-month period prior to the date
hereof have purchased or licensed products for which the total payments to
Parent and its subsidiaries did not exceed One Hundred Thousand Dollars
($100,000) in the aggregate.
(e) Ownership; Sufficiency of IP Assets. Parent or one of its
subsidiaries owns or possesses adequate licenses or other rights to use,
free and clear of Liens, orders and arbitration awards, all of its
Intellectual Property used in their respective businesses as currently
conducted.
(f) Protection of IP. Parent has taken reasonable and customary steps
to protect the Intellectual Property of Parent and its subsidiaries.
(g) No Infringement by Parent. The products used, manufactured,
marketed, sold or licensed by Parent, and all Intellectual Property used in
the conduct of Parent's and its subsidiaries' businesses as currently
conducted, do not infringe upon, violate or constitute the unauthorized use
of any rights owned or controlled by any third party, including any
Intellectual Property of any third party.
(h) No Pending or Threatened Infringement Claims. Except and to the
extent publicly disclosed in the Parent SEC Reports, no litigation is now
or, within the three (3) years prior to the date of this Agreement, was
pending and, to Parent's knowledge, no notice or other claim has been
received by Parent within the one (1) year prior to the date of this
Agreement, nor is Parent aware of any facts or circumstances that in
Parent's reasonable judgment could be expected to give rise to any material
claim, (i) alleging that Parent or any of its subsidiaries has engaged in
any activity or conduct that infringes upon, violates or constitutes the
unauthorized use of the Intellectual Property rights of any third party or
(ii) challenging the ownership, use, validity or enforceability of any
Intellectual Property owned or exclusively licensed by or to Parent.
(i) No Infringement by Third Parties. Except and to the extent
publicly disclosed in the Parent SEC Reports, to the Parent's knowledge, no
third party is misappropriating, infringing, diluting or violating any
Intellectual Property owned or exclusively licensed by Parent or any of its
subsidiaries, and no such claims have been brought against any third party
by Parent or any of its subsidiaries.
(j) Assignment; Change of Control. The execution, delivery and
performance by Parent of this Agreement, and the consummation of the
transactions contemplated hereby, will not result in the loss or impairment
of, or give rise to any right of any third party to terminate, any of
Parent's or any of its subsidiaries' rights to own any of its Intellectual
Property or their respective rights under the License Agreements, nor
require the consent of any Governmental Authority or third party in respect
of any such Intellectual Property.
(k) Software. The Software owned or purported to be owned by Parent or
any of its subsidiaries was either (i) developed by employees of Parent or
any of its subsidiaries within the scope of their employment; (ii)
developed by independent contractors who have assigned their rights to
Parent or any of its subsidiaries pursuant to written agreements; or (iii)
otherwise acquired by Parent or a subsidiary from a third party. To the
Parent's knowledge, the Software does not contain any programming code,
documentation or other materials or development environments that embody
Intellectual Property rights of any person other than Parent or any of its
subsidiaries, except for such materials or development environments
obtained by Parent or any of its subsidiaries from other persons who make
such materials or development environments commercially available to
purchasers
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or end-users. For purposes of this Section 3.15(k), "Software" means any
and all (i) computer programs, including any and all software
implementations of algorithms, models and methodologies, whether in source
code or object code, (ii) databases and compilations, including any and all
data and collections of data, whether machine readable or otherwise, (iii)
descriptions, flow-charts and other work product used to design, plan,
organize and develop any of the foregoing, and (iv) all documentation,
including user manuals and training materials, relating to any of the
foregoing.
SECTION 3.16. Environmental Laws and Regulations. Except as could not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect on Parent, (a) Hazardous Materials have not been generated, used,
treated or stored on, transported to or from or released or disposed of on, any
Parent Property, except in compliance with applicable; (b) each of Parent and
each of its subsidiaries is in compliance with all applicable and the
requirements of any Permits issued under such Environmental Laws with respect to
any Parent Property; (c) there are no past, pending or, to Parent's knowledge,
threatened Environmental Claims against Parent or any of its subsidiaries or any
Parent Property; and (d) to Parent's knowledge there are no facts or
circumstances, conditions or occurrences regarding the business, assets or
operations of Parent or any Parent Property that could reasonably be anticipated
to form the basis of an Environmental Claim against Parent or any of its
Subsidiaries or any Parent Property.
For purposes of this Agreement, (i) "Parent Property" means any real
property and improvements owned, leased or operated by the Parent or any of its
Subsidiaries; (ii) "Hazardous Materials" means (A) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could become
friable, transformers or other equipment that contain dielectric fluid
containing levels of polychlorinated biphenyls, and radon gas; (B) any
chemicals, materials or substances defined as or included in the definition of
"hazardous substances," "hazardous wastes," "hazardous materials," "extremely
hazardous wastes," "extremely hazardous substances," "restricted hazardous
wastes," "toxic substances," "toxic pollutants," or words of similar import,
under any applicable Environmental Law; and (C) any other chemical, material or
substance, exposure to which is prohibited, limited or regulated by any
Governmental Entity; (iii) "Environmental Law" means any federal, state, foreign
or local statute, law, rule, regulation, ordinance, code or rule of common law
and any judicial or administrative interpretation thereof binding on Parent or
its operations or property as of the date hereof and the Closing Date, including
any judicial or administrative order, consent decree or judgment, relating to
the environment, health or Hazardous Materials, including, without limitation,
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, 42 U.S.C. sec.sec. 9601 et seq.; the Resource Conservation and
Recovery Act, as amended, 42 U.S.C. sec.sec. 6901 et seq.; the Federal Water
Pollution Control Act, as amended, 33 U.S.C. sec.sec. 1251 et seq.; the Toxic
Substances Control Act, 15 U.S.C. sec.sec. 2601 et seq.; the Clean Air Act, 42
U.S.C. sec.sec. 7401 et seq.; the Oil Pollution Act of 1990, 33 U.S.C.
sec.sec. 2701 et seq.; the Safe Drinking Water Act, 42 U.S.C. sec.sec. 300(f) et
seq.; and their state and local counterparts and equivalents; (iv)
"Environmental Claims" means any and all administrative, regulatory or judicial
actions, suits, demands, demand letters, claims, liens, notices of noncompliance
or violation, investigations or proceedings under any Environmental Law or any
permit issued under any such Environmental Law (for purposes of this subclause
(iv), "Claims"), including, without limitation, (A) any and all Claims by
Governmental Entities for enforcement, cleanup, removal, response, remedial or
other actions or damages pursuant to any applicable Environmental Law and (B)
any and all Claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting from
Hazardous Materials or arising from alleged injury or threat of injury to
health, safety or the environment; and (v) "Release" means disposing,
discharging, injecting, spilling, leaking, leaching, dumping, emitting,
escaping, emptying or seeping into or upon any land or water or air, or
otherwise entering into the environment.
SECTION 3.17. Taxes.
(a) Except as set forth in Section 3.17(a) of Parent Disclosure Schedule,
Parent and its subsidiaries have duly and timely filed all material Tax Returns
required to be filed (after taking into account all available extensions) and
have timely paid or adequately provided for in accordance with United States
generally accepted accounting principles all Taxes due in respect of the periods
covered by such Tax
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Returns, except, in each case, where the failure so to file, pay or provide
would not have a Material Adverse Effect on Parent or Acquisition.
(b) No material penalty, interest or other charge is due or has been
asserted in writing as of the date of this Agreement with respect to the late
filing of any Tax Return or late payment of any Tax, except where such penalty,
interest or other charge will not have a Material Adverse Effect on Parent or
Acquisition. Except as set forth in Section 3.17(b) of the Parent Disclosure
Schedule, as of the date of this Agreement no material claim for assessment or
collection of Taxes is presently being asserted against Parent or its
subsidiaries and neither Parent nor any of its subsidiaries is a party to any
pending action, proceeding, or investigation by any governmental taxing
authority relating to a material Tax nor does Parent have knowledge of any such
threatened action, proceeding or investigation.
(c) Except as set forth in Section 3.17(c) of the Parent Disclosure
Schedule, neither Parent nor any of its subsidiaries is a party to or bound by
any obligation under any written Tax sharing, Tax allocation, Tax indemnity or
similar agreement or arrangement.
SECTION 3.18. Employee Benefits.
(a) Definitions. For purposes of this Section, the following terms shall
have the meanings set forth below:
(i) "Parent Employee Plan" shall mean any Employee Plan for the
benefit of any Employee with respect to Parent and pursuant to which Parent
or any of its ERISA Affiliates has any liability contingent or otherwise;
and
(b) Employee Plans. Section 3.18(b) of the Parent Disclosure Schedule
contains an accurate and complete list of each Parent Employee Plan and each
Parent Employee Agreement. Except as and to the extent publicly disclosed in the
Parent SEC Reports or as set forth in Section 3.18(b) of the Parent Disclosure
Schedule, the Parent has also made available to the Company or its counsel,
where applicable, true, complete and correct copies of (i) the most recent plan
documents, related trust documents, adoption agreements, summary plan
descriptions, and all amendments thereto for each Parent Employee Plan, (ii) the
most recent actuarial and audit reports for each Pension Plan, and (iii) the
most recent IRS determination letters and rulings received by the Parent and
copies of all applications and correspondence to or from the IRS or the DOL with
respect to any Parent Employee Plan.
(c) Employee Plan Compliance. Except in each case for which non-compliance
would not have a Material Adverse Effect (i) each Parent Employee Plan has been
established and maintained in accordance with its terms and all Applicable Laws,
including ERISA and the Code; (ii) no "prohibited transaction," within the
meaning of Section 4975 of the Code or Section 406 of ERISA, has occurred with
respect to any Parent Employee Plan; (iii) no Employee of the Parent has
committed a material breach of any responsibility imposed upon fiduciaries by
Title I of ERISA with respect to any Parent Employee Plan; (iv) there are no
judicial, regulatory, arbitration or similar proceedings pending, or, to the
Parent's knowledge, threatened or anticipated (other than routine claims for
benefits) against any Parent Employee Plan or against the assets of any Parent
Employee Plan; (v) there are no inquiries, investigations, audits or proceedings
pending or, to the Parent's knowledge, threatened by the IRS or DOL with respect
to any Parent Employee Plan or any related trust; (vi) neither the Parent nor
any ERISA Affiliate is subject to any penalty or tax with respect to any Parent
Employee Plan under Sections 4975 through 4980 of the Code; (vii) each Pension
Plan that is intended to be qualified under Section 401(a) of the Code is so
qualified and has received a favorable determination opinion, notification or
advisory letter with respect to such status from the IRS or has time remaining
to apply under applicable Treasury Regulation or IRS pronouncement for a
determination or opinion letter and to make any necessary amendments, and no
event has occurred and no condition or circumstance has existed or exists which
may reasonably be expected to result in the disqualification of such Pension
Plan.
(d) Pension Plans. None of the Parent Employee Plans is or was subject to
Code Section 412 or ERISA Section 302, or is a plan described in Sections 3(37),
4063 or 4064 of ERISA.
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(e) Effect of Transaction. Except as set forth in Section 3.18(e) of the
Parent Disclosure Schedule, the execution of this Agreement and the consummation
of the transactions contemplated hereby will not constitute an event under any
Parent Employee Plan, Employee Agreement, trust or loan that will or may result
in any payment (whether of severance pay or otherwise and including forgiveness
of indebtedness), acceleration, vesting, distribution, increase in benefits
under any Parent Employee Plan or Employee Arrangement or compensation to any
Employee, or obligation to fund compensation benefits with respect to any
Employee.
(f) Foreign Plans. Except as set forth in Section 3.18(f) of the Parent
Disclosure Schedule, with respect to any Parent Employee Plan maintained for
Employees outside of the United States (each a "Foreign Plan"): (i) each Foreign
Plan and the manner in which it has been administered satisfies all Applicable
Laws, (ii) there are no pending investigations by any Governmental Entity
involving any Foreign Plan nor any pending claims (except for claims for
benefits payable in the normal operation of the Foreign Plans), suits or
proceedings against any Foreign Plan or asserting any rights to benefits under
any Foreign Plan; (iii) the consummation of the transactions contemplated by
this Agreement will not by itself create or otherwise result in any material
liability with respect to any Foreign Plan; (iv) the Parent's obligations to
provide severance pay to its employees are fully funded or have been properly
provided for in the Parent's financial statements attached to the Parent SEC
Reports in accordance with United States except for noncompliance which would
not have a Material Adverse Effect on Parent; and (v) all other liabilities of
the Parent relating to its employees (excluding liabilities for illness pay)
were properly accrued in the Parent's financial statements in accordance with
United States generally accepted accounting principles.
SECTION 3.19. Certain Business Practices. None of Parent, any of its
subsidiaries or any directors, officers, agents or employees of Parent or any of
its subsidiaries has (a) used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to political activity or (b)
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns or violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended or (c)
made any other unlawful payment.
ARTICLE 4
COVENANTS
SECTION 4.1. Conduct of Business of the Company. Except as contemplated by
this Agreement or as described in Section 4.1 of the Company Disclosure
Schedule, during the period from the date hereof to the Effective Time or the
earlier termination of this Agreement, the Company will and will cause each of
its subsidiaries to conduct its operations in the ordinary course of business
consistent with past practice and, to the extent consistent therewith, with no
less diligence and effort than would be applied in the absence of this
Agreement, seek to preserve intact its current business organizations, keep
available the service of its current officers and employees and preserve its
relationships with customers, suppliers, distributors, lessors, creditors,
employees, contractors and others having business dealings with it with the
intention that its goodwill and ongoing businesses shall be unimpaired at the
Effective Time. Without limiting the generality of the foregoing, except as
otherwise expressly provided in this Agreement, prior to the Effective Time or
the earlier termination of this Agreement, neither the Company nor any of its
subsidiaries will, without the prior written consent of Parent and Acquisition:
(a) amend its Memorandum of Association, Articles of Association,
Certificate of Incorporation or bylaws (or other similar governing
instrument);
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any stock of any class or any other debt or equity securities or
equity equivalents (including any stock options or stock appreciation
rights) except for the issuance and sale of Shares pursuant to options
granted under the Company Plans prior to the date hereof and issuance
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of Company Stock Options to new employees in the ordinary course of
business consistent with the applicable Company Plan and past practice;
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock (except dividends declared or paid by a wholly-owned
subsidiary of the Company to the Company or another wholly-owned subsidiary
of the Company), make any other actual, constructive or deemed distribution
in respect of its capital stock or otherwise make any payments to
shareholders in their capacity as such, or redeem or otherwise acquire any
of its securities or any securities of any of its subsidiaries;
(d) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of the Company or any of its subsidiaries (other than the
Merger);
(e) alter through merger, liquidation, reorganization, restructuring
or any other fashion the corporate structure of any subsidiary;
(f)(i) incur or assume any long-term or short-term debt or issue any
debt securities except for borrowings under existing lines of credit in the
ordinary course of business, or modify or agree to any amendment of the
terms of any of the foregoing; (ii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise)
for the obligations of any other person except for obligations of
subsidiaries of the Company incurred in the ordinary course of business;
(iii) make any loans, advances or capital contributions to or investments
in any other person (other than to subsidiaries of the Company or customary
loans or advances to employees in each case in the ordinary course of
business consistent with past practice); (iv) pledge or otherwise encumber
shares of capital stock of the Company or any of its subsidiaries; or (v)
mortgage or pledge any of its material assets, tangible or intangible, or
create or suffer to exist any material Lien thereupon other than in the
ordinary course of business;
(g) except as may be required by Applicable Law or as required by any
existing agreement listed on Section 4.1 of the Company Disclosure
Schedule, enter into, adopt or amend or terminate any Employee Plan or
Employee Agreement, or any trust or other fund for the benefit or welfare
of any director, officer or employee.
(h)(i) acquire, sell, lease, license, transfer or otherwise dispose of
any material assets in any single transaction or series of related
transactions (including in any transaction or series of related
transactions having a fair market value in excess of One Hundred Thousand
Dollars ($100,000) in the aggregate), other than sales of its products in
the ordinary course of business consistent with past practices, or (ii)
enter into any exclusive license, distribution, marketing, sales or other
agreement;
(i) except as may be required as a result of a change in law or in
United States generally accepted accounting principles, change any of the
accounting principles, practices or methods used by it;
(j) revalue in any material respect any of its assets, including
writing down the value of inventory or writing-off notes or accounts
receivable, other than in the ordinary course of business;
(k)(i) acquire (by merger, consolidation or acquisition of stock or
assets) any corporation, partnership or other entity or division thereof or
any equity interest therein; (ii) enter into any contract or agreement that
would be material to the Company and its subsidiaries, taken as a whole,
other than in the ordinary course and consistent with past practice; (iii)
amend, modify or waive any material right under any material contract of
the Company or any of its subsidiaries; (iv) modify its standard warranty
terms for its products or amend or modify any product warranties in effect
as of the date hereof in any material manner that is adverse to the Company
or any of its subsidiaries; or (v) authorize any new capital expenditure or
expenditures not included in the current annual budget of the Company or
any of its subsidiaries, true and accurate copies of which have been
provided to
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Parent, that individually is in excess of Five Hundred Thousand Dollars
($500,000) or in the aggregate are in excess of One Million Dollars
($1,000,000); provided that nothing in the foregoing clause (v) shall limit
any capital expenditure required pursuant to existing customer contracts;
(l) make any material Tax election or settle or compromise any
material income Tax liability or permit any material insurance policy
naming it as a beneficiary or loss-payable to expire, or to be cancelled or
terminated, unless a comparable insurance policy reasonably acceptable to
Parent is obtained and in effect;
(m) settle or compromise any pending or threatened suit, action or
claim that (i) relates to the transactions contemplated hereby or (ii) the
settlement or compromise of which would involve more that One Hundred
Thousand Dollars ($100,000) or that would otherwise be material to the
Company or any of its subsidiaries;
(n) except as permitted pursuant to Section 4.4, take any action that
would or would reasonably be expected to prevent, impair or materially
delay the ability of the Company, Acquisition or Parent to consummate the
transactions contemplated by this Agreement;
(o) take any action or fail to take any action that would cause the
Merger to fail to qualify as a reorganization within the meaning of Section
368(a) of the Code; or
(p) take or agree in writing or otherwise to take any of the actions
described in Sections 4.1(a) through 4.1(o) (and it shall use all
reasonable best efforts not to take any action that would make any of the
representations or warranties of the Company contained in this Agreement
untrue or incorrect).
SECTION 4.2. Conduct of Business of Parent. Except as contemplated by this
Agreement or as described in Section 4.2 of the Parent Disclosure Schedule,
during the period from the date hereof to the Effective Time or the earlier
termination of this Agreement, Parent will and will cause each of its
subsidiaries to conduct its operations in the ordinary course of business
consistent with past practice and, to the extent consistent therewith, with no
less diligence and effort than would be applied in the absence of this
Agreement, seek to preserve intact its current business organizations, keep
available the service of its current officers and employees and preserve its
relationships with customers, suppliers, distributors, lessors, creditors,
employees, contractors and others having business dealings with it with the
intention that its goodwill and ongoing businesses shall be unimpaired at the
Effective Time. Without limiting the generality of the foregoing, except as
otherwise expressly provided in this Agreement, prior to the Effective Time or
the earlier termination of this Agreement, neither Parent nor any of its
subsidiaries will, without the prior written consent of the Company:
(a) amend its Memorandum of Association, Bye-Laws, certificate of
incorporation or bylaws (or other similar governing instrument);
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any stock of any class or any other debt or equity securities or
equity equivalents (including any stock options or stock appreciation
rights) except for the issuance and sale of Shares pursuant to options
granted prior to the date hereof, and issuance of Parent Stock Options to
new employees in the ordinary course of business consistent with the
applicable Parent Plan and past practice;
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock, make any other actual, constructive or deemed distribution
in respect of its capital stock or otherwise make any payments to
shareholders in their capacity as such, or redeem or otherwise acquire any
of its securities or any securities of any of its subsidiaries;
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(d) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of Parent or any of its subsidiaries (other than the
Merger);
(e) incur or assume any long-term or short-term debt or issue any debt
securities except for borrowings under existing lines of credit in the
ordinary course of business, or modify or agree to any amendment of the
terms of any of the foregoing;
(f) except as may be required as a result of a change in law or in
United States generally accepted accounting principles, change any of the
accounting principles, practices or methods used by it;
(g) take any action that would or would reasonably be expected to
prevent, impair or materially delay the ability of the Company, Acquisition
or Parent to consummate the transactions contemplated by this Agreement;
(h) enter into or acquire any new line of business that (i) is
material to the Parent and its Subsidiaries taken as a whole and (ii) is
not strategically related to the current business or operations of Parent
and its subsidiaries;
(i) engage in any (i) merger, consolidation, share exchange, business
combination, reorganization, recapitalization or other similar transaction,
(ii) transaction as a result of which any third party acquires, directly or
indirectly, an equity interest representing greater than 10% of the voting
securities of Parent or any Parent subsidiary, (iii) disposition, directly
or indirectly, of material assets, securities or ownership interests or
(iv) acquire (by merger, consolidation or acquisition of stock or assets)
any corporation, partnership or entity or division thereof or equity
interest therein for aggregate consideration in excess of $1,000,000,000;
(j) take or agree in writing or otherwise to take any of the actions
described in Sections 4.2(a) through 4.2(i) (and it shall use all
reasonable best efforts not to take any action that would make any of the
representations or warranties of Parent contained in this Agreement untrue
or incorrect); or
(k) take any action or fail to take any action that would cause the
Merger to fail to qualify as a reorganization within the meaning of Section
368(a) of the Code.
SECTION 4.3. Merger Proposal; Shareholders' Meetings; Preparation of Form
S-4 and the Proxy Statement.
(a) Promptly after the execution and delivery of this Agreement, (i) each
of the Company and Acquisition shall cause a merger proposal (in the Hebrew
language) in form reasonably agreed upon by the parties (the "Merger Proposal")
to be executed in accordance with Section 316 of the Israeli Companies Law, (ii)
the Company shall call the Company Shareholder Meeting, and (iii) each of the
Company and Acquisition shall deliver the Merger Proposal to the Companies
Registrar. Each of the Company and Acquisition shall cause a copy of the Merger
Proposal to be delivered to each of their secured creditors, if any, no later
than three days after the date on which the Merger Proposal is delivered to the
Companies Registrar, and shall promptly inform their non-secured creditors of
the Merger Proposal and its contents in accordance with Section 318 of the
Companies Law and the regulations promulgated thereunder. Promptly after the
Company and Acquisition shall have complied with the preceding sentence, the
Company and Acquisition shall inform the Companies Registrar, in accordance with
Section 317(b) of the Companies Law, that notice was given to their creditors
under Section 318 of the Israeli Companies Law and the regulations promulgated
thereunder.
(b) The Company shall take all action necessary under all applicable legal
requirements to call (promptly after the execution and delivery of this
Agreement), give notice of and hold the Company Shareholder Meeting to vote on
the proposal to approve the Merger (the "Company Approval Matters"). Subject to
the notice requirements of the Companies Law and the Articles of Association of
the Company and effectiveness of the Form S-4, the Company Shareholder Meeting
shall be held (on a date selected by the Company in consultation with Parent) as
promptly as practicable after the date hereof. The Company
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shall ensure that all proxies solicited in connection with the Company
Shareholder Meeting are solicited in compliance with all applicable legal
requirements. In the event that Parent shall cast any votes in respect of the
Merger, Parent shall disclose to the Company its interest in such shares so
voted. Unless this Agreement is terminated, the Company's obligation to call,
give notice of and hold the Company Shareholder Meeting in accordance with this
Agreement shall not be limited or otherwise affected by the commencement,
disclosure, announcement or submission of any Superior Proposal (as hereinafter
defined). Within three days after the approval of the Merger by the shareholders
of Company, Company shall deliver to the Companies Registrar a notice in
accordance with Section 317(b) of the Companies Law (the "Shareholder Approval
Notice") informing the Companies Registrar that the Merger was approved by the
general shareholders meeting of Company.
(c) Parent shall, in accordance with applicable law and the Memorandum of
Association and the Bye-laws of Parent duly call, give notice of, convene and
hold a special general meeting of its shareholders (the "Parent Special
Meeting") as promptly as practicable after the date hereof for the purpose of
considering and taking action upon this Agreement, the Merger and the issuance
of Parent Common Stock in connection with the transactions contemplated hereby
(the "Parent Approval Matters"). The Board of Directors of Parent shall
recommend approval and adoption of the Parent Approval Matters by Parent's
shareholders. Promptly after the approval of the Merger by the Company
Shareholder Meeting and by no later than the Closing Date, Parent (as the sole
shareholder of Acquisition) shall approve the Merger by written resolution or by
such general meeting. No later than three days after the approval of the Merger
by Acquisition, Acquisition shall deliver to the Companies Registrar a
Shareholder Approval Notice in accordance with Section 317(b) of the Companies
Law informing the Companies Registrar that the Merger was approved by the
shareholders of Acquisition.
(d) Promptly following the date of this Agreement, the Company and Parent
shall prepare a joint proxy statement relating to the Company Approval Matters
and the Parent Approval Matters (the "Proxy Statement"), and Parent shall
prepare and file with the SEC the Form S-4, in which the Proxy Statement will be
included as a prospectus. Parent and the Company shall cooperate with each other
in connection with the preparation of the foregoing documents. Parent and the
Company shall each use reasonable best efforts to have the Form S-4 declared
effective under the Securities Act as promptly as practicable after such filing.
The Company will use reasonable best efforts to cause the Proxy Statement to be
mailed to the Company's shareholders, and Parent will use reasonable best
efforts to cause the Proxy Statement to be mailed to Parent's shareholders, in
each case as promptly as practicable after the Form S-4 declared effective under
the Securities Act. The Proxy Statement will comply in all material respects
with Israeli and Bermudian law. Parent and the Company will provide reasonable
representations to the tax counsel who prepares the tax disclosure to be made in
connection with the filing of the Proxy Statement.
(e) Each of the Company and Parent shall as promptly as practicable notify
the other of the receipt of any comments from the SEC relating to the Proxy
Statement. Each of Parent and the Company shall as promptly as practicable
notify the other of (i) the effectiveness of the Form S-4, (ii) the receipt of
any comments from the SEC relating to the Form S-4 and (iii) any request by the
SEC for any amendment to the Form S-4 or for additional information. All filing
by Parent and the Company with the SEC in connection with the transactions
contemplated hereby, including the Proxy Statement, the Form S-4 and any
amendment or supplement thereto, shall be subject to the prior review of the
other, and all mailings to the Company's and Parent's shareholders in connection
with the transactions contemplated by this Agreement shall be subject to the
prior review of the other party.
SECTION 4.4. Other Potential Acquirers.
(a) The Company, its affiliates (as reasonably determined by the Company)
and their respective officers and other employees with managerial
responsibilities, directors, representatives (including the Company Financial
Advisor or any other investment banker and any attorneys and accountants) and
agents shall immediately cease any discussions or negotiations with any parties
with respect to any Third Party Acquisition (as defined below). The Company also
agrees promptly to request each person, if any, that has heretofore executed a
confidentiality agreement in connection with its consideration of acquiring
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(whether by merger, acquisition of stock or assets or otherwise) the Company or
any of its subsidiaries, if any, to return all confidential information
heretofore furnished to such person by or on behalf of the Company or any of its
subsidiaries. Neither the Company nor any of its affiliates shall, nor shall the
Company authorize or permit any of its or their respective officers, directors,
employees, representatives or agents to, directly or indirectly, encourage,
solicit, participate in or initiate discussions or negotiations with or provide
any non-public information to any person or group (other than Parent and
Acquisition or any designees of Parent and Acquisition) concerning any Third
Party Acquisition; provided, however, that if the Board of Directors of the
Company determines in good faith, after consultation with legal counsel, that it
is necessary to do so in order to comply with its fiduciary duties, the Company
may, in response to a proposal or offer for a Third Party Acquisition which was
not solicited and which the Board of Directors of the Company determines, based
on consultation with the Financial Advisor, is from a Third Party that is
capable of consummating a Superior Proposal and only for so long as the Board of
Directors so determines that its actions are reasonably likely to lead to a
Superior Proposal, (i) furnish information only of the type and scope with
respect to the Company that the Company provided to Parent prior to the date
hereof to any such person pursuant to a customary confidentiality agreement as
was executed by Parent prior to the execution of this Agreement and (ii)
participate in the discussions and negotiations regarding such proposal or
offer; provided further, that nothing herein shall prevent the Company Board
from taking and disclosing to the Company's shareholders a position contemplated
by Rules 14d-9 and 14e-2 promulgated under the Exchange Act with regard to any
tender or exchange offer. The Company shall promptly (and in any event within
one business day after becoming aware thereof) (1) notify Parent in the event it
receives any proposal or inquiry concerning a Third Party Acquisition, including
the terms and conditions thereof and the identity of the party submitting such
proposal, and any request for confidential information is requested in
connection with a potential Third Party Acquisition, (2) provide Parent with a
copy of any written agreements, proposals or other materials the Company
receives from any such person or group (or its representatives), and (3)
promptly advise Parent from time to time of the status and any developments
concerning the same.
(b) Except as set forth in this Section 4.4(b), the Company Board shall not
withdraw or modify its recommendation of the transactions contemplated hereby or
approve or recommend, or cause or permit the Company to enter into any agreement
or obligation with respect to, any Third Party Acquisition. Notwithstanding the
foregoing, if the Company Board by a majority vote determines in its good faith
judgment, after consultation with and based upon the advice of legal counsel,
that it is required to do so in order to comply with its fiduciary duties, the
Company Board may (i) withdraw its recommendation of the transactions
contemplated hereby and (ii) approve or recommend a Superior Proposal (as
defined in subsection (c) below), but in the case of clause (ii) only (A) after
providing written notice to Parent (a "Notice of Superior Proposal") advising
Parent that the Company Board has received a Superior Proposal, specifying the
material terms and conditions of such Superior Proposal and identifying the
person making such Superior Proposal and (B) if Parent does not, within three
(3) business days of Parent's receipt of the Notice of Superior Proposal, make
an offer that the Company Board by a majority vote determines in its good faith
judgment (based on the advice of a financial advisor of nationally recognized
reputation) to be at least as favorable to the Company's shareholders as such
Superior Proposal; provided, however, that the Company shall not be entitled to
enter into any agreement with respect to a Superior Proposal unless and until
this Agreement is terminated by its terms pursuant to Section 6.1 and upon such
termination the Company pays or has paid all amounts due to Parent pursuant to
Section 6.3. Any disclosure that the Company Board may be compelled to make with
respect to the receipt of a proposal for a Third Party Acquisition or otherwise
in order to comply with Rule 14d-9 or 14e-2 will not constitute a violation of
this Agreement.
(c) For the purposes of this Agreement, "Third Party Acquisition" means the
occurrence of any of the following events: (i) the acquisition of the Company by
merger or otherwise by any person (which includes a "person" as such term is
defined in Section 13(d)(3) of the Exchange Act) other than Parent, Acquisition
or any affiliate thereof (a "Third Party"); (ii) the acquisition by a Third
Party of any material portion (which shall include thirty percent (30%) or more)
of the assets of the Company and its subsidiaries taken as a whole, other than
the sale of its products in the ordinary course of business
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consistent with past practices; (iii) the acquisition by a Third Party of thirty
percent (30%) or more of the outstanding Shares; (iv) the adoption by the
Company of a plan of liquidation or the declaration or payment of an
extraordinary dividend or (v) the repurchase by the Company or any of its
subsidiaries of more than thirty percent (30%) of the outstanding Shares. For
purposes of this Agreement, a "Superior Proposal" means any bona fide proposal
(1) to acquire, directly or indirectly, for consideration consisting solely of
cash and/or freely tradeable securities (subject only to securities laws
restricting sales by affiliates of the Company), all of the Shares then
outstanding, or all or substantially all the assets, of the Company, (2) that is
fully financed or is financeable and contains terms that the Company Board by a
majority vote determines in its good faith judgment (based on the advice of the
Company Financial Advisor or another financial advisor of nationally recognized
reputation) to be more favorable to the Company's shareholders than the Merger,
(3) that the Company Board by a majority vote determines in its good faith
judgment (following and based on consultation with the Company Financial Adviser
or another financial advisor of nationally recognized reputation and its legal
and other advisors) to be reasonably capable of being completed (taking into
account all legal, financial, regulatory and other aspects of the proposal and
the person making the proposal) and (4) that does not contain a "right of first
refusal" or "right of first offer."
SECTION 4.5. Israeli Approvals. Each party to this Agreement shall use
reasonable best efforts to deliver and file, as promptly as practicable after
the date of this Agreement, each notice, report or other document required to be
delivered by such party to or filed by such party with any Israeli Governmental
Entity with respect to the Merger. Without limiting the generality of the
foregoing:
(a) as promptly as practicable after the date of this Agreement,
Parent and the Company shall prepare and file the notifications required,
if any, under the Israeli Restrictive Trade Practices Law in connection
with the Merger;
(b) Parent and the Company shall respond as promptly as practicable to
any inquiries or requests received from the Israeli Restrictive Trade
Practices Commissioner for additional information or documentation;
(c) The Company shall use reasonable best efforts to obtain, as
promptly as practicable after the date of this Agreement, the following
consents, and any other consents that may be required in connection with
the Merger: (i) approval of the OCS; and (ii) approval of the Investment
Center; and
(d) Parent shall provide to the OCS, the Investment Center, the
Israeli Restrictive Trade Practices Commissioner and the Israel Securities
Authority any information reasonably requested by such authorities and
shall, without limitation of the foregoing, execute an undertaking in
customary form in which Parent undertakes to comply with the OCS laws and
regulations and confirm to the OCS and the Investment Center that Company
shall continue after the Effective Time to operate in a manner consistent
with its previous undertakings to the OCS and the Investment Center.
Each party to this Agreement shall (i) give the other parties prompt notice
of the commencement of any legal proceeding by or before any Israeli
Governmental Entity with respect to the Merger, (ii) keep the other parties
informed as to the status of any such legal proceeding and (iii) promptly inform
the other parties of any communication to the Israeli Restrictive Trade
Practices Commissioner, the OCS, the Investment Center, the Israeli Securities
Authority, the Companies Registrar or any other Israeli Governmental Entity
regarding the Merger or any of the other transactions contemplated by this
Agreement. The parties to this Agreement will consult and cooperate with one
another, and will consider in good faith the views of one another, in connection
with any analysis, appearance, presentation, memorandum, brief, argument,
opinion or proposal made or submitted in connection with any Israeli legal
proceeding relating to the Merger. In addition, except as may be prohibited by
any Israeli Governmental Entity or by any Israeli legal requirement, in
connection with any such legal proceeding under or relating to the Israeli
Restrictive Trade Practices Law or any other Israeli antitrust or fair trade
law, each party hereto will permit authorized representatives of the other party
to be present at each meeting or conference relating to any such legal
proceeding and to have access to and be consulted in connection with
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any document, opinion or proposal made or submitted to any Israeli Governmental
Entity in connection with any such legal proceeding.
SECTION 4.6. Israeli Income Tax Ruling. As soon as reasonably practicable
after the execution of this Agreement, the Company shall cause the Company's
Israeli counsel and accountants to prepare and file with the Israeli Income Tax
Commissioner an application for a ruling (a) deferring any obligation to pay
capital gains tax on the exchange of the Shares in the Merger until the earlier
of two (2) years after the Closing or the date on which a shareholder sells the
shares of Parent Common Stock received as of the Closing, and (b) confirming
that the exchange of the Company Options for options to purchase shares of
Parent Common Stock (the "Assumed Options") will not result in a requirement for
an immediate Israeli tax payment and that the Israeli taxation will be deferred
until the exercise of the Assumed Options, or in the event of Assumed Options
which are part of a "Section 102 Plan", until the actual sale of the shares of
Parent Common Stock by the option holders, provided that any ruling that is
substantially similar to the foregoing will be sufficient to comply with the
conditions set forth in this clause (b) and provided further that Parent is
reasonably satisfied that, in light of such ruling, Parent is not required to
withhold any Taxes in respect of the issuance of Parent Common Stock to any
holder of Shares in connection with the Merger (the "Israeli Income Tax
Ruling"). Each of the Company and Parent shall cause their respective Israeli
counsel to coordinate all activities, and to cooperate with each other, with
respect to the preparation and filing of such application and in the preparation
of any written or oral submissions that may be necessary, proper or advisable to
obtain the Israeli Income Tax Ruling. Subject to the terms and conditions
hereof, the Company shall use reasonable best efforts to promptly take, or cause
to be taken, all action and to do, or cause to be done, all things necessary,
proper or advisable under applicable Law to obtain the Israeli Income Tax
Ruling, or as appropriate the confirmation referred to in Section 5.3(f)(ii), as
promptly as practicable. Notwithstanding any provisions contained in Section 4.1
hereof to the contrary, the Company shall be allowed to comply with any
conditions contained in the ruling described in this Section 4.6 or reasonable
requests made by the Israeli Tax Commissioner in connection with its delivery of
such ruling.
SECTION 4.7. Israeli Securities Law Exemption. As soon as reasonably
practicable after the execution of this Agreement, Parent shall cause its
Israeli counsel to prepare and file with the Israeli securities authority an
application for an exemption from the requirements of the Israeli Securities Law
1968 concerning the publication of a prospectus in respect of the exchange of
the Company Options for the Assumed Options, pursuant to Section 15D of the
Securities Law of Israel (the "Israeli Securities Exemption"). Each of Parent
and the Company shall cause their respective Israeli counsel to coordinate all
activities, and to cooperate with each other, with respect to the preparation
and filing of such application and in the preparation of any written or oral
submissions that may be necessary, proper or advisable to obtain the Israeli
Securities Exemption. Subject to the terms and conditions hereof, Parent shall
use its reasonable best efforts to promptly take, or cause to be taken, all
action and to do, or cause to be done, all things necessary, proper or advisable
under applicable Law to obtain the Israeli Securities Exemption as promptly as
practicable.
SECTION 4.8. Nasdaq National Market. Parent shall use reasonable best
efforts to cause the shares of Parent Common Stock to be issued in the Merger
and the shares of Parent Common Stock to be reserved for issuance upon exercise
of Company Stock Options to be approved for listing on the Nasdaq National
Market, subject to official notice of issuance, prior to the Effective Time.
SECTION 4.9. Access to Information.
(a) Between the date hereof and the Effective Time, the Company will give
Parent and its authorized representatives reasonable access to all employees,
plants, offices, warehouses and other facilities and to all books and records of
the Company and its subsidiaries as Parent may reasonably require, and will
cause its officers and those of its subsidiaries to furnish Parent with such
financial and operating data and other information with respect to the business
and properties of the Company and its subsidiaries as Parent may from time to
time reasonably request. Between the date hereof and the Effective Time, Parent
shall make available to the Company, as reasonably requested by the Company, a
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designated officer of Parent to answer questions and make available such
information regarding Parent and its subsidiaries as is reasonably requested by
the Company taking into account the nature of the transactions contemplated by
this Agreement.
(b) Between the date hereof and the Effective Time, the Company shall
furnish to Parent (i) within two (2) business days following preparation thereof
(and in any event within twenty (20) business days after the end of each
calendar month, commencing with October 2000), an unaudited balance sheet as of
the end of such month and the related statements of earnings, shareholders'
equity (deficit) and cash flows, (ii) within two (2) business days following
preparation thereof (and in any event within twenty (20) business days after the
end of each fiscal quarter) an unaudited balance sheet as of the end of such
quarter and the related statements of earnings, shareholders' equity (deficit)
and cash flows for the quarter then ended, and (iii) within two (2) business
days following preparation thereof (and in any event within ninety (90) calendar
days after the end of each fiscal year) an audited balance sheet as of the end
of such year and the related statements of earnings, shareholders' equity
(deficit) and cash flows, all of such financial statements referred to in
clauses (i), (ii) and (iii) to be prepared in accordance with United States
generally accepted accounting principles in conformity with the practices
consistently applied by the Company with respect to such financial statements.
All the foregoing shall be in accordance with the books and records of the
Company and shall fairly present its financial position (taking into account the
differences between the monthly, quarterly and annual financial statements
prepared by the Company in conformity with its past practices) as of the last
day of the period then ended.
(c) Each of the parties hereto will hold, and will cause its consultants
and advisers to hold, in confidence all documents and information furnished to
it by or on behalf of another party to this Agreement in connection with the
transactions contemplated by this Agreement pursuant to the terms of that
certain Confidentiality Agreement entered into between the Company and Parent
dated October 5, 2000.
SECTION 4.10. Certain Filings; Reasonable Best Efforts.
(a) Subject to the terms and conditions herein provided, including Section
4.4(b), each of the parties hereto agrees to use reasonable best efforts to take
or cause to be taken all action and to do or cause to be done all things
reasonably necessary, proper or advisable under Applicable Law to consummate and
make effective the transactions contemplated by this Agreement, including using
reasonable best efforts to do the following, (i) cooperate in the preparation
and filing of the Proxy Statement and the Form S-4 and any amendments thereto,
any filings that may be required under the HSR Act and any filings under similar
merger notification laws or regulations of Governmental Entities; (ii) obtain
consents of all third parties and Governmental Entities necessary, proper,
advisable or reasonably requested by Parent or the Company, for the consummation
of the transactions contemplated by this Agreement; (iii) contest any legal
proceeding opposing or otherwise adversely affecting to the Merger; and (iv)
execute any additional instruments necessary to consummate the transactions
contemplated hereby. Subject to the terms and conditions of this Agreement,
Parent and Acquisition agree to use reasonable best efforts to cause the
Effective Time to occur as soon as practicable after the Company shareholder
vote and the Parent Shareholder vote with respect to the Merger. If at any time
after the Effective Time any further action is necessary to carry out the
purposes of this Agreement the proper officers and directors of each party
hereto shall take all such necessary action.
(b) Parent and the Company will consult and cooperate with one another, and
consider in good faith the views of one another, in connection with any
analyses, appearances, presentations, letters, white papers, memoranda, briefs,
arguments, opinions or proposals made or submitted by or on behalf of any party
hereto in connection with proceedings under or relating to the HSR Act or any
other foreign, federal, or state antitrust, competition, or fair trade law. In
this regard but without limitation, each party hereto shall promptly inform the
other of any material communication between such party and the Federal Trade
Commission, the Antitrust Division of the United States Department of Justice,
or any other federal, foreign or state antitrust or competition Governmental
Entity regarding the transactions contemplated herein.
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SECTION 4.11. Public Announcements. None of Parent, Acquisition or the
Company shall issue any press release or otherwise make any public statements
with respect to the transactions contemplated by this Agreement, including the
Merger, or any Third Party Acquisition, without the prior consent of Parent and
Acquisition (in the case of the Company) or the Company (in the case of Parent
or Acquisition), which consent may not be unreasonably withheld, except (i) as
may be required by Applicable Law, or by the rules and regulations of, or
pursuant to any agreement with, the Nasdaq National Market, or (ii) following a
change, if any, of the Company Board's recommendation of the Merger (in
accordance with Section 4.4(b)). The first public announcement of this Agreement
and the Merger shall be a joint press agreed upon by Parent, Acquisition and the
Company.
SECTION 4.12. Indemnification and Directors' and Officers' Insurance.
(a) After the Effective Time, Parent and the Surviving Corporation shall
jointly and severally indemnify and hold harmless (and shall also advance
expenses as incurred to the fullest extent permitted under Applicable Law to),
to the extent not covered by insurance maintained by the Company, the Surviving
Corporation or Parent, each person who is now or has been prior to the date
hereof or who becomes prior to the Effective Time an officer or director of the
Company or any of the Company's subsidiaries (the "Indemnified Persons") against
(i) all losses, claims, damages, costs, expenses (including counsel fees and
expenses), settlement, payments or liabilities arising out of or in connection
with any claim, demand, action, suit, proceeding or investigation based in whole
or in part on or arising in whole or in part out of the fact that such person is
or was an officer or director of the Company or any of its subsidiaries, whether
or not pertaining to any matter existing or occurring at or prior to the
Effective Time and whether or not asserted or claimed prior to or at or after
the Effective Time ("Indemnified Liabilities"); and (ii) all Indemnified
Liabilities based in whole or in part on or arising in whole or in part out of
or pertaining to this Agreement or the transactions contemplated hereby, in each
case to the fullest extent required or permitted under Applicable Law. Nothing
contained herein shall make Parent, Acquisition, the Company or the Surviving
Corporation, an insurer, a co-insurer or an excess insurer in respect of any
insurance policies which may provide coverage for Indemnified Liabilities, nor
shall this Section 4.12 relieve the obligations of any insurer in respect
thereto. The parties hereto intend, to the extent not prohibited by Applicable
Law, that the indemnification provided for in this Section 4.12 shall apply
without limitation to negligent acts or omissions by an Indemnified Person. Each
Indemnified Person is intended to be a third party beneficiary of this Section
4.12 and may specifically enforce its terms. This Section 4.12 shall not limit
or otherwise adversely affect any rights any Indemnified Person may have under
any agreement with the Company or under the Company's Articles of Association as
presently in effect.
(b) From and after the Effective Time, the Parent shall cause the Surviving
Corporation to fulfill and honor in all respects the obligations of the Company
pursuant to any indemnification agreements between the Company and its directors
and officers as of or prior to the date hereof (or indemnification agreements in
the Company's customary form for directors joining the Company's Board of
Directors prior to the Effective Time) and any indemnification provisions under
the Company's Articles of Association as in effect immediately prior to the
Effective Time. If Parent or any of its successors or assigns (i) consolidates
with or merges into any other person and is not the continuing or surviving
corporation or entity of such consolidation or merger or (ii) transfers or
conveys all or substantially all of its properties and assets to any person,
then in such case, Parent shall cause proper provision to be made so that the
successors and assigns of Parent assume the obligations set forth in this
Section 4.12.
(c) For a period of six years after the Effective Time, Parent will
maintain or cause the Surviving Corporation to maintain in effect, if available,
directors' and officers' liability insurance covering those persons who, as of
immediately prior to the Effective Time, are covered by the Company's directors'
and officers' liability insurance policy (the "Insured Parties") on terms no
less favorable to the Insured Parties than those of the Company's present
directors' and officers' liability insurance policy; provided, however, that in
no event will Parent or the Surviving Corporation be required to expend in
excess of 200% of the annual premium currently paid by the Company for such
coverage (and if such premium is in excess of 200% of the annual premium, the
Surviving Corporation shall only be required to maintain such coverage
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as is available for 200% of such annual premium); provided further, that, in
lieu of maintaining such existing insurance as provided above, Parent, at its
election, may cause coverage to be provided under any policy maintained for the
benefit of Parent or any of its subsidiaries, so long as the terms are not
materially less advantageous to the intended beneficiaries thereof than such
existing insurance.
(d) The provisions of this Section 4.12 are intended for the benefit of,
and will be enforceable by, each person entitled to indemnification hereunder
and the heirs and representatives of such person.
SECTION 4.13. Notification of Certain Matters. The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
(i) the occurrence or nonoccurrence of any event the occurrence or nonoccurrence
of which has caused or would be likely to cause any representation or warranty
contained in this Agreement by such first party to be untrue or inaccurate in
any material respect at or prior to the Effective Time and (ii) any material
failure by such first party to comply with or satisfy in any material respect
any covenant condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 4.13 shall not cure such breach or non-compliance or limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
SECTION 4.14. Affiliates; Tax Representations.
(a) Parent shall not be required to maintain the effectiveness of the S-4
for the purpose of resale of shares of Parent Common Stock by shareholders of
the Company who may be affiliates of the Company or Parent pursuant to Rule 145
under the Securities Act.
(b) The Company, on the one hand, and Parent and Acquisition, on the other
hand, shall execute and deliver to legal counsel to the Company and Parent
certificates substantially in the form of Exhibits E-1 and E-2, respectively at
such time or times as reasonably requested by such legal counsel in connection
with the delivery of opinions in accordance with Sections 5.2(d) and 5.3(e)
hereof, or as required in connection with any filings with the SEC, and the
Company and Parent shall each provide a copy thereof to the other parties
hereto. The parties agree to make such changes to the certificates as they
reasonably agree are necessary in connection with the delivery of such opinions.
Prior to the Effective Time, none of the Company, Parent or Acquisition shall
take or cause to be taken any action that would cause to be untrue (or fail to
take or cause not to be taken any action that would cause to be untrue) any of
the representations in Exhibits E-1 or E-2. Unless the Company elects to waive
the condition contained in Section 5.2(d), the Company agrees that it shall
cause the exercise of all outstanding stock options of the Company necessary to
allow such opinion to be rendered.
SECTION 4.15. Additions to and Modification of Disclosure
Schedules. Concurrently with the execution and delivery of this Agreement, the
Company has delivered a Company Disclosure Schedule and Parent has delivered a
Parent Disclosure Schedule that includes all of the information required by the
relevant provisions of this Agreement. In addition, the Company shall deliver to
Parent and Acquisition on the one hand, and Parent shall deliver to the Company
on the other, such additions to or modifications of any Sections of the
respective disclosure schedule necessary to make the information set forth
therein true, accurate and complete in all material respects as soon as
practicable after such information is available to such party after the date of
execution and delivery of this Agreement; provided, however, that such
disclosure shall not be deemed to constitute an exception to its representations
and warranties under Article 2 or 3, respectively, nor limit the rights and
remedies of Parent and Acquisition, on the one hand, or the Company on the
other, under this Agreement for any breach by the Company of such representation
and warranties.
SECTION 4.16. Parent Board of Directors. Immediately prior to the Effective
Time, the Board of Directors of Parent will take all necessary action to expand
the size of its Board of Directors by two members and appoint to the Board of
Directors of Parent, as of Effective Time, two current members of the Board of
Directors of the Company selected by the Company who agree to serve in that
capacity (the "New Directors"). Each New Director shall be assigned to the class
whose term expires in 2001. Parent agrees to nominate each New Director for
re-election at Parent's 2001 Annual General Meeting. The
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provisions of this Section 4.16 shall survive the consummation of the Merger and
are intended to benefit, and shall be enforceable by, the New Directors.
SECTION 4.17. Certain Employee Matters.
(a) For at least one year immediately following the Effective Time while
employed by the Surviving Corporation or its subsidiaries, employees of the
Surviving Corporation and its subsidiaries shall receive compensation in the
aggregate at rates no less favorable to such employees than the rates of
compensation paid by the Company or its subsidiaries to such employees on the
date of this Agreement. Notwithstanding the foregoing, employees of the
Surviving Corporation shall be subject to other personnel and compensation
policies and practices of Parent in the same manner as the Parent's similarly
situated employees. Further, Parent shall or shall cause the Surviving
Corporation to provide benefits to employees of the Surviving Corporation that
are no less favorable in the aggregate to benefits provided to similarly
situated employees of Parent.
(b) Parent shall or shall cause the Surviving Corporation to (i) recognize
each employee's service with the Company or its subsidiaries for all purposes
under such benefit plans and arrangements (other than for benefit accruals in
any defined benefit plan) to the same extent that such service had been
recognized by the Company or its subsidiaries for such purposes immediately
prior to the Effective Time, (ii) waive any preexisting condition limitations
(other than those limitations existing under the Company's welfare benefit plans
prior to the date of this Agreement) under the employee welfare benefit plans of
the Parent or the Surviving Corporation that would otherwise apply to employees
of the Company or its subsidiaries and their respective dependents after the
Effective Time, (iii) recognize the dollar amount of all expenses incurred by
the employees of the Company or its subsidiaries and tier respective dependents
in respect of the Company payment limitations for the applicable plan year under
the corresponding employee welfare benefit plan of the Parent or the Surviving
Corporation, and (iv) in furtherance of Section 14(b) of the Company's currently
existing Code Section 423 plan, maintain the Company's currently existing Code
Section 423 plan until employees of the Surviving Corporation become eligible to
participate in a Parent or Surviving Corporation Code Section 423 plan, at which
time (1) all accumulated payroll deductions shall be applied toward the purchase
of stock under the Company's existing Code Section 423 plan, and (2) thereafter
all outstanding offering and purchase periods under the Company's currently
existing Code Section 423 plan shall terminate and no new payroll deductions
shall be withheld and no new offering or purchase periods shall begin.
(c) Except as provided in this Section 4.17, nothing in this Agreement
shall be construed to require Parent or Surviving Corporation to continue any
Company Employee Plan or Employee Arrangement or to prevent amendment,
modification or termination of any such plan (in whole or in part) thereof after
the Effective Time.
ARTICLE 5
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 5.1. Conditions to Each Party's Obligations to Effect the
Merger. The respective obligations of each party hereto to effect the Merger are
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) this Agreement shall have been approved and adopted by the Company
Requisite Vote and the Parent Requisite Vote;
(b) no statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or enforced by any
United States federal or state or foreign court or United States federal or
state or foreign Governmental Entity that prohibits, restrains, enjoins or
restricts the consummation of the Merger;
(c) any waiting period applicable to the Merger under the HSR Act and
the Companies Law shall have terminated or expired;
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(d) any governmental or regulatory notices, consents, approvals or
other requirements necessary to consummate the transactions contemplated
hereby and to operate the business of the Company and its subsidiaries
after the Effective Time in all material respects as it was operated prior
thereto (other than under the HSR Act) shall have been given, obtained or
complied with, as applicable;
(e) the parties shall have obtained approval of the Merger from the
OCS, the Investment Center and the Israeli Commissioner of Restrictive
Trade Practices if required by applicable law;
(f) the Form S-4 shall have become effective under the Securities Act
and shall not be the subject of any stop order or proceedings seeking a
stop order, and Parent shall have received all state securities laws or
"blue sky" permits and authorizations necessary to issue shares of Parent
Common Stock in exchange for Shares in the Merger; and
(g) Parent shall have received the Israel Securities Exemption.
SECTION 5.2. Conditions to the Obligations of the Company. The obligation
of the Company to effect the Merger is subject to the satisfaction at or prior
to the Effective Time of the following conditions:
(a) the representations and warranties of Parent and Acquisition
contained in this Agreement shall be true and correct (except to the extent
that the aggregate of all breaches or inaccuracies thereof would not have a
Material Adverse Effect on Parent) at and as of the Effective Time with the
same effect as if made at and as of the Effective Time (except to the
extent such representations specifically relate to an earlier date, in
which case such representations shall be true and correct as of such
earlier date, and in any event, subject to the foregoing Material Adverse
Effect qualification) and, at the Closing, Parent and Acquisition shall
have delivered to the Company a certificate to that effect, executed by two
(2) executive officers of Parent and Acquisition;
(b) each of the covenants and obligations of Parent and Acquisition to
be performed at or before the Effective Time pursuant to the terms of this
Agreement shall have been duly performed in all material respects at or
before the Effective Time and, at the Closing, Parent and Acquisition shall
have delivered to the Company a certificate to that effect, executed by two
(2) executive officers of Parent and Acquisition;
(c) the shares of Parent Common Stock issuable to the Company's
shareholders pursuant to this Agreement and such other shares required to
be reserved for issuance in connection with the Merger shall have been
approved for quotation on the Nasdaq National Market, upon official notice
of issuance;
(d) the Company shall have received the opinion of Weil, Gotshal &
Manges LLP, counsel to the Company, based on the representations of the
Company, Parent and Acquisition in substantially the form attached hereto
as Exhibits E-1 and E-2 respectively, to the effect that the Merger will be
treated as a reorganization within the meaning of Section 368(a) of the
Code and such opinion shall not have been withdrawn or modified in any
material respect; and
(e) the Company shall have obtained the Israeli Income Tax Ruling.
SECTION 5.3. Conditions to the Obligations of Parent and Acquisition. The
respective obligations of Parent and Acquisition to effect the Merger are
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) the representations and warranties of the Company contained in
this Agreement and in the Stock Option Agreement shall be true and correct
(except to the extent that the aggregate of all breaches or inaccuracies
thereof would not have a Material Adverse Effect on the Company) at and as
of the Effective Time with the same effect as if made at and as of the
Effective Time (except to the extent such representations specifically
relate to an earlier date, in which case such representations shall be true
and correct as of such earlier date, and in any event, subject to the
foregoing Material Adverse Effect qualification), and, at the Closing, the
Company shall have delivered to Parent and Acquisition a certificate to
that effect, executed by two (2) executive officers of the Company;
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(b) each of the covenants and obligations of the Company to be
performed at or before the Effective Time pursuant to the terms of this
Agreement shall have been duly performed in all material respects at or
before the Effective Time and, at the Closing, the Company shall have
delivered to Parent and Acquisition a certificate to that effect, executed
by two (2) executive officers of the Company;
(c) Parent shall have received from each affiliate of the Company
referred to in Sections 2.21 and 4.14(a) an executed copy of the letter
attached hereto as Exhibit E;
(d) Herzog, Fox & Neeman or counsel to the Company shall have
delivered to Parent its written opinion (which may be based on such
representations, warranties and certificates it deems reasonable and
appropriate under the circumstances) as of the date that the Proxy
Statement is first mailed to the Company's shareholders that the Merger
will not constitute a taxable event to the Company, and such opinion shall
not have been withdrawn or modified in any material respect;
(e) Parent shall have received the opinion, based on the
representations of the Company, Parent and Acquisition in substantially the
form attached hereto as Exhibits E-1 and E-2 respectively, of Gibson, Dunn
& Crutcher LLP, counsel to Parent and Acquisition to the effect that the
Merger will be treated as a reorganization within the meaning of Section
368(a) of the Code and such opinion shall not have been withdrawn or
modified in any material respect; and
(f) the Company shall have received from the Israeli Income Tax
Commissioner either (i) the Israeli Income Tax Ruling satisfactory to
Parent in accordance with Section 4.6 or (ii) confirmation of the mechanism
for withholding taxes in connection with the Merger, which mechanism shall
be reasonably acceptable to Parent.
ARTICLE 6
TERMINATION; AMENDMENT; WAIVER
SECTION 6.1. Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time whether before or after
approval and adoption of this Agreement by the shareholders of the Company and
Parent:
(a) by mutual written consent of Parent, Acquisition and the Company;
(b) by Parent and Acquisition or the Company if (i) any court of
competent jurisdiction or other federal or state or foreign Governmental
Entity shall have issued a final order, decree or ruling, or taken any
other final action, restraining, enjoining or otherwise prohibiting the
Merger and such order, decree, ruling or other action is or shall have
become nonappealable or (ii) the Merger has not been consummated by March
31, 2001 (the "Final Date"); provided that no party may terminate this
Agreement pursuant to this clause (ii) if such party's failure to fulfill
any of its obligations under this Agreement shall have been a principal
reason that the Effective Time shall not have occurred on or before said
date;
(c) by the Company if (i) there shall have been a breach of any
representations or warranties on the part of Parent or Acquisition set
forth in this Agreement or if any representations or warranties of Parent
or Acquisition shall have become untrue such that the conditions set forth
in Section 5.2(a) would be incapable of being satisfied by the Final Date,
provided that the Company has not breached any of its obligations hereunder
in any material respect; (ii) there shall have been a breach by Parent or
Acquisition of any of their respective covenants or agreements hereunder
having a Material Adverse Effect on Parent or materially adversely
affecting (or materially delaying) the ability of Parent, Acquisition or
the Company to consummate the Merger, and Parent or Acquisition, as the
case may be, has not cured such breach within five (5) business days after
notice by the Company thereof, provided that the Company has not breached
any of its obligations hereunder in any material respect; (iii) the Company
shall have convened a meeting of its shareholders to vote upon the Merger
in accordance with this Agreement and shall have failed to obtain the
Company Requisite Vote at
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such meeting (including any adjournments thereof); (iv) Parent shall have
ceased using reasonable best efforts to call, give notice of, or convene or
hold a shareholders' meeting to vote on the Merger as promptly as
practicable after the date hereof or shall have adopted a resolution not to
effect the Merger; (v) Parent shall have convened a meeting of its
shareholders to vote upon the Merger and shall have failed to obtain the
Parent Requisite Vote at such meeting (including any adjournments thereof)
or (vi) the Company Board has received a Superior Proposal, has complied
with the provisions of Section 4.4(b), and has made the payment called for
by Section 6.3(a)(1); or
(d) by Parent and Acquisition if (i) there shall have been a breach of
any representations or warranties on the part of the Company set forth in
this Agreement or if any representations or warranties of the Company shall
have become untrue such that the conditions set forth in Section 5.3(a)
would be incapable of being satisfied by the Final Date, provided that
neither Parent nor Acquisition has breached any of their respective
obligations hereunder in any material respect; (ii) there shall have been a
breach by the Company of one or more of its covenants or agreements
hereunder having a Material Adverse Effect on the Company (or, in the case
of Section 4.4, any material breach thereof) or materially adversely
affecting (or materially delaying) the ability of Parent, Acquisition or
the Company to consummate the Merger, and the Company has not cured such
breach within five (5) business days after notice by Parent or Acquisition
thereof, provided that neither Parent nor Acquisition has breached any of
their respective obligations hereunder in any material respect; (iii) the
Company Board shall have recommended to the Company's shareholders a
Superior Proposal; (iv) the Company Board shall have withdrawn or adversely
modified its approval or recommendation of this Agreement or the Merger;
(v) the Company shall have ceased using reasonable best efforts to call,
give notice of, or convene or hold a shareholders' meeting to vote on the
Merger as promptly as practicable after the date hereof or shall have
adopted a resolution not to effect any of the foregoing; (vi) the Company
shall have convened a meeting of its shareholders to vote upon the Merger
and shall have failed to obtain the Company Requisite Vote at such meeting
(including any adjournments thereof) or (vii) Parent shall have convened a
meeting of its shareholders to vote upon the Merger in accordance with this
Agreement and shall have failed to obtain the Parent Requisite Vote at such
meeting (including any adjournments thereof).
SECTION 6.2. Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 6.1, this Agreement shall
forthwith become void and have no effect without any liability on the part of
any party hereto or its affiliates, directors, officers or shareholders other
than the provisions of this Section 6.2 and Sections 4.9(c) and 6.3 hereof.
Nothing contained in this Section 6.2 shall relieve any party from liability for
any breach of this Agreement prior to such termination.
SECTION 6.3. Fees and Expenses.
(a)(1) In the event that this Agreement shall be terminated pursuant to:
(i) Section 6.1(c)(vi) or 6.1(d)(iii);
(ii) Section 6.1(c)(iii) or 6.1(d)(vi) and within six (6) months
thereafter the Company enters into an agreement with respect to or
consummates a Third Party Acquisition or a Third Party Acquisition occurs
involving any Third Party who, at the time of such failure to obtain the
Company Requisite Vote, shall have outstanding an offer of a plan or
proposal with respect to any Third Party Acquisition by such Third Party
(or any affiliate thereof);
(iii) Section 6.1(d)(i) or (ii) arising out of a willful breach of a
representation or warranty of the Company or an action by the Company or
failure to take an action by the Company which results in a breach of a
covenant by the Company and within six (6) months thereafter the Company
enters into an agreement or consummates a Third Party Acquisition or a
Third Party Acquisition occurs involving a Third Party who at the time of
such breach shall have outstanding an offer of a plan or proposal with
respect to such Third Party Acquisition by such Third Party (or an
affiliate thereof:); or
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(iv) Section 6.1(d)(iv) or (v) and within six (6) months thereafter
the Company enters into an agreement with respect to a Third Party
Acquisition or a Third Party Acquisition occurs involving any Third Party
(or any affiliate thereof);
Parent and Acquisition would suffer direct and substantial damages, which
damages cannot be determined with reasonable certainty. To compensate Parent and
Acquisition for such damages the Company shall pay to Parent the amount of
Seventy-Five Million Dollars ($75,000,000), less any amounts previously paid
pursuant to Section 6.3(b), as liquidated damages immediately upon the
occurrence of the event described in this Section 6.3(a)(1) giving rise to such
damages. It is specifically agreed that the amount to be paid pursuant to this
Section 6.3(a)(1) represents liquidated damages and not a penalty. The Company
hereby waives any right to set-off or counterclaim against such amount.
(2) In the event that this Agreement shall be terminated pursuant to:
(i) Section 6.1(c)(iv) or (v) or Section 6.1(d)(vii) and within six
(6) months thereafter Parent enters into an agreement with respect to a
Parent Acquisition or a Parent Acquisition occurs involving any Parent
Third Party (or any affiliate thereof); or
(ii) Section 6.1(c)(i) or (ii) arising out of a willful breach of a
representation or warranty of Parent or an action by Parent or failure to
take an action by Parent which results in a breach of a covenant by Parent
and within six (6) months thereafter Parent enters into an agreement or
consummates a Parent Acquisition or a Third Party Acquisition occurs
involving a Third Party who at the time of such breach shall have
outstanding an offer of a plan or proposal with respect to such Parent
Acquisition by such Parent Third Party (or an affiliate thereof:); the
Company would suffer direct and substantial damages, which damages cannot
be determined with reasonable certainty. To compensate the Company for such
damages Parent shall pay to the Company the amount of Eighty Million
Dollars ($80,000,000), less any amounts previously paid pursuant to Section
6.3(c), as liquidated damages immediately upon the occurrence of the event
described in this Section 6.3(a)(2) giving rise to such damages. It is
specifically agreed that the amount to be paid pursuant to this Section
6.3(a)(2) represents liquidated damages and not a penalty. Parent waives
any right to set-off or counterclaim against such amount.
(iii) For the purposes of this Agreement, "Parent Acquisition" means
the occurrence of any of the following events: (i) the acquisition of
Parent by merger or otherwise by any person (which includes a "person" as
such term is defined in Section 13(d)(3) of the Exchange Act) other than
the Company or any affiliate thereof (a "Parent Third Party"); (ii) the
acquisition by a Parent Third Party of any material portion (which shall
include thirty percent (30%) or more) of the assets of Parent and its
subsidiaries taken as a whole, other than the sale of its products in the
ordinary course of business consistent with past practices; (iii) the
acquisition by a Parent Third Party of thirty percent (30%) or more of the
outstanding Parent Common Stock; (iv) the adoption by Parent of a plan of
liquidation or the declaration or payment of an extraordinary dividend or
(v) the repurchase by Parent or any of its subsidiaries of more than thirty
percent (30%) of the outstanding Parent Common Stock.
(b) Upon the termination of this Agreement pursuant to Section 6.1(d)(i),
(ii), (iii), (iv) or (v), in addition to any other remedies that Parent,
Acquisition or their affiliates may have as a result of such termination
(including pursuant to Section 6.3(a)(1)), the Company shall pay to Parent the
amount of Five Million Dollars ($5,000,000) as reimbursement for the costs, fees
and expenses incurred by any of them or on their behalf in connection with this
Agreement, the Merger and the consummation of all transactions contemplated by
this Agreement (including fees payable to investment bankers, counsel to any of
the foregoing and accountants).
(c) Upon the termination of this Agreement pursuant to Section 6.1(c)(i),
(ii), (iv) or (v) in addition to any other remedies that the Company or its
affiliates may have as a result of such termination (including pursuant to
Section 6.3(a)(2)), Parent shall pay to the Company the amount of Five Million
Dollars ($5,000,000) as reimbursement for the costs, fees and expenses incurred
by any of them or on
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their behalf in connection with this Agreement, the Merger and the consummation
of all transactions contemplated by this Agreement (including fees payable to
investment bankers, counsel to any of the foregoing and accountants).
(d) Except as specifically provided in this Section 6.3, each party shall
bear its own expenses in connection with this Agreement and the transactions
contemplated hereby.
(e) The Company acknowledges that the agreements contained in this Article
6 (including this Section 6.3) are an integral part of the transactions
contemplated by this Agreement and that, without these agreements, Parent and
Acquisition would not enter into this Agreement. Accordingly, if the Company
fails promptly to pay the amounts required pursuant to Section 6.3 when due
(including circumstances where, in order to obtain such payment Parent or
Acquisition commences a suit that results in a final nonappealable judgment
against the Company for such amounts), the Company shall pay to Parent or
Acquisition (i) their costs and expenses (including attorneys' fees) in
connection with such suit and (ii) interest on the amount that was determined to
be due and payable hereunder at the rate announced by Chase Manhattan Bank as
its "reference rate" in effect on the date such payment was required to be made.
SECTION 6.4. Amendment. This Agreement may be amended by action taken by
the Company, Parent and Acquisition at any time before or after approval of the
Merger by the shareholders of the Company but after any such approval no
amendment shall be made that requires the approval of such shareholders under
Applicable Law without such approval. This Agreement (including, subject to
Section 4.15, the Company Disclosure Schedule and the Parent Disclosure
Schedule) may be amended only by an instrument in writing signed on behalf of
the parties hereto.
SECTION 6.5. Extension; Waiver. At any time prior to the Effective Time,
each party hereto may (i) extend the time for the performance of any of the
obligations or other acts of the other party, (ii) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document certificate or writing delivered pursuant hereto or (iii) waive
compliance by the other party with any of the agreements or conditions contained
herein. Any agreement on the part of any party hereto to any such extension or
waiver shall be valid only if set forth in an instrument, in writing, signed on
behalf of such party. The failure of any party hereto to assert any of its
rights hereunder shall not constitute a waiver of such rights except that (i)
without the Company's consent, Parent and Acquisition may not waive compliance
with Section 5.3(e) hereof and (ii) without Parent's consent, the Company may
not waive compliance with Section 5.2(d) hereof.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1. Nonsurvival of Representations and Warranties. The
representations and warranties made herein shall not survive beyond the
Effective Time or a termination of this Agreement. This Section 7.1 shall not
limit any covenant or agreement of the parties hereto that by its terms requires
performance after the Effective Time.
SECTION 7.2. Entire Agreement; Assignment. This Agreement (including the
Company Disclosure Schedule and the Parent Disclosure Schedule) and the Stock
Option Agreement (a) constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof and supersedes all other prior and
contemporaneous agreements and understandings both written and oral between the
parties with respect to the subject matter hereof and (b) shall not be assigned
by operation of law or otherwise; provided, however, that Acquisition may assign
any or all of its rights and obligations under this Agreement to any direct
wholly owned subsidiary of Parent incorporated under the Companies Law, but no
such assignment shall relieve Acquisition of its obligations hereunder if such
assignee does not perform such obligations.
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SECTION 7.3. Validity. If any provision of this Agreement or the
application thereof to any person or circumstance is held invalid or
unenforceable, the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected thereby and to
such end the provisions of this Agreement are agreed to be severable.
SECTION 7.4. Notices. All notices and other communications pursuant to this
Agreement shall be in writing and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the addresses set forth below or to such other address as the party
to whom notice is to be given may have furnished to the other parties hereto in
writing in accordance herewith. Any such notice or communication shall be deemed
to have been delivered and received (A) in the case of personal delivery, on the
date of such delivery, (B) in the case of telecopier, on the date sent if
confirmation of receipt is received and such notice is also promptly mailed by
registered or certified mail (return receipt requested), (C) in the case of a
nationally-recognized overnight courier in circumstances under which such
courier guarantees next business day delivery, on the next business day after
the date when sent and (D) in the case of mailing, on the third business day
following that on which the piece of mail containing such communication is
posted:
if to Parent or Acquisition:
Marvell Technology Group Ltd.
645 Almanor Avenue
Sunnyvale, CA 94086
Telecopier: (408) 328-0918
Attention: Corporate Counsel
and
Marvell Technology Group Ltd.
645 Almanor Avenue
Sunnyvale, CA 94086
Telecopier: (408) 328-0918
Attention: Chief Financial Officer
with a copy to:
Gibson, Dunn & Crutcher LLP
One Montgomery Street
Telesis Tower
San Francisco, California 94104
Telecopier: (415) 986-5309
Attention: Kenneth R. Lamb
if to the Company to:
Galileo Technology Ltd.
c/o Galileo Technology, Inc.
142 Charcot Avenue
San Jose, CA 95131
Telecopier: (408) 367-1404
Attention: Manuel Alba, President
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with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Telecopier: (212) 310-8007
Attention: Stephen M. Besen
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
SECTION 7.5. Governing Law and Venue; Waiver of Jury Trial.
(a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL
BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE
STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF
PROVIDED, HOWEVER, THAT (i) ANY MATTER INVOLVING THE INTERNAL CORPORATE AFFAIRS
OF COMPANY OR PARENT SHALL BE GOVERNED BY THE PROVISIONS OF THE JURISDICTIONS OF
ITS INCORPORATION AND (ii) THE FORM AND CONTENT OF THE MERGER AND THE
CONSEQUENCES THEREOF SHALL BE GOVERNED BY THE COMPANIES LAW. The parties hereby
irrevocably submit to the jurisdiction of the courts of the State of New York
and the Federal courts of the United States of America located in the State of
New York solely in respect of the interpretation and enforcement of the
provisions of this Agreement and of the documents referred to in this Agreement,
and in respect of the transactions contemplated hereby, and hereby waive, and
agree not to assert, as a defense in any action, suit or proceeding for the
interpretation or enforcement hereof or of any such document, that it is not
subject thereto or that such action, suit or proceeding may not be brought or is
not maintainable in said courts or that the venue thereof may not be appropriate
or that this Agreement or any such document may not be enforced in or by such
courts, and the parties hereto irrevocably agree that all claims with respect to
such action or proceeding shall be heard and determined in such a New York State
or Federal court. The parties hereby consent to and grant any such court
jurisdiction over the person of such parties and over the subject matter of such
dispute and agree that mailing of process or other papers in connection with any
such action or proceeding in the manner provided in Section 7.4 or in such other
manner as may be permitted by Applicable Law, shall be valid and sufficient
service thereof.
(b) The parties agree that irreparable damage would occur and that the
parties would not have any adequate remedy at law in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions of this
Agreement in any Federal court located in the State of New York or in New York
state court, this being in addition to any other remedy to which they are
entitled at law or in equity.
(c) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH SUCH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH SUCH
PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH SUCH
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PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE
WAIVERS AND CERTIFICATIONS IN THIS SECTION 7.5.
SECTION 7.6. Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
SECTION 7.7. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and its successors and
permitted assigns and, except as expressly provided herein, including in
Sections 1.6, 4.12, 4.16, 4.17 and 7.2, nothing in this Agreement is intended to
or shall confer upon any other person any rights, benefits or remedies of any
nature whatsoever under or by reason of this Agreement.
SECTION 7.8. Certain Definitions. For the purposes of this Agreement the
term:
(a) "affiliate" means (except as otherwise provided in Sections 2.22,
3.14 and 4.14) a person that, directly or indirectly, through one or more
intermediaries controls, is controlled by or is under common control with
the first-mentioned person;
(b) "Applicable Law" means, with respect to any person, any domestic
or foreign, federal, state or local statute, law, ordinance, rule,
regulation, order, writ, injunction, judgment, decree or other requirement
of any Governmental Entity existing as of the date hereof or as of the
Effective Time applicable to such Person or any of its respective
properties, assets, officers, directors, employees, consultants or agents.
(c) "business day" means any day other than a day on which the Nasdaq
National Market is closed;
(d) "capital stock" means common stock, preferred stock, partnership
interests, limited liability company interests or other ownership interests
entitling the holder thereof to vote with respect to matters involving the
issuer thereof;
(e) "knowledge" or "known" means, with respect to any matter in
question, the actual knowledge of such matter of any executive officer, of
the Company or Parent, as the case may be, and each of such person's shall
be deemed to have actual knowledge of all books and records of the Company
or Parent, as the case may be, to which they have reasonable access;
(f) "include" or "including" means "include, without limitation" or
"including, without limitation," as the case may be, and the language
following "include" or "including" shall not be deemed to set forth an
exhaustive list;
(g) "Material Adverse Effect" means on or with respect to the Company
or Parent, as the case may be, any circumstance, change in, or effect on
(or circumstance, change in, or effect involving a prospective change on)
the Company and its subsidiaries, taken as a whole, or Parent and its
subsidiaries, taken as a whole, as the case may be, that is, or is
reasonably likely in the future to be, materially adverse to the
operations, assets or liabilities (including contingent liabilities),
earnings, prospects or results of operations, or the business (financial or
otherwise), of the Company and its subsidiaries, taken as a whole, or
Parent and its subsidiaries, taken as a whole, as the case may be,
excluding any such effect resulting from or arising in connection with (i)
this Agreement, the transactions contemplated hereby or the announcement or
pendency hereof or thereof, (ii) changes or conditions generally affecting
the industries in which the Company and its subsidiaries, or the Parent and
its subsidiaries, as the case may be, operate, (iii) changes in general
economic, capital markets, regulatory or political conditions and (iv)
shareholder class action litigation arising from allegations of a breach of
fiduciary duty relating to this Agreement;
(h) "person" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization or other
legal entity including any Governmental Entity; and
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(i) "subsidiary" or "subsidiaries" of the Company, Parent, the
Surviving Corporation or any other person means any corporation,
partnership, limited liability company, association, trust, unincorporated
association or other legal entity of which the Company, Parent, the
Surviving Corporation or any such other person, as the case may be (either
alone or through or together with any other subsidiary), owns, directly or
indirectly, 50% or more of the capital stock the holders of which are
generally entitled to vote for the election of the board of directors or
other governing body of such corporation or other legal entity.
SECTION 7.9. Personal Liability. This Agreement shall not create or be
deemed to create or permit any personal liability or obligation on the part of
any direct or indirect shareholder of the Company or Parent or Acquisition or
any officer, director, employee, agent, representative or investor of any party
hereto.
SECTION 7.10. Specific Performance. The parties hereby acknowledge and
agree that the failure of any party to perform its agreements and covenants
hereunder, including its failure to take all actions as are necessary on its
part to the consummation of the Merger, will cause irreparable injury to the
other parties, for which damages, even if available, will not be an adequate
remedy. Accordingly, each party hereby consents to the issuance of injunctive
relief by any court of competent jurisdiction to compel performance of such
party's obligations and to the granting by any court of the remedy of specific
performance of its obligations hereunder.
SECTION 7.11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed on its behalf as of the day and year first above written.
MARVELL TECHNOLOGY GROUP LTD.
By: /s/ SEHAT SUTARDJA
--------------------------------------
Name: Sehat Sutardja
Title: President and Chief Executive
Officer
Date: October 16, 2000
GALILEO TECHNOLOGY LTD.
By: /s/ AVIGDOR WILLENZ
--------------------------------------
Name: Avigdor Willenz
Title: Chief Executive Officer
Date: October 16, 2000
TOSHACK ACQUISITIONS LTD.
By: /s/ SEHAT SUTARDJA
--------------------------------------
Name: Sehat Sutardja
Title: President and Chief Executive
Officer
Date: October 16, 2000
[SIGNATURE PAGE TO AGREEMENT OF MERGER BY AND AMONG MARVELL TECHNOLOGY GROUP
LTD.,
GALILEO TECHNOLOGY LTD. AND TOSHACK ACQUISITIONS LTD.]
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APPENDIX B
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT, dated as of October 16, 2000, is by and
between MARVELL TECHNOLOGY GROUP LTD., a Bermuda corporation ("Grantee"), and
GALILEO TECHNOLOGY LTD., an Israeli corporation ("Issuer").
RECITALS
A. Grantee, Toshack Acquisition, Ltd., an Israeli corporation
("Acquisition") and Issuer are simultaneously entering into an Agreement and
Plan of Merger (the "Merger Agreement") which provides, among other things, that
upon the terms and subject to the conditions thereof, Acquisition (as the target
company (Chevrat Ha 'Ya'ad)) will be merged with and into Issuer (as the
absorbing company (HaChevra Ha 'Koletet)) (the "Merger").
B. As a condition to its willingness to enter into the Merger Agreement,
Grantee has required that Issuer agree, and Issuer has agreed, to enter into
this Stock Option Agreement, which provides, among other things, that Issuer
grant to Grantee an option to purchase ordinary shares of Issuer, NIS 0.01 per
share ("Issuer Shares"), upon the terms and subject to the conditions provided
for herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements contained in this Stock Option Agreement and the Merger Agreement,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
1. Grant of Option. Issuer hereby grants to Grantee an irrevocable option
(the "Option") to purchase 5,371,720 shares of Issuer Shares (or such other
number of Issuer Shares as equals 12.5% of the outstanding Issuer Shares
immediately prior to the time of exercise) (the "Option Shares"), in the manner
set forth below, at an exercise price of $55.10 per share of Issuer Shares,
subject to adjustment as provided below (the "Option Price"). Capitalized terms
used herein but not defined herein shall have the meanings set forth in the
Merger Agreement.
2. Exercise of Option.
(a) Subject to the satisfaction or waiver of the conditions set forth in
Section 9 of this Stock Option Agreement, prior to the termination of this Stock
Option Agreement in accordance with its terms, Grantee may exercise the Option,
in whole or in part, at any time or from time to time on or after the occurrence
of a Triggering Event (as defined below). The Option shall terminate and not be
exercisable at any time following the Expiration Date (as defined in Section
11). The term "Triggering Event" means the time immediately prior to the
termination of the Merger Agreement pursuant to Section 6.3(a)(1) thereof as a
result of which the Issuer could become obligated to pay the fee specified in
Section 6.3(a).
(b) In the event Grantee wishes to exercise the Option at such time as the
Option is exercisable and has not terminated, Grantee shall deliver written
notice (the "Exercise Notice") to Issuer specifying its intention to exercise
the Option, the total number of Option Shares it wishes to purchase and a date
and time for the closing of such purchase (a "Closing") not less than one (1)
nor more than thirty (30) business days after the later of (i) the date such
Exercise Notice is given and (ii) the expiration or termination of any waiting
period pursuant to applicable law; provided that if the applicable waiting
period has not expired or terminated by the Expiration Date, the Expiration Date
shall be extended until two (2) business days after the applicable waiting
period has expired or terminated (but in no event longer than three (3) months
beyond the original Expiration Date). If after the occurrence of a Triggering
Event and prior to the Expiration Date (x) any person or group (other than
Grantee and its affiliates) shall have acquired thirty percent (30%) or more of
the then outstanding shares of Issuer Shares (a "Share Acquisition"), or (y)
Issuer shall have entered into a written definitive agreement with any person or
group (other than Grantee and its affiliates) providing for a Company
Acquisition (as defined below), then Grantee, in lieu of exercising the Option,
shall have the right at any time thereafter (for so long as the Option is
exercisable under Section 2(a) hereof) to request in writing that Issuer pay,
and promptly (but
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in any event not more than five (5) business days) after the giving by Grantee
of such request, Issuer shall pay to Grantee, in cancellation of the Option
(which shall upon such payment be deemed surrendered by Grantee and
extinguished), an amount in cash (the "Cancellation Amount") equal to the lesser
of :
(i)(A) the excess over the Option Price of the greater of (x) the last
sale price of a share of Issuer Shares as reported on the Nasdaq National
Market on the last trading day prior to the date of the Exercise Notice,
and (y)(1) the highest price per share of Issuer Shares offered to be paid
or paid by any such person or group pursuant to or in connection with such
Share Acquisition or Company Acquisition or (2) if such Company Acquisition
consists of a purchase and sale of assets, the aggregate consideration
offered to be paid or paid in any transaction or proposed transaction in
connection with a Company Acquisition, divided by the number of shares of
Issuer Shares then outstanding, multiplied by (B) the number of Option
Shares then covered by the Option; and
(ii) Five Million Dollars ($5,000,000).
If all or a portion of the price per share of Issuer Shares offered, paid
or payable or the aggregate consideration offered, paid or payable for the stock
or assets of Issuer, each as contemplated by the preceding sentence, consists of
noncash consideration, such price or aggregate consideration shall be the cash
consideration, if any, plus the fair market value of the non-cash consideration
as determined jointly by the investment bankers of Issuer and the investment
bankers of Grantee.
(c) Notwithstanding any other provision of this Stock Option Agreement, in
no event shall Grantee's Total Profit (as hereinafter defined) exceed $80
million and, if it otherwise would exceed such amount, Grantee, at its sole
election, shall either (i) deliver to the Issuer for cancellation shares of
Issuer Shares previously purchased by Grantee, (ii) pay cash or other
consideration to the Issuer or (iii) undertake any combination thereof, so that
Grantee's Total Profit shall not exceed $80 million after taking into account
the foregoing actions. As used herein, the term "Total Profit" shall mean the
aggregate amount (before taxes ) of the following: (A) the amount paid by the
Issuer pursuant to Section 2(b) of this Stock Option Agreement, (B) the amounts
received by Grantee pursuant to the sale of Registrable Securities (as
hereinafter defined) (or any other securities into which such securities are
converted or exchanged) to any unaffiliated party, less Grantee's purchase price
for such shares, and (C) the aggregate amount received by Grantee from the
Issuer pursuant to Section 6.3 of the Merger Agreement.
(d) Notwithstanding any other provision of this Stock Option Agreement, the
Option may not be exercised for a number of Option Shares as would, as of the
date of the related Exercise Notice, result in a Notional Total Profit (as
defined below) of more than $80 million, and, if exercise of the Option
otherwise would exceed such amount, Issuer, at its discretion, may increase the
Exercise Price for that number of Option Shares set forth in the Exercise Notice
so that the Notional Total Profit shall not exceed $80 million. As used herein,
the term "Notional Total Profit" with respect to any number of Option shares as
to which Grantee may propose to exercise the Option shall be the Total Profit
determined as of the date of the related Exercise Notice assuming that the
Option were exercised on such date for such number of Option Shares and assuming
that such Option Shares, together with all other Option Shares held by Grantee
and its affiliates as of such date, were sold for cash at the closing market
price for Issuer Shares of the close of business on the immediately preceding
trading day (less customary brokerage commissions).
(e) Notwithstanding anything in this Stock Option Agreement, the Option may
not be exercised if Grantee or Acquisition has willfully breached any of its
representations and warranties or has taken an action or failed to take an
action which results in a breach of a covenant by Grantee or Acquisition
contained in the Merger Agreement.
(f) As used herein, "Company Acquisition" means the occurrence of any of
the following events: (i) the acquisition of Issuer by merger or otherwise by
any person (which includes a "person" as such term is defined in Section
13(d)(3) of the Exchange Act) other than Grantee, Acquisition or any affiliate
thereof (a "Third Party"); (ii) the acquisition by a Third Party of any material
portion (which shall
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include thirty percent (30%) or more) of the assets of Issuer and its
subsidiaries taken as a whole, other than the sale of its products in the
ordinary course of business consistent with past practices; (iii) the
acquisition by a Third Party of thirty percent (30%) or more of the outstanding
Issuer Shares; (iv) the adoption by the Issuer of a plan of liquidation or the
declaration or payment of an extraordinary dividend or (v) the repurchase by the
Issuer or any of its subsidiaries of more than thirty percent (30%) of the
outstanding Shares.
3. Payment of Option Price and Delivery of Certificate. Any Closings under
Section 2 of this Stock Option Agreement shall be held at the principal
executive offices of the Issuer, or at such other place as Issuer and Grantee
may agree. At any Closing hereunder, (a) Grantee or its designee will make
payment to Issuer of the aggregate price for the Option Shares being so
purchased by delivery of a certified check, official bank check or wire transfer
of funds pursuant to Issuer's instructions payable to Issuer in an amount equal
to the product obtained by multiplying the Option Price by the number of Option
Shares to be purchased, and (b) upon receipt of such payment Issuer will deliver
to Grantee or its designee a certificate or certificates representing the number
of validly issued, fully paid and non-assessable Option Shares so purchased, in
the denominations and registered in such names designated to Issuer in writing
by Grantee.
4. Registration and Listing of Option Shares.
(a) Issuer will, if requested by Grantee at any time or from time to time
within one (1) year following the Exercise Date (as defined in Section 12 below)
(the "Registration Period"), in order to permit the sale or other disposition of
the Option Shares that have been acquired by Grantee upon exercise of the Option
("Registrable Securities"), register under the Securities Act of 1933, as
amended (the "Act"), the offering, sale and delivery, or other disposition, of
the Registrable Securities. Any such Registration Notice must relate to a number
of Registrable Securities equal to at least forty percent (40%) of the Option
Shares, unless the remaining number of Registrable Securities is less than such
amount, in which case Grantee shall be entitled to exercise its rights hereunder
but only for all of the remaining Registrable Securities (a "Permitted
Offering"). Grantee's rights hereunder shall terminate at such time as Grantee
shall be entitled to sell all of the remaining Registrable Securities pursuant
to Rule 144(k) under the Act. Issuer will use all reasonable efforts to qualify
any Registrable Securities Grantee desires to sell or otherwise dispose of under
applicable state securities or "blue sky" laws; provided, however, that Issuer
shall not be required to qualify to do business or consent to general service of
process in any jurisdiction by reason of this provision. Without Grantee's prior
written consent, no other securities may be included in any such registration.
Issuer will use all reasonable efforts to cause each such registration statement
to become effective, to obtain all consents or waivers of other parties that are
required therefor and to keep such registration statement effective for a period
of ninety (90) days from the day such registration statement first becomes
effective. The obligations of Issuer hereunder to file a registration statement
and to maintain its effectiveness may be suspended for one or more periods not
exceeding ninety (90) days during any one-year period in the aggregate if the
Board of Directors of Issuer shall have determined in good faith that the filing
of such registration statement or the maintenance of its effectiveness would
require disclosure of nonpublic information that would materially and adversely
affect Issuer, or Issuer is required under the Act to include audited financial
statements for any period in such registration statement and such financial
statements are not yet available for inclusion in such registration statement.
Grantee shall be entitled to make up to two (2) requests under this Section
4(a). For purposes of determining whether the two (2) requests have been made
under this Section 4(a), only requests relating to a registration statement that
has become effective under the Act will be counted.
(b) If, during the Registration Period, Issuer shall propose to register
under the Act the offering, sale and delivery of Issuer Shares for cash for its
own account or for any other shareholder of Issuer pursuant to a firm
underwriting, it will, in addition to Issuer's other obligations under this
Section 4, allow Grantee the right to participate in such registration so long
as Grantee participates in such underwriting; provided, however, that, if the
managing underwriter of such offering advises Issuer in writing that in its
opinion the number of shares of Issuer Shares requested to be included in such
registration exceeds the number that it would be in the best interests of Issuer
to sell in such offering, Issuer will, after fully including therein all
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shares of Issuer Shares to be sold by Issuer, include the shares of Issuer
Shares requested to be included therein by Grantee pro rata (based on the number
of shares of Issuer Shares requested to be included therein) with the shares of
Issuer Shares requested to be included therein by persons other than Issuer and
persons to whom Issuer owes a contractual obligation (other than any director,
officer or employee of Issuer to the extent any such person is not currently
owed such contractual obligation).
(c) The expenses associated with the preparation and filing of any
registration statement pursuant to this Section 4 and any sale covered thereby
(including any fees related to blue sky qualifications and filing fees in
respect of SEC or the National Association of Securities Dealers, Inc.)
("Registration Expenses") will be paid by Issuer, except for underwriting
discounts or commissions or brokers' fees in respect of shares of Issuer Shares
to be sold by Grantee and the fees and disbursements of Grantee's counsel;
provided, however, that Issuer will not be required to pay for any Registration
Expenses with respect to such registration if the registration request is
subsequently withdrawn at the request of Grantee unless Grantee agrees to
forfeit its right to request one registration; provided further, however, that,
if at the time of such withdrawal Grantee has learned of a material adverse
change in the results of operations, condition, business or prospects of Issuer
not known to Grantee at the time of the request and has withdrawn the request
within a reasonable period of time following disclosure by Issuer to Grantee of
such material adverse change, then Grantee shall not be required to pay any of
such expenses and shall not forfeit such right to request one registration.
Grantee will provide all information reasonably requested by Issuer for
inclusion in any registration statement to filed hereunder.
(d) In connection with each registration under this Section 4, Issuer shall
indemnify and hold each holder of Option or Option Shares participating in such
offering (a "Holder"), its underwriters and each of their respective affiliates
harmless against any and all losses, claims, damage, liabilities and expenses
(including, without limitation, investigation expenses and fees and
disbursements of counsel and accountants), joint or several, to which such
Holder, its underwriters and each of their respective affiliates may become
subject, under the Act or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a material fact
contained in any registration statement (including any prospectus therein), or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, other
than such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) that arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in written information
furnished by a Holder to Issuer expressly for use in such registration
statement.
(e) In connection with any registration statement pursuant to this Section
4, each Holder agrees to furnish Issuer with such information concerning itself
and the proposed sale or distribution as shall reasonably be required in order
to ensure compliance with the requirements of the Act and shall provide
representations and warranties customary for selling shareholders who are
unaffiliated with the Issuer. In addition, Grantee and each Holder shall
indemnify and hold Issuer, its underwriters and each of their respective
affiliates harmless against any and all losses, claims, damages, liabilities and
expenses (including, without limitation, investigation expenses and fees and
disbursement of counsel and accountants), joint or several, to which Issuer, its
underwriters and each of their respective affiliates may become subject under
the Act or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in
written information furnished by any Holder to Issuer expressly for use in such
registration statement; provided, however, that in no event shall any
indemnification amount contributed by a Holder hereunder exceed the net proceeds
of the offering received by such Holder.
(f) Upon the exercise of the Option, Issuer will promptly list the Option
Shares for which the Option was exercised with the Nasdaq National Market System
or on such national or other exchange on which the shares of Issuer Shares are
at the time listed.
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5. Representations and Warranties of Issuer. Issuer hereby represents and
warrants to Grantee as follows:
(a) Issuer is a corporation duly organized, validly existing and in
good standing under the laws of the State of Israel and has requisite power
and authority to enter into and perform its obligations under this Stock
Option Agreement.
(b) The execution and delivery of this Stock Option Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of Issuer and no other
corporate proceedings on the part of Issuer are necessary to authorized
this Stock Option Agreement or to consummate the transactions contemplated
hereby. The Board of Directors of Issuer has duly approved the issuance and
sale of the Option Shares, upon the terms and subject to the conditions
contained in this Stock Option Agreement, and the consummation of the
transactions contemplated hereby. This Stock Option Agreement has been duly
and validly executed and delivered by Issuer and constitutes a legal, valid
and binding obligation of Issuer enforceable against Issuer in accordance
with its terms.
(c) Issuer has taken all necessary action to authorize and reserve for
issuance and to permit it to issue, and at all times from the date of this
Stock Option Agreement through the date of expiration of the Option will
have reserved for issuance upon exercise of the Option, a sufficient number
of authorized shares of Issuer Shares for issuance upon exercise of the
Option, each of which, upon issuance pursuant to this Stock Option
Agreement and when paid for as provided herein, will be validly issued,
fully paid and nonassessable, and shall be delivered free and clear of all
claims, liens, charges, encumbrances and security interests (other than
those imposed by Grantee or applicable law).
(d) The execution, delivery and performance of this Stock Option
Agreement by Issuer and the consummation by it of the transactions
contemplated hereby except as required by the HSR Act and any material
foreign competition authorities (if applicable), and, with respect to
Section 4 hereof, compliance with the provisions of the Act and any
applicable state or securities laws, and the approvals of the Office of the
Chief Scientist and the Investment Center of the Ministry of Industry and
Commerce of the State of Israel, do not require the consent, waiver,
approval, license or authorization of or result in the acceleration of any
obligation under, or constitute a default under, any term, condition or
provision of the memorandum of association and articles of association (and
other governing documents), or any indenture, mortgage, lien, lease,
agreement, contract, instrument, order, judgment, ordinance, regulation or
decree or any restriction to which Issuer or any property of Issuer or its
subsidiaries is bound, except where failure to obtain such consents,
waivers, approvals, licenses or authorizations or where such acceleration
or defaults could not, individually or in the aggregate, reasonably be
expected to adversely affect Grantee's rights hereunder or to have a
Material Adverse Effect on Issuer.
6. Representations and Warranties of Grantee. Grantee hereby represents and
warrants to Issuer that:
(a) Grantee is a corporation duly organized, validly existing and in
good standing under the laws of Bermuda, and has the requisite power and
authority to enter into and perform its obligations under this Stock Option
Agreement.
(b) The execution and delivery of this Stock Option Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of Grantee and no other
corporate proceedings on the part of Grantee are necessary to authorize
this Stock Option Agreement or to consummate the transactions contemplated
hereby. This Stock Option Agreement has been duly and validly executed and
delivered by Grantee and, assuming this Stock Option Agreement has been
duly executed and delivered by Issuer, constitutes a valid and binding
obligation of Grantee enforceable against Grantee in accordance with its
terms.
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(c) Grantee is acquiring the Option and it will acquire the Option
Shares issuable upon the exercise thereof for its own account and not with
a view to the distribution or resale thereof in any manner not in
accordance with applicable law.
7. Covenants of Grantee. Grantee agrees not to transfer or otherwise
dispose of the Option or the Option Shares, or any interest therein, except that
Grantee may transfer or dispose of the Option Shares so long as such transaction
is in compliance with the Act and any applicable state securities law. Grantee
further agrees to the placement of the following legend on the certificates)
representing the Option Shares (in addition to any legend required under
applicable state securities laws):
"THE SHARES REPRESENTED BY THIS CERTIFICATE (A) HAVE NOT BEEN REGISTERED
UNDER EITHER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
APPLICABLE FOREIGN OR STATE LAW GOVERNING THE OFFER AND SALE OF SECURITIES.
NO TRANSFER OR OTHER DISPOSITION OF THESE SHARES, OR OF ANY INTEREST
THEREIN, MAY BE MADE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND SUCH OTHER FOREIGN OR STATE LAWS OR PURSUANT TO
EXEMPTIONS FROM REGISTRATION UNDER THE ACT, SUCH OTHER FOREIGN OR STATE
LAWS, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER AND (B) ARE
SUBJECT TO ISSUER'S RIGHTS TO REPURCHASE THE SHARES IN ACCORDANCE WITH THE
TERMS OF SECTION 12 OF THAT CERTAIN STOCK OPTION AGREEMENT, DATED AS OF
OCTOBER 16, 2000, BETWEEN ISSUER AND MARVELL TECHNOLOGY GROUP LTD."
8. HSR Compliance Efforts. Grantee and Issuer shall take, or cause to be
taken, all reasonable action to consummate and make effective the transactions
contemplated by this Stock Option Agreement, including, without limitation,
reasonable efforts to obtain any necessary consents of third parties and
governmental agencies and the filing by Grantee and Issuer promptly of any
required HSR Act notification forms and the documents required to comply with
the HSR Act.
9. Certain Conditions. The obligation of Issuer to issue Option Shares
under this Stock Option Agreement upon exercise of the Option shall be subject
to the satisfaction or waiver of the following conditions:
(a) any waiting periods applicable to the acquisition of the Option
Shares by Grantee pursuant to this Stock Option Agreement under the HSR Act
and any material foreign laws shall have expired or been terminated and all
regulatory approvals for the issuance of the Option Shares shall have been
obtained and be in full force and effect; and
(b) no statute, rule or regulation shall be in effect, and no order,
decree or injunction entered by any court of competent jurisdiction or
governmental, regulatory or administrative agency or commission shall be in
effect that prohibits the exercise of the Option or acquisition or issuance
of Option Shares pursuant to this Stock Option Agreement.
10. Adjustments Upon Changes in Capitalization. In the event of any change
in the number of issued and outstanding shares of Issuer Shares by reason of any
stock dividend, stock split, recapitalization, merger, rights offering, share
exchange or other change in the corporate or capital structure of Issuer,
Grantee shall receive, upon exercise of the Option, the stock or other
securities, cash or property to which Grantee would have been entitled if
Grantee had exercised the Option and had been a holder of record of shares of
Issuer Shares on the record date fixed for determination of holders of shares of
Issuer Shares entitled to receive such stock or other securities, cash or
property and the Option Price shall be adjusted appropriately.
11. Expiration. The Option shall expire at the earlier of (x) the Effective
Time (as defined in the Merger Agreement), (y) the termination of the Merger
Agreement in accordance with its terms, other than as a result of the occurrence
of a Triggering Event and (z) 5:00 p.m., California time, on the day that is the
six (6) month anniversary of the date on which the Merger Agreement has been
terminated in
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accordance with the terms thereof as a result of the occurrence of a Triggering
Event (such expiration date is referred to as the "Expiration Date").
12. Issuer Call. If Grantee has acquired Option Shares pursuant to exercise
of the Option (the date of any closing relating to such exercise herein referred
to as an "Exercise Date") and there shall not be pending any Company Acquisition
that is subject to the affirmative vote of the shareholders of the Issuer (that
has not been voted upon) involving a Third Party who, at any time during the
period ending six (6) months following the date hereof, had outstanding an offer
or proposal with respect to a Company Acquisition, then, at any time after the
six (6) months following the date of grant hereof and prior to six (6) months
following such Exercise Date, Issuer, subject to applicable law, may require
Grantee, upon delivery to Grantee of written notice, to sell to Issuer all (but
not less than all) Option Shares held by Grantee as of the date of such notice.
Subject to Section 2(c) hereof, the per share purchase price for such purchase
(the "Issuer Call Price") shall be equal to (A) the Option Price, plus (B)
interest on the Option Price at a rate of 10% per annum (computed on the basis
of a 360-day year of twelve 30-day months) for the period from the Exercise Date
to the closing of such sale of Option Shares, less (C) any dividends paid on the
Option Shares to be purchased by Issuer pursuant to this Section 12. The closing
of any sale of Option Shares pursuant to this Section 12 shall take place at the
principal offices of Grantee at a time and on a date designated by Issuer in the
aforementioned notice to Grantee, which date shall be no more than thirty (30)
days and no less than one (1) business day from the date of such notice. The
Issuer Call Price shall be paid in immediately available funds.
13. General Provisions.
(a) Survival. All of the representations, warranties and covenants
contained herein shall survive a Closing and shall be deemed to have been made
as of the date hereof and as of the date of each Closing.
(b) Further Assurances. If Grantee exercises the Option, or any portion
thereof, in accordance with the terms of this Stock Option Agreement, Issuer and
Grantee will execute and deliver all such further documents and instruments and
use all reasonable efforts to take all such further action as may be necessary
in order to consummate the transactions contemplated thereby.
(c) Severability. It is the desire and intent of the parties that the
provisions of this Stock Option Agreement be enforced to the fullest extent
permissible under the law and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, in the event that any provision of
this Stock Option Agreement would be held in any jurisdiction to be invalid,
prohibited or unenforceable for any reason, such provision, as to such
jurisdiction, shall be ineffective, without invalidating the remaining
provisions of this Stock Option Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction. Notwithstanding the
foregoing, if such provision could be more narrowly drawn so as not be invalid,
prohibited or unenforceable in such jurisdiction, it shall, as to such
jurisdiction, be so narrowly drawn, without invalidating the remaining
provisions of this Stock Option Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
(d) Assignment; Transfer of Stock Option. This Stock Option Agreement shall
be binding on and inure to the benefit of the parties hereto and their
respective successors and permitted assigns; provided, however, that Issuer and
Grantee, without the prior written consent of the other party, shall not be
entitled to assign or otherwise transfer any of its rights or obligations
hereunder and any such attempted assignment or transfer shall be void; provided,
further, that Grantee shall be entitled to assign or transfer this Stock Option
Agreement or any rights hereunder to any wholly-owned subsidiary of Grantee so
long as such wholly-owned subsidiary agrees in writing to be bound by the terms
and provisions hereof.
(e) Specific Performance. The parties agree and acknowledge that in the
event of a breach of any provision of this Stock Option Agreement, the aggrieved
party would be without an adequate remedy at law. The parties therefore agree
that in the event of a breach of any provision of this Stock Option Agreement,
the aggrieved party shall be entitled to institute and prosecute proceedings in
any court of competent jurisdiction to enforce specific performance or to enjoin
the continuing breach of such
B-7
<PAGE> 179
provisions. By seeking or obtaining any such relief, the aggrieved party will
not be precluded from seeking or obtaining any other relief to which it may be
entitled.
(f) Amendments. This Stock Option Agreement may not be modified, amended,
altered or supplemented except upon the execution and delivery of a written
agreement executed by Grantee and Issuer.
(g) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to be
sufficient if contained in a written instrument and shall be deemed given if
delivered personally, telecopied, sent by nationally-recognized, overnight
courier or mailed by registered or certified mail (return receipt requested),
postage prepaid, to the other party at the following addresses (or such other
address for a party as shall be specified by like notice):
If to Grantee:
Marvell Technology Group Ltd.
645 Almanor Avenue
Sunnyvale, CA 94086
Telecopier: (408) 328-0918
Attention: Corporate Counsel
with a copy to:
Gibson, Dunn & Crutcher LLP
One Montgomery Street
Telesis Tower
San Francisco, California 94104
Telecopier: (415) 374-8427
Attention: Kenneth R. Lamb
If to Issuer:
Galileo Technology Ltd.
c/o Galileo Technology, Inc.
142 Charcot Avenue
San Jose, CA 95131
Telecopier: (408) 367-1404
Attention: Manuel Alba, President
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Telecopier: (212) 310-8007
Attention: Stephen M. Besen
(h) Headings. The headings contained in this Stock Option Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Stock Option Agreement.
(i) Counterparts. This Stock Option Agreement may be executed in one or
more counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
(j) Governing Law and Venue; Waiver of Jury Trial.
(1) THIS STOCK OPTION AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN
ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
CONFLICT OF LAW PRINCIPLES THEREOF, EXCEPT FOR MATTERS OF CORPORATE LAW
CONCERNING THE RESPECTIVE PARTIES, WHICH SHALL BE
B-8
<PAGE> 180
GOVERNED BY THE RESPECTIVE CORPORATE LAWS OF THEIR JURISDICTION OF
INCORPORATION. The parties hereby irrevocably submit to the jurisdiction of
the courts of the State of New York and the Federal courts of the United
States of America located in the State of New York solely in respect of the
interpretation and enforcement of the provisions of this Stock Option
Agreement and of the documents referred to in this Stock Option Agreement,
and in respect of the transactions contemplated hereby, and hereby waive,
and agree not to assert, as a defense in any action, suit or proceeding for
the interpretation or enforcement hereof or of any such document, that it
is not subject thereto or that such action, suit or proceeding may not be
brought or is not maintainable in said courts or that the venue thereof may
not be appropriate or that this Stock Option Agreement or any such document
may not be enforced in or by such courts, and the parties hereto
irrevocably agree that all claims with respect to such action or proceeding
shall be heard and determined in such a New York State or Federal court.
The parties hereby consent to and grant any such court jurisdiction over
the person of such parties and over the subject matter of such dispute and
agree that mailing of process or other papers in connection with any such
action or proceeding in the manner provided in Section 13(g) or in such
other manner as may be permitted by Applicable Law, shall be valid and
sufficient service thereof.
(2) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY
ARISE UNDER THIS STOCK OPTION AGREEMENT IS LIKELY TO INVOLVE COMPLICATED
AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH
PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER, (ii) EACH SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF THIS WAIVER, (iii) EACH SUCH PARTY MAKES THIS WAIVER
VOLUNTARILY, AND (iv) EACH SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS
STOCK OPTION AGREEMENT BY, AMONG OTHER THINGS, THE WAIVERS AND
CERTIFICATIONS IN THIS SECTION 13(i).
(k) Entire Agreement. This Stock Option Agreement and the Merger Agreement,
and any documents and instruments referred to herein and therein, constitute the
entire agreement between the parties hereto and thereto with respect to the
subject matter hereof and thereof and supersede all other prior agreements and
understandings, both written and oral, and all contemporaneous oral agreements
and understandings, between the parties with respect to the subject matter
hereof and thereof. Nothing in this Stock Option Agreement shall be construed to
give any person other than the parties to this Stock Option Agreement or their
respective successors or permitted assigns any legal or equitable right, remedy
or claim under or in respect of this Stock Option Agreement or any provision
contained herein.
(l) Expenses. Except as otherwise provided in this Stock Option Agreement,
each party shall pay its own expenses incurred in connection with this Stock
Option Agreement and the transactions contemplated hereby.
B-9
<PAGE> 181
IN WITNESS WHEREOF, the parties have caused this Stock Option Agreement to
be signed by their respective officers thereunto duly authorized as of the date
first written above.
MARVELL TECHNOLOGY GROUP LTD.
By: /s/ SEHAT SUTARDJA
------------------------------------
Name: Sehat Sutardja
Title: President and Chief Executive
Officer
GALILEO TECHNOLOGY LTD.
By: /s/ AVIGDOR WILLENZ
------------------------------------
Name: Avigdor Willenz
Title: Chief Executive Officer
[SIGNATURE PAGE TO MARVELL/GALILEO STOCK OPTION AGREEMENT]
B-10
<PAGE> 182
APPENDIX C -- OPINION OF GOLDMAN, SACHS & CO.
PERSONAL AND CONFIDENTIAL
October 16, 2000
Board of Directors
Marvell Technology Group Ltd.
Richmond House
3rd Floor
12 Par la Ville Road
Hamilton, HM DX, Bermuda
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of view
to Marvell Technology Group Ltd. (the "Company") of the exchange ratio of 0.674
(the "Exchange Ratio") shares of Common Stock, par value $0.002 per share (the
"Shares"), of the Company to be exchanged for each Ordinary Share, par value New
Israeli Shekels 0.01 per share (the "Galileo Shares"), of Galileo Technology
Ltd. ("Galileo") pursuant to the Agreement of Merger, dated as of October 16,
2000, among the Company, Toshack Acquisitions, Ltd., a wholly-owned subsidiary
of the Company, and Galileo (the "Agreement").
Goldman, Sachs & Co., as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. We are familiar with
the Company having provided certain investment banking services to the Company
from time to time, including having acted as managing underwriter of its initial
public offering of 6,900,000 Shares in June 2000, and having acted as its
financial advisor in connection with, and having participated in certain of the
negotiations leading to, the Agreement. Goldman, Sachs & Co. provides a full
range of financial advisory and securities services and, in the course of its
normal trading activities, may from time to time effect transactions and hold
securities, including derivative securities, of the Company or Galileo for its
own account and for the accounts of customers.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Registration Statement on Form S-1, including the Prospectus
contained therein dated June 26, 2000, relating to the Company's initial public
offering of 6,900,000 Shares; the Quarterly Report on Form 10-Q of the Company
for the quarter ended July 31, 2000; the Annual Report on Form 20-F of Galileo
for the year ended December 31, 1999; the Registration Statement on Form F-1,
including the Prospectus contained therein dated July 28, 1997, relating to
Galileo's initial public offering of 6,900,000 Galileo Shares; the Reports on
Form 6-K of Galileo for the months of June 2000 and August 2000; certain other
communications from the Company and Galileo to their respective stockholders;
and certain internal financial analyses and forecasts for Galileo prepared by
the management of Galileo. We also have held discussions with members of the
senior management of the Company and Galileo regarding their assessment of the
strategic rationale for, and the potential benefits of, the transaction
contemplated by the Agreement and the past and current business operations,
financial condition and future prospects of their respective companies. In
addition, we have reviewed the reported price and trading activity for the
Shares and the Galileo Shares, which like many technology-related stocks have
been and are likely to continue to be subject to significant short-term price
and trading volatility, compared certain financial and stock market information
for the Company and Galileo with similar information for certain other companies
the securities of which are publicly traded, reviewed the financial terms of
certain recent business combinations in the semiconductor industry specifically
and in other industries generally and performed such other studies and analyses
as we considered appropriate.
C-1
<PAGE> 183
We have relied upon the accuracy and completeness of all of the financial and
other information discussed with or reviewed by us and have assumed such
accuracy and completeness for purposes of rendering this opinion. You have
informed us that the Company has not prepared current forecasts of its future
financial performance for the calendar year 2001 or beyond. As a result, our
review of such matters was limited to discussions with senior management of the
Company regarding certain reports and estimates of research analysts, including
one report for the Company that you instructed us to use for purposes of
rendering this opinion and that, in the judgment of the Company's management,
represented the best currently available estimates of the future financial
performance of the Company. In addition, for purposes of analyzing the future
financial performance of Galileo and rendering this opinion, you instructed us
to use the report of a certain research analyst that, in the judgment of the
Company's management, represented the best currently available estimates of the
future financial performance of Galileo. In addition, we have not made an
independent evaluation or appraisal of the assets and liabilities of the Company
or Galileo or any of their subsidiaries and we have not been furnished with any
such evaluation or appraisal. Our advisory services and the opinion expressed
herein are provided for the information and assistance of the Board of Directors
of the Company in connection with its consideration of the transaction
contemplated by the Agreement and such opinion does not constitute a
recommendation as to how any holder of Shares should vote with respect to such
transaction.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the Exchange
Ratio pursuant to the Agreement is fair from a financial point of view to the
Company.
Very truly yours,
C-2
<PAGE> 184
APPENDIX D -- OPINION OF SALOMON SMITH BARNEY
October 16, 2000
Board of Directors
Galileo Technology Ltd.
D.N. Misgav
Moshav Manof, 20184
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of the ordinary shares, par value NIS 0.01 per share
(the "Ordinary Shares"), of Galileo Technology Ltd. (the "Company") of the
Exchange Ratio (as defined below) in connection with the Merger (as defined
below) contemplated by the Agreement of Merger (the "Merger Agreement") to be
entered into by the Company, Marvell Technology Group Ltd. ("Parent") and
Toshack Acquisitions Ltd., a wholly owned subsidiary of Parent ("Merger Sub").
As more specifically set forth in the Merger Agreement, and subject to the
terms and conditions thereof, Merger Sub will merge with and into the Company
(the "Merger"), and each issued and outstanding Ordinary Share other than
certain Ordinary Shares owned by Parent or the Company, will be converted into
the right to receive 0.674 (the "Exchange Ratio") shares of the common stock,
par value $0.002 per share (the "Parent Common Stock"), of Parent.
In arriving at our opinion, we reviewed a draft of the Merger Agreement
dated October 7, 2000, and held discussions with certain senior officers,
directors and other representatives and advisors of each of the Company and
Parent concerning the businesses, operations and prospects of the Company and
Parent. We examined certain publicly available business and financial
information relating to the Company and Parent, as well as certain financial
forecasts and other information and data for the Company and Parent which were
provided to or otherwise discussed with us by the managements of the Company and
Parent, including information relating to certain strategic implications and
operational benefits anticipated to result from the Merger. We reviewed the
financial terms of the Merger as set forth in the Merger Agreement in relation
to, among other things: current and historical market prices and trading volumes
of the Ordinary Shares and the Parent Common Stock; the historical and projected
earnings and other operating data of the Company and Parent; and the historical
and projected capitalization and financial condition of the Company and Parent.
We considered, to the extent publicly available, the financial terms of certain
other similar transactions recently effected that we considered relevant in
evaluating the Exchange Ratio and analyzed certain financial, stock market and
other publicly available information relating to the businesses of other
companies whose operations we considered relevant in evaluating those of the
Company and Parent. In addition to the foregoing, we conducted such other
analyses and examinations and considered such other information and financial,
economic and market criteria as we deemed appropriate in arriving at our
opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed by
or discussed with us and have further relied upon the assurances of the
managements of the Company and Parent that they are not aware of any facts that
would make any of such information inaccurate or misleading. With respect to
financial forecasts and other information and data provided to or otherwise
reviewed by or discussed with us, we have been advised by the managements of the
Company and Parent that such forecasts and other information and data were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the managements of the Company and Parent as to the future
financial performance of the Company and Parent. We express no view with respect
to such forecasts and other information and data or the assumptions on which
they were based. We have assumed, with your consent, that the Merger will be
treated as a tax-free reorganization for U.S. federal income tax purposes
pursuant to Section 368 of the Code (as defined in the Merger
D-1
<PAGE> 185
Agreement). We have not made or been provided with an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of the Company
or Parent nor have we made any physical inspection of the properties or assets
of the Company or Parent. You have advised us, and we have assumed, that the
final terms of the Merger Agreement will not vary materially from those set
forth in the draft reviewed by us. We have assumed with your permission that the
terms of the Merger set forth in the Merger Agreement are in compliance with
Israeli law. We have further assumed that the Merger will be consummated in a
timely fashion in accordance with the terms of the Merger Agreement without
waiver of any of the conditions precedent to the Merger contained in the Merger
Agreement.
Our opinion, as set forth herein, relates to the relative values of the
Company and Parent. We are not expressing any opinion as to what the value of
the Parent Common Stock actually will be when issued in the Merger or the price
at which the Parent Common Stock will trade subsequent to the announcement of
the execution of the Merger Agreement or the effective time of the Merger. We
were not requested to consider, and our opinion does not address, the relative
merits of the Merger as compared to any alternative business strategies that
might exist for the Company or the effect of any other transaction in which the
Company might engage. Our opinion necessarily is based upon information
available to us and financial, stock market and other conditions and
circumstances existing and disclosed to us as of the date hereof.
Salomon Smith Barney Inc. is acting as financial advisor to the Company in
connection with the Merger and will receive a fee for our services, a portion of
which is payable only upon the consummation of the Merger. We have in the past
provided and currently are providing investment banking services to the Company
unrelated to the Merger, for which we have received and will receive
compensation. In the ordinary course of our business, we and our affiliates may
actively trade or hold the securities of the Company and Parent for our own
account or for the account of our customers and, accordingly, may at any time
hold a long or short position in such securities. Salomon Smith Barney Inc. and
its affiliates (including Citigroup Inc. and its affiliates) may maintain
relationships with the Company and Parent and their respective affiliates.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of the Company in its evaluation of the
Merger and our opinion is not intended to be and does not constitute a
recommendation of the Merger to the Company or a recommendation to any
stockholder as to how such stockholder should vote on any matters relating to
the Merger.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the Exchange Ratio is fair, from
a financial point of view, to the holder of the Ordinary Shares.
Very truly yours,
/s/ SALOMON SMITH BARNEY INC.
--------------------------------------
SALOMON SMITH BARNEY INC.
D-2
<PAGE> 186
APPENDIX E -- DESCRIPTION OF MARVELL
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA............. E-2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. E-4
BUSINESS.................................................... E-13
MANAGEMENT.................................................. E-30
CERTAIN TRANSACTIONS........................................ E-37
MARVELL AUDITED FINANCIAL STATEMENTS........................ F-1 to
Appendix E
</TABLE>
E-1
<PAGE> 187
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with, and are qualified by reference to, Marvell's consolidated
financial statements and related notes and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" appearing elsewhere in this
joint proxy statement/prospectus. The statements of operations data for the
years ended January 31, 1998, 1999 and 2000, and the balance sheet data as of
January 31, 1999 and 2000, are derived from, and are qualified by reference to,
Marvell's audited consolidated financial statements which are included elsewhere
in this joint proxy statement/ prospectus. The statements of operations data for
the years ended January 31, 1996 and 1997, and the balance sheet data as of
January 31, 1996, 1997 and 1998 are derived from financial statements that are
not included in this joint proxy statement/prospectus. The statement of
operations data for the six months ended July 31, 1999 and 2000, and the balance
sheet data as of July 31, 2000 are derived from Marvell's unaudited financial
statements which are included elsewhere in this joint proxy
statement/prospectus. In the opinion of Marvell's management, the unaudited
financial statements have been prepared on the same basis as the audited
financial statements and contain all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of Marvell's results of
operations for these periods and financial condition at that date. The
historical results presented below are not necessarily indicative of future
results. See Note 1 of the notes to Marvell's consolidated financial statements
for an explanation of the determination of the number of shares used to compute
per share amounts.
You should read the following tables in conjunction with the consolidated
financial statements and related notes and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" that is included in this joint
proxy statement/prospectus beginning at page E-4.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JANUARY 31, JULY 31,
---------------------------------------------- -----------------
1996 1997 1998 1999 2000 1999 2000
------ ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Net revenue........................ $ 210 $ 190 $ 625 $21,253 $81,375 $30,916 $61,839
Cost of product revenue............ -- -- 312 10,103 33,773 13,315 28,260
------ ------- ------- ------- ------- ------- -------
Gross profit....................... 210 190 313 11,150 47,602 17,601 33,579
Operating expenses:
Research and development......... 480 1,350 5,018 5,837 14,452 5,368 13,930
Marketing and selling............ 12 618 1,671 4,631 10,436 4,472 9,679
General and administrative....... 92 468 1,028 1,190 3,443 1,435 2,931
Amortization of stock
compensation.................. -- -- -- 42 2,175 236 4,484
------ ------- ------- ------- ------- ------- -------
Total operating expenses...... 584 2,436 7,717 11,700 30,506 11,511 31,024
------ ------- ------- ------- ------- ------- -------
Operating income (loss)............ (374) (2,246) (7,404) (550) 17,096 6,090 2,555
Interest income, net............... 19 94 6 74 330 36 1,034
------ ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes............................ (355) (2,152) (7,398) (476) 17,426 6,126 3,589
Provision for income taxes......... -- 1 46 483 4,356 1,531 897
------ ------- ------- ------- ------- ------- -------
Net income (loss).................. $ (355) $(2,153) $(7,444) $ (959) $13,070 $ 4,595 $ 2,692
------ ------- ------- ------- ------- ------- -------
Basic net income (loss) per
share............................ $(0.02) $ (0.08) $ (0.24) $ (0.03) $ 0.32 $ 0.12 $ 0.05
Diluted net income (loss) per
share............................ $(0.02) $ (0.08) $ (0.24) $ (0.03) $ 0.16 $ 0.06 $ 0.03
Shares used in computing basic net
income (loss) per share.......... 20,738 25,593 30,436 32,470 41,094 38,144 50,702
Shares used in computing diluted
net income (loss) per share...... 20,738 25,593 30,436 32,470 81,545 79,583 87,426
</TABLE>
E-2
<PAGE> 188
<TABLE>
<CAPTION>
AS OF JANUARY 31,
---------------------------------------------- JULY 31,
1996 1997 1998 1999 2000 2000
------ ------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................... $1,264 $ 4,763 $ 3,307 $ 5,515 $16,600 $112,298
Restricted cash.............................. -- -- -- -- -- 3,068
Working capital.............................. 1,188 4,426 2,682 6,865 22,611 121,096
Total assets................................. 1,364 5,267 5,291 16,563 46,500 161,050
Notes payable to bank and capital lease
obligations, less current portion.......... 30 -- 21 897 36 10
Mandatorily redeemable convertible preferred
stock...................................... 1,383 7,176 13,465 17,524 22,353 --
Total shareholders' equity (deficit)......... (126) (2,289) (9,578) (9,350) 7,940 134,910
</TABLE>
E-3
<PAGE> 189
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Consolidated Financial Data" and related notes thereto, the "Unaudited Pro Forma
Combined Condensed Financial Information" and related notes thereto, the
"Marvell Audited Financial Statements" and "Marvell's Financial Statements for
the Quarter Ended July 31, 2000" included elsewhere in this joint proxy
statement/prospectus.
Marvell designs, develops and markets integrated circuits for the
communications-related markets of high speed, high density data storage and
broadband data communications. Marvell was founded in 1995, and its business has
grown rapidly since its inception. Marvell is a fabless integrated circuit
company, which means that it relies on independent, third-party contractors to
perform manufacturing, assembly and test functions. This approach allows Marvell
to focus on designing, developing and marketing its products and significantly
reduces the amount of capital Marvell needs to invest in manufacturing products.
Marvell began shipping its first generation read channel products in volume
in June 1998. Marvell began volume shipments of preamplifier products in June
1999. In December 1999, Marvell introduced its first generation product for Fast
Ethernet applications, which began shipping and generating revenue in March
2000. In May 2000, Marvell introduced its Alaska(TM) Gigabit Ethernet over
copper transceiver, which began shipping and generating revenue in July 2000.
Marvell's data storage products have historically accounted for more than 90% of
its quarterly sales, with the balance derived from sales of its data
communications products. Marvell expects to remain dependent on continued sales
of data storage products for a majority of its revenue until Marvell is able to
diversify revenue through the increase in sales of recently introduced products,
and the addition of new, data communications products.
Historically, a relatively small number of customers have accounted for a
significant portion of Marvell's revenue. Sales to its five largest customers
accounted for 88% and 92% of Marvell's revenue for the three months and six
months ended July 31, 2000, and Marvell expects to continue to experience
significant customer concentration from direct sales to key customers. In
addition, a significant portion of Marvell's products are sold to customers
overseas. Sales to customers in Asia accounted for 98% of Marvell's revenue for
the six months ended July 31, 2000. Because many manufacturers and
subcontractors of data storage and data communications devices are located in
Asia, Marvell expects that a majority of its revenue will continue to be
represented by sales to customers in that region. All of Marvell's sales have
been denominated in U.S. dollars.
Marvell's sales have historically been made on the basis of purchase orders
rather than long-term agreements. In addition, the sales cycle for its products
is long, which may cause Marvell to experience a delay between the time it
incurs expenses and the time it generates revenue from these expenditures.
Marvell expects to increase its research and development, marketing and selling,
and general and administrative expenditures as it seeks to expand its
operations. Marvell anticipates that the rate of new orders may vary
significantly from quarter to quarter. Consequently, if anticipated sales and
shipments in any quarter do not occur when expected, expenses and inventory
levels could be disproportionately high, and Marvell's operating results for
that quarter and future quarters would be adversely affected.
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<PAGE> 190
RESULTS OF OPERATIONS
The following table sets forth, for the years ended January 31, 2000, 1999
and 1998 and for the six months ended July 31, 2000 and 1999, information
derived from Marvell's statements of income expressed as a percentage of net
revenue.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED JANUARY 31, ENDED JULY 31,
---------------------------- --------------
1998 1999 2000 1999 2000
-------- ------- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of product revenue........................ 49.9 47.5 41.5 43.1 45.7
-------- ------- ----- ----- -----
Gross profit................................... 50.1 52.5 58.5 56.9 54.3
Operating expenses:
Research and development..................... 802.9 27.5 17.8 17.4 22.5
Marketing and selling........................ 267.4 21.8 12.8 14.4 15.7
General and administrative................... 164.5 5.6 4.2 4.6 4.7
Amortization of stock compensation........... -- 0.2 2.7 0.8 7.3
-------- ------- ----- ----- -----
Total operating expenses.................. 1234.8 55.1 37.5 37.2 50.2
-------- ------- ----- ----- -----
Operating income (loss)........................ (1,184.7) (2.6) 21.0 19.7 4.1
Interest income, net........................... 1.0 0.3 0.4 0.1 1.7
-------- ------- ----- ----- -----
Income (loss) before income taxes.............. (1,183.7) (2.3) 21.4 19.8 5.8
Provision for income taxes..................... (7.4) (2.3) (5.4) (4.9) (1.4)
-------- ------- ----- ----- -----
Net income (loss).............................. (1,191.1)% (4.6)% 16.0% 14.9% 4.4%
======== ======= ===== ===== =====
</TABLE>
YEARS ENDED JANUARY 31, 1998, 1999 AND 2000
Net Revenue. Marvell recognizes revenue upon shipment of product to its
customers, net of accruals for estimated sales returns and allowances. Net
revenue increased from $625,000 in fiscal 1998 to $21.3 million in fiscal 1999,
and to $81.4 million in fiscal 2000. Fiscal 1998 revenue included approximately
$197,000 of revenue derived from a research and development contract. Revenue in
fiscal 1999 reflects commencement of volume shipments of Marvell's read channel
products. Revenue increased from fiscal 1999 to fiscal 2000 primarily as a
result of continued market acceptance of its read channel products and
commencement of volume shipment of its preamplifier products. Although average
selling prices declined by approximately 20% from fiscal 1999 to fiscal 2000,
the volume of units shipped increased from approximately 5.1 million units in
fiscal 1999 to 24.9 million units in fiscal 2000. Sales of read channel products
increased from $21.2 million in fiscal 1999 to $76.0 million in fiscal 2000,
while sales of preamplifier products increased from $8,000 in fiscal 1999 to
$5.4 million in fiscal 2000. Marvell expects that the rate of growth of its
revenue from sales of data storage products will be considerably lower in fiscal
2001 than the rate of growth it experienced in fiscal 1999 and fiscal 2000.
Cost of Product Revenue. Cost of product revenue consists primarily of the
costs of manufacturing, assembly and test of integrated circuit devices and
related overhead costs, and compensation and associated costs related to
manufacturing support, logistics and quality assurance personnel. Gross profit,
which equals product revenue, excluding $197,000 in revenue for the year ended
January 31, 1998 related to a research and development contract, less cost of
product revenue, as a percentage of revenue, increased from 27.1% in fiscal
1998, to 52.5% in fiscal 1999, and to 58.5% in fiscal 2000. The increase in
gross profit in fiscal 1999 was primarily due to the substantial increase in
sales from $625,000 in fiscal 1998 to $21.3 million in fiscal 1999. The increase
in gross profit in fiscal 2000 was primarily due to the substantial increase in
sales from $21.3 million in fiscal 1999 to $81.4 million in fiscal 2000, and a
reduction in product costs per unit in fiscal 2000 of approximately 15%. Marvell
expects its gross profit to decrease as a percentage of revenue due to increased
pricing pressures from its customers as well as from its competitors and due to
potential cost increases resulting from limited foundry capacity.
E-5
<PAGE> 191
Product costs per unit declined in fiscal 2000 due to a general decrease in
the prices charged by contract manufacturers of integrated circuits because of
the availability of capacity within the integrated circuit manufacturing
industry, as well as improvements in the manufacturing yields achieved through
the third quarter of fiscal 2000. Marvell experienced a decline in its yields in
the fourth quarter of fiscal 2000 due to the initial production ramp up of its
newest, more complex, read channel products.
Research and Development. Research and development expense consists
primarily of compensation and associated costs relating to development
personnel, prototype costs, depreciation expenses and allocated occupancy costs
for these operations. Research and development expense was $5.0 million, or
802.9% of revenue, for fiscal 1998, $5.8 million, or 27.5% of revenue, for
fiscal 1999, and $14.5 million, or 17.8% of revenue, for fiscal 2000. The fiscal
1999 to fiscal 2000 increases in absolute dollars were primarily due to
increases of $3.6 million for the hiring of additional development personnel,
$813,000 for prototype wafer costs and services, $593,000 for mask and reticle
costs and $537,000 for depreciation expense arising from significant purchases
of computer aided design software tools. Marvell expects that research and
development expense will increase substantially in absolute dollars in future
periods and as a percentage of revenue in fiscal 2001 as it develops new
products, engages in other product development initiatives and increases its
number of research and development personnel.
Marketing and Selling. Marketing and selling expense consists primarily of
compensation and associated costs relating to marketing and selling personnel,
sales commissions to independent sales representatives, promotional and other
marketing expenses, and allocated occupancy costs for these operations.
Marketing and selling expense was $1.7 million, or 267.4% of revenue, for fiscal
1998, $4.6 million or 21.8% of revenue, for fiscal 1999, and $10.4 million, or
12.8% of revenue, for fiscal 2000. The year-to-year increases in absolute
dollars were due primarily to the hiring of additional personnel and a resulting
increase in salary and related costs of approximately $2.3 million from fiscal
1999 to fiscal 2000, increased sales commissions of approximately $1.8 million
from fiscal 1999 to fiscal 2000, and increased costs of approximately $627,000
from fiscal 1999 to fiscal 2000 related to expanding its sales and marketing
activities as Marvell broadened its customer and product base. Marvell expects
that marketing and selling expense will increase substantially in absolute
dollars and as a percentage of revenue in fiscal 2001 as it hires additional
personnel, expands its sales and marketing efforts, particularly in broadband
data communications, and pays increased sales commissions.
General and Administrative. General and administrative expense consists
primarily of compensation and associated costs relating to general and
administrative personnel, professional fees and allocated occupancy costs for
these operations. General and administrative expense was $1.0 million, or 164.5%
of revenue, for fiscal 1998, $1.2 million, or 5.6% of revenue, for fiscal 1999,
and $3.4 million or 4.2% of revenue, for fiscal 2000. The year-to-year increases
in absolute dollars were due primarily to the hiring of additional personnel and
a resulting increase in salary and related costs of approximately $1.6 million
from fiscal 1999 to fiscal 2000, and increased legal, accounting and consulting
fees of approximately $403,000 from fiscal 1999 to fiscal 2000. Marvell expects
that general and administrative expense will continue to increase in absolute
dollars as Marvell hires additional personnel and incurs costs associated with
being a public company. Marvell also expects its consulting expenses to increase
as a result of post implementation support costs associated with its new
enterprise resource planning system which is currently being installed. Marvell
expects general and administrative expense to fluctuate as a percentage of
revenue due to changes in its sales volume and the fluctuating use of
consultants for post implementation support associated with its enterprise
resource planning system.
Amortization of Stock Compensation. In connection with the grant of stock
options to its employees and directors, Marvell recorded deferred stock
compensation of approximately $14.1 million, which is being amortized under the
accelerated method over the option vesting period. Amortization expense was
$42,000, or 0.2% of total revenue for fiscal 1999, and $2.2 million, or 2.7% of
total revenue for fiscal 2000. The increase in expense was due to deferred stock
compensation recorded in fiscal 2000.
Interest Income, Net. Interest income, net reflects interest earned on cash
and cash equivalents and investment balances, offset by interest on notes
payable to bank and capital lease obligations. Interest
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<PAGE> 192
income, net was $6,000 in fiscal 1998, $76,000 in fiscal 1999, and $330,000 in
fiscal 2000. In each year, the increase in interest income, net was primarily
due to interest earned on higher invested cash balances.
Provision for Income Taxes. Marvell has accrued income taxes at an
effective tax rate of 25% since achieving consolidated profitability in fiscal
2000. The difference between this rate and the federal rate of 35% is due to the
lower tax rates imposed on its operations in Bermuda and Singapore and to the
benefits realized from research and development credits in the United States,
offset by potential taxes on the portion of Bermuda income that may be
considered to be effectively connected with the conduct of a trade or business
in the United States. Marvell's operations in Singapore are subject to a
statutory tax rate of 26%. Marvell has an undertaking from the government of
Bermuda that it will not be subject to tax on its income and capital gains in
Bermuda until March 28, 2016.
SIX MONTHS ENDED JULY 31, 2000 AND JULY 31, 1999
Net Revenue. Marvell recognizes revenue upon shipment of product to its
customers, net of accruals for estimated sales returns and allowances. In March
2000, Marvell entered into its first distribution agreement to support its sales
and marketing activities in the data communications market. Marvell defers
recognition of product revenue on sales made through distributors until the
distributor sells the product to a customer. Net revenue for the six months
ended July 31, 2000 was $61.8 million, an increase of $30.9 million or 100% from
net revenue of $30.9 million for the six months ended July 31, 1999. The
increases primarily reflect increased volume shipments of the data storage
products and commencement of volume shipments of the data communications
products, which totaled $3.1 million for the six months ended July 31, 2000.
Although average selling prices for data storage products declined by
approximately 18% from the six months ended July 31, 1999 to the six months
ended July 31, 2000, the volume of units shipped increased from approximately
8.6 million units in the six months ended July 31, 1999 to approximately 19.5
million units in the six months ended July 31, 2000. The decrease in average
selling prices was primarily due to a product mix change caused by an increase
in preamplifier products shipped, which have a lower average selling price than
Marvell's read channel products, and to a lesser extent, a decrease in average
selling prices for both its read channel and preamplifier products. Sales of
read channel products increased from $30.4 million in the six months ended July
31, 1999 to $52.9 million for the six months ended July 31, 2000. Sales of
preamplifier products increased from $0.5 million in the six months ended July
31, 1999 to $5.8 million in the six months ended July 31, 2000. Marvell expects
that the rate of growth of its revenue from sales of data storage products will
be considerably lower for the remainder of fiscal 2001 than the rate of growth
it experienced in fiscal 2000.
Cost of Product Revenue. Cost of goods sold consists primarily of the costs
of manufacturing, assembly and test of integrated circuit devices and related
overhead cost, and compensation and associated costs related to manufacturing
support, logistics and quality assurance personnel. Gross profit, which equals
net revenue less cost of goods sold, as a percentage of revenue, decreased from
56.9% in the six months ended July 31, 1999 to 54.3% in the six months ended
July 31, 2000. The decrease in gross profit percentage was due to average
selling prices for the data storage products decreasing at a quicker rate than
product costs per unit, and an increase in preamplifier product revenues, which
contribute a lower gross profit than both read channel and data communication
products. Marvell's gross profits may decrease as a percentage of revenue in
future periods due to changes in the mix of products sold, increased pricing
pressures from its customers as well as from its competitors and potential cost
increases resulting from limited foundry capacity. Marvell expects that some of
its new data communications products will contribute more gross profit than
products which have been in the market for longer periods of time and that face
greater competition as a result.
Research and Development. Research and development expense consists
primarily of compensation and associated costs relating to development
personnel, prototype wafer and related product tape-out costs, depreciation
expense and allocated occupancy costs for these operations. Research and
development expense increased from $5.4 million, or 17.4% of net revenue, for
the six months ended July 31, 1999 to $13.9 million, or 22.5% of net revenue,
for the six months ended July 31, 2000. The increase in absolute dollars and as
a percentage of net revenue was primarily due to the hiring of additional
development
E-7
<PAGE> 193
personnel and a resulting increase in salary and related costs, increased
spending for prototype and related product tape-out costs for new product
initiatives, increased depreciation expense, and increased facility and other
allocable expenses. Marvell expects that research and development expense will
increase in absolute dollars in future quarters as it develops new products and
increases its number of research and development personnel.
Marketing and Selling. Marketing and selling expense consists primarily of
compensation and associated costs relating to marketing and selling personnel,
sales commissions to independent sales representatives, promotional and other
marketing expenses, and allocated occupancy costs for these operations.
Marketing and selling expense increased from $4.5 million, or 14.4% of net
revenue, for the six months ended July 31, 1999 to $9.7 million, or 15.7% of net
revenue, for the six months ended July 31, 2000. The increase in absolute
dollars and as a percentage of net revenue was primarily due to the hiring of
additional personnel and a resulting increase in salary and related costs,
increased sales commissions on increased net revenues, increases in trade show,
advertising and other promotional expenses as Marvell broadened its customer and
product base, and increased facility and other allocable expenses. Marvell
expects that marketing and selling expenses will increase in absolute dollars in
future quarters as it hires additional personnel, expands its sales and
marketing efforts, particularly in data communications, and pays increased sales
commissions.
General and Administrative. General and administrative expense consists
primarily of compensation and associated costs relating to general and
administrative personnel, professional fees and allocated occupancy cost for
these operations. General and administrative expense increased from $1.4
million, or 4.6% of net revenue, for the six months ended July 31, 1999 to $2.9
million, or 4.7% of net revenue, for the six months ended July 31, 2000. The
increase in absolute dollars was primarily due to the hiring of additional
personnel and a resulting increase in salary and related costs, increased legal
and accounting fees, increased recruiting expenses and increased facility and
other allocable expenses. Marvell expects that general and administrative
expenses will increase in absolute dollars in future quarters as it hires
additional personnel, incurs consulting costs for post implementation support
for its new enterprise resource planning system and incurs legal and other costs
associated with being a public company and expanding its operations.
Amortization of Stock Compensation. In connection with the grant of stock
options to its employees and directors, Marvell recorded deferred stock
compensation of approximately $19.9 million. Marvell is amortizing this amount
under the accelerated method over the option vesting period, which resulted in
amortization expense of $4.5 million for the six months ended July 31, 2000 as
compared to $236,000 for the six months ended July 31, 1999.
Interest Income, Net. Interest income, net for the six months ended July
31, 2000 was $1.0 million as compared to $36,000 for the six months ended July
31, 1999. The net proceeds from the initial public offering of common stock,
which were received on June 30, 2000, contributed to the increase in net
interest income.
Provision for Income Taxes. Marvell has accrued income taxes at an
effective tax rate of 25% since achieving consolidated profitability in fiscal
2000. The difference between this rate and the federal rate of 35% is due to the
lower tax rates imposed on its operations in Bermuda and Singapore and to the
benefits realized from research and development credits in the United States,
offset by potential taxes on the portion of Bermuda income that may be
considered to be effectively connected with the conduct of a trade or business
in the United States. Marvell's operations in Singapore are subject to a
statutory tax rate of 26%. The Economic Development Board of Singapore granted
Marvell pioneer status in July 2000, for a period of six years commencing July
1, 1999. Marvell has an undertaking from the government of Bermuda that it will
not be subject to tax on its income and capital gains in Bermuda until March 28,
2016.
E-8
<PAGE> 194
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, Marvell has financed operations through a combination
of private sales of convertible preferred stock, and bank loan and capital lease
financing arrangements. Beginning in fiscal 2000, Marvell has financed its
operations from net cash flow from operations and proceeds from its initial
public offering. At July 31, 2000, Marvell had $121.1 million in working capital
and $112.3 million in cash and cash equivalents.
Marvell used cash in its operating activities in the amount of $6.8 million
in fiscal 1998 and $2.9 million in fiscal 1999. In fiscal 1998, cash used for
operating activities was attributable primarily to Marvell's net loss. In fiscal
1999, cash used for operating activities was attributable to Marvell's net loss
and a significant increase in accounts receivable and inventory, partially
offset by increases in accounts payable and accrued liabilities. Accounts
receivable and inventory increased as a result of the significant increase in
revenue in fiscal 1999, particularly in the fourth quarter. Accounts payable and
accrued liabilities increased as a result of an overall increase in Marvell's
inventory levels and operating expenses as Marvell's business has grown.
Marvell's operating activities provided cash in the amount of $12.6 million in
fiscal 2000. The increase in cash was primarily a result of Marvell's net income
for the period and increases in accounts payable, accrued liabilities and income
taxes payable, partially offset by increases in accounts receivable and
inventory. Accounts receivable and inventory increased as a result of the
significant increase in revenue in fiscal 2000. Accounts payable increased as a
result of an overall increase in Marvell's inventory levels and operating
expenses as Marvell's business has grown. The increase in income taxes payable
is due to the increasing amount of income earned. The balance of Marvell's
accounts receivable at each period-end varies, primarily due to the timing of
Marvell's shipments within the period. Marvell has not experienced any material
collection difficulties. Marvell's operating activities provided cash in the
amount of $6.1 million for the six months ended July 31, 2000. The increase in
cash was primarily a result of Marvell's net income and non-cash charges for
depreciation and stock compensation amortization for the period, and increases
in accounts payable and accrued liabilities partially offset by increases in
accounts receivable, inventory and prepaid expenses. Accounts payable increased
as a result of an increase in Marvell's inventory levels as Marvell broadened
its product base, particularly in broadband data communications, and increased
lead times for the procurement of inventories from Marvell's foundries.
Marvell used cash in its investing activities in the amount of $1.0 million
in fiscal 1998, $1.6 million in fiscal 1999, $6.8 million in fiscal 2000, and
$7.8 million for the six months ended July 31, 2000, in each case attributable
to purchases of property and equipment. Additionally, in the first six months of
fiscal 2001, Marvell's restricted cash increased by $3.1 million due to an
investment in a certificate of deposit with a United States bank as security for
a standby letter of credit with a foundry. The standby letter of credit expired
on September 1, 2000.
Net cash provided by financing activities was $6.4 million in fiscal 1998,
$6.7 million in fiscal 1999, $5.3 million in fiscal 2000 and $97.4 million for
the six months ended July 31, 2000. In fiscal 1998, cash provided by financing
activities was primarily attributable to proceeds from the issuance of
convertible preferred stock. In fiscal 1999, cash provided by financing
activities was primarily attributable to proceeds from the issuance of
convertible preferred stock, the financing of property and equipment, and the
exercise of stock options. In fiscal 2000, cash provided by financing activities
was primarily attributable to proceeds from the issuance of convertible
preferred stock and the exercise of warrants to purchase convertible preferred
stock and the exercise of stock options, partially offset by the repayment of
notes payable to Marvell's bank. In the first six months of fiscal 2001, cash
provided by financing activities was primarily attributable to proceeds from
Marvell's initial public offering in June 2000.
Marvell leases equipment and software under leases with three-year terms.
Marvell intends to exercise purchase options at the end of the lease terms for a
minimal cost. Marvell also anticipates spending up to $12.2 million during the
remainder of fiscal 2001 for test and other equipment and software. Marvell
leases its facilities under non-cancelable operating leases, which expire
through June 2005. Marvell entered into a new lease commitment on June 1, 2000
for approximately 31,000 square feet of supplemental office space
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<PAGE> 195
adjacent to its existing office space in Sunnyvale, California, with occupancy
scheduled for December 2000, pending completion of leasehold improvements being
made to the facility.
Marvell's relationships with its foundries allows Marvell to cancel all
outstanding purchase orders, but requires Marvell to pay the foundries for
expenses incurred in connection with the purchase orders through the date of
cancellation. As of July 31, 2000, Marvell's foundries had incurred
approximately $3.8 million of manufacturing expenses on Marvell's outstanding
purchase orders.
Marvell believes that its existing cash balances will be sufficient to meet
its capital requirements for at least the next 12 months. After this period,
capital requirements will depend on many factors, including the rate of sales
growth, market acceptance of Marvell's products, costs of securing access to
adequate manufacturing capacity, the timing and extent of research and
development projects and increases in Marvell's operating expenses. To the
extent existing cash balances and cash from operations are insufficient to fund
Marvell's future activities, Marvell may need to raise additional funds through
public or private equity or debt financing. Although Marvell is currently not a
party to any agreement or letter of intent with respect to a potential
acquisition or strategic arrangement other than the merger with Galileo, Marvell
may enter into acquisitions or strategic arrangements in the future which could
require Marvell to seek additional equity or debt financing. Additional funds
may not be available on terms favorable to Marvell or at all.
QUARTERLY RESULTS OF OPERATIONS
The following tables present unaudited quarterly results, in dollars and as
a percentage of net revenue, for each of the nine quarters in the period ended
April 30, 2000. The Company believes this information reflects all adjustments,
consisting only of normal recurring adjustments, that they consider necessary
for a fair presentation of such information in accordance with generally
accepted accounting principles. The results for any quarter are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------
APRIL 30, JULY 31, OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31,
1998 1998 1998 1999 1999 1999 1999
--------- -------- ----------- ----------- --------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue.................. $ 466 $ 1,862 $5,081 $13,844 $14,056 $16,860 $23,463
Cost of product revenue...... 285 1,099 2,757 5,962 6,195 7,120 8,874
------- ------- ------ ------- ------- ------- -------
Gross profit................. 181 763 2,324 7,882 7,861 9,740 14,589
Operating expenses:
Research and development... 1,451 1,098 1,377 1,911 2,422 2,946 3,716
Marketing and selling...... 687 821 1,238 1,885 1,961 2,511 2,784
General and
administrative........... 254 224 271 441 651 784 793
Amortization of stock
compensation............. -- -- 12 30 80 156 329
------- ------- ------ ------- ------- ------- -------
Total operating
expenses............... 2,392 2,143 2,898 4,267 5,114 6,397 7,622
------- ------- ------ ------- ------- ------- -------
Operating income (loss)...... (2,211) (1,380) (574) 3,615 2,747 3,343 6,967
Interest income.............. 77 51 28 19 52 72 129
Interest expense............. (1) (9) (72) (19) (29) (59) (41)
------- ------- ------ ------- ------- ------- -------
Income (loss) before income
taxes...................... (2,135) (1,338) (618) 3,615 2,770 3,356 7,055
Provision for income taxes... -- (30) (40) (413) (692) (839) (1,764)
------- ------- ------ ------- ------- ------- -------
Net income (loss)............ $(2,135) $(1,368) $ (658) $ 3,202 $ 2,078 $ 2,517 $ 5,291
======= ======= ====== ======= ======= ======= =======
<CAPTION>
QUARTER ENDED
-----------------------
JANUARY 31, APRIL 30,
2000 2000
----------- ---------
(IN THOUSANDS)
<S> <C> <C>
Net revenue.................. $26,996 $29,664
Cost of product revenue...... 11,584 13,180
------- -------
Gross profit................. 15,412 16,484
Operating expenses:
Research and development... 5,368 6,118
Marketing and selling...... 3,180 4,084
General and
administrative........... 1,215 1,504
Amortization of stock
compensation............. 1,610 2,261
------- -------
Total operating
expenses............... 11,373 13,967
------- -------
Operating income (loss)...... 4,039 2,517
Interest income.............. 233 242
Interest expense............. (27) (2)
------- -------
Income (loss) before income
taxes...................... 4,245 2,757
Provision for income taxes... (1,061) (689)
------- -------
Net income (loss)............ $ 3,184 $ 2,068
======= =======
</TABLE>
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<PAGE> 196
<TABLE>
<CAPTION>
QUARTER ENDED AS A PERCENTAGE OF NET REVENUE
------------------------------------------------------------
APRIL 30, JULY 31, OCTOBER 31, JANUARY 31, APRIL 30,
1998 1998 1998 1999 1999
--------- -------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net revenue................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of product revenue....... 61.2 59.1 54.3 43.1 44.1
------ ----- ----- ----- -----
Gross profit.................. 38.8 40.9 45.7 56.9 55.9
Operating expenses:
Research and development.... 311.4 59.0 27.1 13.7 17.2
Marketing and selling....... 147.4 44.1 24.4 13.6 14.0
General and
administrative............ 54.5 12.0 5.4 3.2 4.6
Amortization of stock
compensation.............. -- -- 0.2 0.2 0.6
------ ----- ----- ----- -----
Total operating
expenses................ 513.3 115.1 57.1 30.7 36.4
------ ----- ----- ----- -----
Operating income (loss)....... (474.5) (74.2) (11.4) 26.2 19.5
Interest income............... 16.5 2.7 0.6 0.1 0.4
Interest expense.............. (0.2) (0.5) (1.4) (0.1) (0.2)
------ ----- ----- ----- -----
Income (loss) before income
taxes....................... (458.2) (72.0) (12.2) 26.2 19.7
Provision for income taxes.... -- (1.6) (0.8) (3.0) (4.9)
------ ----- ----- ----- -----
Net income (loss)............. (458.2)% (73.6)% (13.0)% 23.2% 14.8%
====== ===== ===== ===== =====
<CAPTION>
QUARTER ENDED AS A PERCENTAGE OF NET REVENUE
------------------------------------------------
JULY 31, OCTOBER 31, JANUARY 31, APRIL 30,
1999 1999 2000 2000
-------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenue................... 100.0% 100.0% 100.0% 100.0%
Cost of product revenue....... 42.2 37.8 42.9 44.4
------ ----- ----- -----
Gross profit.................. 57.8 62.2 57.1 55.6
Operating expenses:
Research and development.... 17.5 15.8 19.9 20.6
Marketing and selling....... 14.9 11.9 11.8 13.8
General and
administrative............ 4.7 3.4 4.5 5.1
Amortization of stock
compensation.............. 0.9 1.4 6.0 7.6
------ ----- ----- -----
Total operating
expenses................ 38.0 32.5 42.2 47.1
------ ----- ----- -----
Operating income (loss)....... 19.8 29.7 14.9 8.5
Interest income............... 0.4 0.5 0.9 0.8
Interest expense.............. (0.3) (0.2) (0.1) (0.0)
------ ----- ----- -----
Income (loss) before income
taxes....................... 19.9 30.0 15.7 9.3
Provision for income taxes.... (5.0) (7.5) (3.9) (2.3)
------ ----- ----- -----
Net income (loss)............. 14.9% 22.5% 11.8% 7.0%
====== ===== ===== =====
</TABLE>
QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISKS
Interest Rate Risk. Marvell's cash equivalents are exposed to financial
market risk due to fluctuation in interest rates, which may affect its interest
income. As of July 31, 2000, Marvell's cash included money market securities.
Due to the short term nature of its investment portfolio, Marvell would not
expect its operating results or cash flows to be affected to any significant
degree by the effect of a sudden change in market interest rates. Marvell does
not use its investment portfolio for trading or other speculative purposes.
Foreign Currency Exchange Risk. All of Marvell's sales and substantially
all of its expenses are denominated in U.S. dollars, and, as a result, Marvell
has relatively little exposure to foreign currency exchange risk. Marvell does
not currently enter into forward exchange contracts to hedge exposures
denominated in foreign currencies or any other derivative financial instruments
for trading or speculative purposes. However, in the event its exposure to
foreign currency risk increases, Marvell may choose to hedge those exposures.
INFLATION
The impact of inflation on Marvell's business has not been material for the
fiscal years ended January 31, 1998, 1999 and 2000, and the six months ended
July 31, 2000.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No. 133 -- an amendment of FASB Statement No.
133" ("SFAS 137"). SFAS 137 defers for one year the application of Statement of
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS") to all fiscal quarters of fiscal years beginning after June
15, 2000. SFAS 133 establishes accounting and reporting standards for derivative
instruments and hedging activities. The adoption of SFAS 133 is not expected to
have a material impact on Marvell's results of operations, financial position or
cash flows.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, ("SAB
101"), "Revenue Recognition in Financial Statements". SAB 101 summarizes certain
of the SEC's views in applying generally accepted accounting principles to
revenue recognition in financial statements. Management does
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not expect the adoption of SAB 101 to have a material effect on Marvell's
operations or financial position. Marvell is required to adopt SAB 101 in the
fourth quarter of fiscal 2001.
In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation -- an
Interpretation of APB 25." This interpretation clarifies (a) the definition of
an employee for purposes of applying Opinion 25, (b) the criteria for
determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequence of various modifications to the terms of a previously
fixed stock option plan or award, and (d) the accounting for an exchange of
stock compensation awards in business combinations. FIN 44 is effective July 1,
2000, however certain conclusions in this Interpretation cover specific events
that occur after either December 15, 1998, or January 12, 2000. To the extent
that this Interpretation covers events occurring during the period after
December 15, 1998, or January 12, 2000, but before the effective date of July 1,
2000 the effects of applying this Interpretation are recognized on a prospective
basis from July 1, 2000. Marvell does not expect that the adoption of FIN 44
will have a material impact on its consolidated financial statements.
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BUSINESS
This joint proxy statement/prospectus contains forward-looking statements
that involve risks and uncertainties. Marvell's actual results may differ
significantly from the results discussed in these forward-looking statements.
Factors that may cause such a difference include, but are not limited to, those
discussed in "Risk Factors" beginning on page 13.
OVERVIEW
Marvell designs, develop and markets integrated circuits for
communications-related markets. Marvell's products provide the critical
interface between real world, analog signals and the digital information used in
computing and communications systems. Marvell's products enable its customers to
store and transmit digital information reliably and at high speeds. Marvell
initially focused its core technology on the data storage market, where Marvell
provides high performance products to Seagate, Samsung, Hitachi, Fujitsu and
Toshiba, who as a group accounted for 99% of Marvell's sales in fiscal 1999, 98%
of Marvell's sales in fiscal 2000 and 92% of Marvell's sales in the first six
months of fiscal 2001. Recently, Marvell applied its technology to the high
speed, or broadband, data communications market by introducing products that are
used in network access equipment to provide the interface between communications
systems and data transmission media. Marvell believes that its core technology
can be used to improve performance across a wide range of data communications
applications. For example, Marvell is actively developing products for the
Gigabit Ethernet, a networking protocol, or format, for connecting devices at
data rates of 1,000 megabits per second. In addition, Marvell is committing
resources to the development of products for the 10Gigabit fiber optic, wireless
communications and cable modem markets. For the fiscal year ended January 31,
2000, Marvell generated $81.4 million in net revenue and $13.1 million in net
income. For the six months ended July 31, 2000, Marvell generated $61.8 million
in net revenue and $2.7 million in net income.
INDUSTRY BACKGROUND
SATISFYING BANDWIDTH DEMAND
Businesses and consumers today are creating a rapidly growing demand for
broadband access to large volumes of information in multiple forms, including
voice, video and data. Ryan Hankin Kent, a telecommunications industry market
research firm, estimates that North American network data traffic grew to
approximately 350,000 trillion bytes, or terabytes, per month in 1999. This
demand is being driven by the introduction of new data-intensive computing and
communications applications, such as web-based commerce, streaming audio and
video, enterprise-wide information systems and telecommuting. In addition,
information is increasingly available via networks through a variety of access
devices, including personal computers, digital cable set-top boxes used in
conjunction with television sets, cable modems, small, handheld computing
devices known as personal digital assistants and wireless phones. Improving
end-user satisfaction with these applications and devices requires increasingly
higher data transfer rates within computing systems and data storage devices and
across computer networks, the public telephone infrastructure and the Internet.
Communications systems must transfer data reliably at very high speeds
using a wide range of physical media, including magnetic and optical storage
disks, twisted pair copper wire, coaxial cable, fiber optic cable and open air.
A critical element of these systems is a physical layer device, which performs
the important interface functions between the communications system and the
media. The physical layer device converts digital computer information into real
world analog signals before transmitting them over communications media. The
physical layer device also receives analog signals from communications media and
converts them to digital data that computers can understand and manipulate.
Physical layer devices often determine the overall performance of the
communications system. Achieving high integrity data recovery and transmission
becomes increasingly difficult at higher data transfer rates. Data transfer
rates, often referred to as bandwidth, are measured in terms of megabits per
second transmitted over given media. In order to achieve high integrity in data
transmission and data recovery at high transfer rates, physical layer devices
must overcome a number of factors that can impair
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signal quality and introduce errors, including substandard media, noise, signal
level degradation over distance, interference from adjacent lines and signal
echo. In many computing systems and networks, bandwidth bottlenecks arise where
the media and physical layer devices are incapable of supporting the required
data transfer rates. As transmission speeds approach the fundamental limits of
particular transmission media, physical layer devices must increasingly employ
sophisticated signal processing algorithms and techniques to accurately recover
the transmitted data. A digital signal processing algorithm involves
mathematical manipulation of digital data converted from analog form.
High performance communications-related end markets in which bandwidth
bottlenecks present critical problems include the data storage and broadband
data communications markets.
DATA STORAGE
A substantial portion of all business and personal information is recorded
in analog form on magnetic disk drives in data servers, workstations, personal
computers and consumer entertainment devices. As end-user data requirements
increase, disk drive suppliers must consistently offer drives with faster data
transfer rates and higher capacities. Disk capacity is measured by areal
density, which is the amount of data stored on one square inch of disk space.
Current high performance disk drive systems offer data transfer rates of 400 to
500 million bits per second and capacities of up to 100 gigabytes. In
comparison, high performance disk drive systems in 1998 offered data transfer
rates of approximately 200 to 250 megabits per second and capacities of up to 50
gigabytes.
A critical component in every disk drive is the read channel. The read
channel is a physical layer device that transmits and receives the analog data
that is stored on the magnetic disk and converts it to the digital data required
for use in computing systems. The read channel plays a critical role in enabling
the disk drive to achieve higher data transfer rates and areal densities. Often,
the read channel can become the limiting bottleneck for the entire disk drive
system because higher data transfer rates complicate recovery of the data stored
on the disk. As data tracks are packed more closely together to achieve greater
areal density, problems arise from interference between adjacent data tracks.
These communication challenges require increasingly sophisticated read channel
designs. In addition, as disk drive manufacturers seek to reduce costs, they are
increasingly demanding that functions traditionally performed by stand-alone
integrated circuits be combined with the read channel into a single integrated
circuit.
BROADBAND DATA COMMUNICATIONS
In recent years there has been a rapid increase of data transmitted across
and within computer networks, the public telephone infrastructure and the
Internet. Communications infrastructures are constantly evolving to support this
increase in data transmission demand. In computer networks that span relatively
large geographical areas, known as wide area networks, this increase in data
transmission demand has driven the deployment of high capacity fiber optic
transmission systems and new broadband access technologies, such as cable modems
and digital subscriber lines. In computer networks that span relatively small
geographical areas, known as local area networks, this increase in data
transmission demand has resulted in a transition from the 10 megabit per second
Ethernet technology to the 100 megabit per second Fast Ethernet technology.
Several manufacturers of physical layer devices have publicly announced that
they are developing products based on new standards, Gigabit Ethernet, which
provides data transfer rates of 1,000 megabits per second, and 10Gigabit fiber
optic, which provides data transfer rates of 10,000 megabits per second, to
support the increasing data transmission demand. Many businesses have installed
computer networks, which requires the installation of copper twisted pair wires.
As a result, Marvell believes that businesses have made a significant investment
installing copper twisted pair wires to support their local area networks. Based
on the estimates of International Data Corporation, or IDC, in 1999 the
worldwide installed base of 10 and 100 megabit per second Ethernet network
interface cards and switch ports, which are devices used to connect computers to
networks, totaled approximately 333 million.
In the broadband data communications market, physical layer devices are
critical to the deployment of new, higher data rate transmission technologies.
Gigabit data transmission rates present significant data
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recovery challenges. A number of problems, such as interference from adjacent
lines and signal echo, arise when transmitting data at gigabit rates on the
existing copper twisted pair wire. The most common form of copper twisted pair
wire installed was originally designed to support 100 megabit per second data
rates. As a result, the deployment of Gigabit Ethernet requires either the
costly and time-consuming upgrading of this wiring or the deployment of new
physical layer devices that enable gigabit transmission rates on the existing
infrastructure.
THE OPPORTUNITY FOR NEW INTEGRATED CIRCUIT SOLUTIONS
The rapidly growing demand for high speed broadband data communications
products that enable the transmission of large volumes of data is creating the
need for a new generation of integrated circuit solutions. Physical layer
devices capable of supporting increasingly higher data transmission rates over
existing media infrastructures require sophisticated mixed signal and digital
signal processing techniques. Mixed signal technologies employ both analog and
digital circuitry in a single integrated circuit. To keep the power consumption
of these new solutions at acceptable levels, more efficient yet powerful signal
processing algorithms, implemented in silicon, are required. These new
generation physical layer devices must also satisfy market demands associated
with large production volumes, competitive pricing, high reliability and
decreasing size.
MARVELL'S SOLUTION
Marvell designs develops and markets integrated circuits for the
communications-related markets of high speed, high density data storage and
broadband data communications. Marvell's integrated circuits combine precise
mixed signal technologies with complex signal processing algorithms. Marvell's
products are used for transmitting and recovering digitally converted analog
signals to and from various types of broadband communications media. Marvell's
products allow its customers to store and move digital data reliably at high
data transfer rates while utilizing existing media infrastructures.
Marvell's products target high volume markets where some of the most
critical success factors are performance, power consumption, quality and cost.
Marvell initially applied its mixed signal and digital signal processing
technology to the data storage market, where Marvell provides read channel
devices and preamplifiers to meet the high data transfer rate, high areal
density and data integrity requirements of its customers. A preamplifier
amplifies the low level electrical signal transmitted to and from the recording
heads in a disk drive device. As of July 31, 2000, Marvell has shipped nearly 50
million read channels and preamplifiers to the desktop, high performance and
portable computing segments of the data storage market. The high performance and
portable computing segments have the most demanding performance requirements in
terms of data transfer rates and areal densities. More recently, Marvell applied
its core technology to developing high performance physical layer devices for
the broadband data communications market. Marvell introduced the first member of
its data communications product family, a physical layer device for 10 and 100
megabit per second Ethernet and Fast Ethernet applications, in the fourth
quarter of calendar year 1999. Marvell's fast Ethernet physical layer devices
are manufactured in 0.25-micron complementary metal oxide semiconductor, or
CMOS, manufacturing process and provide long distance signal transmission
capability and low power consumption. Marvell introduced its first generation of
Gigabit Ethernet physical layer devices for use with existing copper twisted
pair wiring infrastructures in May 2000.
Key features of Marvell's technology solutions include:
- MIXED SIGNAL BROADBAND ANALOG FRONT-END TECHNOLOGY. One of the most
critical components of many communications-related mixed signal
integrated circuits is the analog front-end. The analog front-end is the
analog-to-digital and digital-to-analog converter that serves as the
interface between the digital signal processor and the physical
communications media. Marvell has developed high precision analog
front-ends that are implemented in CMOS manufacturing processes. Marvell
is able to design these broadband analog front-ends due to a number of
innovations, including proprietary self calibration techniques that
compensate for the inherent variations of these processes.
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Marvell's analog circuits are designed to be highly reusable across many
of its products and easily scalable to new CMOS processes as they emerge.
- CUSTOM DIGITAL SIGNAL PROCESSORS. Marvell has designed high performance,
low power usage digital signal processors for broadband communications
applications. These processors are customized to execute Marvell's suite
of advanced digital signal processing algorithms in real time at high
speeds. For example, Marvell's latest generation read channel device
performs several hundred billion operations per second.
- PROPRIETARY DIGITAL SIGNAL PROCESSING ALGORITHMS. Marvell's advanced
digital signal processing algorithms enable data transmission at high
speeds across a wide range of physical media with low data error rates.
These digital signal processing algorithms improve performance in the
presence of media imperfections such as substandard media, noise, signal
level degradation over distance, interference from adjacent lines and
signal echo. Marvell has developed a broad suite of broadband
communications algorithms targeted at both data storage and broadband
data communications applications.
- DESIGN FOR ADVANCED CMOS MANUFACTURING PROCESSES. In addition to CMOS,
there are several modern processes for manufacturing integrated circuits
including Bipolar CMOS, or BiCMOS, silicon germanium and gallium
arsenide. While it is significantly more difficult to design high
performance analog integrated circuits in CMOS, CMOS provides multiple
benefits compared to other processes, including significantly lower
manufacturing cost, more predictable migration to smaller process
geometries, more cost effective integration of additional functions in a
single integrated circuit and greater worldwide foundry capacity. Marvell
has successfully combined advanced analog signal processing blocks with
high speed digital signal processors in 0.25- and 0.18-micron CMOS
manufacturing processes. Based on conversations with its customers,
Marvell believes that it has achieved a level of circuit speed
performance in CMOS process technologies that has typically only been
achieved with more expensive special fabrication techniques, such as
BiCMOS.
Key benefits for Marvell's customers are:
- HIGH PERFORMANCE. In the data storage market, Marvell's products achieve
high data transfer rates and areal densities. In the broadband data
communications market, Marvell's products achieve the required low error
rates when used with lower quality media and attain superior signal
transmission distance when used with standard media. Marvell's broadband
data communications products are designed to enable businesses to upgrade
their networks without the expense associated with upgrading to new
wiring.
- LOW POWER. Marvell's custom digital signal processors use fewer
transistors to perform data transfer functions than the standard designs
used by some of its competitors, thereby reducing overall system power
usage. Marvell also implements its designs in advanced CMOS processes,
which further reduces power requirements. These designs allow Marvell's
customers to eliminate costly heat reduction components in their
products.
- COST EFFECTIVE SOLUTIONS. Marvell is able to lower its manufacturing
costs by using advanced manufacturing processes and its custom digital
signal processing technology. These processes and technologies allow
Marvell to use a smaller silicon chip size, which results in more
integrated circuits per wafer. In addition, Marvell's products generate
less heat, which allow Marvell to use less expensive packaging
technologies and achieve lower cost system implementations than for
products that generate more heat. These manufacturing advantages reduce
the cost of next generation communications equipment, enabling Marvell's
customers to offer their products at competitive prices.
- HIGHER INTEGRATION CAPABILITY. The combination of Marvell's use of CMOS
manufacturing processes, small silicon chip size and low power
requirements allow Marvell to increase the number of functions in a
single integrated circuit. These capabilities position Marvell to
integrate elements
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of its customers' designs, currently implemented in discrete integrated
circuits, into Marvell's products. Integration reduces the overall number
of components, thereby reducing overall system cost.
- ACCELERATED TIME TO MARKET. Marvell helps its customers rapidly introduce
higher performance, lower cost products. Many features of Marvell's
integrated circuits are software-configurable, allowing its customers to
customize circuit operation for their specific applications. In addition,
the scalability of Marvell's designs help Marvell more rapidly adopt
future process technologies to deliver new generations of products.
MARVELL'S STRATEGY
Marvell's objective is to be a leading provider of mixed signal and digital
signal processing integrated circuit technologies for broadband
communications-related markets. Key elements of this strategy include the
following:
EXPAND MARKET POSITION BY DEVELOPING NEW SIGNAL PROCESSING TECHNOLOGIES FOR
BROADBAND
COMMUNICATIONS-RELATED APPLICATIONS
Marvell has built expertise in the core areas of technology that are
relevant for broadband communications, including mixed signal circuit design
methodologies, broadband signal processing algorithms, custom digital signal
processors and system-level expertise. Marvell intends to continue to invest
considerable resources in developing new and enhanced algorithms and improved
mixed signal and digital signal processing technologies. Marvell expects that
its investment will allow Marvell to develop products that can achieve data
transmission speeds approaching the fundamental limits of particular
transmission media infrastructures. Marvell's core signal processing
technologies can be applied to a wide range of broadband communications-related
markets, including data storage, data networking, wireless networking and cable
modems.
LEVERAGE TECHNOLOGY IN THE BROADBAND DATA COMMUNICATIONS MARKET
Marvell initially applied its mixed signal and digital signal processing
technology expertise to the data communications market through the introduction
of physical layer devices using the Fast Ethernet networking protocol. These
physical layer devices are manufactured in 0.25-micron CMOS manufacturing
processes and provide long distance signal transmission capability and low power
consumption. Marvell is currently developing Gigabit Ethernet physical layer
devices. Additionally, Marvell plans to integrate its physical layer devices
with functions previously provided by other integrated circuits, such as the
media access controller. The media access controller is the component that
controls access by different devices to the physical media to ensure that
signals sent from different devices over the same channel do not collide.
EXTEND LEADERSHIP POSITION IN THE DATA STORAGE MARKET
The data storage market presents a large volume opportunity for Marvell's
broadband mixed signal and digital signal processing technologies. Marvell
believes its technology effectively addresses the increasing data access rates
and higher data integrity and reliability requirements of the data storage
markets. Marvell has achieved significant market share in the high performance
and portable computing segments of the data storage market. These segments of
the data storage market demand the highest performance read channel products.
Marvell intends to extend its leadership position in the high performance and
portable computing market segments by continuing to develop and introduce
products enabling higher data transfer rates and areal densities. In addition,
Marvell intends to apply its cost effective design to develop products targeted
at the general purpose personal computer segment.
STRENGTHEN AND EXPAND ITS RELATIONSHIPS WITH CURRENT AND POTENTIAL CUSTOMERS
Marvell's goal is to achieve design wins with companies that are among the
first to adopt new technologies and technology leaders in the data storage and
broadband data communications markets.
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While Marvell designs products that can be used by multiple customers, Marvell
often customizes its products to incorporate its customers' specific
requirements. As the markets Marvell addresses become increasingly complex and
competitive, Marvell anticipates that many of its customers will increasingly
wish to combine elements of their designs with Marvell's own designs. Marvell
intends to jointly develop highly integrated products with its customers to meet
their cost and performance requirements and to strengthen relationships with
them. For example, Marvell is actively working with some of its customers to
incorporate specific features developed by them into Marvell's read channel
products.
CAPITALIZE ON WIDELY AVAILABLE CMOS MANUFACTURING PROCESSES AND FABLESS
OPERATING MODEL
Marvell intends to continue to use widely available CMOS processes to
manufacture its advanced mixed signal and digital signal processing products.
Marvell believes this will better enable it to reliably manufacture its products
in volume, thereby decreasing Marvell's time-to-market and costs, while also
facilitating the development of highly integrated products. Marvell is a fabless
integrated circuit manufacturer in the sense that it relies on third parties to
manufacture, assemble and test its products. Marvell's fabless model allows it
to focus its resources on the development of proprietary and innovative mixed
signal and digital signal processing designs, while reducing capital and
operating infrastructure requirements.
MARKETS
Marvell targets communications-related markets and applications that
require integrated circuit devices for high speed data transmission. Marvell
currently offers solutions for two major markets: data storage and broadband
data communications.
DATA STORAGE
Demand for data storage is increasing rapidly due to the introduction of
new data-intensive computing and communications applications, such as web-based
commerce, streaming audio and video, enterprise wide information systems, and
telecommuting. International Data Corporation, or IDC, estimates that shipments
of hard disk drive units will increase at a compound annual growth rate of 15%
from 1998 to 2003, reaching 292 million units in 2003. IDC estimates that the
market for combined standalone and integrated read channel devices is expected
to grow from $733 million in 1998 to $1.8 billion in 2003. Marvell provides
solutions tailored to the specific needs of the high performance, portable and
general purpose personal computer segments of this market.
HIGH PERFORMANCE. The proliferation of new technologies such as redundant
array of independent drives and network-based storage systems is resulting in
increased usage of high performance data storage devices. IDC projects a 17%
compound annual growth in shipments of high performance hard disk drive units
from 15 million in 1998 to 32 million in 2003. High performance computing
applications require systems that are capable of storing and retrieving large
amounts of data at high rates. As a result, manufacturers of storage devices for
the high performance segment place primary importance on disk drive performance,
reliability and capacity and are less concerned with the size, power consumption
and absolute cost. To accommodate these requirements, Marvell provides
integrated circuits that enable reliable data storage devices with high data
transfer rates and high capacity that are essential for complex, large-scale
processing environments.
PORTABLE. IDC projects a 15% compound annual growth in shipments of
portable hard disk drive units from 17.5 million in 1998 to 34 million in 2003.
Manufacturers of storage devices for the portable segment are primarily
concerned with power consumption, heat dissipation, cost and areal density.
Marvell's product family targeted at this market segment incorporates advanced
digital signal processing technologies. These elements allow Marvell to provide
very low power consumption integrated circuits that can accommodate high data
transfer rates and enable very high areal density disk drives.
GENERAL PURPOSE PERSONAL COMPUTERS. IDC projects a 15% compound annual
growth in shipments of general purpose personal computer hard disk drive units
from 111 million in 1998 to 222 million in 2003.
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Personal computer users have become increasingly price sensitive. As a result,
disk drive manufacturers focused on this segment require integrated circuit
components that facilitate design for high volume, low cost manufacturing.
Marvell's CMOS-based design is well suited to high volume, low cost
manufacturing, scalable performance and integration. In addition, due to its
ability to deliver high performance data transfer rates while meeting the cost
requirements of the general purpose personal computer segment, Marvell offers
manufacturers of general purpose personal computer data storage products a
migration path for building the higher performance drives of the future. In
addition, Marvell expects that emerging consumer entertainment devices, such as
digital camera devices, digital video recorders and digital audio entertainment
centers, will increasingly use data storage systems.
BROADBAND DATA COMMUNICATIONS
As businesses and consumers seek faster access to increasing amounts of
information through local area networks and wide area networks, such as the
Internet, networks are constrained in their ability to process and transmit
information quickly. As a result, the high speed networking equipment market is
undergoing a rapid transition from first generation Ethernet technologies
operating at 10 megabits per second to newer technologies, including Fast
Ethernet and Gigabit Ethernet. A majority of the local area network equipment
sold today is based on the Fast Ethernet standard. Based on IDC estimates,
shipments of 10 and 100 megabits per second Fast Ethernet network interface
cards and switch ports will grow from 136 million in 1999 to 316 million in
2003. As lower cost, lower power consumption Gigabit Ethernet physical layer
devices become available, Marvell believes that Gigabit Ethernet will emerge as
an important local and wide area network communications technology.
PRODUCTS
Marvell designs, develops and markets integrated circuits for the
communications-related markets of high speed, high density data storage and
broadband data communications. Marvell's integrated circuits utilize proprietary
mixed signal and digital signal processing technologies.
DATA STORAGE PRODUCTS
READ CHANNEL. The read channel is an integrated circuit providing the
interface between the analog signals from magnetic storage media and the digital
signals that computers can understand and manipulate. Marvell's read channel
products allow its customers to achieve fast data transfer rates, high areal
densities and low power dissipation. Marvell's read channels are designed in
CMOS manufacturing processes and use customized digital signal processors and
broadband analog front-ends. Marvell introduced its first generation of read
channels in 1997 and have introduced two subsequent generations of signal
processing technology enhancements since then. Marvell has migrated its
manufacturing process technology from 0.5-to 0.18-micron and its product speed
from 240 to 750 megabits per second. Marvell's read channel integrated circuits
target specific feature and performance requirements of high performance,
portable and general purpose personal computer customers. Beginning with the
88C4000 product family, Marvell implemented a strategy to consolidate the signal
processing algorithms required by each of its different market segments into a
single integrated circuit design. This strategy provides cost savings and
reduced product line complexity.
Marvell is actively working with its customers to incorporate specific
features requested by them in its read channel products. In an effort to enhance
performance and lower cost, Marvell is developing integrated products that
incorporate the read channel, the disk drive controller and embedded memory
functions in one integrated circuit.
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Marvell's current read channel products are shown in the table below.
<TABLE>
<CAPTION>
READ CHANNEL DESCRIPTION PERFORMANCE CMOS PROCESS INTRODUCTION DATE*
------------ ----------- ------------ ------------ ------------------
<S> <C> <C> <C> <C>
88P2010 First generation read channel for 240Mbits/s 0.5mm 1st Qtr 1997
use in high performance storage
systems such as high end
workstations.
88C3000 Second generation read channel for 360Mbits/s 0.35mm 1st Qtr 1998
use in higher density high
performance storage systems.
88C3100 Second generation read channel for 300Mbits/s 0.35mm 2nd Qtr 1998
extremely high user bit densities
in portable storage applications.
88C3020 Lower speed derivative of the 280Mbits/s 0.35mm 3rd Qtr 1998
88C3000 for use in general purpose
personal computer storage
products.
88C4200 Third generation read channel for 550Mbits/s 0.25mm 1st Qtr 1999
high performance and general
purpose personal computer storage
systems.
88C4220 Derivative of the 88C4200 for 380Mbits/s 0.25mm 1st Qtr 1999
lower speed but higher user bit
density portable storage systems.
88C4300 Third generation read channel for 550Mbits/s 0.25mm 1st Qtr 2000
future portable and high-end
general purpose personal computer
applications.
88C5200 Fourth generation read channel for 750Mbits/s 0.18mm 1st Qtr 2000
use in future high performance
storage systems.
88C4320 Derivative of 88C4300 for lower 320Mbits/sec 0.25mm 2nd Qtr 2000
speed but higher user bit density
portable storage systems.
88i4300 Highly integrated system on chip 400Mbits/sec 0.25mm 3rd Qtr 2000
which incorporates an 88C4300 read
channel with a hard disk
controller.
88i4310 Highly integrated system on chip 400Mbits/sec 0.25mm 3rd Qtr 2000
which incorporates an 88C4300 read
channel with a hard disk
controller and 2Mbits of SRAM.
</TABLE>
-------------------------
* Introduction date refers to the calendar quarter in which product samples were
initially made available to a customer for evaluation purposes. These products
may not be available in commercial volumes for one or more quarters following
sample introduction.
PREAMPLIFIER. A preamplifier amplifies the low level electrical signal
transmitted to and from the recording heads in a disk drive device.
Preamplifiers operate in two basic modes: read and write. In read mode,
preamplifiers provide initial amplification of the high bandwidth signal from
the read head. In write mode, the preamplifier provides the write head with the
high frequency switched current required for writing on the magnetic media.
Marvell provides the only commercially available preamplifiers manufactured in
0.5-micron CMOS processes. Marvell's CMOS-based preamplifier products provide
high performance at a lower manufacturing cost than standard BiCMOS-based
products. Marvell introduced its first preamplifier product in the third quarter
of 1998 and its second-generation product in the second quarter of 1999. Marvell
has also introduced derivative products targeted at a range of applications for
each of these product families.
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Marvell's current preamplifier products are shown in the table below.
<TABLE>
<CAPTION>
PREAMPLIFIERS DESCRIPTION PERFORMANCE CMOS PROCESS INTRODUCTION DATE*
------------- ----------- ------------ ------------ ------------------
<S> <C> <C> <C> <C>
81G3004 4-channel derivative of the 300Mbits/s 0.5mm 3rd Qtr 1998
81G3018 design for two-disk
storage platforms.
81G3018 8-channel high gain-bandwidth 300Mbits/s 0.5mm 4th Qtr 1998
preamplifier.
81G3002 2-channel derivative of the 300Mbits/s 0.5mm 2nd Qtr 1999
81G3018.
81G4008 8-channel second generation high 500Mbits/s 0.5mm 2nd Qtr 1999
gain-bandwidth preamplifier.
81G4014 4-channel derivative of the 500Mbits/s 0.5mm 4th Qtr 1999
81G4008 for two-disk storage
platforms.
81G4002 2-channel derivative of the 500Mbits/s 0.5mm 1st Qtr 2000
81G4008.
81G4054 4-channel derivative of the 500Mbits/sec 0.5mm 3rd Qtr 2000
81G4014 preamplifier.
81G4052 2-channel derivative of the 500Mbits/sec 0.5mm 3rd Qtr 2000
81G4054 preamplifier.
81G5004 4-channel preamplifier with 1st 750Mbits/sec 0.25mm 3rd Qtr 2000
generation differential
architecture.
</TABLE>
-------------------------
* Introduction date refers to the calendar quarter in which product samples were
initially made available to a customer for evaluation purposes. These products
may not be available in commercial volumes for one or more quarters following
sample introduction.
BROADBAND DATA COMMUNICATIONS PRODUCTS
Marvell is applying its mixed signal and digital signal processing
technology to a variety of broadband data communications markets, including Fast
and Gigabit Ethernet. Marvell's integrated circuits provide the core
functionality required for building Ethernet network interface cards, routers,
repeaters, hubs and switches.
FAST ETHERNET PRODUCTS. Marvell's first products for the Fast Ethernet data
communications market are highly integrated, physical layer devices. These
devices contain the active circuitry, or ports, needed for interfacing with up
to six or eight independent network connections and are typically used by its
customers in Fast Ethernet repeaters, hubs, switches and routers. Marvell has
designed its products to enable reliable communication over long cable distances
and lower quality cable installations.
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<PAGE> 207
Marvell's current Fast Ethernet products are listed in the table below.
<TABLE>
<CAPTION>
FAST
ETHERNET
PRODUCTS DESCRIPTION PERFORMANCE CMOS PROCESS INTRODUCTION DATE*
-------- ----------- ------------- ------------ ------------------
<S> <C> <C> <C> <C>
88E3080 8-port digital signal processing 10/100Mbits/s 0.25mm 4th Qtr 1999
based Fast Ethernet physical layer
device for use in workgroup and
enterprise repeaters, hubs, switches
and routers.
88E3060 6-port digital signal processing 10/100Mbits/s 0.25mm 1st Qtr 2000
based Fast Ethernet physical layer
device for use in general purpose
personal computer hubs and switches.
88E3081 8-port Fast Ethernet physical layer 10/100Mbits/sec 0.22mm 3rd Qtr 2000
device offering advanced features
such as auto-MDI/MDIX and SMII
revision 2.1.
88E3061 6-port Fast Ethernet physical layer 10/100Mbits/sec 0.22mm 3rd Qtr 2000
device offering advanced features
such as auto-MDI/MDIX and SMII
revision 2.1.
88E6050 Plug-and-play, DSP-based, fully 10/100Mbits/sec 0.25mm 3rd Qtr 2000
integrated five-port
10/100BASE-T Ethernet Switch for the
small office/home office (SOHO)
market.
</TABLE>
-------------------------
* Introduction date refers to the calendar quarter in which product samples were
initially made available to a customer for evaluation purposes. These products
may not be available in commercial volumes for one or more quarters following
sample introduction.
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<PAGE> 208
GIGABIT ETHERNET PRODUCTS. In May 2000, Marvell began early customer
sampling of its latest product for the broadband communications market, a
Gigabit Ethernet physical layer device. Marvell was the first to publicly
announce the introduction of a Gigabit Ethernet physical layer device in a
0.18-micron CMOS manufacturing process. The design for this product incorporates
sophisticated digital signal processing algorithms, as well as higher resolution
analog-front-ends, to overcome the reduced signal quality of gigabit data rate
signals on standard copper twisted pair wire. Target applications include
network interface cards, routers, repeaters, hubs and next-generation switches.
In May 2000, Marvell entered into an agreement with Intel Corporation, which
relates to the joint development of a device integrating Marvell's Gigabit
Ethernet physical layer device with an Intel networking product.
<TABLE>
<CAPTION>
GIGABIT
ETHERNET
PRODUCTS DESCRIPTION PERFORMANCE CMOS PROCESS INTRODUCTION DATE*
-------- ----------- ----------- ------------ ------------------
<S> <C> <C> <C> <C>
88E1000 Alaska(TM) Gigabit Ethernet over 10/100/1000 0.18mm 2nd Qtr 2000
Copper physical layer (PHY) Mbits/sec
featuring low power dissipation of
only 1.8 watts.
88E1000S Alaska(TM) Gigabit Ethernet over 10/100/1000 0.18mm 2nd Qtr 2000
Copper PHY device featuring Mbits/sec
optional SERDES serial interface.
88E1010 Alaska(TM) Gigabit Ethernet over 10/100/1000 0.18mm 2nd Qtr 2000
Copper PHY featuring low power Mbits/sec
dissipation of only 1.8 watts,
packaged in very small form factor
package with physical dimensions
of only 10 x 14 mm.
88E1010S Identical to the 88E1010 device 10/100/1000 0.18mm 2nd Qtr 2000
featuring an optional SERDES Mbits/sec
serial interface.
88E1020 Alaska(TM) II Dual-port Gigabit 10/100/1000 0.18mm 3rd Qtr 2000
Ethernet over Copper physical Mbits/sec
layer (PHY) featuring low power
dissipation of only 1.8 watts per
port.
88E1020S Identical to the 88E1020 device 10/100/1000 0.18mm 3rd Qtr 2000
featuring an optional SERDES Mbits/sec
serial interface on each port.
</TABLE>
-------------------------
* Introduction date refers to the calendar quarter in which product samples were
initially made available to a customer for evaluation purposes. These products
may not be available in commercial volumes for one or more quarters following
sample introduction.
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<PAGE> 209
CUSTOMERS, SALES AND MARKETING
Marvell's sales and marketing strategy is to achieve design wins with
companies that are among the first to adopt new technologies and technology
leaders in each of Marvell's selected markets. Marvell's direct sales force
targets emerging high growth markets that have high intensity communications
processing requirements. Marvell's customers for read channel and preamplifier
products are manufacturers of hard disk drives for the enterprise, mobile and
desktop markets. As of July 31, 2000, Marvell had shipped nearly 50 million read
channels and preamplifiers to its customers in the data storage industry. A
small number of Marvell's customers have historically accounted for a
substantial portion of its revenue. The percentage of Marvell's revenue
accounted for by its five major customers in fiscal 1999 and 2000 and the six
months ended July 31, 2000 are set forth below.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE
-----------------------------
SIX MONTHS
YEAR ENDED ENDED
JANUARY 31, JULY 31,
------------ -------------
CUSTOMER 1999 2000 2000
-------- ---- ---- -------------
<S> <C> <C> <C>
Samsung........................................... 46% 36% 40%
Seagate........................................... 43 24 21
Hitachi........................................... 7 14 15
Fujitsu........................................... 2 14 11
Toshiba........................................... 1 10 5
-- -- --
Total........................................... 99% 98% 92%
</TABLE>
Marvell recently introduced several data communications products, including
eight-port and six-port Fast Ethernet physical layer devices, and Gigabit
Ethernet physical layer devices. Several customers are currently designing the
Fast Ethernet and Gigabit and Ethernet physical layer devices into their
products. Marvell's target customers for these products are leading
manufacturers of high speed networking equipment.
To date, substantially all of Marvell's data storage product sales have
been made through its direct sales force of ten people. Marvell also complements
and supports its direct sales force with manufacturer's representatives in North
America and Asia. Marvell has entered into two distribution agreements to
support its sales and marketing activities in the data communications market.
Marvell anticipates that sales through distributors will increase as a
percentage of its revenues in future periods. However, Marvell expects a
significant percentage of its sales will continue to come from direct sales to
key customers. As of October 31, 2000, Marvell's sales and marketing
organization consisted of 75 employees and 22 manufacturers' representatives. In
November 1999, Marvell's Japanese subsidiary, Marvell Japan, opened a new
technical and sales support facility in Japan to provide greater support for its
international customers.
Marvell's' sales are made under purchase orders received between one and
four months prior to the scheduled delivery date. These purchase orders can be
cancelled without charge if notice is given within an agreed upon period.
Because of the scheduling requirements of its foundries, Marvell generally
places firm orders for products with its suppliers up to sixteen weeks prior to
the anticipated delivery date and prior to an order for the product. Marvell
typically warrants its products for a 90-day period. To date, Marvell has not
experienced material product returns or warranty expense.
Marvell's marketing team works in conjunction with its sales force and is
organized around its product applications. Due to the complexity of its
products, Marvell introduces new products to major customers with a global tour
by a marketing, sales and engineering team. Marvell believes that individual
meetings are the most effective and rapid means of communicating the
capabilities, benefits and extremely technical specifications of each new
product.
Marvell uses field application engineers to provide intensive technical
support and assistance to existing and potential customers in designing, testing
and qualifying systems designs that incorporate its
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<PAGE> 210
products. Marvell believes that superior field applications engineering support
plays a pivotal role in building long-term relationships with customers by
improving its customers' time-to-market, maintaining a high level of customer
satisfaction and encouraging customers to use its next generation of products.
As of October 31, 2000, Marvell had 12 field application engineers.
MARVELL'S TECHNOLOGY
Marvell believes that its key technical competitive advantages result from
the collection of proprietary technologies that it has developed since its
inception. Marvell's products are based on the following technologies:
- high bandwidth analog front-end technology;
- advanced communications algorithms;
- custom digital signal processors; and
- reusable building blocks for integrated system-on-a-chip design.
HIGH BANDWIDTH ANALOG FRONT-END TECHNOLOGY
Marvell has developed significant expertise in mixed signal circuit design
architectures and techniques required to design high performance analog
front-ends, which provide the interface between the digital signal processor and
the physical communications media. Marvell has developed this technology for use
with advanced CMOS manufacturing processes, which allows it to cost effectively
integrate complex digital signal processing functions with other high level
system functions on a small silicon chip. Marvell's mixed signal circuits
achieve performance levels that are associated with more expensive, special
purpose integrated circuit manufacturing process technologies, such as BiCMOS.
For example, Marvell's analog front-ends for use in read channel applications
achieve conversion rates of up to 900 MHz using a 0.18-micron CMOS process. A
conversion rate of 900 MHz means that the analog to digital converter completes
900 million analog to digital conversion cycles per second. In addition to
achieving high performance, Marvell's mixed signal circuits are designed to
compensate for variations inherent in current 0.25- and 0.18-micron CMOS
manufacturing processes.
Marvell's high bandwidth analog front-end technology can be used in various
communications-related applications. Marvell is currently developing
experimental mixed signal technologies for extreme high bandwidth applications,
such as physical layer devices for fiber optic media operating at data rates of
up to 2.5 gigabits per second for use in a high-speed shared storage devices,
known as storage area networks.
ADVANCED COMMUNICATIONS ALGORITHMS
Marvell has also developed complex communications algorithms that are
required for broadband data communications-related applications. Marvell's
communications algorithms perform the signal equalization, data detection and
error corrections required to overcome media imperfections such as substandard
media, noise, signal level degradation over distance, interference from adjacent
lines and signal echo. These communications algorithms enable Marvell to design
digital signal processors for use in data storage, Fast Ethernet and Gigabit
Ethernet applications as well as other possible future applications, such as
cable modem and broadband wireless products.
CUSTOM DIGITAL SIGNAL PROCESSORS
Marvell targets communications-related markets, which require very fast
data transfer rates and low power dissipation. To achieve the required
performance levels, Marvell implements its signal processing algorithms in
custom-designed digital signal processors. Marvell's Fast Ethernet digital
signal processors perform several billion operations per second while
dissipating less than 100 milliwatts of power. Marvell's fastest read channel
digital signal processors performs over 50 billion operations per second while
dissipating less than 750 milliwatts of power. Such performance is not readily
available using standard
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<PAGE> 211
programmable digital signal processing solutions. Marvell believes its custom
digital signal processors, when combined with its library of digital signal
processing circuit building blocks, will enable Marvell to implement application
specific digital signal processors that can perform at computational rates of up
to one trillion operations per second in very small silicon chips. Small silicon
chips result in low power dissipation, small packaging and low overall system
cooling requirements.
REUSABLE BUILDING BLOCKS FOR INTEGRATED SYSTEM-ON-A-CHIP DESIGN
Marvell has developed a proprietary set of manufacturing process design
rules that it believes are scalable over several generations of manufacturing
process geometries. Marvell has also collected a significant library of circuit
building blocks that can be reused with minimum modification in successive
generations of products. These design methodologies allow Marvell to shorten
time-to-market for new products and take advantage of the latest CMOS
manufacturing processes. Marvell believes that as manufacturing process
geometries continue shrinking, Marvell's customers will pursue silicon
integration strategies. To address this market development, Marvell has recently
developed its own embedded memory technology for complex system-on-a-chip
designs that require large amounts of repairable on-chip memory. Marvell is also
in the process of developing products that integrate its core mixed signal and
digital signal processors with its customers' silicon components and on-chip
memory.
RESEARCH AND DEVELOPMENT
Marvell believes that its future success depends on its ability to
introduce improvements to its existing products and to develop new products that
deliver cost effective solutions for both existing and new markets. Marvell's
research and development efforts are directed largely to the development of
proprietary circuit designs for high bandwidth communications-related
applications. Marvell devotes a significant portion of its resources to
expanding its core technology library with designs that enable high performance,
reliable communications over a variety of physical media. Marvell is also
focused on incorporating functions currently provided by stand-alone integrated
circuits into its products to reduce customers' overall system costs.
Marvell has assembled a core team of engineers who have extensive
experience in the areas of mixed signal circuit design, digital signal
processing, and CMOS technology. As of October 31, 2000, Marvell had 151
employees in engineering and process development. Marvell has invested, and
expects that it will continue to invest, significant funds for research and
development. Marvell's research and development expense was approximately $5.8
million in fiscal 1999, $14.5 million in fiscal 2000, and $13.9 million for the
six months ended July 31, 2000.
MANUFACTURING
Marvell believes its fabless manufacturing approach provides it with the
benefits of superior manufacturing capability as well as flexibility to move the
manufacture, assembly and test of its products to those vendors that offer the
best capability at an attractive price. Marvell's engineers work closely with
its foundries and other subcontractors to increase yields, lower manufacturing
costs and improve quality.
INTEGRATED CIRCUIT FABRICATION
Marvell's integrated circuits are fabricated using widely available CMOS
processes, which provide greater flexibility to engage independent foundries to
manufacture integrated circuits. By outsourcing manufacturing, Marvell is able
to avoid the cost associated with owning and operating its own manufacturing
facility. This allows Marvell to focus its efforts on the design and marketing
of its products. Marvell currently outsources substantially all of its
integrated circuit manufacturing to Taiwan Semiconductor Manufacturing Company.
Marvell works closely with Taiwan Semiconductor to forecast on a monthly basis
its manufacturing capacity requirements. Marvell's integrated circuits are
currently fabricated in 0.50-, 0.35- 0.25- and 0.18 micron manufacturing
processes. Because finer manufacturing processes lead to enhanced performance,
smaller silicon chip size and lower power requirements, Marvell
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<PAGE> 212
continually evaluates the benefits and feasibility of migrating to smaller
geometry process technology in order to reduce cost and improve performance.
ASSEMBLY AND TEST
Marvell's silicon chips are shipped from its third-party foundries to its
third-party assembly and test facilities where they are assembled into finished
integrated circuit packages and tested. Marvell's products are designed to use
low cost, standard packages and to be tested with widely available test
equipment. In addition, Marvell specifically designed its integrated circuits
for ease of testability, further reducing manufacturing costs. Marvell
outsources all of its product packaging and testing requirements to several
third-party assembly and test subcontractors, including ST Assembly Test
Services in Singapore, Siliconware Precision Industries in Taiwan and Amkor
Technology in the Philippines.
QUALITY ASSURANCE
Marvell builds quality into its products starting with the design and
development process. Marvell's designs are subjected to extensive circuit
simulation under extreme conditions of temperature, voltage and processing
before being committed to manufacture. Marvell pre-qualifies each of its
subcontractors and conducts regular in-depth quality audits. Marvell closely
monitors foundry production to ensure consistent overall quality, reliability
and yield levels. All of Marvell's independent foundries and assembly and test
subcontractors have been awarded ISO 9000 certification.
INTELLECTUAL PROPERTY
Marvell's future revenue growth and overall success depend in large part on
its ability to protect its intellectual property. Marvell relies on a
combination of patents, copyrights, trademarks, trade secret laws, contractual
provisions and licenses to protect its intellectual property. Marvell also
enters into confidentiality agreements with its employees, consultants,
suppliers and customers and seek to control access to, and distribution of, its
documentation and other proprietary information. Despite these precautions, it
may be possible for a third-party to copy or otherwise obtain and use Marvell's
products and technology without authorization, develop similar technology
independently or design around Marvell's patents.
As of October 31, 2000, Marvell had been granted several United States
patents on various aspects of its technology, with expiration dates ranging from
2015 to 2018, and Marvell had filed a number of additional United States patent
applications. However, there can be no assurance that patents will ever be
issued for these applications. Furthermore, it is possible that Marvell's
patents may be invalidated, circumvented, challenged or licensed to others.
In addition, the laws of some foreign countries in which Marvell's products
are or may be developed, manufactured or sold, including various countries in
Asia, may not protect its products or proprietary information to the same extent
as do the laws of the United States and thus make the possibility of piracy of
Marvell's technology and products more likely in these countries.
Marvell has expended and will continue to expend considerable resources in
establishing a patent position designed to protect its intellectual property.
While Marvell's ability to compete is enhanced by its ability to protect its
intellectual property, Marvell believes that, in view of the rapid pace of
technological change, the combination of the technical experience and innovative
skills of its employees may be as important to its business as the legal
protection of its patents and other proprietary information.
From time to time, Marvell may desire or be required to renew or to obtain
licenses from third parties in order to further develop and market commercially
viable products effectively. Marvell cannot be sure that any necessary licenses
will be available or will be available on commercially reasonable terms.
The integrated circuit industry is characterized by vigorous protection and
pursuit of intellectual property rights, which have resulted in significant and
often time consuming and expensive litigation. Although there is currently no
pending or threatened intellectual property litigation filed against Marvell,
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<PAGE> 213
there can be no assurance that third parties will not assert claims of
infringement against Marvell. Such claims, even those without merit, could be
time consuming and result in costly litigation. Marvell may not prevail in any
such litigation or may not be able to license any valid and infringed patents
from third parties on commercially reasonable terms. Litigation, regardless of
the outcome, is likely to result in substantial cost and diversion of Marvell's
resources, including its management's time. Any such litigation could harm
Marvell's business and financial results.
COMPETITION
The markets for data storage and broadband data communications devices are
intensely competitive and characterized by rapid technological change, evolving
standards, short product life cycles and pricing pressures imposed by high
volume customers. Marvell expects competition to intensify as current
competitors expand their product offerings and new competitors enter the market.
Marvell believes that its ability to compete successfully in the rapidly
evolving markets for its products depends on a number of factors, including:
- performance, features, quality and price of its products;
- the timing and success of new product introductions by Marvell, its
customers and its competitors;
- the emergence of new industry standards;
- Marvell's ability to obtain adequate foundry capacity;
- the number and nature of Marvell's competitors in a given market; and
- general market and economic conditions.
Marvell's current products face competition from a number of sources.
Marvell believes its principal competitors in the read channel market are Cirrus
Logic, Lucent Technologies, NEC, STMicroelectronics and Texas Instruments.
Marvell's primary competitors in the preamplifier market are Texas Instruments
and Lucent Technologies. In expanding its presence in the broadband data
communications market, Marvell expects to compete with Broadcom, Intel and
National Semiconductor.
Many of Marvell's current competitors and potential competitors have longer
operating histories, greater name recognition, access to larger customer bases
and significantly greater financial, sales and marketing, manufacturing,
distribution, technical and other resources than Marvell. As a result, they may
be able to respond more quickly to changing customer demands or to devote
greater resources to the development, promotion and sale of their products than
Marvell can. Marvell's current or future competitors may develop and introduce
new products that will be priced lower, provide superior performance or achieve
greater market acceptance than Marvell's products. In addition, in the event of
a manufacturing capacity shortage, these competitors may be able to manufacture
products when Marvell is unable to do so.
Furthermore, current or potential competitors have established or may
establish, financial and strategic relationships among themselves or with
existing or potential customers or other third parties to increase the ability
of their products to address the needs of Marvell's prospective customers.
Accordingly, it is possible that new competitors or alliances among competitors
could emerge and rapidly acquire significant market share, which would harm
Marvell's business.
In addition, many of Marvell's customers and potential customers have
substantial technological capabilities and financial resources. Some customers
have already developed, or in the future may develop, technologies that will
compete directly with Marvell's products. Marvell also may face competition from
suppliers of products based on new or emerging technologies.
Historically, average unit selling prices in the integrated circuit
industry in general, and for Marvell's products in particular, have decreased
over the life of a particular product. Marvell expects that the average unit
selling prices of its products will continue to be subject to significant
pricing pressures. In
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<PAGE> 214
order to offset expected declines in the average unit selling prices of its
products, Marvell will likely need to reduce the cost of its products. Marvell
intends to accomplish this by implementing design changes that lower the cost of
manufacturing, assembly and testing, by negotiating reduced charges by its
foundries as and if volumes increase, and by successfully managing its
manufacturing and subcontracting relationships. Because Marvell does not operate
its own manufacturing, assembly or testing facilities, Marvell may not be able
to reduce its costs as rapidly as companies that operate their own facilities.
If Marvell fails to introduce lower cost versions of its products in a timely
manner or to successfully manage its manufacturing, assembly and testing
relationships, Marvell's business would be harmed.
SEASONALITY AND BACKLOG
Marvell's business is not seasonal to any significant extent. Marvell has
experienced no material backlog.
EMPLOYEES
As of October 31, 2000, Marvell had a total of 326 employees, of which 151
were in research and development, 75 in sales and marketing, 46 in operations
and 54 in general and administration. Marvell's employees are not represented by
any collective bargaining agreements, and Marvell has not experienced any work
stoppage. Marvell considers its relations with its employees to be good.
FACILITIES
Marvell's primary facility, housing its research and design functions as
well as elements of marketing and administration, is in Sunnyvale, California.
This facility consists of approximately 66,000 square feet and is leased until
February 15, 2002. In June 2000, Marvell entered into a lease for approximately
31,000 square feet of supplemental office space adjacent to its primary facility
under a lease which expires in five years. In addition, Marvell's other
subsidiaries in Singapore and Japan have leased space for their operations.
Based upon its estimates of future hiring, Marvell believes that these
facilities will be adequate to meet its requirements through fiscal 2002.
LEGAL PROCEEDINGS
In August 2000, Gordon M. Steel, Marvell's former Chief Financial Officer,
filed a complaint in California Superior Court against Marvell alleging claims
for wrongful termination, breach of the covenant of good faith and fair dealing,
and defamation. These claims relate to Mr. Steel's separation from Marvell in
April 2000. Marvell believes that the complaint is without merit and is
currently defending against it.
In April 2000, Marvell began discussions with CPS Brokerage Services for
the purpose of utilizing CPS as a broker-agent in connection with Marvell's
efforts to lease additional commercial space in the San Francisco Bay area. In
June 2000, Marvell agreed to lease additional commercial space, and Marvell
believes it secured such space without the assistance of and without incurring
an obligation to pay CPS a commission. In August 2000, CPS sent Marvell a letter
demanding payment of a commission in an amount not exceeding $370,000. Marvell
and CPS are currently attempting to negotiate a settlement of this dispute.
However, if the parties are unable to resolve the dispute, it may proceed to
litigation.
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<PAGE> 215
MANAGEMENT
Marvell is the parent of Marvell Semiconductor, Inc., a California
corporation Marvell founded to develop proprietary technology and to provide
selected support services to Marvell. The table below sets forth certain
information regarding the executive officers, directors and some of the other
officers of both Marvell and Marvell Semiconductor, Inc. as of [November 13,
2000]. Upon completion of the Merger, the board of directors of Marvell will be
expanded by two members, who will be nominated by the Galileo board of
directors. See "The Merger Agreement -- Management After the Merger" at page 89.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Diosdado P. Banatao(1)(2)......... 54 Co-Chairman of the Board, Marvell Technology Group Ltd.
Sehat Sutardja.................... 39 Co-Chairman of the Board, President and Chief Executive
Officer, Marvell Technology Group Ltd.; President and Chief
Executive Officer and Director of Marvell Semiconductor,
Inc.
Weili Dai......................... 39 Executive Vice President, Assistant Secretary and Director
of Marvell Technology Group Ltd.; Executive Vice President,
General Manager of Data Communications Group and Director
of Marvell Semiconductor, Inc.
Pantas Sutardja................... 37 Vice President and Director of Marvell Technology Group
Ltd.; Chief Technology Officer and Director of Marvell
Semiconductor, Inc.
George Hervey..................... 54 Vice President of Finance, and Chief Financial Officer,
Marvell Technology Group Ltd.; Vice President of Finance
and Chief Financial Officer of Marvell Semiconductor, Inc.
Alan J. Armstrong................. 36 Vice President of Marketing, Data Storage, Marvell
Semiconductor, Inc.
Gani Jusuf........................ 37 Vice President of Product Development, Data Communications,
Marvell Semiconductor, Inc.
Nersi Nazari...................... 41 Vice President of Signal Processing Technology, Marvell
Semiconductor, Inc.
George Papa....................... 52 Vice President of Sales, Data Communications, Marvell
Semiconductor, Inc.
William Brennan................... 36 Vice President of Sales, Data Storage, Marvell
Semiconductor, Inc.
Lee Chung Yiu..................... 45 Vice President of Engineering, Marvell Semiconductor, Inc.
Stephen Zadig..................... 50 Vice President of Operations, Marvell Semiconductor, Inc.
Herbert Chang(1)(2)............... 38 Director, Marvell Technology Group Ltd.
John M. Cioffi(2)................. 44 Director, Marvell Technology Group Ltd.
Paul R. Gray(2)................... 57 Director, Marvell Technology Group Ltd.
Ron Verdoorn(1)................... 50 Director, Marvell Technology Group Ltd.
</TABLE>
-------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
DIOSDADO P. BANATAO has served as Marvell's Co-Chairman of the Board since
October 1995. Mr. Banatao has been a partner in Mayfield Fund, a venture capital
fund, since 1998. Prior to joining Mayfield Fund, Mr. Banatao founded S3,
Incorporated, a designer and manufacturer of graphics and video accelerators for
personal computers and related peripheral products, where he served as President
and Chief Executive Officer from 1989 until 1992 and Chairman from 1992 to 1998.
Mr. Banatao holds a Bachelor of Science degree in Electrical Engineering from
the Mapua Institute of Technology and a Master of Science degree in Electrical
Engineering and Computer Science from Stanford University.
SEHAT SUTARDJA, a co-founder of Marvell, has served as its President since
inception and as its Co-Chairman of the Board and Chief Executive Officer since
August 1995. In addition, he has served as President, Chief Executive Officer
and a Director of Marvell Semiconductor, Inc. since its founding. From
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<PAGE> 216
1989 until 1995, Dr. Sutardja served as a manager and principal project engineer
at 8X8 Inc., a designer and manufacturer of digital communications products. Dr.
Sutardja received his Master of Science and Ph.D. degrees in Electrical
Engineering and Computer Science from the University of California at Berkeley.
Dr. Sutardja is the husband of Weili Dai and the brother of Dr. Pantas Sutardja.
WEILI DAI, a co-founder of Marvell, has served as its Vice President,
Corporate Assistant Secretary and one of its Directors since inception. Ms. Dai
was promoted from Vice President to Executive Vice President in 1996, which
position she currently holds. Ms. Dai has also served as Executive Vice
President and Director for Marvell Semiconductor, Inc. since its founding. As
Executive Vice President for Marvell Semiconductor, Inc., Ms. Dai is the General
Manager of the Data Communications Group and is also responsible for the
corporate business development and human resources functions. From 1992 until
1995, Ms. Dai was involved in software development and project management at
Canon Research Center America, Inc. Ms. Dai holds a Bachelor of Science degree
in Computer Science from the University of California at Berkeley. Ms. Dai is
the wife of Dr. Sehat Sutardja.
PANTAS SUTARDJA, a co-founder of Marvell, has served as its Vice President
and one of its Directors since inception, and as Vice President of Engineering
for Marvell Semiconductor, Inc. from its founding until 1999, when he was
appointed Chief Technology Officer. Dr. Sutardja has also been a Director of
Marvell Semiconductor, Inc. from inception. Previously, Dr. Sutardja served as
Research Staff Member at IBM Almaden Research Center from 1988 to 1994. Dr.
Sutardja holds Bachelor of Science, Master of Science and Ph.D. degrees in
Electrical Engineering and Computer Science from the University of California at
Berkeley. Dr. Sutardja is the brother of Dr. Sehat Sutardja.
GEORGE HERVEY joined Marvell in April 2000 as its Vice President of Finance
and Chief Financial Officer and in a similar capacity for Marvell Semiconductor,
Inc. From March 1997 to April 2000, Mr. Hervey served as Senior Vice President,
Chief Financial Officer and Secretary for Galileo Technology Ltd., which
manufactures chips which provide Ethernet switching capabilities for high
performance local area networks. From June 1992 to February 1997, Mr. Hervey was
Senior Vice President of Finance and Chief Financial Officer of S3 Incorporated,
a designer and manufacturer of graphics and video accelerators for personal
computers and related peripheral products. Mr. Hervey holds a Bachelor of
Science degree in Business Administration from the University of Rhode Island.
ALAN ARMSTRONG has served as Vice President of Marketing, Data Storage for
Marvell Semiconductor since June 1999. From 1992 until 1999, Dr. Armstrong held
various positions at Cirrus Logic Inc., a designer and manufacturer of analog
and mixed signal circuits, most recently as Director of Product Planning and
Applications for Data Storage Products. Dr. Armstrong holds a Bachelor of
Science degree in Electrical Engineering from San Diego State University and
Master of Science and Ph.D. degrees in Electrical Engineering from the
University of California, San Diego.
GANI JUSUF has served as Vice President of Product Development, Data
Communications, since February 2000. From 1998 to February 2000, Dr. Jusuf was a
Research and Development Manager for Agilent Technologies, Inc., a subsidiary of
Hewlett-Packard, which develops test, measurement and monitoring products and
devices. From 1995 to 1998, Dr. Jusuf served as Director of Engineering
responsible for product definition and development for Marvell Semiconductor,
Inc. Dr. Jusuf holds Bachelor of Science, Master of Science and Ph.D. degrees in
Electrical Engineering and Computer Science from the University of California at
Berkeley.
NERSI NAZARI has served as Vice President of Signal Processing Technology
for Marvell Semiconductor, Inc. since October 1997. From 1994 until 1997, Dr.
Nazari served as Chief Technologist at GEC Plessey Semiconductors, a designer
and manufacturer of integrated circuits, including data storage and data
communications products. Dr. Nazari holds Bachelor of Science degrees in
Electrical Engineering and Mathematics from Southern Illinois University, a
Master of Science degree in Electrical Engineering from the University of
Missouri, and a Ph.D. in Electrical Engineering from the University of Colorado.
GEORGE PAPA joined Marvell Semiconductor, Inc. in February 2000 as Vice
President of Sales, Data Communications. From 1997 until 2000, Mr. Papa served
as Vice President of Worldwide Sales for Level
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<PAGE> 217
One Communications, Inc., a subsidiary of Intel Corporation. From 1991 to 1997,
Mr. Papa served as Vice President of North American Sales for Siemens
Corporation. Mr. Papa holds a Bachelor of Science degree in Electrical
Engineering from Northeastern University.
WILLIAM BRENNAN has served as Vice President of Sales, Data Storage, for
Marvell Semiconductor, Inc. since July 2000. From 1993 until 2000, Mr. Brennan
served as Vice President for Exis, Inc., a firm specializing in account
management for semiconductor companies, including NEC Corporation. From 1986 to
1993, Mr. Brennan held various sales and marketing positions at Texas
Instruments, including Sales Manager for the HDD segment. Mr. Brennan holds a
Bachelor of Science degree in Electrical Engineering from the University of
Colorado.
LEE CHUNG YIU has served as Vice President of Engineering for Marvell
Semiconductor, Inc. since May 1999. From 1994 until 1997, Dr. Yiu served as the
Director of Engineering for SEEQ Technology Inc., a supplier of Ethernet data
communications products for networking applications. From 1997 until 1999, Dr.
Yiu was the Vice President of Engineering for Newave Semiconductor Corporation,
a privately held company developing integrated circuits for the
telecommunications market. Dr. Yiu holds a Bachelor of Science degree in
Electrical Engineering from National Taiwan University and Master of Science and
Ph.D. degrees in Electrical Engineering from the University of California at
Berkeley.
STEPHEN ZADIG has served as the Vice President of Operations for Marvell
Semiconductor, Inc. since 1996. From 1995 to 1996, Mr. Zadig served as Vice
President of Operations for Paradigm Technology Inc., a designer and supplier of
high performance SRAM products. From 1990 until 1995, Mr. Zadig served as Vice
President of Operations for C-Cube Microsystems Inc., a company that designs and
markets integrated circuits that implement digital video encoding and decoding.
HERBERT CHANG has served as a Director since November 1996. Since April
1996, Mr. Chang has been President of InveStar Capital, Inc., a technology
venture capital management firm based in Taiwan. From 1994 to 1996, Mr. Chang
was Senior Vice President of WK Technology Fund, a venture capital fund. Mr.
Chang serves as a director for NetIQ Corporation and Silicon Image, Inc. Mr.
Chang holds a Bachelor of Science degree from National Taiwan University and a
Master of Business Administration degree from National Chiao-Tung University in
Taiwan.
JOHN M. CIOFFI has served as a Director since March 2000. Dr. Cioffi has
been a professor of Electrical Engineering at Stanford University since 1986. In
1991, he founded Amati Communications Corporation, which designs and
manufactures modems for Asymmetric Digital Subscriber Lines, and served as the
Chief Technology Officer until the company's acquisition by Texas Instruments,
Inc. in 1998. Dr. Cioffi is an IEEE fellow and serves as a director for ITEX,
and on the advisory boards of Coppercom, Gigabit Wireless, Kestrel Solutions,
Inc., Charter Ventures, Portview Communications Partners and GoDigital Networks
Corp.
PAUL R. GRAY has served as a Director since March 2000. Dr. Gray currently
serves as Executive Vice Chancellor and Provost, effective July 2000 at the
University of California, Berkeley. During his 28 year tenure with the
University, Dr. Gray has held numerous administrative posts, including Director
of the Electronics Research Laboratory, Vice Chairman of the EECS Department for
Computer Resources, and Chairman of the Department of Electrical Engineering and
Computer Sciences.
RON VERDOORN has served as a Director since January 1998. From January 1999
to the present, Mr. Verdoorn has served as Executive Vice President of
Manufacturing for Affymetrix, Inc., a company specializing in the development of
technology for acquiring and managing complex genetic information for use in
biomedical research, genomics and clinical diagnostics. From 1997 to 1999, Mr.
Verdoorn served as an independent consultant to the hard disk drive industry.
From 1983 to 1997, Mr. Verdoorn held a number of positions with Seagate
Technology, Inc., most recently as Executive Vice President and Chief Operating
Officer of Storage Products. Mr. Verdoorn holds a Bachelor of Arts degree in
Sociology from Linfield College.
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<PAGE> 218
COMPOSITION OF MARVELL'S BOARD OF DIRECTORS
Marvell's Bye-laws provide for two or more directors, and the number of
directors is currently fixed at eight. The merger agreement provides that
immediately prior to the effective time of the merger, the board of directors of
Marvell will be expanded in size from eight to ten members. See "The Merger
Agreement -- Management After the Merger" on page 89.
Marvell's board of directors is divided into three classes, each serving
staggered three-year terms, which means that only one class of directors is
elected at each annual meeting of shareholders, with the other classes
continuing for the remainder of their respective terms, and directors may only
be removed for cause by the holders of two-thirds of the shares entitled to vote
at an election of directors. Marvell's executive officers are elected by the
board of directors and serve at the discretion of the board of directors.
COMMITTEES OF THE BOARD OF DIRECTORS
Marvell's Compensation Committee is comprised of Messrs. Banatao, Chang,
Cioffi and Gray, and its Audit Committee is comprised of Messrs. Banatao, Chang
and Verdoorn. The Compensation Committee has the authority to approve salaries
and bonuses and other compensation matters for Marvell's officers and
consultants, to approve employee health and benefit plans and to administer its
stock option plans. The Audit Committee, which is comprised of independent
directors, has the authority to recommend the appointment of Marvell's
independent auditors and to review the results and scope of audits, internal
accounting controls and other accounting related matters.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of Marvell's executive officers serves as a member of the Board of
Directors or Compensation Committee of any entity that has one or more executive
officers serving as a member of Marvell's Board of Directors or Compensation
Committee.
DIRECTOR COMPENSATION
Marvell's directors do not receive cash compensation for their service as
directors. Under Marvell's 1997 Directors' Stock Option Plan, each new
non-employee director will receive an option to purchase 180,000 shares of
common stock upon joining the Board of Directors. In addition, under the plan,
each incumbent non-employee director will be granted an option to purchase an
additional 36,000 shares of Marvell common stock annually.
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EXECUTIVE COMPENSATION
The following table shows the cash compensation paid or accrued for the
fiscal year ended January 31, 2000 to Marvell's Chief Executive Officer and each
of its most highly compensated executive officers or former executive officers
other than the Chief Executive Officer. Marvell did not make any restricted
stock awards or long-term incentive plan payments in the fiscal year ended
January 31, 2000. The amount of cash compensation does not include the aggregate
value of personal benefits or securities, property or other non-cash
compensation paid or distributed other than pursuant to a plan that was less
than the lesser of $50,000 and 10% of the cash compensation received by such
officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL ALL OTHER
COMPENSATION COMPENSATION(1)
------------ ---------------
<S> <C> <C>
Sehat Sutardja.............................................. $100,000 $3,081
Co-Chairman of the Board, President and Chief Executive
Officer
Weili Dai................................................... 100,000 3,081
Executive Vice President, Corporate Assistant Secretary
and Director
Pantas Sutardja............................................. 100,000 3,081
Vice President and Director
Gordon M. Steel(2).......................................... 165,000 3,081
Vice President of Finance and Chief Financial Officer
</TABLE>
-------------------------
(1) These amounts consist of discretionary profit sharing payments.
(2) Mr. Steel's employment with Marvell was terminated in April 2000.
FISCAL YEAR 2000 OPTIONS
No stock options were granted to those executive officers listed in the
Summary Compensation Table for the year ended January 31, 2000. However, on May
8, 2000 Marvell granted George Hervey options to purchase 760,000 shares at an
exercise price of $10.00 per share, which was the fair market value of the
common stock on the grant date as determined by the Board of Directors. Marvell
has never granted any stock appreciation rights.
None of those executive officers listed in the Summary Compensation Table
exercised stock options during fiscal 2000 or held unexercised options as of
January 31, 2000.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
Marvell does not have employment agreements or change in control agreements
with any of its executive officers. Accordingly, Marvell's executive officers
may resign at any time and the employment of each executive officer may be
terminated at any time by the Board of Directors.
COMPENSATION PLANS
1995 STOCK OPTION PLAN
Marvell's Board of Directors adopted the 1995 Stock Option Plan on April
18, 1995. On May 8, 2000, the Board of Directors amended the 1995 Plan to add
flexibility to the administration of the plan and to add certain other
improvements. Marvell received shareholder approval of the amendments at its
annual general meeting on June 17, 2000. The plan will terminate no later than
April 18, 2005. The plan provides for the grant of incentive stock options to
Marvell's employees and nonstatutory stock options to its employees, directors
and consultants. Subject to adjustments for stock splits and similar events,
29,500,000 shares of common stock may be issued under the plan. As of October
31, 2000, 12,778,858 shares were subject to outstanding options and 1,792,487
were available for future grant. As amended, the plan will provide for annual
increases in the number of shares available for issuance on the first day of
each fiscal
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<PAGE> 220
year, beginning January 30, 2000, equal to the lesser of 5,000,000 shares, 5% of
the outstanding shares on the date of the annual increase, or a number of shares
determined by the Board.
Marvell's Board or a committee appointed by the Board administers the stock
option plan and determines the terms of options granted, including the exercise
price, the number of shares subject to individual option awards and the vesting
period of options. The exercise price of nonstatutory options will generally be
at least the fair market value of the common stock on the date of grant. The
exercise price of incentive stock options cannot be lower than 100% of the fair
market value of the common stock on the date of grant and, in the case of
incentive stock options granted to holders of more than 10% of Marvell's voting
power, not less than 110% of the fair market value. The term of an incentive
stock option cannot exceed ten years, and the term of an incentive stock option
granted to a holder of more than 10% of Marvell's voting power cannot exceed
five years.
A participant may not transfer rights granted under Marvell's stock option
plan other than by will, the laws of descent and distribution, or as otherwise
provided under the stock option plan. As amended, the plan will provide the
Board or committee with broad authority to adjust the treatment of options
granted under the stock option plan if Marvell is acquired, including causing
them to accelerate and become fully exercisable, if the successor corporation
does not assume them or substitute equivalent options in their place. Marvell's
Board of Directors may not amend, modify, or terminate the stock plan if the
amendment, modification, or termination would impair optionees' rights unless it
first obtains the prior written consent of all optionees who would be adversely
affected.
2000 EMPLOYEE STOCK PURCHASE PLAN
On May 8, 2000, Marvell's Board of Directors approved the 2000 Employee
Stock Purchase Plan. The purchase plan was adopted at Marvell's annual general
meeting on June 17, 2000. The purchase plan will terminate no later than 20
years after the Board approval. The purchase plan provides Marvell's employees
and those of its participating subsidiaries an opportunity to purchase its
common stock through accumulated payroll deductions.
A total of 1,000,000 shares of common stock was initially be reserved for
issuance under the purchase plan. In addition, the purchase plan provides for
annual increases in the number of reserved shares on the first day of each
calendar year in the plan's term, beginning January 1, 2001, equal to the lesser
of 500,000 shares, 0.75% of the outstanding shares on the date of the annual
increase, or the amount the Board determines.
Marvell's Board of Directors or a committee appointed by the Board
administers the purchase plan. The Board or committee has full and exclusive
authority to interpret the terms of the purchase plan. In addition, the Board
has the authority to amend or terminate the purchase plan at any time.
Employees will be eligible to participate if they are customarily employed
for at least 20 hours per week. However, an employee will not be eligible to
participate if immediately after the grant of a right to purchase stock under
the purchase plan, he or she would own stock with five percent or more of the
total combined voting power or value of all classes of Marvell's capital stock,
or if and to the extent that, his or her rights to purchase stock under all of
Marvell's employee stock purchase plans accrue at a rate that exceeds $25,000
worth of stock per calendar year.
The purchase plan permits participants to purchase common stock though
payroll deductions of up to 20% of the participant's base compensation, which
includes regular straight-time gross earnings and excludes overtime, shift
premiums, incentive compensation or payments, bonuses, and commissions. However,
the Board or committee may set a maximum withholding percentage that is less
than 20%. Employees participate in the purchase plan by enrolling in "offering
periods" of 24 months, unless determined otherwise by the plan administrator.
Each offering period includes four purchase periods. The first offering period
began on June 26, 2000. An employee may be enrolled in only one offering period
at a time.
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<PAGE> 221
On each purchase date, amounts that are deducted and accumulated for the
participant's account will be used to purchase shares of common stock at a price
of 85% of the lower of the fair market value of the common stock at the first
day of the offering period and the purchase date. If the fair market value of
the common stock is lower on the purchase date than it was on the first day of
the offering period, then all participants in that offering period will
automatically be enrolled in the offering period that begins the next trading
day, and their participation in the prior offering period will be terminated. In
addition, if the fair market value of the common stock drops more than 25% from
one purchase date (the "benchmark date") to the next, the number of shares a
participant may purchase will be limited, unless the administrator determines
otherwise, to 75% of the number that could have been purchased at 85% of the
higher price. This limit will remain in place until the fair market value on a
purchase date has recovered to at least 75% of its level on the benchmark date.
Participants are able to reduce their withholding percentage, but not below
one percent, at any time during an offering period and are able to increase
their withholding percentage effective the first day of each purchase period.
Participants are able to end their participation, and will be repaid their
payroll deductions through that date, at any time during an offering period.
Participation ends automatically upon termination of employment.
Marvell intends the purchase plan to qualify under Section 423 of the
Internal Revenue Code, to allow favorable tax treatment of participants. In
general, if a participant in a qualified employee stock purchase plan holds
stock purchased under the plan for at least two years from the date he or she
was granted the right to purchase the stock and at least one year after the
purchase, then upon sale of the stock, (a) gain up to 15% of the value of the
stock on the date the purchase right was granted is taxable as ordinary income
and (b) additional gain is long-term capital gain.
A participant will not be able to transfer rights granted under the
purchase plan other than by will, the laws of descent and distribution or as
otherwise provided under the purchase plan.
The purchase plan provides that, if Marvell merges with or into another
corporation or a sale of substantially all of its assets, a successor
corporation may assume or substitute for each outstanding purchase right. If the
successor corporation refuses to assume or substitute for the outstanding
purchase rights, the offering period then in progress will be shortened, and a
new purchase date will be set.
1997 DIRECTORS' STOCK OPTION PLAN
On January 28, 1997 Marvell's Board of Directors adopted the 1997
Directors' Stock Option Plan and its shareholders approved the adoption of the
plan on August 5, 1997. The plan provides for the grant of nonstatutory stock
options to non-employee directors. A total of 900,000 shares of common stock
have been reserved for issuance under the directors' plan.
The 1997 Directors' Stock Option Plan provides that each non-employee
director will automatically be granted an option to purchase 180,000 shares of
common stock on the date that he or she first becomes a non-employee director.
In addition, each non-employee director will automatically be granted an option
to purchase 36,000 shares on the date of each annual shareholders' meeting if at
that time he or she will have served on the Board of Directors for at least the
preceding six months. The term of each option shall not exceed ten years. Under
the plan, the initial grant of 180,000 shares of common stock vests over five
years with the first 20% vesting at the end of the first year and one sixtieth
of the total vesting each month thereafter. Each subsequent grant of 36,000
shares begins to vest with 20% on the day that is one month after the fourth
anniversary of the date of the grant and one twelfth of the total vests each
month thereafter. In addition, upon a merger or the sale of substantially all of
Marvell's assets, adoption of a plan of liquidation, dissolution, consolidation
or reorganization all unvested options shall immediately vest and Marvell will
give each director a reasonable time thereafter to exercise his or her option.
Alternatively, Marvell may grant the director the right to exercise the option,
whether or not vested, for an equivalent number of shares of the company
acquiring its business by reason of such transaction.
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<PAGE> 222
The exercise price of each option granted under the 1997 Directors' Stock
Option Plan will be 100% of the fair market value per share of Marvell common
stock on the date of grant. Each option will have a maximum term of 10 years,
but will terminate earlier if the director ceases to be a member of the Board of
Directors. The Board of Directors may amend the plan without shareholder
approval unless shareholder approval is required under applicable law.
401(k) PLAN
Marvell sponsors a defined contribution plan intended to qualify under
Section 401(k) of the Internal Revenue Code. Most employees are eligible to
participate and may enter at any time during the year. Participants may make
pre-tax contributions to the plan of up to the statutorily prescribed annual
limit. Participants are fully vested in their contributions and the investment
earnings. The plan permits Marvell to make discretionary matching contributions.
To date, Marvell has not made matching contributions under the plan.
CERTAIN TRANSACTIONS
Since January 1997, there has not been nor is there currently proposed any
transaction or series of similar transactions to which Marvell was or will be a
party in which the amount involved exceeded or will exceed $60,000 and in which
any director, executive officer, holder of more than 5% of Marvell's stock or
any member of his or her immediate family had or will have a direct or indirect
material interest, except as noted below.
ISSUANCES OF OPTIONS AND PURCHASES OF COMMON STOCK
From January 1, 1997 through November 13, 2000, Marvell granted options for
the purchase of and issued shares of its common stock as follows:
- In January 1997, Marvell's Board of Directors granted Diosdado Banatao an
option to purchase 180,000 shares at an exercise price per share of
$0.05.
- In January 1997, Marvell's Board of Directors granted Herbert Chang an
option to purchase 180,000 shares at an exercise price per share of
$0.05. In June 1997, Mr. Chang exercised all of the options.
- In January 1998, Marvell's Board of Directors granted Ron Verdoorn
options to purchase an aggregate of 630,000 shares at an exercise price
per share of $0.25. In March 2000, Mr. Verdoorn exercised all of the
options.
- In December 1999, Marvell's Board of Directors granted Dr. John Cioffi
options to purchase 180,000 shares at an exercise price per share of
$2.00. In January 2000, Dr. Cioffi exercised all of the options.
- In December 1999, Marvell's Board of Directors granted Dr. Paul Gray
options to purchase 180,000 shares at an exercise price per share of
$2.00. In January 2000, Dr. Gray exercised 36,000 of these options.
- In May 2000, Marvell's Board of Directors granted George Hervey options
to purchase 760,000 shares at an exercise price per share of $10.00.
The exercise prices of the options represent the estimate by the Board of
Directors of the fair market value of the common stock on the grant date. In
establishing these prices, the Board of Directors considered many factors,
including the financial condition and operating results, transactions involving
the issuances of shares of Marvell's preferred stock, the senior rights and
preferences accorded shares of preferred stock and the market for comparable
stocks.
Except as set forth above, none of Marvell's executive officers, directors
or 5% shareholders received options to purchase or purchased its common stock
during this period.
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<PAGE> 223
CONVERTIBLE NOTE FINANCING AND SERIES D PREFERRED STOCK
Set forth below is a description of the warrants and shares of Marvell's
Series D preferred stock issued to its officers, directors and 5% shareholders.
Each share of Marvell's Series D preferred stock automatically converted to four
shares of Marvell common stock upon completion of Marvell's initial public
offering in June 2000.
- In December 1997, InveStar Burgeon Venture Capital, Inc., purchased
119,330 shares of Series D preferred stock for the cancellation of
$517,094.50 in accrued indebtedness under a convertible promissory note
issued in June 1997, and the Board of Directors granted to InveStar
Burgeon Venture Capital, Inc. a warrant to purchase 17,307 shares of
Series D preferred stock. This warrant was exercised in June 2000.
- In December 1997, InveStar Semiconductor Development Fund, Inc. purchased
469,428 shares of Series D preferred stock for $999,999 in cash and
cancellation of $1,034,189 in accrued indebtedness under a convertible
promissory note issued in June 1997, and the Board of Directors issued to
InveStar Semiconductor Development Fund, Inc. a warrant to purchase
34,616 shares of Series D preferred stock. This warrant was exercised in
June 2000.
- In December 1997, Sehat Sutardja and Weili Dai purchased 23,078 shares of
Series D preferred stock for cash.
- In December 1997, InveStar Dayspring Venture Capital, Inc. purchased
115,385 shares of Series D preferred stock for cash.
- In February 1998, InveStar Semiconductor Development, Inc. purchased
92,309 shares of Series D preferred stock for cash.
- In February 1998, InveStar Dayspring Venture Capital, Inc. purchased
46,154 shares of Series D preferred stock for cash.
- In February 1998, Forefront Venture Partners, L.P. purchased 46,154
shares of Series D preferred stock for cash.
- In February 1998, InveStar Excelsus Venture Capital, Inc. purchased
46,154 shares of Series D preferred stock for cash.
- In February 1998, Ron Verdoorn purchased 8,078 shares of Series D
preferred stock for cash.
All share numbers and exercise prices for common stock have been adjusted
to reflect the 50% stock dividend in June 1998 and the two 100% common stock
dividends approved by the shareholders on March 17, 2000.
InveStar Capital, Inc. acted as placement agent for several sales of the
Series D preferred stock. As consideration for such services, Marvell paid a
cash fee equal to 6% of the value of the securities placed by InveStar Capital,
Inc., or approximately $141,000, and issued to InveStar Capital, Inc. warrants
to purchase 10,825 shares of Series D preferred stock. This warrant was
exercised in June 2000.
Marvell has entered into an investor rights agreement with each of the
purchasers of its preferred stock and common stock warrant holders, including
those set forth above. Under this agreement, these stockholders are entitled to
registration rights with respect to their shares of common stock issued upon
conversion of the preferred stock. If Marvell decides to register securities,
the registration rights provided in the agreement permit the holders of the
rights to participate in the registration. However any managing underwriter for
the offering may limit the shares the holders can register. In a public offering
of Marvell's stock, the underwriters can limit the holders participation to 25%
of the securities being offered.
DIRECTOR AFFILIATIONS
Ronald Verdoorn, a director of Marvell, was employed by Seagate Technology,
Inc. from May 1983 through September 1997, most recently as Executive Vice
President and Chief Operating Officer of Storage Products. Seagate represented
21% of Marvell's net revenue in fiscal 1998, 43% of its net revenue in fiscal
1999, 24% of its net revenue in fiscal 2000 and 21% of its net revenue for the
six months ended July 31, 2000.
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<PAGE> 224
MARVELL AUDITED FINANCIAL STATEMENTS
MARVELL TECHNOLOGY GROUP LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2 to Appendix E
Consolidated Balance Sheets................................. F-3 to Appendix E
Consolidated Statements of Operations....................... F-4 to Appendix E
Consolidated Statements of Shareholders' Equity (Deficit)... F-5 to Appendix E
Consolidated Statements of Cash Flows....................... F-6 to Appendix E
Notes to Consolidated Financial Statements.................. F-7 to Appendix E
</TABLE>
F-1 to Appendix E
<PAGE> 225
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Marvell Technology Group Ltd.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of shareholders' equity (deficit)
and of cash flows present fairly, in all material respects, the financial
position of Marvell Technology Group Ltd. and their subsidiaries as of January
31, 1999 and 2000, and the results of their operations and their cash flows for
the three years in the period ended January 31, 2000, in conformity with
accounting principles generally accepted in the United States. These
consolidated financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these consolidated
financial statements based on our audit. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
San Jose, California
March 3, 2000 except for Note 11,
which is as of June 17, 2000
F-2 to Appendix E
<PAGE> 226
MARVELL TECHNOLOGY GROUP LTD.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 31,
-----------------
1999 2000
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,515 $16,600
Accounts receivable, net of allowance for doubtful
accounts of $100 and $100.............................. 5,497 14,701
Inventory, net............................................ 2,315 4,830
Prepaid expenses and other current assets................. 188 1,195
Deferred income taxes..................................... 842 1,456
------- -------
Total current assets................................... 14,357 38,782
Property and equipment, net................................. 2,081 7,413
Other noncurrent assets..................................... 125 305
------- -------
Total assets........................................... $16,563 $46,500
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable to bank..................................... $ 649 $ --
Accounts payable.......................................... 3,735 5,698
Accrued liabilities....................................... 1,432 3,050
Accrued employee compensation............................. 476 1,474
Income taxes payable...................................... 1,189 5,875
Deferred revenue.......................................... -- --
Capital lease obligations................................. 11 74
------- -------
Total current liabilities.............................. 7,492 16,171
Notes payable to bank....................................... 888 --
Capital lease obligations, less current portion............. 9 36
------- -------
Total liabilities...................................... 8,389 16,207
------- -------
Commitments (Note 9)
Mandatorily redeemable convertible preferred stock, $0.002
par value; 8,000,000 shares authorized, 5,880,598 and
6,609,875 shares issued and outstanding................... 17,524 22,353
Shareholders' equity (deficit):
Common stock, $0.002 par value; 242,000,000 shares
authorized; 44,545,584 and 48,931,560 shares issued and
outstanding............................................ 89 98
Additional paid-in capital.................................. 1,692 17,580
Deferred stock-based compensation........................... (220) (11,897)
Retained earnings (accumulated deficit)..................... (10,911) 2,159
------- -------
Total shareholders' equity (deficit)................... (9,350) 7,940
------- -------
Total liabilities and shareholders' equity............. $16,563 $46,500
======= =======
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-3 to Appendix E
<PAGE> 227
MARVELL TECHNOLOGY GROUP LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-----------------------------
1998 1999 2000
------- ------- -------
<S> <C> <C> <C>
Net revenue................................................. $ 625 $21,253 $81,375
Costs and expenses:
Cost of product revenue(1)................................ 312 10,103 33,773
Research and development(2)............................... 5,018 5,837 14,452
Marketing and selling(3).................................. 1,671 4,631 10,436
General and administrative(4)............................. 1,028 1,190 3,443
Amortization of stock compensation........................ -- 42 2,175
------- ------- -------
Total costs and expenses............................... 8,029 21,803 64,279
------- ------- -------
Operating income (loss)..................................... (7,404) (550) 17,096
Interest income............................................. 170 175 486
Interest expense............................................ (164) (101) (156)
------- ------- -------
Income (loss) before income taxes........................... (7,398) (476) 17,426
Provision for income taxes.................................. 46 483 4,356
------- ------- -------
Net income (loss)........................................... $(7,444) $ (959) $13,070
======= ======= =======
Net income (loss) per share:
Basic net income (loss) per share......................... $ (0.24) $ (0.03) $ 0.32
======= ======= =======
Diluted net income (loss) per share....................... $ (0.24) $ (0.03) $ 0.16
======= ======= =======
Weighted average shares -- basic.......................... 30,436 32,470 41,094
======= ======= =======
Weighted average shares -- diluted........................ 30,436 32,470 81,545
======= ======= =======
</TABLE>
-------------------------
(1) Excludes amortization of stock compensation of $0, $0 and $11.
(2) Excludes amortization of stock compensation of $0, $27 and $1,373.
(3) Excludes amortization of stock compensation of $0, $4 and $211.
(4) Excludes amortization of stock compensation of $0, $11 and $580.
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-4 to Appendix E
<PAGE> 228
MARVELL TECHNOLOGY GROUP LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL DEFERRED RETAINED
------------------- PAID-IN STOCK-BASED EARNINGS
SHARES AMOUNT CAPITAL COMPENSATION (DEFICIT) TOTAL
---------- ------ ---------- ------------ --------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 31, 1997....... 37,646,000 $75 $ 144 $ -- $ (2,508) $(2,289)
Common Stock options exercised.... 1,788,000 4 67 -- -- 71
Issuance of warrants in connection
with Series D Mandatorily
Redeemable Convertible Preferred
Stock........................... -- -- 84 -- -- 84
Net loss.......................... -- -- -- -- (7,444) (7,444)
---------- --- ------- -------- -------- -------
Balance at January 31, 1998....... 39,434,000 79 295 -- (9,952) (9,578)
Common Stock options exercised.... 5,486,592 11 1,081 -- -- 1,092
Common Stock repurchased.......... (375,008) (1) (12) -- -- (13)
Issuance of warrants in connection
with Series D Mandatorily
Redeemable Convertible Preferred
Stock........................... -- -- 66 -- -- 66
Deferred stock-based
compensation.................... -- -- 262 (262) -- --
Amortization of deferred
stock-based compensation........ -- -- -- 42 -- 42
Net loss.......................... -- -- -- -- (959) (959)
---------- --- ------- -------- -------- -------
Balance at January 31, 1999....... 44,545,584 89 1,692 (220) (10,911) (9,350)
Common stock options exercised.... 4,437,376 9 2,070 -- -- 2,079
Common stock repurchased.......... (51,400) -- (34) -- -- (34)
Deferred stock-based
compensation.................... -- -- 13,852 (13,852) -- --
Amortization of deferred
stock-based compensation........ -- -- -- 2,175 -- 2,175
Net income........................ -- -- -- -- 13,070 13,070
---------- --- ------- -------- -------- -------
Balance at January 31, 2000....... 48,931,560 $98 $17,580 $(11,897) $ 2,159 $ 7,940
========== === ======= ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-5 to Appendix E
<PAGE> 229
MARVELL TECHNOLOGY GROUP LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-----------------------------
1998 1999 2000
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $(7,444) $ (959) $13,070
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 354 701 1,652
Amortization of deferred stock compensation............ -- 42 2,175
Changes in assets and liabilities:
Accounts receivable.................................. (99) (5,398) (9,204)
Inventory............................................ (265) (2,050) (2,515)
Prepaid expenses and other assets.................... (34) (228) (1,187)
Accounts payable..................................... 252 3,264 1,963
Accrued liabilities.................................. 241 1,089 1,618
Accrued compensation costs........................... 136 296 998
Income taxes payable................................. 347 770 4,686
Deferred revenue..................................... -- -- --
Deferred income taxes................................ (317) (453) (614)
------- ------- -------
Net cash provided by (used in) operating
activities...................................... (6,829) (2,926) 12,642
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in restricted cash............................... -- -- --
Cash used in purchase of property and equipment........... (1,026) (1,564) (6,808)
------- ------- -------
Net cash used in investing activities............. (1,026) (1,564) (6,808)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of convertible preferred stock,
net.................................................... 6,373 4,125 4,829
Proceeds from the issuance of common stock, net........... 71 1,079 2,045
Principal payments of capital lease obligations and notes
payable to bank........................................ (45) (211) (3,579)
Proceeds from borrowings on notes payable to bank......... -- 1,705 1,956
------- ------- -------
Net cash provided by financing activities......... 6,399 6,698 5,251
------- ------- -------
Net increase (decrease) in cash and cash equivalents........ (1,456) 2,208 11,085
Cash and cash equivalents at beginning of period............ 4,763 3,307 5,515
------- ------- -------
Cash and cash equivalents at end of period.................. $ 3,307 $ 5,515 $16,600
======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest............................................... $ 164 $ 101 $ 174
======= ======= =======
Income taxes........................................... $ 17 $ 166 $ 284
======= ======= =======
Acquisition of property and equipment under capital
lease obligations.................................... $ 93 $ -- $ 176
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-6 to Appendix E
<PAGE> 230
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
Marvell Technology Group Ltd., (the "Company"), a Bermuda exempted company,
was incorporated on January 11, 1995. The Company engages in the design,
development and sale of integrated circuits utilizing proprietary mixed signal
and digital signal processing technology for the high-speed, high-density data
storage and broadband data communications markets.
BASIS OF PRESENTATION
During fiscal 2000, the Company changed its fiscal year to the Saturday
nearest January 31. In fiscal 1999 and 1998, the year ended on January 31. All
years have been restated to reflect the current presentation. For presentation
purposes, the consolidated financial statements and notes refer to January 31 as
year end.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates, and such differences
could affect the results of operations reporting in future periods.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. The functional currency is the United States
dollar.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties.
The carrying amounts for cash and cash equivalents, accounts receivable, prepaid
expenses and other current assets, accounts payable, accrued liabilities and
accrued employee compensation approximate their respective fair values because
of the short term maturity of these items. The carrying value of the Company's
debt approximates fair market value because of prevailing interest rates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less from the date of purchase to be cash equivalents. Cash and
cash equivalents consist of cash on deposit with banks, money market funds and
commercial deposits, the fair value of which approximates cost. At January 31,
1999 and 2000, approximately $704,000 and $14,792,000 of money market funds are
included in cash and cash equivalents, respectively.
CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash equivalents and
accounts receivable. The Company places its cash primarily in checking and money
market accounts. Cash equivalents are maintained with high quality institutions,
the composition and maturities of which are regularly monitored by management.
The Company believes that
F-7 to Appendix E
<PAGE> 231
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the concentration of credit risk in its trade receivables with respect to the
data storage industry, as well as the limited customer base, located primarily
in the Far East, is substantially mitigated by the Company's credit evaluation
process, relatively short collection terms and the high level of credit
worthiness of its customers. The Company performs ongoing credit evaluations of
its customers' financial condition and limits the amount of credit extended when
deemed necessary but generally requires no collateral.
The following table sets forth sales to customers comprising 10% or more of
the Company's total revenue for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-----------------------
CUSTOMER 1998 1999 2000
-------- ----- ----- -----
<S> <C> <C> <C>
A........................................................... -- 46% 36%
B........................................................... 21% 43% 24%
C........................................................... -- 7% 14%
D........................................................... -- 2% 14%
E........................................................... -- 1% 10%
F........................................................... 26% -- --
G........................................................... 25% -- --
H........................................................... 16% -- --
</TABLE>
The Company's accounts receivable were concentrated with three customers at
January 31, 1999 (representing 51%, 29% and 10% of aggregate gross receivables)
and four customers at January 31, 2000 (representing 48%, 16%, 15% and 14% of
aggregate gross receivables).
INVENTORY
Inventory is stated at the lower of cost or market, cost being determined
under the first-in, first-out method. Appropriate consideration is given to
obsolescence, excessive levels, deterioration and other factors in evaluating
net realizable value.
PROPERTY AND EQUIPMENT
Property and equipment including capital leases and leasehold improvements
are stated at cost less accumulated depreciation or amortization. Depreciation
is computed using the straight-line method over the estimated useful lives of
the assets, which ranges from three to four years. Assets held under capital
leases and leasehold improvements are amortized over the term of the lease or
their estimated useful lives, whichever is shorter.
Long-lived assets held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that their net book value
may not be recoverable. An impairment loss is recognized if the sum of the
expected future cash flows (undiscounted and before interest) from the use of
the asset is less than the net book value of the asset. The amount of the
impairment loss will generally be measured as the difference between net book
values of the assets and their estimated fair values. The Company believes that
no long-lived assets were impaired at January 31, 1999 and 2000.
REVENUE RECOGNITION
Revenue from the sale of integrated circuits is recognized upon shipment,
net of accruals for estimated sales returns and allowances. Revenue generated by
sales to distributors under agreements allowing certain rights of return are
deferred for financial reporting purposes until the products are sold by
distributors. Net revenue for the year ended January 31, 1998 includes
approximately $197,000 derived
F-8 to Appendix E
<PAGE> 232
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
from a research and development contract, which was recognized on the percentage
of completion basis. The associated costs are included in research and
development expenses.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
STOCK-BASED COMPENSATION
The Company's employee stock option plan is accounted for in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and complies with the disclosure provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). Expense associated with stock-based compensation is amortized on an
accelerated basis over the vesting period of the individual award consistent
with the method described in Financial Accounting Standards Board Interpretation
No. 28, ("FIN 28"). Application of FIN 28 results in amortization of
approximately 46% of the compensation in the first 12 months of vesting, 26% of
the compensation in the second 12 months of vesting, 15% of the compensation in
the third 12 months of vesting, 9% of the compensation in the fourth 12 months
of vesting and 4% of the compensation in the fifth 12 months of vesting. The
Company accounts for stock issued to non-employees in accordance with the
provisions of SFAS 123 and Emerging Issues Task Force Consensus No. 96-18,
"Accounting for Equity Instruments that are Offered to Other Than Employees for
Acquiring of in Conjunction with Selling Goods or Services" ("EITF 96-18").
Under SFAS 123 and EITF 96-18, stock option awards issued to non-employees are
accounted for at their fair value using the Black-Scholes method. The fair value
of each non-employee stock awarded is remeasured at each period end until a
commitment date is reached, which is generally the vesting date.
COMPREHENSIVE INCOME (LOSS)
The Company adopted Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards
for reporting and displaying comprehensive income and its components in a full
set of general-purpose financial statements. There was no difference between the
Company's net income or loss and its total comprehensive net income or loss for
the years ended January 31, 1998, 1999 and 2000.
NET INCOME (LOSS) PER SHARE
The Company reports both basic net income (loss) per share, which is based
upon the weighted average number of common shares outstanding excluding
contingently issuable or returnable shares, and diluted net income (loss) per
share, which is based on the weighted average number of common shares
outstanding and dilutive potential common shares outstanding.
F-9 to Appendix E
<PAGE> 233
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table sets forth the computation of basic and diluted net
income (loss) per share of common stock (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-----------------------------
1998 1999 2000
------- ------- -------
<S> <C> <C> <C>
Numerator:
Net income (loss)......................................... $(7,444) $ (959) $13,070
======= ======= =======
Denominator:
Basic --
Weighted-average shares of common stock outstanding.... 38,683 40,459 46,428
Less: unvested common shares subject to repurchase........ (8,247) (7,989) (5,334)
------- ------- -------
Denominator for basic calculation...................... 30,436 32,470 41,094
------- ------- -------
Effect of dilutive securities --
Unvested common shares subject to repurchase.............. -- -- 5,334
Mandatorily redeemable convertible preferred stock........ -- -- 25,063
Mandatorily redeemable convertible preferred stock
warrants............................................... -- -- 273
Common stock warrants..................................... -- -- 20
Stock options............................................. -- -- 9,761
------- ------- -------
Denominator for diluted calculation.................... 30,436 32,470 81,545
======= ======= =======
Basic net income (loss) per share........................... $ (0.24) $ (0.03) $ 0.32
======= ======= =======
Diluted net income (loss) per share......................... $ (0.24) $ (0.03) $ 0.16
======= ======= =======
</TABLE>
The following table sets forth potential shares of common stock, assuming
conversion of preferred stock and preferred stock warrants that are not included
in the diluted net loss per share calculation above because to do so would be
anti-dilutive for the periods presented (in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
----------------
1998 1999
------ ------
<S> <C> <C>
Unvested common stock subject to repurchase................ 8,247 7,989
Mandatorily Redeemable Convertible preferred stock......... 19,352 23,522
Mandatorily Redeemable Convertible preferred stock
warrants................................................. 2,192 2,440
Stock options.............................................. 12,738 12,896
</TABLE>
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities," as amended by Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133 -- an
amendment of FASB Statement No. 133" ("SFAS 137"). SFAS 133 requires that all
derivative instruments be recorded on the balance sheet at their fair market
value. Changes in the fair market value of derivatives are recorded each period
in current earnings or comprehensive income, depending on whether a derivative
is designed as part of a hedge transaction, and if so, the type of hedge
transaction. Substantially all of the Company's revenues and the majority of its
costs are denominated in U.S. dollars, and to date the Company has not entered
into any derivative contracts. The Company does not expect that the adoption of
SFAS 133 will have a material effect on its financial statements. The effective
date of SFAS 133 as amended by SFAS 137 is for fiscal quarters of fiscal years
beginning after June 15, 2000.
F-10 to Appendix E
<PAGE> 234
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. The application of SAB No. 101
did not have a material impact on the Company's financial statements.
NOTE 2 -- BALANCE SHEET DETAILS (IN THOUSANDS):
<TABLE>
<CAPTION>
JANUARY 31,
------------------
1999 2000
------- -------
<S> <C> <C>
INVENTORY:
Work-in-process........................................... $ 2,315 $ 4,830
PROPERTY AND EQUIPMENT:
Machinery and equipment................................... $ 1,589 $ 3,890
Computer software......................................... 1,285 3,981
Furniture and fixtures.................................... 203 1,633
Leasehold improvements.................................... 130 685
------- -------
3,207 10,189
Less: Accumulated depreciation and amortization........... (1,126) (2,776)
------- -------
$ 2,081 $ 7,413
======= =======
</TABLE>
Machinery and equipment include $144 and $320 of assets under capital
leases at January 31, 1999 and 2000. Accumulated depreciation for such equipment
was $53 and $124 at January 31, 1999 and 2000.
NOTE 3 -- LINE OF CREDIT AND NOTES PAYABLE TO BANK:
In May 1998 (and amended in July 1999), the Company entered into a loan and
security agreement with a bank which provides for borrowings of up to $8,000,000
in the form of line of credit advances based on eligible accounts receivable and
inventory, as defined, and $3,100,000 available in the form of equipment
advances. The agreement expires on April 30, 2000. Borrowings accrue interest at
the bank's prime rate plus 0.125%, which equaled 8.625% at January 31, 2000, and
are secured by the tangible assets of the Company. In fiscal 1999 and 2000, the
Company borrowed a total of approximately $3,600,000 under this agreement, which
was fully repaid in fiscal 2000.
At January 31, 2000, no amounts were outstanding, and $8,000,000 was
available, under the line of credit and equipment advance. The agreement
requires the Company to comply with certain covenants and maintain certain
financial ratios. The agreement prohibits the payment of cash dividends without
prior bank approval.
F-11 to Appendix E
<PAGE> 235
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:
Mandatorily redeemable convertible preferred stock at January 31, 2000
consisted of the following (in thousands):
<TABLE>
<CAPTION>
SHARES PROCEEDS
------------------------ NET OF LIQUIDATION
AUTHORIZED OUTSTANDING ISSUANCE COSTS AMOUNT
---------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Series A.................................. 525 525 $ 350 $ 350
Series B.................................. 1,119 1,119 1,199 1,231
Series C.................................. 2,184 2,090 7,098 7,316
Series D.................................. 3,750 2,526 10,206 10,945
Series E.................................. 422 350 3,500 3,500
----- ----- ------- -------
8,000 6,610 $22,353 $23,342
===== ===== ======= =======
</TABLE>
The rights with respect to Series A, Series B, Series C, Series D and
Series E are as follows:
VOTING
Each share of the Series A, Series B, Series C, Series D and Series E has
voting rights equal to that of common stock on an as if converted basis. The
holders of a majority of the outstanding shares of Series B and Series C,
respectively, voting as a class individually, shall be entitled to elect one
member of the Board of Directors each.
DIVIDENDS
Each holder of outstanding Series A, Series B, Series C, Series D and
Series E are entitled to receive noncumulative dividends as declared by the
Board of Directors at a rate of $0.0468, $0.0772, $0.2452, $0.3032 and $0.70 per
share, respectively, subject to anti-dilution. No dividends have been declared
from inception through January 31, 2000.
LIQUIDATION
In the event of any liquidation, dissolution, winding up, or merger where
less than 50% of the voting power is maintained by existing shareholders of the
Company, the Series A, Series B, Series C, Series D and Series E shareholders
are entitled to receive prior and in preference to any distribution to the
holders of common stock, an amount per share equal to $0.67, $1.10, $3.50, $4.33
and $10.00, respectively, plus any declared but unpaid dividends. The remaining
assets shall be distributed pro rata to the holders of Series A, Series B,
Series C, Series D and Series E based on the number of shares held. However,
such incremental distribution is limited to an amount equal to $1.67, $2.75,
$8.75, $10.83 and $25.00 per share of Series A, Series B, Series C, Series D and
Series E, respectively. All remaining assets shall be distributed pro rata to
the holders of common stock.
CONVERSION
Each Series A, Series B, Series C, Series D and Series E share is
convertible into four shares of common stock at the option of the holder,
subject to adjustments for stock dividends, stock splits, combination of common
stock, consolidations of common stock and the issuance of new common stock. Each
share of Series A, Series B, Series C, Series D and Series E will be
automatically converted upon (i) an initial public offering of the Company at
not less than $3.25 per share with aggregate proceeds greater than $10,000,000,
or (ii) the written consent of the respective shareholders of Series A, Series
B,
F-12 to Appendix E
<PAGE> 236
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Series C, Series D and Series E of greater than fifty percent of the outstanding
shares of Series A, Series B, Series C, Series D and Series E.
At January 31, 2000, the Company has reserved 32,000,000 shares of common
stock for issuance upon conversion of the mandatorily redeemable convertible
preferred stock.
The following is a summary of activity in mandatorily redeemable
convertible preferred stock (in thousands):
<TABLE>
<CAPTION>
TOTAL
SHARES AMOUNT
------ -------
<S> <C> <C>
Balance at January 31, 1997................................. 3,357 $ 7,176
Issuance of Series D Mandatorily Redeemable Convertible
Preferred Stock........................................... 1,481 6,289
----- -------
Balance at January 31, 1998................................. 4,838 13,465
Issuance of Series D Mandatorily Redeemable Convertible
Preferred Stock........................................... 1,043 4,059
----- -------
Balance at January 31, 1999................................. 5,881 17,524
Issuance of Series E Mandatorily Redeemable Convertible
Preferred Stock........................................... 350 3,500
Issuance of Series C and Series D Mandatorily Redeemable
Convertible Preferred Stock upon exercise of warrants..... 379 1,329
----- -------
Balance at January 31, 2000................................. 6,610 $22,353
===== =======
</TABLE>
NOTE 5 -- PREFERRED AND COMMON STOCK WARRANTS:
At January 31, 2000, the Company has reserved 136,353 and 60,000 shares of
Preferred Stock and Common Stock, respectively, for the issuance of shares upon
the exercise of warrants.
In connection with the issuance of Series C, the Company issued warrants to
purchase 471,428 shares of Series C at $3.50 per share. Warrants to purchase
377,142 shares of Series C were exercised in April and May 2000, and 94,286
warrants expired during fiscal 2000.
During fiscal 1998, in connection with the issuance of Series D, the
Company received bridge financing of approximately $2,200,000 for which it
issued warrants to purchase 93,473 shares of Series D at $4.33 per share. The
warrants are exercisable after December 10, 1997 for $4.33 per share, subject to
anti-dilution, and are exercisable on a net basis. The warrants expire upon the
earlier of (i) closing of an initial public offering of the Company's common
stock, (ii) the sale of all or substantially all of its assets or acquisition of
the Company by another entity, or (iii) June 27, 2000. The Company valued the
warrants under the "Black-Scholes" formula at approximately $84,000. The warrant
value has been recorded as interest expense.
During fiscal 1999, in connection with the Company's Loan and Security
Agreement with a bank, the Company issued warrants to purchase 45,000 shares of
Series D at $4.33 per share. The warrants are exercisable after May 21, 1998 for
$4.33 per share, subject to anti-dilution, and are exercisable on a net basis.
The warrants expire upon the earlier of (i) one year after the closing of an
initial public offering of the Company's common stock, or (ii) May 21, 2003. The
Company valued the warrants under the "Black-Scholes" formula at approximately
$66,000. The warrant value has been recorded as interest expense.
In July 1999, in connection with the Company's Loan and Security Agreement
with a bank, the Company issued warrants to purchase 60,000 shares of Common
Stock at $1.50 per share. The warrants are exercisable after July 16, 1999 for
$1.50 per share, subject to anti-dilution, and are exercisable on a net basis.
The warrants expire upon the earlier of (i) one year after the closing of an
initial public offering of
F-13 to Appendix E
<PAGE> 237
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the Company's common stock, or (ii) July 16, 2004. The Company valued the
warrants under the "Black-Scholes" formula at approximately $23,000. The warrant
value has been recorded as interest expense.
NOTE 6 -- COMMON STOCK:
In April 1995, the Company adopted the 1995 Stock Option Plan, (the "Option
Plan"). The Option Plan, as amended, has 29,500,000 shares of common stock
reserved for issuance thereunder.
THE OPTION PLAN
The Option Plan allows for the issuance of incentive and nonqualified stock
options to employees and consultants of the Company.
Options granted under the Option Plan are generally for periods not to
exceed ten years, and generally must be issued at prices not less than 100% and
85%, for incentive and nonqualified stock options, respectively, of the fair
market value of the stock on the date of grant as determined by the Board of
Directors. Incentive stock options granted to shareholders who own greater than
10% of the outstanding stock are for periods not to exceed five years, and must
be issued at prices not less than 110% of the fair market value of the stock on
the date of grant. The options vest 20% one year after the vesting commencement
date and the remaining shares vest one-sixtieth per month over the remaining
forty-eight months. Options granted under the Plan may be exercised prior to
vesting. The Company has the right to repurchase such shares at their original
purchase price if the optionee is terminated from service prior to vesting. Such
right expires as the options vest over a five year period.
1997 DIRECTORS' STOCK OPTION PLAN
In August 1997, the Company adopted the 1997 Directors' Stock Option Plan
(the "Directors' Plan"). The Directors' Plan has 900,000 shares of common stock
reserved thereunder. Under the Directors' Plan, an outside director is granted
180,000 options upon appointment to the Board of Directors. These options vest
20% one year after the vesting commencement date and remaining shares vest one-
sixtieth per month over the remaining forty-eight months. An outside director is
also granted 36,000 options on the date of each annual meeting of the
shareholders. These options vest one-twelfth per month over twelve months after
the fourth anniversary of the vesting commencement date. Options granted under
the Directors' Plan may be exercised prior to vesting. The Company has the right
to repurchase such shares at their original purchase price if the director is
terminated or resigns from the Board of Directors prior to vesting. Such right
expires as the options vest over a five year period.
F-14 to Appendix E
<PAGE> 238
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Aggregate activity under both the Option Plan and the Directors' Plan was
as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES OPTIONS OPTIONS PRICE
AVAILABLE OUTSTANDING PER SHARE
--------- ----------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at January 31, 1997.................... 1,156 7,698 $0.04
Additional shares authorized................... 9,900 -- --
Options granted................................ (7,641) 7,641 $0.18
Options canceled............................... 813 (813) $0.04
Options exercised.............................. -- (1,788) $0.04
------ ------
Balance at January 31, 1998.................... 4,228 12,738 $0.12
Additional shares authorized................... 6,400 -- --
Options granted................................ (6,677) 6,677 $0.49
Options canceled............................... 1,032 (1,032) $0.13
Shares repurchased............................. 375 -- $0.03
Options exercised.............................. -- (5,487) $0.20
------ ------
Balance at January 31, 1999.................... 5,358 12,896 $0.28
Additional shares authorized................... 3,600 --
Options granted................................ (5,289) 5,289 $1.80
Options canceled............................... 1,363 (1,363) $0.39
Shares repurchased............................. 51 -- $0.66
Options exercised.............................. -- (4,437) $0.44
------ ------
Balance at January 31, 2000.................... 5,083 12,385 $0.87
====== ======
</TABLE>
At January 31, 2000, options to purchase 11,047,560 shares were vested and
5,334,148 unvested shares remain subject to the Company's repurchase rights
under the Option Plan and the Directors Plan.
ISSUANCE OF COMMON STOCK TO FOUNDERS
In January 1995, the Company issued 36,000,000 shares of its common stock
("the Founders' Shares") to its founders. Each founder has granted the Company a
call right on 50% of his or her shares, exercisable in the event such founder's
employment terminated for any reason. The call right expires at a rate of 1/60
per month. At January 31, 2000, Founders' Shares subject to call aggregated
300,000.
OTHER STOCK OPTIONS
In October 1995 and July 1996, the Company granted to a director
nonqualified common stock options to purchase 3,000,000 shares of common stock
in total. One-half of the common stock options vest ratably over the five year
vesting period. The remaining common stock options vest 20% one year after the
date of grant and the remaining shares vest one-sixtieth per month over the
remaining forty-eight months. In 1995, the director exercised 1,500,000 shares,
of which 225,000 shares are subject to repurchase as of January 31, 2000 in the
event he ceases to be a director.
In January 1998, the Company granted to a director a nonqualified common
stock option to purchase 450,000 shares of common stock at an exercise price of
$0.25. The option vests 20% one year after the vesting commencement date and
remaining shares vest one-sixtieth per month over the remaining forty-eight
months.
F-15 to Appendix E
<PAGE> 239
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Information relating to stock options outstanding under the Option Plan and
the Directors' Plan at January 31, 2000 was as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------------
WEIGHTED AVERAGE
NUMBER REMAINING WEIGHTED
OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE
----------- ---------------- --------------
<S> <C> <C> <C>
Range of exercise prices:
$0.03 - $0.04................... 2,325,904 6.16 $0.04
$0.05 - $0.25................... 2,636,248 7.50 $0.16
$0.33 - $0.88................... 1,969,872 8.61 $0.42
$1.06 - $2.00................... 4,433,900 9.40 $1.43
$2.50 - $3.00................... 1,020,000 9.98 $3.00
----------
12,385,924
==========
</TABLE>
<TABLE>
<CAPTION>
OPTIONS VESTED
------------------------------
NUMBER WEIGHTED AVERAGE
VESTED EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Range of exercise prices:
$0.03 - $0.04................................. 4,761,000 $0.04
$0.05 - $0.25................................. 4,635,992 $0.14
$0.33 - $0.88................................. 1,460,568 $0.39
$1.06 - $1.25................................. 190,000 $1.06
----------
11,047,560
==========
</TABLE>
CERTAIN PRO FORMA DISCLOSURES
Had compensation expense for the Company's option grants been determined
based on the fair value at the grant dates, as prescribed in SFAS 123, the
Company's net income (loss) would have been as follows:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-----------------------------------------
1998 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
Net income (loss):
As reported............................... $(7,444,000) $ (959,000) $13,070,000
Pro forma................................. $(7,505,000) $(1,572,000) $11,857,000
Basic net income (loss) per share:
As reported............................... $ (0.24) $ (0.03) $ 0.32
Pro forma................................. $ (0.25) $ (0.05) $ 0.29
Diluted net income (loss) per share:
As reported............................... $ (0.24) $ (0.03) $ 0.16
Pro forma................................. $ (0.25) $ (0.05) $ 0.15
</TABLE>
For the purpose of above noted SFAS 123 pro forma disclosure the fair value
of each option grant has been estimated on the date of grant using the minimum
value method as prescribed by SFAS 123.
F-16 to Appendix E
<PAGE> 240
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes the estimated fair value of options and
assumptions used in the SFAS 123 calculations:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-----------------------
1998 1999 2000
----- ----- -----
<S> <C> <C> <C>
Estimated fair value........................................ $0.04 $0.38 $2.96
Expected life (years)....................................... 5 5 5
Risk-free interest rate..................................... 6.0% 4.5% 6.1%
Dividend yield.............................................. -- -- --
Volatility.................................................. -- -- --
</TABLE>
STOCK COMPENSATION
During the years ended January 31, 1999 and 2000, the Company granted
options to employees and directors and recognized unearned stock compensation of
approximately $262,000 and $13,852,000. Such unearned stock compensation is
being amortized using an accelerated method over the vesting period of five
years and may decrease due to employees that terminate service prior to vesting.
NOTE 7 -- BENEFIT PLAN:
Effective January 1, 1994, the Company adopted a 401(k) plan which allows
all employees to participate by making salary deferred contributions to the
401(k) plan ranging from 1% to 20% of eligible earnings. The Company may make
discretionary contributions to the 401(k) plan upon approval by the Board of
Directors. No company contributions were made to the 401(k) plan from inception
through January 31, 2000.
NOTE 8 -- INCOME TAXES:
The provision for income taxes for the years ended January 31, 1998, 1999
and 2000 consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
------------------------
1998 1999 2000
----- ----- ------
<S> <C> <C> <C>
Current tax expense
Federal................................................. $ 354 $ 571 $ 387
State................................................... 1 1 1
Foreign................................................. 8 364 4,582
----- ----- ------
Total current tax expense............................ 363 936 4,970
----- ----- ------
Deferred income tax
Federal................................................. (218) (298) (380)
State................................................... (99) (155) (234)
----- ----- ------
Total deferred income tax expense.................... (317) (453) (614)
----- ----- ------
Total provision for income taxes..................... $ 46 $ 483 $4,356
===== ===== ======
</TABLE>
F-17 to Appendix E
<PAGE> 241
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred tax assets (liabilities) consists of the following (in thousands):
<TABLE>
<CAPTION>
AS OF JANUARY 31,
----------------------
1998 1999 2000
---- ---- ------
<S> <C> <C> <C>
Research and development credits............................ $363 $598 $1,281
California investment credits............................... -- 29 29
Reserves and accruals....................................... 47 213 324
Depreciation................................................ -- 2 --
---- ---- ------
Total deferred tax assets................................... 410 842 1,634
---- ---- ------
Deferred tax liabilities.................................... (21) -- (178)
---- ---- ------
Net deferred tax assets..................................... $389 $842 $1,456
==== ==== ======
</TABLE>
Reconciliation of the statutory federal income tax to the Company's
effective tax:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-----------------------
1998 1999 2000
----- ----- -----
<S> <C> <C> <C>
Provision (benefit) at federal statutory rate............... (34.0)% (34.0)% 35.0%
Non-U.S. losses............................................. 38.4 242.1 --
Difference in U.S. and non-U.S. taxes....................... -- (7.8) (10.6)
State taxes, net of federal benefit......................... (0.9) (21.4) (0.9)
General business credits.................................... (3.0) (81.0) (3.0)
Non-cash stock compensation................................. -- 3.0 4.4
Other....................................................... 0.1 0.6 0.1
----- ----- -----
Effective tax rate..................................... 0.6% 101.5% 25.0%
===== ===== =====
</TABLE>
The U.S. and non-U.S. components of income (loss) before income taxes are:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-----------------------------
1998 1999 2000
------- ------- -------
<S> <C> <C> <C>
U.S. operations....................................... $ 247 $ 580 $ 1,222
Non-U.S. operations................................... (7,645) (1,056) 16,204
------- ------- -------
$(7,398) $ (476) $17,426
======= ======= =======
</TABLE>
As of January 31, 2000, the Company had federal research tax credit
carryforwards for U.S. federal income tax return purposes of approximately
$800,000 that expire through 2020. As of January 31, 2000, the Company had
unused California research tax credits of approximately $700,000 that will
carryforward indefinitely until utilized.
Federal and state tax laws impose restrictions on the utilization of tax
credit carryforwards in the event of an "ownership change" as defined by the
Internal Revenue Code.
Pending approval from the Economic Development Board of Singapore, the
Company's Singapore operations are expected to enjoy, effective July 1, 1999, a
tax holiday from Singapore taxes on certain non-investment income. The Company
will be required to comply with certain conditions for minimum levels of
investment, headcount and the nature of its activities at its Singapore
operations to maintain the tax holiday. The tax holiday would have had an
immaterial impact on the Company's net income in fiscal 2000.
As a Bermuda corporation, the Company is subject to United States federal
income tax on income of its wholly-owned subsidiary, Marvell Semiconductor,
Inc., and on any portion of its non-U.S. income
F-18 to Appendix E
<PAGE> 242
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
which is considered effectively connected with the conduct of a trade or
business within the United States. The Internal Revenue Service (IRS) will
probably disagree with the Company's assertions of the amount of its non-U.S.
income considered to be effectively connected with the conduct of a trade or
business within the United States. Accordingly, the Company provides income
taxes at amounts higher than those reflected in its income tax returns. At
January 31, 2000, the consolidated accrued income taxes aggregated $5,875,000
which represent management's best estimate of the Company's income tax
liabilities. Management believes the ultimate resolution of the potential
disagreement with the IRS will not have a material adverse effect on the
financial position or results of operations of the Company. However, the
ultimate resolution of these matters will not be known with certainty until such
time as the IRS has examined the Company's tax returns.
NOTE 9 -- COMMITMENTS:
The Company is obligated under noncancelable operating leases for its
facilities and under capital leases for certain equipment. The capital leases
expire in fiscal year 2002 and include a buyout option.
Future minimum lease payments under the operating and capital leases are as
follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
2001........................................................ $1,372 $75
2002........................................................ 1,357 36
2003........................................................ 52 --
------ ---
Total minimum lease payments................................ $2,781 111
======
Less: amount representing interest.......................... (1)
---
Present value of minimum lease payments..................... 110
Less: current portion....................................... (74)
---
Long-term lease obligation.................................. $36
===
</TABLE>
Rent expense on the operating leases for the years ended January 31, 1998,
1999 and 2000 was approximately $105,000, $214,000 and $859,000, respectively.
PURCHASE COMMITMENTS
The Company's manufacturing relationships with foundries allow for the
cancellation of all outstanding purchase orders, but requires repayment of all
expenses incurred to date. As of January 31, 2000, foundries had incurred
approximately $5,600,000 of manufacturing expenses on the Company's outstanding
purchase orders.
NOTE 10 -- SEGMENT AND GEOGRAPHIC INFORMATION:
The Company has adopted Statement of Financial Accounting Standards No. 131
"Disclosure about Segments of an Enterprise and Related Information" ("SFAS
131"). Based on its operating management and financial reporting structure, the
Company has determined that it has one reportable business segment: the design,
development and sale of integrated circuits.
F-19 to Appendix E
<PAGE> 243
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following is a summary of product revenue by geographic area based on
the location of shipments (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
--------------------------
1998 1999 2000
---- ------- -------
<S> <C> <C> <C>
Japan.................................................... $ -- $11,197 $36,284
Singapore................................................ -- 14 25,234
Korea.................................................... -- 9,680 4,342
Philippines.............................................. -- 2 10,921
United States............................................ 625 276 309
Others................................................... -- 84 4,285
---- ------- -------
$625 $21,253 $81,375
==== ======= =======
</TABLE>
All sales are denominated in United States dollars. For all periods
presented, substantially all of the Company's long-lived assets were located in
the United States.
NOTE 11 -- SUBSEQUENT EVENTS:
INITIAL PUBLIC OFFERING
On March 21, 2000, the Company's Board of Directors authorized management
of the Company to file a Registration Statement with the Securities and Exchange
Commission permitting the Company to sell its common stock to the public.
STOCK DIVIDEND
On March 17, 2000, the Company's shareholders approved two 100% common
stock dividends. All references throughout the consolidated financial statements
to number of shares, per share amounts and stock option data have been restated
to reflect the common stock dividends. Additionally, on January 21, 2000, the
authorized common shares was proposed to be increased to 242,000,000 by the
Board of Directors. This increase was approved on March 17, 2000 by the
Company's shareholders and took effect on that date.
RESTRICTED CASH
In March 2000, the Company invested $3,000,000 in a certificate of deposit
with a U.S. financial institution as security for a standby letter of credit
with a supplier for the same amount. This standby letter of credit expired on
September 1, 2000.
EMPLOYEE STOCK PURCHASE PLAN
On May 8, 2000, the Board of Directors authorized the establishment of the
2000 Employee Stock Purchase Plan with 1,000,000 shares reserved for issuance.
The plan will become effective upon the closing of the IPO, and was approved by
the shareholders of the Company on June 17, 2000.
F-20 to Appendix E
<PAGE> 244
APPENDIX F -- MARVELL'S FINANCIAL STATEMENTS
FOR THE QUARTER ENDED JULY 31, 2000
INDEX TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements:
Condensed Consolidated Balance Sheets at July 31, 2000 and
January 31, 2000.......................................... F-2
Condensed Consolidated Statements of Income for the three
and six months ended July 31, 2000 and 1999............... F-3
Condensed Consolidated Statements of Cash Flows for the six
months ended July 31, 2000 and 1999....................... F-4
Notes to Condensed Consolidated Financial Statements........ F-5
</TABLE>
F-1
<PAGE> 245
MARVELL TECHNOLOGY GROUP LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
2000 2000
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $112,298 $ 16,600
Restricted cash........................................... 3,068 --
Accounts receivable, net of allowance for doubtful
accounts of $100....................................... 15,820 14,701
Inventory, net............................................ 10,819 4,830
Prepaid expenses and other current assets................. 5,221 2,651
-------- --------
Total current assets.............................. 147,226 38,782
Property and equipment, net................................. 10,324 7,413
Other noncurrent assets..................................... 3,500 305
-------- --------
$161,050 $ 46,500
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 10,207 $ 5,698
Accrued liabilities....................................... 8,947 4,524
Income taxes payable...................................... 6,295 5,875
Deferred revenue.......................................... 619 --
Capital lease obligations................................. 62 74
-------- --------
Total current liabilities......................... 26,130 16,171
Capital lease obligations, less current portion............. 10 36
-------- --------
Total liabilities................................. 26,140 16,207
Commitments
Mandatorily redeemable convertible preferred stock.......... -- 22,353
Shareholders' equity:
Common stock, $0.002 par value; 242,000,000 shares
authorized; 85,479,620 and 48,931,560 shares issued and
outstanding at July 31, 2000 and
January 31, 2000, respectively......................... 171 98
Additional paid-in capital................................ 143,061 17,580
Deferred stock-based compensation......................... (13,173) (11,897)
Retained earnings......................................... 4,851 2,159
-------- --------
Total shareholders' equity........................ 134,910 7,940
-------- --------
Total liabilities and shareholders' equity........ $161,050 $ 46,500
======== ========
</TABLE>
The accompanying notes are an integral part of these Condensed Consolidated
Financial Statements.
F-2
<PAGE> 246
MARVELL TECHNOLOGY GROUP LTD.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------- --------------------
JULY 31, JULY 31, JULY 31, JULY 31,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenue......................................... $32,175 $16,860 $61,839 $30,916
Cost of goods sold(1)............................... 15,080 7,120 28,260 13,315
------- ------- ------- -------
Gross profit........................................ 17,095 9,740 33,579 17,601
Operating expenses:
Research and development(2)....................... 7,812 2,946 13,930 5,368
Marketing and selling(3).......................... 5,595 2,511 9,679 4,472
General and administrative(4)..................... 1,427 784 2,931 1,435
Amortization of stock compensation................ 2,223 156 4,484 236
------- ------- ------- -------
Total operating expenses.................. 17,057 6,397 31,024 11,511
------- ------- ------- -------
Operating income.................................... 38 3,343 2,555 6,090
Interest income, net................................ 794 13 1,034 36
------- ------- ------- -------
Income before income taxes.......................... 832 3,356 3,589 6,126
Provision for income taxes.......................... 208 839 897 1,531
------- ------- ------- -------
Net income.......................................... $ 624 $ 2,517 $ 2,692 $ 4,595
======= ======= ======= =======
Net income per share:
Basic............................................. $ 0.01 $ 0.06 $ 0.05 $ 0.12
======= ======= ======= =======
Diluted........................................... $ 0.01 $ 0.03 $ 0.03 $ 0.06
======= ======= ======= =======
Weighted average common shares outstanding:
Basic............................................. 54,910 39,152 50,702 38,144
======= ======= ======= =======
Diluted........................................... 90,056 80,627 87,426 79,583
======= ======= ======= =======
</TABLE>
---------------
(1) Excludes amortization of stock compensation of $112, $8, $226 and $12
(2) Excludes amortization of stock compensation of $906, $64, $1,828 and $114
(3) Excludes amortization of stock compensation of $1,076, $75, $2,170 and $89
(4) Excludes amortization of stock compensation of $129, $9, $260 and $21
The accompanying notes are an integral part of these Condensed Consolidated
Financial Statements.
F-3
<PAGE> 247
MARVELL TECHNOLOGY GROUP LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------
JULY 31, JULY 31,
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 2,692 $ 4,595
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 1,811 499
Amortization of deferred stock compensation............ 4,484 236
Changes in assets and liabilities:
Accounts receivable.................................. (1,119) (3,037)
Inventory............................................ (5,989) (2,743)
Prepaid expenses and other assets.................... (5,765) (515)
Accounts payable..................................... 4,509 1,107
Accrued liabilities.................................. 4,423 841
Income taxes payable................................. 420 1,452
Deferred revenue..................................... 619 --
-------- -------
Net cash provided by operating activities......... 6,085 2,435
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in restricted cash............................... (3,068) --
Acquisition of property and equipment..................... (4,722) (2,906)
-------- -------
Net cash used in investing activities............. (7,790) (2,906)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of convertible preferred stock
and warrants, net...................................... 403 1,320
Proceeds from the exercise of stock options, net.......... 2,983 724
Proceeds from initial public offering of common stock,
net.................................................... 94,055 --
Principal payments of capital lease obligations and notes
payable to bank........................................ (38) (253)
-------- -------
Net cash provided by financing activities......... 97,403 1,791
Net increase in cash and cash equivalents................... 95,698 1,320
Cash and cash equivalents at beginning of period............ 16,600 5,515
-------- -------
Cash and cash equivalents at end of period.................. $112,298 $ 6,835
======== =======
</TABLE>
The accompanying notes are an integral part of these Condensed Consolidated
Financial Statements.
F-4
<PAGE> 248
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The condensed consolidated financial statements included herein are
unaudited; however, they contain all normal recurring accruals and adjustments
which, in the opinion of management, are necessary to present fairly the
consolidated financial position of Marvell Technology Group Ltd. and its
subsidiaries (collectively, the "Company") at July 31, 2000 and the consolidated
results of its operations and cash flows for the three and six months ended July
31, 2000 and 1999. All intercompany accounts and transactions have been
eliminated. The results of operations for the three and six months ended July
31, 2000 are not necessarily indicative of the results to be expected for the
full year.
The accompanying unaudited condensed consolidated financial statements do
not include footnotes and certain financial presentations normally required
under generally accepted accounting principles. Therefore, these financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto for the year ended January 31, 2000, included
elsewhere in this joint proxy statement/prospectus.
During fiscal 2000, the Company changed its fiscal year to the Saturday
nearest January 31. All periods have been restated to reflect the current
presentation. For presentation purposes, the condensed consolidated financial
statements and notes refer to July 31 and April 30 as quarter end and January 31
as year end.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less from the date of purchase to be cash equivalents. Cash and
cash equivalents consist of cash on deposit with banks, money market funds and
commercial deposits, the fair value of which approximates cost. At July 31 and
January 31, 2000, approximately $109.5 million and $14.8 million of money market
funds are included in cash and cash equivalents, respectively.
INVENTORY
Inventory is stated at the lower of cost or market, cost being determined
under the first-in, first-out method. Appropriate consideration is given to
obsolescence, excessive levels, deterioration and other factors in evaluating
net realizable value. Inventory consisted of the following (in thousands):
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
2000 2000
-------- -----------
<S> <C> <C>
Work in progress............................... $10,819 $4,830
======= ======
</TABLE>
STOCK BASED COMPENSATION
On March 31, 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation," an interpretation of APB Opinion No. 25. The Interpretation
clarifies guidance for certain issues that arose in the application of APB
Opinion No. 25, "Accounting for Stock Issued to Employees." The Interpretation
will be applied prospectively to new awards, modifications to outstanding
awards, and changes in employee status on or after July 1, 2000, except as
follows: (i) requirements related to the definition of an employee apply to new
awards granted after December 15, 1998; (ii) modifications that directly or
indirectly reduce the exercise price of an award apply to modifications made
after December 15, 1998; and (iii) modifications to
F-5
<PAGE> 249
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
add a reload feature to an award apply to modifications made after January 12,
2000. The application of the Interpretation did not have a material impact on
the Company's financial statements.
OTHER COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, "Reporting Comprehensive Income," which
establishes standards for reporting and displaying comprehensive income and its
components in the financial statements. There was no difference between net
income and comprehensive income during any of the periods presented.
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted net
income per share (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------ ------------------------------
JULY 31, 2000 JULY 31, 1999 JULY 31, 2000 JULY 31, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income............................... $ 624 $ 2,517 $ 2,692 $ 4,595
Basic:
Weighted-average shares of common stock
outstanding......................... 52,678 46,106 51,181 45,637
Converted preferred stock to common.... 8,843 -- 4,422 --
Less: unvested common shares subject to
repurchase.......................... (6,611) (6,954) (4,901) (7,493)
------- ------- ------- -------
Denominator for basic calculation...... 54,910 39,152 50,702 38,144
Effect of dilutive securities:
Unvested common shares subject to
repurchase.......................... 6,611 6,954 4,901 7,493
Convertible preferred stock and
warrants............................ 17,974 25,403 22,268 24,650
Stock options.......................... 10,561 9,118 9,555 9,296
------- ------- ------- -------
Denominator for diluted calculation.... 90,056 80,627 87,426 79,583
======= ======= ======= =======
Basic net income per share............... $ 0.01 $ 0.06 $ 0.05 $ 0.12
Diluted net income per share............. $ 0.01 $ 0.03 $ 0.03 $ 0.06
</TABLE>
2. SHAREHOLDERS' EQUITY
In June 2000, the Company completed its initial public offering (the
"Offering") of 6,900,000 shares of its Common Stock. The Company sold these
shares, including 900,000 shares issued in connection with the exercise of the
underwriters' over-allotment option, at a price of $15.00 per share. The Company
received aggregate proceeds of approximately $94.1 million in cash (net of
underwriting discounts and commissions and estimated offering costs). Upon
consummation of the Offering, all outstanding shares of the Company's
Convertible Preferred Stock were automatically converted into an aggregate of
26,804,912 shares of Common Stock.
3. COMMITMENTS AND CONTINGENCIES
The Company entered into a new lease commitment on June 1, 2000 for
approximately 31,000 square feet of supplemental office space in Sunnyvale,
California, with occupancy scheduled for November 2000, pending completion of
leasehold improvements being made to the facility. The lease term is for five
years
F-6
<PAGE> 250
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
commencing July 1, 2000. Monthly rental payments are approximately $110,000 for
the initial twelve months, and increase at a rate of 4% per year compounded
annually.
In August 2000, Gordon M. Steel, the Company's former Chief Financial
Officer, filed a complaint in California Superior Court against the Company
alleging claims for wrongful termination, breach of the covenant of good faith
and fair dealing, and defamation. These claims relate to Mr. Steel's separation
from the Company in April 2000. The Company is currently reviewing the
complaint, and believes that the complaint is without merit and intends to
vigorously defend against it.
4. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No. 133 -- an amendment of FASB Statement No.
133" ("SFAS 137"). SFAS 137 defers for one year the application of Statement of
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS") to all fiscal quarters of fiscal years beginning after June
15, 2000. SFAS 133 establishes accounting and reporting standards for derivative
instruments and hedging activities. The adoption of SFAS 133 is not expected to
have a material impact on the Company's results of operations, financial
position or cash flows.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, ("SAB
101"), "Revenue Recognition" in Financial Statements. SAB 101 summarizes certain
of the SEC's views in applying generally accepted accounting principles to
revenue recognition in financial statements. Management does not expect the
adoption of SAB 101 to have a material effect on the Company's operations or
financial position. The Company is required to adopt SAB 101 in the fourth
quarter of fiscal 2001.
F-7
<PAGE> 251
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Bermuda law permits a company to indemnify its directors and officers,
except for any act of fraud or dishonesty. Marvell has provided in its Bye-laws
that the directors and officers and the liquidators and trustees, if any, of
Marvell will be indemnified and secured harmless to the full extent permitted by
law out of the assets of Marvell from and against all actions, costs, charges,
losses, damages and expenses incurred by reason of any act done, concurred in or
omitted in or about the execution of their duties or supposed duties, or in
their respective offices or trusts, and none of them shall be answerable for the
acts, receipts, neglects or defaults of the others of them or for joining in any
receipts for the sake of conformity, or for any bankers or other persons with
whom any moneys or effects belonging to Marvell shall or may be lodged or
deposited for safe custody, or for insufficiency or deficiency of any security
upon which any moneys of or belonging to Marvell shall be placed out on or
invested, or for any other loss, misfortune or damage which may happen in the
execution of their respective offices or trusts, or in relation thereto, other
than in the case of any fraud or dishonesty. In addition, Marvell has provided
in its Bye-laws that each shareholder of Marvell agrees to waive any claim or
right of action, individually or in the right of Marvell, against any director
or officer of Marvell on account of any action taken by such director or
officer, or the failure of such director or officer to take any action, in the
performance of his duties with or for Marvell, other than with respect to any
matter involving any fraud or dishonesty on behalf of such director or officer.
Marvell's Bye-laws provide that the waiver is not applicable to claims arising
under United States federal securities laws.
Bermuda law also permits Marvell to purchase insurance for the benefit of
its directors and officers against any liability incurred by them for the
failure to exercise the requisite care, diligence and skill in the exercise of
their powers and the discharge of their duties, or indemnifying them in respect
of any loss arising or liability incurred by them by reason of negligence,
default, breach of duty or breach of trust. Marvell has indemnification
insurance for its officers and directors.
ITEM 21. EXHIBITS.
See the Exhibit Index attached to this registration statement and
incorporated herein by reference.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
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<PAGE> 252
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and where applicable each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934), that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report, to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(d) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(e) The undersigned registrant undertakes that every prospectus: (i) that
is filed pursuant to paragraph (d) immediately preceding, or (ii) that purports
to meet the requirements of Section 10(a)(3) of the Securities Act of 1933 and
is used in connection with an offering of securities subject to Rule 415, will
be filed as a part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(f) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the joint proxy
statement/prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(g) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(h) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing
II-2
<PAGE> 253
provisions, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
II-3
<PAGE> 254
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Sunnyvale, State of
California on November 16, 2000.
MARVELL TECHNOLOGY GROUP LTD.
By: /s/ SEHAT SUTARDJA
------------------------------------
Name: Sehat Sutardja
Title: Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below does hereby constitute and appoint Sehat Sutardja and George
Hervey, and each of them, with full power of substitution and full power to act
without the other, his true and lawful attorney-in-fact and agent to act for him
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this registration statement
and any subsequent registration statement the registrant may hereafter file with
the Securities and Exchange Commission pursuant to Rule 462(b) under the
Securities Act to register additional shares of common stock, and to file this
registration statement, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in order to effectuate the same as fully, to all intents and purposes, as they,
he or she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, or any of them, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities indicated below and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ SEHAT SUTARDJA Co-Chairman of the Board, November 16, 2000
----------------------------------------------------- President and
Sehat Sutardja Chief Executive Officer
(Principal Executive
Officer)
/s/ GEORGE HERVEY Chief Financial Officer and November 16, 2000
----------------------------------------------------- Vice President of Finance
George Hervey (Principal Financial and
Accounting Officer)
/s/ WEILI DAI Executive Vice President and November 16, 2000
----------------------------------------------------- Director
Weili Dai
/s/ PANTAS SUTARDJA Vice President and Director November 16, 2000
-----------------------------------------------------
Pantas Sutardja
/s/ DIOSDADO BANATAO Co-Chairman of the Board November 16, 2000
-----------------------------------------------------
Diosdado Banatao
</TABLE>
II-4
<PAGE> 255
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ HERBERT CHANG Director November 16, 2000
-----------------------------------------------------
Herbert Chang
/s/ JOHN M. CIOFFI Director November 16, 2000
-----------------------------------------------------
John M. Cioffi
/s/ PAUL R. GRAY Director November 16, 2000
-----------------------------------------------------
Paul R. Gray
/s/ RON VERDOORN Director November 16, 2000
-----------------------------------------------------
Ron Verdoorn
</TABLE>
II-5
<PAGE> 256
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.1 Agreement of Merger dated as of October 16, 2000 among
Marvell, Galileo Technology Ltd. and Toshack Acquisitions
Ltd., attached as Appendix A to the joint proxy
statement/prospectus which is part of this registration
statement.
3.1 Memorandum of Association of the registrant, incorporated by
reference to Exhibit 3.1 of the registrant's registration
statement on Form S-1 (file no. 333-33086).
3.2 Amended and Restated Bye-laws of the registrant,
incorporated by reference to Exhibit 3.3 of the registrant's
registration statement on Form S-1 (file no. 333-33086).
4.1 Specimen common stock certificate of the registrant,
incorporated by reference to the registrant's registration
statement on Form S-1 (file no. 333-33086).
5.1 Opinion of Conyers Dill & Pearman.
8.1 Tax Opinion of Gibson, Dunn & Crutcher LLP.*
8.2 Tax Opinion of Weil, Gotshal and Manges LLP.*
10.1 1995 Stock Option Plan, incorporated by reference to the
registrant's registration statement on Form S-1 (file no.
333-33086).
10.2 1997 Directors' Stock Option Plan, incorporated by reference
to the registrant's registration statement on Form S-1 (file
no. 333-33086).
10.3 2000 Employee Stock Purchase Plan, incorporated by reference
to the registrant's registration statement on Form S-1 (file
no. 333-33086).
10.4 Sublease between Netscape Communications, Inc. and Marvell
Semiconductor, Inc. dated October 1, 1998, incorporated by
reference to the registrant's registration statement on Form
S-1 (file no. 333-33086).
10.5 First Amendment to Sublease between Netscape Communications,
Inc. and Marvell Semiconductor, Inc. dated October 1, 1999,
incorporated by reference to the registrant's registration
statement on Form S-1 (file no. 333-33086).
10.6 Investor Rights Agreement dated September 10, 1999,
incorporated by reference to the registrant's registration
statement on Form S-1 (file no. 333-33086).
10.7 Wafer Purchase Agreement by and between Marvell Technology
Group Ltd. and Taiwan Semiconductor Manufacturing
Corporation dated June 30, 1997, incorporated by reference
to the registrant's registration statement on Form S-1 (file
no. 333-33086).
10.8 Master Development, Purchasing and License Agreement between
Intel Corporation and Marvell Semiconductor, Inc. (portions
redacted pursuant to a request for confidential treatment
granted by the Securities Exchange Commission June 26,
2000), incorporated by reference to the registrant's
registration statement on Form S-1 (file no. 333-33086).
10.9 Lease Agreement dated June 1, 2000 by and between Marvell
Semiconductor, Inc. and 525 Almanor LLC, incorporated by
reference to Exhibit 10.9 of the registrant's quarterly
report on Form 10-Q for the period ended July 31, 2000.
21.1 Subsidiaries of the registrant, incorporated by reference to
Exhibit 21.1 of the registrant's registration statement on
Form S-1 (file no. 333-33086).
23.1 Consent of Conyers Dill & Pearman (included in Exhibit 5.1).
23.2 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit
8.1).*
23.3 Consent of Weil, Gotshal and Manges LLP (included in Exhibit
8.2).*
23.4 Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
23.5 Consent of Ernst and Young LLP, Independent Auditors.
23.6 Consent of Goldman, Sachs & Co.*
23.7 Consent of Salomon Smith Barney.
24.1 Power of Attorney (included on signature page).
99.1 Form of Marvell proxy card.*
99.2 Form of Galileo proxy card.*
</TABLE>
<PAGE> 257
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
99.3 Opinion of Goldman, Sachs & Co., attached as Appendix C to
the joint proxy statement/prospectus which is part of this
registration statement.
99.4 Opinion of Salomon Smith Barney, attached as Appendix D to
the joint proxy statement/prospectus which is part of this
registration statement.
</TABLE>
-------------------------
* To be filed by amendment.
