<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 23, 2000
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MARVELL TECHNOLOGY GROUP LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
BERMUDA 3674 77-0481679
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
CLARENDON HOUSE
2 CHURCH STREET
HAMILTON, HMCX
BERMUDA
(441) 295-1422
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
THOR BUELL
GENERAL 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:
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<S> <C>
KENNETH R. LAMB JOHN L. SAVVA
JOHN E. STONER SULLIVAN & CROMWELL
MICHELLE A. HODGES 1888 CENTURY PARK EAST
GIBSON, DUNN & CRUTCHER LLP LOS ANGELES, CALIFORNIA 90067
ONE MONTGOMERY STREET (310) 712-6600
SAN FRANCISCO, CALIFORNIA 94104
(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.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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 of 1933, 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(c)
under the Securities Act of 1933, 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 of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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Common Stock, $0.002 par value.............................. $75,000,000 $19,800
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act of 1933.
------------------------
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 COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO
BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION. DATED MARCH 23, 2000.
Shares
LOGO
MARVELL TECHNOLOGY GROUP LTD.
Common Stock
----------------------
This is an initial public offering of shares of common stock of Marvell
Technology Group Ltd. All of the shares of common stock are being
sold by Marvell.
Prior to this offering, there has been no public market for the common
stock. Marvell estimates that the initial public offering price per share will
be between $ and $ . Marvell will apply to include the common stock for
quotation on the Nasdaq National Market under the symbol "MRVL".
See "Risk Factors" beginning on page 7 to read about factors you should
consider before buying shares of the common stock.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Marvell....................... $ $
</TABLE>
To the extent that the underwriters sell more than shares of
common stock, the underwriters have the option to purchase up to an additional
shares from Marvell at the initial public offering price less the
underwriting discount.
----------------------
The underwriters expect to deliver the shares against payment in New York,
New York on , 2000.
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
ROBERTSON STEPHENS
----------------------
Prospectus dated , 2000.
<PAGE> 3
Inside Front Cover:
The inside front cover contains graphics. The upper third of the page contains
the following words in white letters on dark blue background: "SILICON SOLUTIONS
FOR BROADBAND COMMUNICATIONS." At the bottom of the dark blue background in
smaller white letters is the word "Serving." Immediately under the word
"Serving," on white background, are the logos of our customers, Seagate
Technology, Hitachi, Samsung, Fujitsu and Toshiba. Under the logos are six
pictures, arranged in a circular pattern, surrounding a picture of one of our
integrated circuits containing the Marvell logo. All of the pictures are set on
a blue background of blurred, digital data, i.e., 1's and 0's. The picture at
the top of the circle is a picture of the earth, circumscribed by red, yellow
and green circles. Immediately down and to the right of the earth picture is a
picture of network storage equipment. Immediately under that picture is a
picture of a partially-opened notebook computer. Down and to the left of the
picture of the notebook computer is a fiber optic cable, with glowing fiber
optics set against a black background. Up and to the left of the fiber optic
cable picture is a picture of a worker in a communications control room. Above
that picture is a picture of a large communications receiving dish set against a
blue sky with some clouds. Down and to the left of the pictures is a black
Marvell logo with the name "MARVELL" underneath in yellow type. Down and to the
right of the pictures is the Marvell trademark "MOVING FORWARD FASTER." The
words "MOVING FORWARD" are set in black type, and the word "FASTER" is set in
red type. The word "FASTER" is slightly larger than the other words in the
trademark.
Front Cover Gatefold
The inside front cover gatefold contains two pages of graphics. The top 1/10th
of the two pages contains the following words in white letters on dark blue
background: "A BROAD PERSPECTIVE ON APPLICATIONS FOR OUR TECHNOLOGY." On the
right hand side of the gatefold, beginning underneath the dark blue background,
is a graphic depicting an analog signal transitioning to blurred digital data,
i.e., 1's and 0's. The transition is represented by a red elliptical line. Under
the graphic are the words "Marvell designs, develops and markets integrated
circuits utilizing proprietary mixed- signal and digital signal processing
technologies for broadband communications-related markets." Under the words is a
picture of one of our integrated circuits containing the Marvell logo. To the
left of the words and the analog-to-digital graphic is a graphic depicting
applications and potential future applications of our technology. In the upper
left corner of the graphic is a legend containing two boxes. The first box is
blue. Next to the blue box is the phrase "Current Applications." Immediately
under the blue box is a beige box. Next to the beige box is the phrase
"Potential Future Applications." The graphics depicting applications are joined
by heavy gray lines, depicting communication media, containing digital data,
i.e., 0's and 1's. Starting from the left side of the gatefold, the first
graphic is a blue depiction of a storage area network switch with the words
"Storage Area Network (SAN) Switch." Immediately under the SAN switch graphic,
connected by a gray line, is a blue graphic depicting a redundant array of
independent drives. To the left of the graphic is the phrase "Enterprise
Storage" and underneath is the acronym "RAID." To the right of the graphic
depicting the SAN switch, connected by a gray line, is a blue graphic depicting
a local area network switch. Over the gray connecting line are the words "Fibre
Channel." Under the graphic is the phrase "Local Area Network (LAN) Switch."
Down and slightly to the left of the graphic depicting the LAN Switch, connected
by a gray line, is a blue graphic depicting a router. Over the gray connecting
line are the words "Gigabit Ethernet." Under the graphic is the word "Router."
To the right of the graphic depicting the router, connected by a gray line, is a
graphic depicting a beige cable head. Over the gray connecting line are the
words "Fibre Optics." Over the graphic are the words "Cable Head." Under the
cable head graphic is a beige graphic depicting a home. The home graphic is
connected to the cable head graphic by a gray line. To the right of the home are
the stacked words "Cable Modem," "Web Based Television Storage" and "Wireless
Network." To the right of the LAN switch graphic, connected by a gray line, is a
blue graphic depicting a work group switch. Over the gray connecting line are
the words "Fast & Gigabit Ethernet." Under the graphic are the words "Work Group
Switch." Under the work group switch graphic, connected by a gray line, is a
blue graphic depicting a partially open laptop computer. Under the gray
connecting line are the words "Fast & Gigabit Ethernet." Under the graphic are
the words "Laptop" and "NIC & Mobile Storage." Above the work group switch
graphic, connected by a gray line, is a blue graphic depicting a small
office/home office switch. Above the gray connecting line are the words "Fast
Ethernet." Above the graphic are the words "Small Office/Home Office (SoHo)." To
the right of the SoHo switch, connected by a gray line, is a blue graphic
depicting a work station personal computer. Under the gray connecting line are
the words "Fast Ethernet NIC or Gig NIC." Over the graphic are the words "Work
Station" and "NIC & Enterprise Storage." To the right of the work station PC
graphic, connected by the same gray line, is a blue graphic depicting a desktop
personal computer. Above the graphic is the word "Desktop." To the right of the
graphic are the words "NIC & Desktop Storage." Down and to the right of the work
group switch graphic, connected by a gray line, is a beige graphic depicting a
wireless hub. Under the gray connecting line are the words "Fast & Gigabit
Ethernet." Under the graphic are the words "Wireless Hub." Down and to the right
of the wireless hub graphic is an open laptop computer, connected to the
wireless hub by concentric semi-circles depicting wireless communication. To the
right of the laptop computer are the stacked words "Laptop" and "Wireless NIC &
Mobile Storage." To the right of the work group switch graphic, connected by a
gray line, is a blue graphic depicting an enterprise server. Over the gray
connecting line are the words "Fast & Gigabit Ethernet." Under the graphic are
the words "Enterprise Server" and to the right of the graphic are the words "NIC
& Enterprise Storage." Underneath the entire applications graphic is a red line.
Under the red line are four headings in red letters: "High Speed Networking,"
"Enterprise Storage," "Wireless Ethernet" and "Cable Modem." Under the heading
"High Speed Networking," in black letters, is the following text: "Our
integrated circuits enable next generation Ethernet devices for high speed data
communications throughout the home and business enterprise." Under the heading
"Enterprise Storage," in black letters, is the following text: "Our integrated
circuits for data storage applications allow enterprises and consumers to
reliably store, transmit and rapidly access large volumes of data." Under the
heading "Wireless Ethernet," in black letters, is the following text: "Our core
technologies are applicable to the wireless networking market where we plan to
introduce products that will enable high bandwidth data communications over
wireless networks." Under the heading "Cable Modem," in black letters, is the
following text: "Our core technologies are applicable to the cable modem market
where we plan to introduce products that will connect personal computers to
cable networks and the Internet at much faster speeds than possible through
today's analog modems." On the lower left side of the gatefold is a black
Marvell logo with the name "MARVELL" underneath in yellow type. On the lower
right side of the gatefold is the Marvell trademark "MOVING FORWARD FASTER." The
words "MOVING FORWARD" are set in black type and the word "FASTER" is set in red
type. The word "FASTER" is slightly larger than the other words in the
trademark.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary highlights information found in greater detail
elsewhere in this prospectus. It may not contain all of the information that is
important to you. You should read the entire prospectus, including "Risk
Factors" and the financial statements and notes to those statements, before you
decide to buy our common stock. Except as otherwise noted, all information in
this prospectus assumes the exercise of all outstanding warrants to purchase
shares of preferred stock and common stock, gives effect to the conversion of
all outstanding shares of preferred stock, and assumes no exercise of the
underwriters' option to purchase additional shares of common stock in the
offering. The share information in this prospectus reflects the approval by our
shareholders on March 17, 2000 of two common stock dividends in which, in each
case, our shareholders received an additional share of our common stock for each
share held by them.
OUR BUSINESS
We design, develop and market integrated circuits for
communications-related markets. Our products provide the critical interface
between real world, analog signals and the digital information used in computing
and communications systems. We enable our customers to store and transmit
digital information reliably and at high speeds. We initially focused our core
technology on the data storage market, where our products provide industry
leading performance for customers such as Seagate, Samsung, Hitachi, Fujitsu and
Toshiba. Recently, we applied our technology to the broadband data
communications market by introducing our eight-port and six-port Fast Ethernet
transceivers, which are used in network access equipment to provide the
interface between communications systems and Ethernet transmission media. We
believe that our core technology can be used to improve performance across a
wide range of data communications applications. For example, we are actively
developing products for the Gigabit Ethernet market. In addition, we are
committing resources to the development of products for the wireless
communications and cable modem markets. For the fiscal year ended January 31,
2000, we generated $81.4 million in net revenue and $13.1 million in net income.
The advent of new, data-intensive computing and communications applications
is driving business and consumer demand for high speed broadband access to large
volumes of information in multiple forms, including voice, video and data. Data
storage and communications systems providers must consistently introduce higher
capacity and higher performance equipment to satisfy this demand. Often the new
equipment must operate using existing communications infrastructures that were
not designed to support the desired levels of performance. These challenges are
creating the need for a new generation of integrated circuit solutions capable
of reliably supporting higher data transmission rates over existing media
infrastructures.
Our integrated circuits implement custom digital signal processing
algorithms in proprietary analog and digital circuit designs. Digital signal
processing involves mathematical manipulation of data in digital form to more
effectively recover transmitted information. Our products are designed for the
complementary metal oxide semiconductor, or CMOS, manufacturing process. CMOS
provides numerous benefits over other manufacturing processes, including lower
manufacturing costs, faster time to market and greater worldwide foundry
capacity. We believe we have achieved a level of integrated circuit performance
in CMOS that has typically only been achieved with more expensive, less widely
available, fabrication techniques. Additionally, we believe that our products
enable our customers to introduce higher performance data storage and broadband
data communications products rapidly and at competitive prices.
The following are key elements of our strategy:
- Expand our market position by developing new signal processing
technologies for broadband communications-related applications and by
continuing to invest in research and development;
3
<PAGE> 5
- Leverage our core technology in the data communications market by
introducing advanced products, including a Gigabit Ethernet transceiver;
- Extend our leadership position in the data storage market by continuing
to introduce high performance products for the enterprise and mobile
market segments and by developing cost-effective solutions to further
penetrate the desktop segment;
- Strengthen and expand our relationships with current and potential
customers by customizing products to meet their specific needs and by
jointly developing highly integrated products; and
- Use independent manufacturers to fabricate our integrated circuits using
CMOS, thereby decreasing time to market and cost while foregoing the
necessity for a major investment in foundry capacity.
OUR CORPORATE INFORMATION
We incorporated in Bermuda on January 11, 1995. Our registered address in
Bermuda is Clarendon House, 2 Church Street, Hamilton, HMCX Bermuda, and our
telephone number there is (441) 295-1422. The address of our principal location
in the United States is Marvell Semiconductor, Inc., 645 Almanor Avenue,
California, 94086, and our telephone number there is (408) 222-2500. We also
have offices in Singapore and Japan.
As used in this prospectus, the terms "we," "us," "our" and "Marvell" refer
to Marvell Technology Group Ltd. and its subsidiaries unless the context
indicates another meaning, and the term "common stock" means our common stock,
par value $0.002 per share.
The Marvell name, logo, and the phrase "Moving Forward Faster" are our
trademarks. We have applied for federal registration of these trademarks. All
other trademarks or trade names appearing elsewhere in this prospectus are the
property of their respective owners.
Information contained on our website is not intended to be part of this
prospectus.
THE PERMISSION OF THE BERMUDA MONETARY AUTHORITY MUST BE OBTAINED FOR THE
ISSUANCE OF THE COMMON STOCK IN THIS OFFERING. THE PROSPECTUS MUST ALSO BE FILED
WITH THE REGISTRAR OF COMPANIES IN BERMUDA. IN GRANTING SUCH PERMISSION AND IN
ACCEPTING THIS PROSPECTUS FOR FILING, THE BERMUDA MONETARY AUTHORITY AND THE
REGISTRAR OF COMPANIES IN BERMUDA WILL ACCEPT NO RESPONSIBILITY FOR THE
FINANCIAL SOUNDNESS OF ANY PROPOSAL OR FOR THE CORRECTNESS OF ANY OF THE
STATEMENTS MADE OR OPINIONS EXPRESSED WITH REGARD TO THEM. THE WITHHOLDING OF
PERMISSION BY THE BERMUDA MONETARY AUTHORITY WOULD RESULT IN OUR INABILITY TO
COMPLETE THE SALE OF COMMON STOCK AS CONTEMPLATED IN THIS PROSPECTUS.
4
<PAGE> 6
THE OFFERING
Shares offered...................... shares
Shares to be outstanding after this
offering............................ shares
Use of proceeds..................... General corporate purposes, including
working capital, capital expenditures
and potential acquisitions of, or
investments in, complementary
businesses, technologies or services.
Proposed Nasdaq National Market
Symbol.............................. "MRVL"
The information in the above table is based on shares of common stock
outstanding as of January 31, 2000. This information excludes:
- 12,385,924 shares issuable upon the exercise of outstanding stock
options, at a weighted average exercise price of $0.87 per share;
- 5,082,520 shares available for future issuance under our 1995 Stock
Option Plan and 1997 Directors' Stock Option Plan; and
- 1,172,250 shares issuable upon the exercise of outstanding stock
options, at a weighted average exercise price of $5.00 per share,
granted subsequent to January 31, 2000 and through February 29, 2000.
5
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
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<CAPTION>
YEAR ENDED JANUARY 31,
------------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Net revenue....................... $ 210 $ 190 $ 625 $21,253 $81,375
Gross profit...................... 210 190 313 11,150 47,602
Operating income (loss)........... (374) (2,246) (7,404) (550) 17,096
Net income (loss)................. $ (355) $ (2,153) $ (7,444) $ (959) $13,070
Basic net income (loss) per
share........................... $ (0.02) $ (0.08) $ (0.24) $ (0.03) $ 0.32
Diluted net income (loss)
per share....................... $ (0.02) $ (0.08) $ (0.24) $ (0.03) $ 0.16
Shares used in computing basic net
income (loss) per share......... 20,738 25,593 30,436 32,470 41,094
Shares used in computing diluted
net income (loss) per share..... 20,738 25,593 30,436 32,470 81,545
</TABLE>
The pro forma column in the consolidated balance sheet data assumes the
exercise of all outstanding warrants to purchase preferred stock and common
stock and reflects the automatic conversion of all shares of preferred stock
into common stock upon the closing of this offering. The pro forma as adjusted
column in the consolidated balance sheet data reflects these matters and the
receipt of the net proceeds from the sale of shares of common stock offered by
us at an assumed initial public offering price of $ per share, after
deducting an assumed underwriting discount and estimated offering expenses
payable by us.
<TABLE>
<CAPTION>
JANUARY 31, 2000
----------------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED
------- ---------------- ---------
(IN THOUSANDS)
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................ $16,600 $ 17,281
Working capital...................................... 22,611 23,292
Total assets......................................... 46,500 47,181
Capital lease obligations, less current portion...... 36 36 36
Mandatorily redeemable convertible preferred stock... 22,353 -- --
Total shareholders' equity........................... 7,940 30,974
</TABLE>
6
<PAGE> 8
RISK FACTORS
You should carefully consider these risk factors, together with all of the
other information included in this prospectus, before you decide to purchase
shares of our common stock. Investing in our common stock involves a high degree
of risk. If any of the following risks actually occurs, our business could be
seriously harmed and the trading price of our common stock could decline. In
those circumstances, you may lose part or all of your investment.
RISKS RELATED TO OUR BUSINESS
WE MAY EXPERIENCE SIGNIFICANT PERIOD-TO-PERIOD QUARTERLY AND ANNUAL FLUCTUATIONS
IN OUR SALES AND OPERATING RESULTS, WHICH MAY RESULT IN VOLATILITY IN OUR STOCK
PRICE.
We may experience significant period-to-period fluctuations in our sales
and operating results in the future due to a number of factors. We have no
control over many of these factors, and these factors are difficult or
impossible to forecast. Any of these factors may cause our stock price to
fluctuate. You should not rely on the results of any prior quarterly or annual
periods as an indication of our future performance. It is likely that in some
future period our operating results will be below the expectations of public
market analysts or investors. If this occurs, our stock price may drop, perhaps
significantly.
A number of factors may contribute to fluctuations in our sales and
operating results, including:
- the cyclical nature of the integrated circuit industry;
- the timing and volume of orders and order cancellations from our
customers;
- the level of acceptance of our products by existing and potential
customers;
- the demand for, seasonality of the markets for, and life cycles of,
products incorporating our products;
- our ability to fund, develop, introduce, ship and support new products
and product enhancements, and the related timing and costs associated
with those activities;
- deferrals of customer orders in anticipation of new products or product
enhancements from us or our competitors;
- the loss of one or more of our major customers;
- fluctuations in our manufacturing yields;
- the introduction of competing products by us or our competitors;
- changes in our product mix;
- competitive pricing pressures;
- the cost and availability of capacity at our integrated circuit
manufacturers and subcontractors;
- the rate at which new markets emerge for products we are currently
developing or for which our design expertise can be utilized to develop
new products;
- transition of our markets to new technologies or standards; and
- departures of key personnel.
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<PAGE> 9
WE HAVE ONLY RECENTLY BEGUN OFFERING FOR SALE OUR FIRST DATA COMMUNICATIONS
PRODUCT. OUR FUTURE SUCCESS IS DEPENDENT ON OUR ABILITY TO ACHIEVE RAPID AND
WIDESPREAD MARKET ACCEPTANCE FOR THIS PRODUCT AND OTHER DATA COMMUNICATIONS
PRODUCTS WE DEVELOP AND OFFER FOR SALE.
Prior to March 2000, all of our products were sold for use in data storage
devices, a market where we expect our rate of sales growth to slow considerably
in fiscal 2001 and going forward. In March 2000, we shipped and generated
revenue from our first broadband data communications product, an integrated
eight-port physical layer device for Fast Ethernet applications. We also
introduced in March 2000 a six-port physical layer device for Fast Ethernet
applications, which is currently being sampled by customers. We are developing
other broadband data communications products, including an integrated physical
layer Gigabit Ethernet device for use in standard unshielded twisted pair
cabling, a type of cabling widely used in today's corporate broadband data
communications infrastructure. We have a limited history in developing,
marketing and selling our products in the broadband data communications market.
Even if we successfully develop and manufacture products for this market, they
may not achieve market acceptance in the near term or at all. If our six-port
and eight-port physical layer devices for Fast Ethernet or other broadband data
communications products do not achieve rapid and widespread market acceptance,
our growth prospects could be seriously harmed.
WE HAVE DEPENDED ON SALES OF OUR READ CHANNEL AND PREAMPLIFIER PRODUCTS FOR
SUBSTANTIALLY ALL OF OUR 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 OUR REVENUES.
Substantially all of our revenue to date has been derived from sales of our
read channel and preamplifier products. In fiscal 1999 and 2000, we experienced
rapid growth in sales of our data storage products and anticipate our rate of
sales growth for these products will slow considerably in 2001 and going
forward. Unless we are able to diversify our sales through the introduction of
new products, we will continue to be dependent on sales of our read channel and
preamplifer products. Our read channel and preamplifier products are
incorporated into data storage devices by our customers primarily for sale to
the personal computer and computer server markets. Any reduction in the demand
for data storage devices that incorporate our products would likely result in
reduced demand for our products and would harm our 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.
WE DEPEND ON A SMALL NUMBER OF LARGE CUSTOMERS FOR A SUBSTANTIAL MAJORITY OF OUR
SALES. THE LOSS OF, OR A SIGNIFICANT REDUCTION OR CANCELLATION IN SALES TO, ANY
KEY CUSTOMER WOULD SERIOUSLY HARM OUR ABILITY TO GROW AND BE PROFITABLE.
In fiscal 2000, our five largest customers accounted for approximately 98%
of our sales. Of these customers, Samsung accounted for 36%, Seagate for 24%,
Hitachi for 14%, Fujitsu for 14% and Toshiba for 10%. Sales to these large
customers have fluctuated significantly from year-to-year and will likely
continue to fluctuate dramatically in the future. The loss of any of our largest
customers, or a significant reduction in sales we make to them, or any problems
we encounter collecting amounts they owe us, would likely seriously harm our
results of operations and financial condition. Our 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 our products. In
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<PAGE> 10
the future, these customers may decide not to purchase our products at all, to
purchase fewer products than they did in the past, or to alter their purchasing
patterns, particularly because:
- we do not have any long-term purchase arrangements or contracts with
these or any of our other customers;
- substantially all of our sales are made on a purchase order basis, which
permits our customers to cancel, change or delay product purchase
commitments with little or no notice to us and without penalty; and
- some of our customers have sought or are seeking relationships with
current or potential competitors, which may affect our customers'
purchasing decisions.
IF WE ARE UNABLE TO DEVELOP NEW AND ENHANCED PRODUCTS THAT ACHIEVE MARKET
ACCEPTANCE IN A TIMELY MANNER, OUR OPERATING RESULTS AND COMPETITIVE POSITION
WILL BE HARMED.
Our future success will depend on our ability, in a timely and cost
effective manner, to develop new products for the broadband data communications
markets and to introduce product enhancements to our read channel and
preamplifier products. We must also achieve market acceptance for these products
and enhancements. If we do not successfully develop and achieve market
acceptance for new and enhanced products, our ability to maintain or increase
revenues will suffer. The development of mixed signal products is highly
complex. We occasionally have experienced delays in completing the development
and introduction of new products and product enhancements, and we could
experience delays in the future. In particular, we have a limited history in
developing products for the broadband data communications market and may
encounter technical difficulties in developing Gigabit Ethernet 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 require the diversion of substantial
engineering resources, which may impair our ability to develop new products for
the data storage market, and could substantially increase our costs. Even if the
new and enhanced products are introduced to the market, we may not be able to
achieve market acceptance of these products in a timely manner.
Successful product development and market acceptance of our products
depends on a number of factors, including:
- timely and cost-effective completion and introduction of new product
designs;
- timely qualification and certification of our products for use in our
customers' products;
- adoption of our products by early adopters and by customers perceived to
be technology leaders;
- availability of foundry, assembly and testing capacity;
- achievement of high manufacturing yields;
- availability, price, performance, power use and size of our products and
competing products and technologies;
- our customer service and support capabilities and responsiveness;
- successful development of our relationships with existing and potential
customers and strategic partners;
- our ability to hire and retain qualified personnel, particularly in
research and development; and
- our ability to predict and respond to changes in technology, industry
standards or end-user preferences.
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WE ARE A RELATIVELY SMALL COMPANY WITH LIMITED RESOURCES COMPARED TO SOME OF OUR
CURRENT AND POTENTIAL COMPETITORS, AND WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY
AND INCREASE OR MAINTAIN MARKET SHARE.
We may not be able to compete successfully against current or potential
competitors. If we do not compete successfully, our market share and revenues
may not increase or may decline. Some of our current and potential competitors
have longer operating histories, significantly greater resources and name
recognition and a larger base of customers than we have. As a result, these
competitors may have greater credibility with our existing and potential
customers. Moreover, our competitors may foresee the course of market
developments more accurately than we do. 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 we can to ours, which would allow them
to respond more quickly than us to new or emerging technologies or changes in
customer requirements. In addition, new competitors or alliances among existing
competitors could emerge. We expect to face competition in the future from our
current competitors, other manufacturers and designers of integrated circuits,
and innovative start-up integrated circuit design companies. Many of our
customers are also large, established integrated circuit suppliers. Our sales to
and support of such customers may enable them to become a source of competition
to us, despite our effort to protect our intellectual property rights.
As we begin to enter the broadband data communications market, we face
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 we intend
to sell our products that could prevent us from competing successfully.
Increased competition could:
- increase pressure on us to lower our prices;
- reduce our sales;
- lower our margins; and
- decrease our market share.
DUE TO OUR LIMITED OPERATING HISTORY, WE MAY HAVE DIFFICULTY IN ACCURATELY
PREDICTING OUR FUTURE SALES AND APPROPRIATELY BUDGETING FOR OUR EXPENSES, AND WE
MAY NOT BE ABLE TO MAINTAIN OUR EXISTING GROWTH RATE.
We were 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 we sell our products, limits our ability to
accurately forecast quarterly or annual sales. Additionally, because many of our
expenses are fixed in the short term or incurred in advance of anticipated
sales, we may not be able to decrease our expenses in a timely manner to offset
any shortfall of sales. We are currently expanding our staffing and increasing
our expense levels in anticipation of future sales growth. If our sales do not
increase as anticipated, significant losses could result due to our higher
expense levels.
Although we have experienced sales and earnings growth in prior quarterly
and annual periods, we 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 our future performance.
BECAUSE WE DO NOT HAVE LONG-TERM COMMITMENTS FROM OUR CUSTOMERS, WE MUST
ESTIMATE CUSTOMER DEMAND, AND ERRORS IN OUR ESTIMATES CAN HAVE NEGATIVE EFFECTS
ON OUR INVENTORY LEVELS AND SALES.
Our sales are made on the basis of individual purchase orders rather than
long-term purchase commitments. In addition, our customers may cancel or defer
purchase orders. We have historically placed firm orders for products with our
suppliers up to 16 weeks prior to the anticipated delivery
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date and typically prior to receiving an order for the product. Therefore our
order volumes are based on our forecasts of demand from our customers. This
process requires us to make multiple demand forecast assumptions, each of which
may introduce error into our estimates. If we overestimate customer demand, we
may allocate resources to manufacturing products that we may not be able to sell
when we expect or at all. As a result, we would have excess inventory, which
would harm our financial results. Conversely, if we underestimate customer
demand or if insufficient manufacturing capacity is available, we would forego
revenue opportunities, lose market share and damage our customer relationships.
On occasion, we have been unable to adequately respond to unexpected increases
in customer purchase orders, and therefore, were unable to benefit from this
increased demand.
WE RELY ON INDEPENDENT FOUNDRIES AND SUBCONTRACTORS FOR THE MANUFACTURE,
ASSEMBLY AND TESTING OF OUR INTEGRATED CIRCUIT PRODUCTS, AND THE FAILURE OF ANY
OF THESE THIRD-PARTY VENDORS TO DELIVER PRODUCTS OR OTHERWISE PERFORM AS
REQUESTED COULD DAMAGE OUR RELATIONSHIPS WITH OUR CUSTOMERS AND HARM OUR SALES
AND FINANCIAL RESULTS.
We do not have our own manufacturing, assembly or testing facilities.
Therefore, we must rely on third-party vendors to manufacture, assemble and test
the products we design. If these vendors do not provide us with high quality
services in a timely manner, or if one or more of these vendors were to
terminate their relationship with us, we may be unable to fulfill customer
orders on a timely basis and our operating results and relationships with our
customers could suffer. We currently rely on Taiwan Semiconductor Manufacturing
Company to produce substantially all of our integrated circuit products. We also
currently rely on 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, to assemble,
package and test our products.
There are significant risks associated with relying on these third-party
vendors, including:
- our customers or their end customers may fail to approve or delay in
approving our selected supplier;
- we may experience capacity shortages during periods of high demand;
- we have reduced control over product cost, delivery schedules and
product quality;
- the warranties on wafers or products supplied to us are limited; and
- we face increased exposure to potential misappropriation of our
intellectual property.
We currently do not have long-term supply contracts with any of our
third-party vendors. They therefore are not obligated to perform services or
supply products to us 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 our third-party foundry or assembly and test subcontractors has provided
contractual assurances to us that adequate capacity will be available to us to
meet future demand for our products. These foundries may allocate capacity to
the production of other companies' products while reducing deliveries to us on
short notice. In particular, foundry customers that are larger and better
financed than we are or that have long-term agreements with these foundries may
cause these foundries to reallocate capacity to those customers, decreasing the
capacity available to us. If we need another integrated circuit foundry or
assembly and test contractor because of increased demand or the inability to
obtain timely and adequate deliveries from our providers at the time, we might
not be able to develop relationships with other vendors who are able to satisfy
our requirements. Even if other integrated circuit foundries or assembly and
test contractors are available at that time to satisfy our requirements, it
would likely take several months to acquire a new provider. Such a change may
also require the approval of our customers.
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IF OUR FOUNDRIES DO NOT ACHIEVE SATISFACTORY YIELDS OR QUALITY, OUR
RELATIONSHIPS WITH OUR CUSTOMERS AND OUR REPUTATION WILL BE HARMED.
The fabrication of silicon wafers is a complex and technically demanding
process. Our foundries have from time to time experienced manufacturing defects
and reduced manufacturing yields. In the fourth quarter of fiscal 2000, we
experienced low yields in the production of our newly introduced read channel
product, which decreased our gross profits for the quarter. Changes in
manufacturing processes or the inadvertent use of defective or contaminated
materials by our foundries could result in lower than anticipated manufacturing
yields or unacceptable performance. Many of these problems are difficult to
detect at an early stage of the manufacturing process and may be time consuming
and expensive to correct. Poor yields from our foundries or defects, integration
issues or other performance problems in our products could cause significant
customer relations and business reputation problems, harm our financial results
and result in financial or other damages to our customers. Our customers could
also seek damages from us for their losses. A product liability claim brought
against us, even if unsuccessful, would likely be time consuming and costly to
defend. In addition, defects in our existing or new products could result in
significant warranty, support and repair costs, and divert the attention of our
engineering personnel from our product development efforts.
BECAUSE FOUNDRY CAPACITY IS LIMITED, WE MAY TAKE VARIOUS ACTIONS TO TRY TO
SECURE CAPACITY, WHICH MAY HARM OUR OPERATING RESULTS.
In order to secure additional foundry capacity we may enter into various
arrangements with suppliers that could be costly and harm our operating results.
These arrangements could include, among others:
- option payments or other prepayments to a foundry;
- nonrefundable deposits with or loans to foundries in exchange for
capacity commitments;
- contracts that commit us to purchase specified quantities of silicon
wafers over extended periods;
- depositing funds with the foundry for our products when we place orders,
rather than when the foundry delivers our product;
- issuance of our equity securities to a foundry;
- investment in a foundry;
- joint ventures; and
- other partnership relationships with foundries.
We may not be able to make any such arrangement in a timely fashion or at all,
and any arrangements may be costly, reduce our financial flexibility, and not be
on terms favorable to us. Moreover, if we are able to secure foundry capacity,
we may be obligated to use all of that capacity or incur penalties. These
penalties may be expensive and could harm our financial results.
WE DEPEND ON KEY PERSONNEL WITH WHOM WE DO NOT HAVE EMPLOYMENT AGREEMENTS TO
MANAGE OUR BUSINESS EFFECTIVELY IN A RAPIDLY CHANGING MARKET, AND IF WE ARE
UNABLE TO RETAIN OUR CURRENT PERSONNEL AND HIRE ADDITIONAL PERSONNEL, OUR
ABILITY TO DEVELOP AND SUCCESSFULLY MARKET OUR PRODUCTS COULD BE HARMED.
We believe our future success will depend in large part upon our 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
our ability to sell, our products. Due to the relatively early stage of our
company's business, we believe that our future
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success is highly dependent on the contributions of Sehat Sutardja, our
co-founder, President and Chief Executive Officer, Pantas Sutardja, our
co-founder and Vice-President and Chief Technology Officer of Marvell
Semiconductor, and Weili Dai, our co-founder and Executive Vice President and
General Manager of Data Communications. We do 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 analog and mixed signal communications integrated circuits. In
particular, there is a shortage of engineers who are familiar with the
intricacies of the design and manufacture of analog elements, and competition
for these engineers is intense. Our key technical personnel represent a
significant asset and serve as the source of our technological and product
innovations. We may not be successful in attracting, integrating and retaining
sufficient numbers of technical personnel to support our anticipated growth.
OUR RAPID GROWTH HAS STRAINED OUR RESOURCES AND OUR INABILITY TO MANAGE ANY
FUTURE GROWTH COULD HARM OUR BUSINESS.
During the past year, we have significantly increased the scope of our
operations and expanded our workforce from 101 employees at January 31, 1999 to
207 employees at February 29, 2000. This growth has placed, and any future
growth of our operations will continue to place, a significant strain on our
management personnel, systems and resources. We anticipate that we will need to
implement a variety of new and upgraded operational and financial systems,
procedures and controls, including the improvement of our accounting and other
internal management systems. We also expect that we will need to continue to
expand, train, manage and motivate our workforce. All of these endeavors will
require substantial management effort. If we are unable to effectively manage
our expanding operations, our business could be harmed.
WE FACE FOREIGN BUSINESS, POLITICAL AND ECONOMIC RISKS, WHICH MAY NEGATIVELY
AFFECT OUR RESULTS OF OPERATIONS, BECAUSE A MAJORITY OF OUR PRODUCTS AND OUR
CUSTOMERS' PRODUCTS ARE MANUFACTURED AND SOLD OUTSIDE OF THE UNITED STATES.
A substantial portion of our business is conducted outside of the United
States and as a result, we are subject to foreign business, political and
economic risks. All of our products are manufactured outside of the United
States. Our current qualified integrated circuit manufacturers are located in
the same region within Taiwan, and our primary assembly and test subcontractors
are located in the Pacific Rim region. In addition, many of our customers are
located outside of the United States, primarily concentrated in Singapore,
Korea, the Philippines and Japan, which further exposes us to foreign risks.
Sales outside of the United States accounted for 99% of our revenues in fiscal
1999 and fiscal 2000. We anticipate that our manufacturing, assembly, testing
and sales outside of the United States will continue to account for a
substantial portion of our operations and revenue in future periods.
Accordingly, we are subject to international risks, including:
- difficulties in obtaining governmental approvals and permits and
complying with foreign laws;
- difficulties in staffing and managing foreign operations;
- trade restrictions or higher tariffs;
- transportation delays;
- difficulties of managing distributors;
- political and economic instability; and
- inadequate local infrastructure.
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Because sales of our 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 our 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 us in that country. A portion of
our international revenue may be denominated in foreign currencies in the
future, which will subject us to risks associated with fluctuations in exchange
rates for those foreign currencies.
OUR INDEPENDENT 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 OUR PRODUCTS.
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 our foundries and subcontractors. In September 1999, a major
earthquake in Taiwan affected the facilities of several of our 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 our foundry or assembly and test capacity. Any disruption
resulting from such events could cause significant delays in the production or
shipment of our products until we are able to shift our manufacturing,
assembling or testing from the affected contractor to another third party
vendor. We may not be able to obtain alternate capacity on favorable terms, if
at all.
WE MAY NEED ADDITIONAL FUNDS TO EXECUTE OUR BUSINESS PLAN, AND IF WE ARE UNABLE
TO OBTAIN THESE FUNDS, WE WILL NOT BE ABLE TO EXPAND OUR BUSINESS AS PLANNED.
We may require substantial additional capital to finance our future growth,
secure additional independent foundry capacity and fund our ongoing research and
development activities beyond fiscal 2000. Our capital requirements will depend
on many factors, including:
- acceptance of and demand for our products;
- the types of arrangements that we may enter into with our independent
foundries; and
- the extent to which we invest in new technology and research and
development projects and increase our sales and marketing or other
operating expenses.
To the extent that our existing sources of liquidity and cash flow from
operations are insufficient to fund our activities, we may need to raise
additional funds. If we raise additional funds through the issuance of equity
securities, the percentage of ownership of our existing shareholders would be
reduced. Any equity securities we issue may have rights, preferences or
privileges senior to those of our common stock. If we issue debt securities, we
may incur significant interest expense, which would harm our profitability. The
issuance of debt securities may also require us to agree to various restrictions
common to debt securities, including limitations on further borrowings and on
our right to pay dividends. Additional financing may not be available to us on
terms favorable to us or at all.
ANY ACQUISITIONS WE MAKE COULD DISRUPT OUR BUSINESS AND HARM OUR FINANCIAL
CONDITION.
As part of our growth strategy, we may consider opportunities to acquire
other businesses or technologies that would complement our current product
offerings, expand the breadth of our markets or enhance our technical
capabilities. To date, we have not made any acquisitions and we are currently
not subject to any agreement or letter of intent with respect to potential
acquisitions. Acquisitions entail a number of risks that could harm our
business, including:
- problems integrating the acquired operations, personnel, technologies or
products with our existing business and products;
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- diversion of management's time and attention from our core business;
- difficulties in retaining business relationships with suppliers and
customers of the acquired company;
- risks associated with entering markets in which we lack prior
experience; and
- potential loss of key employees of the acquired company.
RISKS RELATED TO OUR INDUSTRY
THE AVERAGE SELLING PRICES OF PRODUCTS IN OUR MARKETS HAVE HISTORICALLY
DECREASED RAPIDLY AND WILL LIKELY DO SO IN THE FUTURE, WHICH COULD HARM OUR
GROSS PROFITS AND SALES.
The products we develop and sell are used for high volume applications. As
a result, the prices of those products have historically decreased rapidly. Our
gross profits and financial results will suffer if we are unable to offset any
reductions in our average selling prices by increasing our sales volumes,
reducing our costs, or developing new or enhanced products on a timely basis
with higher selling prices or gross profits. We expect that as a result of
pricing pressure from our customers our gross profits on our data storage
products are likely to decrease over the next fiscal year below levels we have
historically experienced. Because we do not operate our own manufacturing,
assembly or testing facilities, we may not be able to reduce our costs as
rapidly as companies that operate their own facilities, and our costs may even
increase. We have reduced the average unit price of our products in anticipation
of future competitive pricing pressures, new product introductions by us or our
competitors and other factors. We expect that we will have to do so again in the
future.
WE HAVE A LENGTHY AND EXPENSIVE SALES CYCLE, WHICH DOES NOT ASSURE PRODUCT
SALES, AND WHICH IF UNSUCCESSFUL MAY HARM OUR FINANCIAL RESULTS.
Our operating results could be harmed if customers curtail, reduce or delay
orders during our lengthy sales cycle, choose not to use our products or choose
not to release products employing our products. Our sales cycle typically begins
with a three to six month evaluation and test period, also known as
qualification, during which our products undergo rigorous reliability testing by
our customers. Qualification is followed by a twelve to eighteen month
development period by our customers and an additional three to six month period
before a customer commences volume production of equipment incorporating our
products. This lengthy sales cycle creates risks related to customer decisions
to cancel or change product plans. During our sales cycle, our engineers assist
our customers in implementing our solutions into their product. We incur
significant research and development and selling, general and administrative
expenses as part of this process and we may never generate related revenues. We
derive revenue from this process only if our 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
the product. Therefore, if we do not achieve a design win for a product we will
be unable to sell that product to our customer until our customer develops a new
product or a new generation of a product. Even if we achieve a design win with a
customer our customer may not ultimately ship products incorporating our
products or may cancel orders after we have achieved a sale. In addition, we
will have to begin the qualification process again when a customer develops a
new generation of a product for which we were the successful supplier.
WE ARE SUBJECT TO THE CYCLICAL NATURE OF THE INTEGRATED CIRCUIT INDUSTRY. ANY
FUTURE DOWNTURNS WILL LIKELY REDUCE OUR REVENUE AND RESULT IN OUR HAVING 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
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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 our revenue and result in our 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.
WE ARE DEPENDENT UPON THE HARD DRIVE INDUSTRY, WHICH IS HIGHLY CYCLICAL AND
EXPERIENCES RAPID TECHNOLOGICAL CHANGE.
As of February 29, 2000, all of our sales have been to customers in the
hard disk drive industry. The hard disk drive industry is intensely competitive
and the technology changes rapidly. As a result, the industry's demand for
components also fluctuates. The hard disk drive industry is highly cyclical,
with periods of increased demand and rapid growth followed by periods of
oversupply and subsequent contraction. These cycles may affect suppliers to this
industry because 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 our 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 our customers do not retain or increase market share, our sales may decrease.
Also, during the final production of a mature product, our customers typically
exhaust their existing inventory of our products. Consequently, orders for our
products may decline in those circumstances, even if our products are
incorporated into both our customer's mature and replacement products. A delay
in the customer's transition to commercial production of a replacement product
may cause them to lose sales, which would delay our ability to recover the lost
sales from the discontinuation of the related mature product.
THE DEVELOPMENT AND EVOLUTION OF MARKETS FOR OUR INTEGRATED CIRCUITS ARE
DEPENDENT ON FACTORS, SUCH AS INDUSTRY STANDARDS, OVER WHICH WE HAVE NO CONTROL.
FOR EXAMPLE, IF OUR CUSTOMERS ADOPT NEW OR COMPETING INDUSTRY STANDARDS WITH
WHICH OUR PRODUCTS ARE NOT COMPATIBLE, OUR EXISTING PRODUCTS WOULD BECOME LESS
DESIRABLE TO OUR CUSTOMERS AND OUR SALES WOULD SUFFER.
The emergence of markets for our products is affected by a variety of
factors beyond our control. In particular, our products are designed to conform
to current specific industry standards. Our customers may not continue to follow
these standards, which would make our products less desirable to our customers
and reduce our sales. Also, competing standards may emerge that are preferred by
our customers, which could also reduce our sales and require us to make
significant expenditures to develop new products.
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, WHICH WOULD NEGATIVELY
AFFECT OUR ABILITY TO COMPETE.
If we fail to protect our intellectual property rights, competitors could
sell products based on technology that we have developed, which could harm our
competitive position and decrease our revenues. We believe that the protection
of our intellectual property rights is and will continue to be important to the
success of our business. We rely on a combination of patent, copyright,
trademark and trade secret laws, as well as nondisclosure agreements and other
methods, to protect our proprietary technologies. We also enter into
confidentiality or license agreements with our employees, consultants and
business partners, and control access to and distribution of our documentation
and other proprietary information. As of February 29, 2000, we had been issued
nine patents and had a number of pending United States patent applications.
However, a patent may not be issued as a
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result of any applications or, if issued, claims allowed may not be sufficiently
broad to protect our technology. In addition, it is possible that existing or
future patents may be challenged, invalidated or circumvented. Despite our
efforts, unauthorized parties may attempt to copy or otherwise obtain and use
our products or proprietary technology. Monitoring unauthorized use of our
technology is difficult, and the steps that we have taken may not prevent
unauthorized use of our technology, particularly in foreign countries where the
laws may not protect our proprietary rights as fully as in the United States.
SIGNIFICANT LITIGATION OVER INTELLECTUAL PROPERTY IN OUR INDUSTRY MAY CAUSE US
TO BECOME INVOLVED IN COSTLY AND LENGTHY LITIGATION, WHICH COULD SUBJECT US TO
LIABILITY, REQUIRE US TO STOP SELLING OUR PRODUCTS OR FORCE US TO REDESIGN OUR
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 use their patent
portfolios to bring numerous infringement claims. We may become a party to
litigation in the future either to protect our intellectual property or as a
result of an alleged infringement of others' intellectual property. These
lawsuits could subject us to significant liability for damages and invalidate
our 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 us 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.
RISKS RELATED TO THIS OFFERING
WE ARE INCORPORATED IN BERMUDA, AND, AS A RESULT, IT MAY NOT BE POSSIBLE FOR
SHAREHOLDERS TO ENFORCE CIVIL LIABILITY PROVISIONS OF THE SECURITIES LAWS OF THE
UNITED STATES.
We are organized under the laws of Bermuda. As a result, it may not be
possible for our shareholders to effect service of process within the United
States upon us, or to enforce against us in United States courts judgments based
on the civil liability provisions of the securities laws of the United States.
In addition, there is significant doubt as to whether the courts of Bermuda
would recognize or enforce judgments of United States courts obtained against us
or our 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 us or those persons based on those laws. We have been advised by
our legal advisor in Bermuda that 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.
BERMUDA LAW DIFFERS FROM THE LAWS IN EFFECT IN THE UNITED STATES AND MAY AFFORD
LESS PROTECTION TO SHAREHOLDERS.
Our shareholders may have more difficulty in protecting their interests
than would shareholders of a corporation incorporated in a jurisdiction of the
United States. We are a Bermuda company and, accordingly, are governed by The
Companies Act, 1981 of Bermuda. The Companies Act, 1981 of Bermuda differs in
certain material respects from laws generally applicable to United States
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corporations and shareholders, including the provisions relating to interested
directors, mergers and similar arrangements, takeovers, shareholder lawsuits,
indemnification of directors and inspection of corporate records.
THE TAX BENEFITS WE RECEIVE MAY BE TERMINATED OR REDUCED IN THE FUTURE, WHICH
WOULD INCREASE OUR COSTS.
We will be subject to United States federal income tax at regular corporate
rates and to United States branch profits tax on our income that is effectively
connected with the conduct of a trade or business within the United States, and
we will be required to file federal income tax returns reflecting that income.
We intend to conduct our business so as to limit the amount of our effectively
connected income. However, the Internal Revenue Service may not agree with our
positions taken in this regard in the past or in the future, and an unfavorable
ruling with respect to our positions could subject us to significant liabilities
for back taxes and interest.
The Economic Development Board of Singapore has informed us that it intends
to recommend us for pioneer status. We believe that we will shortly receive
official approval of pioneer status for a period of at least six years,
commencing July 1, 1999. As a result, we anticipate that a significant portion
of the income we earn in Singapore during this period will be exempt from the
26% Singapore tax rate. We are required to meet several requirements as to
investment, headcount and activities in Singapore to retain this status. If we
do not receive pioneer status or if our status is terminated early, our
financial results could be harmed.
Under current Bermuda law, we are not subject to tax on our income or
capital gains. We have 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 us until March 28,
2016. However, this exemption may not be extended beyond this date.
IF WE ARE A PASSIVE FOREIGN INVESTMENT COMPANY, OUR SHAREHOLDERS MAY SUFFER
ADVERSE TAX CONSEQUENCES.
Because we are incorporated in Bermuda and have operations in the United
States and Singapore, we are subject to special rules and regulations, including
rules regarding passive foreign investment company or PFIC. We believe that we
are not a PFIC, and we expect to continue to manage our affairs so that we will
not become a PFIC. However, whether we should be treated as a PFIC is a factual
determination that is made annually and is subject to change. If we are
classified as a PFIC, then each United States holder of our common stock would,
upon qualifying distributions by us 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, we and our shareholders could also suffer
adverse tax consequences if we are classified as a foreign personal holding
company, a personal holding company or a controlled foreign corporation, each of
which is described in this prospectus under the heading "Taxation".
EXISTING SHAREHOLDERS OWN A LARGE PERCENTAGE OF OUR VOTING STOCK, AND THREE
EXISTING DIRECTORS, WHO ARE ALSO SIGNIFICANT SHAREHOLDERS, ARE RELATED BY BLOOD
OR MARRIAGE. THESE FACTORS MAY ALLOW THE EXISTING SHAREHOLDERS OR THE THREE
RELATED DIRECTORS TO CONTROL THE ELECTION OF DIRECTORS AND THE APPROVAL OR
DISAPPROVAL OF SIGNIFICANT CORPORATE ACTIONS FOLLOWING THIS OFFERING.
Immediately after this offering, we anticipate that our executive officers,
directors and other principal shareholders will beneficially own or control,
directly or indirectly, approximately % of the outstanding shares of common
stock. 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 will
18
<PAGE> 20
hold % of our outstanding common stock after the completion of this offering.
As a result, if the existing shareholders or any of Sehat Sutardja, Pantas
Sutardja and Weili Dai act together, they will significantly influence, and will
likely control, the election of our directors and approval or disapproval of our
significant corporate actions. This influence over our 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 our company on terms that other shareholders may desire.
OUR COMMON STOCK HAS NOT BEEN PUBLICLY TRADED, AND WE EXPECT THAT THE PRICE OF
OUR STOCK MAY FLUCTUATE SUBSTANTIALLY.
Recently, the stock prices of technology companies similar to Marvell have
been quite volatile. Moreover, prior to this offering, there has been no public
market for our common stock. The initial public offering price will be
determined through negotiations between the underwriters and us. If you purchase
shares of common stock, you may not be able to resell your shares at or above
the initial offering price. The market price of our common stock may fluctuate
significantly in response to numerous factors, many of which are beyond our
control, including the following:
- actual or anticipated fluctuations in our operating results;
- changes in recommendations or financial estimates by securities analysts
or our failure to perform in line with such estimates;
- changes in market valuations of other technology companies, particularly
those that design, manufacture and/or sell integrated circuits;
- announcements by us or our competitors of significant technical
innovations, acquisitions, strategic partnerships, joint ventures or
capital commitments;
- introduction of technologies or product enhancements that reduce the
need for our products;
- the operating and stock price performances of other comparable
companies;
- departures of key personnel; and
- sales of our common stock in the future.
OUR BUSINESS MAY BE HARMED BY CLASS ACTION LITIGATION DUE TO STOCK PRICE
VOLATILITY.
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, we may in the future be the
target of securities litigation. Securities litigation could result in
substantial costs and could divert our management's attention and resources.
FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET MAY DEPRESS OUR STOCK
PRICE.
After this offering, we will have outstanding shares of
common stock. Sales of a substantial number of shares of our common stock in the
public market following this offering could cause our stock price to decline.
Substantially all the shares sold in this offering will be freely tradable. Of
the remaining shares of common stock outstanding after this
offering, approximately shares will be subject to lock-up
agreements with the underwriters ending 180 days after the date of this
prospectus, but will then be eligible for sale in the public market. The
remaining shares will become freely tradable at various times
after the date of this prospectus. Goldman, Sachs & Co. can waive the
restrictions of the lock-up agreements at an earlier time without prior notice
or announcement and allow shareholders to sell their shares. As restrictions on
resale end, the market price of our stock could drop significantly if the
holders of restricted shares sell them or
19
<PAGE> 21
are perceived by the market as intending to sell them. In addition, the sale of
these shares could impair our ability to raise capital through the sale of
additional stock.
WE INTEND TO ADOPT PROVISIONS IN OUR BYE-LAWS THAT COULD DELAY OR PREVENT A
CHANGE IN CORPORATE CONTROL, EVEN IF THE CHANGE IN CORPORATE CONTROL WOULD
BENEFIT OUR SHAREHOLDERS.
At our annual general meeting of shareholders in April 2000, we intend to
seek the approval of our shareholders of an amendment and restatement of our
Bye-laws, which would include the adoption of change in corporate control
provisions. These change in corporate control provisions would include:
- authorizing the issuance of preferred stock without shareholder
approval;
- providing for a classified board of directors with staggered, three-year
terms;
- prohibiting cumulative voting in the election of directors; and
- requiring two-thirds of the outstanding shares to approve amendments to
some provisions of our Bye-laws.
The adoption of these change in corporate control provisions could make it
more difficult for a third party to acquire us, even if doing so would be a
benefit to our shareholders.
20
<PAGE> 22
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In this prospectus we have made statements under the headings "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and in other sections that are
forward-looking statements. In some cases, you can identify these statements by
forward-looking words such as "may," "might," "will," "should," "intends,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"projects," "potential" or "continue," the negative of these terms and other
comparable expressions. These forward-looking statements, which are subject to
risks, uncertainties, and assumptions about us, may include, among other things,
projections of our future financial performance, our anticipated growth
strategies, anticipated product introductions and anticipated trends in our
business. These statements are only predictions based on our current
expectations and projections about future events. Because these forward-looking
statements involve risks and uncertainties, there are important factors that
could cause our actual results, level of activity, performance or achievements
to differ materially from the results, level of activity, performance or
achievements expressed or implied by the forward-looking statements, including
those factors discussed under the heading "Risk Factors". You should
specifically consider the numerous risks described under the heading "Risk
Factors".
21
<PAGE> 23
USE OF PROCEEDS
The net proceeds to us from the sale of the shares of common
stock offered by us will be approximately $ million, or approximately $
million if the underwriters' option to purchase additional shares is exercised
in full. The amount of net proceeds has been calculated based on an assumed
initial public offering price of $ per share and after deducting an
assumed underwriting discount and the estimated offering expenses payable by us.
We intend to use the net proceeds from this offering primarily for general
corporate purposes, including working capital and capital expenditures. We may
use a portion of the net proceeds from this offering to acquire or invest in
businesses, technologies or services that are complementary to our existing
business. However, we have no present plans or commitments and are not engaged
in any negotiations with respect to any material transactions of this type.
Pending these uses, we intend to invest the net proceeds in short-term,
investment-grade, interest-bearing securities, certificates of deposit or
guaranteed obligations of the United States.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently expect to retain earnings, if any, to finance the growth and
development of our business. Therefore, we do not anticipate declaring or paying
cash dividends on our common stock in the foreseeable future. The decision
whether to pay dividends will be made by our Board of Directors from time to
time in light of conditions then existing including, among other things, our
results of operations, financial condition and anticipated cash requirements.
Our loan agreement with our bank contains restrictions on the payment of
dividends.
22
<PAGE> 24
CAPITALIZATION
The following table sets forth our capitalization as of January 31, 2000:
- on an actual basis;
- on a pro forma basis assuming the exercise of outstanding warrants to
purchase preferred stock and common stock and giving effect to the
automatic conversion of all outstanding shares of preferred stock into
common stock, resulting in the issuance of 27,044,852 shares of common
stock upon the closing of this offering; and
- on a pro forma as adjusted basis to reflect the sale of
shares of common stock in this offering at an assumed initial public
offering price of $ per share, after deducting an assumed
underwriting discount and the estimated offering expenses payable by us
and the application of the net proceeds from the offering.
<TABLE>
<CAPTION>
JANUARY 31, 2000
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Capital lease obligations, less current portion............. $ 36 $ 36 $ 36
Mandatorily redeemable convertible preferred stock,
$0.002 par value, 8,000,000 shares authorized, 6,609,860
shares issued and outstanding, actual; 8,000,000
authorized, none issued and outstanding pro forma and
pro forma as adjusted.................................. 22,353 -- --
Shareholders' equity:
Common stock, $0.002 par value; 242,000,000 shares
authorized, 48,931,560 shares issued and outstanding,
actual; 242,000,000 shares authorized, 75,976,412
shares issued and outstanding, pro forma; 242,000,000
shares authorized, shares issued and
outstanding, pro forma as adjusted..................... 98 152
Additional paid-in capital................................ 17,580 40,560
Deferred stock-based compensation......................... (11,897) (11,897) (11,897)
Retained earnings......................................... 2,159 2,159 2,159
-------- -------- --------
Total shareholders' equity............................. 7,940 30,974
-------- -------- --------
Total capitalization.............................. $ 30,329 $ 31,010 $
======== ======== ========
</TABLE>
This information should be read in conjunction with our financial
statements and the notes relating to those statements appearing elsewhere in
this prospectus.
- ---------------
The number of shares of common stock outstanding set forth in the table
above excludes the following:
- 12,385,924 shares issuable upon the exercise of outstanding stock
options, at a weighted average exercise price of $0.87 per share;
- 5,082,520 shares available for future issuance under our 1995 Stock
Option Plan and 1997 Directors' Stock Option Plan; and
- 1,172,250 shares issuable upon the exercise of outstanding stock
options, at a weighted average exercise price of $5.00 per share,
granted subsequent to January 31, 2000 and through February 29, 2000.
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<PAGE> 25
DILUTION
As of January 31, 2000, our pro forma net tangible book value was
approximately $30,974,000, or $0.41 per share of common stock. Pro forma net
tangible book value per share represents the amount of our total tangible assets
less total liabilities, divided by 75,976,412 shares of common stock outstanding
assuming the exercise of outstanding warrants to purchase preferred stock and
common stock and giving effect to the conversion of all outstanding shares of
preferred stock into shares of common stock upon completion of this offering.
Dilution in net tangible book value per share represents the difference between
the amount per share paid by purchasers of shares of our common stock in this
offering and the net tangible book value per share of our common stock
immediately following this offering.
Purchasers of common stock in this offering will experience immediate
dilution. Without taking into account any changes in net tangible book value
after January 31, 2000, other than to give effect to the sale of the shares of
common stock offered by us at an assumed initial public offering price of
$ per share, and after deducting an assumed underwriting discount and
estimated offering expenses payable by us, our pro forma net tangible book value
as of January 31, 2000 would have been approximately $ million or
$ per share of common stock. This amount represents an immediate
increase in pro forma net tangible book value of $ per share to the
existing shareholders and an immediate dilution in pro forma net tangible book
value of $ per share to new investors purchasing shares in this
offering. If the initial public offering price is higher or lower, the dilution
to new investors will be greater or less. The following table illustrates the
dilution in pro forma net tangible book value per share to new investors.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of January
31, 2000............................................... $ 0.41
Increase per share attributable to new investors..........
--------
Pro forma net tangible book value per share after this
offering..................................................
--------
Dilution per share to new investors......................... $
========
</TABLE>
The following table summarizes as of January 31, 2000, on the pro forma
basis described above, the number of shares of common stock purchased from us,
the total consideration paid to us and the average price per share paid by
existing shareholders and by new investors purchasing shares of common stock in
this offering, before deducting underwriting discounts and commissions and the
estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
--------------------- --------------------- -------------
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders................ 75,976,412 % $27,286,000 % $ 0.36
New investors........................
----------- --- ----------- ---
Total.............................. % $ %
=========== === =========== ===
</TABLE>
The above information excludes:
- 12,385,924 shares issuable upon the exercise of outstanding stock
options, at a weighted average exercise price of $0.87 per share;
- 5,082,520 shares available for future issuance under our 1995 Stock
Option Plan and 1997 Directors' Stock Option Plan; and
- 1,172,250 shares issuable upon the exercise of outstanding stock options,
at a weighted average exercise price of $5.00 per share, granted
subsequent to January 31, 2000 and through February 29, 2000.
To the extent any of these options is exercised, there will be further dilution
to new investors.
24
<PAGE> 26
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with, and are qualified by reference to, our consolidated financial
statements and related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
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, our audited consolidated
financial statements which are included elsewhere in this 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 prospectus. The historical
results presented below are not necessarily indicative of future results. See
Note 1 of the notes to our consolidated financial statements for an explanation
of the determination of the number of shares used to compute per share amounts.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
------------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net revenue................................. $ 210 $ 190 $ 625 $21,253 $81,375
Cost of product revenue..................... -- -- 312 10,103 33,773
-------- -------- -------- ------- -------
Gross profit................................ 210 190 313 11,150 47,602
Operating expenses:
Research and development.................. 480 1,350 5,018 5,837 14,452
Marketing and selling..................... 12 618 1,671 4,631 10,436
General and administrative................ 92 468 1,028 1,190 3,443
Amortization of stock compensation........ -- -- -- 42 2,175
-------- -------- -------- ------- -------
Total operating expenses................ 584 2,436 7,717 11,700 30,506
-------- -------- -------- ------- -------
Operating income (loss)..................... (374) (2,246) (7,404) (550) 17,096
Interest income............................. 22 96 170 175 486
Interest expense............................ (3) (2) (164) (101) (156)
-------- -------- -------- ------- -------
Income (loss) before income taxes........... (355) (2,152) (7,398) (476) 17,426
Provision for income taxes.................. -- 1 46 483 4,356
-------- -------- -------- ------- -------
Net income (loss)........................... $ (355) $ (2,153) $ (7,444) $ (959) $13,070
======== ======== ======== ======= =======
Basic net income (loss) per share........... $ (0.02) $ (0.08) $ (0.24) $ (0.03) $ 0.32
Diluted net income (loss) per share......... $ (0.02) $ (0.08) $ (0.24) $ (0.03) $ 0.16
Shares used in computing basic net income
(loss) per share.......................... 20,738 25,593 30,436 32,470 41,094
Shares used in computing diluted net income
(loss) per share.......................... 20,738 25,593 30,436 32,470 81,545
Pro forma basic net income per share........ $ 0.20
Pro forma diluted net income per share...... $ 0.16
Shares used in computing pro forma basic net
income per share.......................... 66,157
Shares used in computing pro forma diluted
net income per share...................... 81,545
</TABLE>
<TABLE>
<CAPTION>
AS OF JANUARY 31,
------------------------------------------------
1996 1997 1998 1999 2000
------ ------ ------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.......................... $1,264 $4,763 $3,307 $ 5,515 $16,600
Working capital.................................... 1,188 4,426 2,682 6,865 22,611
Total assets....................................... 1,364 5,267 5,291 16,563 46,500
Notes payable to bank and capital lease
obligations, less current portion................ 30 -- 21 897 36
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
</TABLE>
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<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ significantly from the results
discussed in these forward-looking statements. We assume no obligation to update
the forward-looking statements or such risk factors. Our fiscal year-end
financial reporting periods end on the Saturday closest to January 31st. For
purposes of presentation, we have indicated our fiscal year as ending on January
31.
OVERVIEW
We design, develop and market integrated circuits using proprietary mixed
signal and digital signal processing technology for the communications-related
markets of high speed, high density data storage and broadband data
communications. We were founded in 1995, and our business has grown rapidly
since our inception. As a fabless integrated circuit company, we rely on
independent, third-party contractors to perform manufacturing, assembly and test
functions. This approach allows us to focus on designing, developing and
marketing our products and significantly reduces the amount of capital we need
to invest in manufacturing products.
We began shipping our first generation read channel products in volume in
June 1998. We began volume shipments of preamplifier products in June 1999. Read
channels have historically accounted for more than 85% of our quarterly sales
and virtually all of the balance has been derived from sales of preamplifier
products. We expect to remain dependent on continued sales of read channel and
preamplifier products for a majority of our revenue until we are able to
diversify revenue through the addition of new products. We have introduced two
new generations of read channel products and one new generation of preamplifier
products since we first started shipping read channel and preamplifier products.
In December 1999, we introduced our first generation integrated eight-port
physical layer device for Fast Ethernet applications, which in March 2000 began
shipping and generating revenue. In March 2000, we also introduced our six-port
physical layer device for Fast Ethernet applications, which customers are now
sampling. We expect to introduce additional broadband data communications
products during calendar year 2000. Our future broadband data communications
revenue will depend upon completion of our product development and acceptance by
our customers.
We recognize product revenue upon shipment of our products to customers,
net of accruals for estimated sales returns and allowances. We have not
experienced any significant sales returns from customers to date. Substantially
all of our sales have been generated through our direct sales force. In March
2000, we entered into our first distribution agreement to support our sales and
marketing activities in the broadband data communications market, and we plan to
enter into other distribution agreements during calendar year 2000. We defer
recognition of product revenue on sales made through a distributor until the
distributor sells product to its customer.
Historically, a relatively small number of customers have accounted for a
significant portion of our revenue. Our top five customers accounted for 90%,
99% and 98% of our revenue for the years ended January 31, 1998, 1999 and 2000.
We anticipate that sales to distributors will increase as a percentage of our
revenue in future periods. However, we expect to continue to experience
significant customer concentration from direct sales to key customers.
In addition, a significant portion of our products is sold to customers
overseas. Sales to customers in Asia accounted for 99% of our revenue in each of
the years ended January 31, 1999 and 2000. Because many manufacturers and
subcontractors of data storage and broadband data communications devices are
located in Asia, we expect that a majority of our revenue will continue to be
represented by sales to customers in that region. All of our sales have been
denominated in U.S. dollars.
Our sales have historically been made on the basis of purchase orders
rather than long-term agreements. In addition, the sales cycle for our products
is long, which may cause us to experience a
26
<PAGE> 28
delay between the time we incur expenses and the time we generate revenue from
these expenditures. We expect to increase our research and development,
marketing and selling, and general and administrative expenditures as we seek to
expand our operations. We anticipate 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, seriously harming our operating results
for that quarter and, potentially, future quarters.
We will incur substantial stock compensation expense in future periods
which represents non-cash charges incurred as a result of the issuance of stock
options to employees and directors. These charges are recorded based on the
difference between the deemed fair value of the common stock and the option
exercise price of such options at the date of grant and are amortized under an
accelerated method over the option vesting period. At January 31, 2000, the
amount of the deferred charge to be amortized over future periods was $11.9
million. We will incur an additional deferred charge of $5.9 million for options
granted subsequent to January 31, 2000 and through February 29, 2000 to be
amortized in future periods. Of the aggregate $17.8 million remaining to be
amortized, $8.2 million is expected to be charged in fiscal 2001, $4.7 million
in fiscal 2002, $2.7 million in fiscal 2003 and the balance in future years.
We have 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 tax rate of 35% is due to the lower tax rates imposed on
our operations in Bermuda and Singapore and to the benefits realized from
research and development credits in the United States. Our operations in
Singapore are subject to a statutory tax rate of 26%. The Economic Development
Board of Singapore has informed us that it intends to recommend us for pioneer
status. We believe that we will shortly receive official approval of pioneer
status for a period of at least six years, commencing July 1, 1999. As a result,
a percentage of our Singapore profits will not be subject to tax prior to July
31, 2005. We have an undertaking from the government of Bermuda that we will not
be subject to tax on our income and capital gains in Bermuda until March 28,
2016.
RESULTS OF OPERATIONS
The following table sets forth the statements of operations data expressed
as a percentage of net revenue for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------
1998 1999 2000
------- ----- -----
<S> <C> <C> <C>
Net revenue............................................. 100.0% 100.0% 100.0%
Cost of product revenue................................. 49.9 47.5 41.5
------- ----- -----
Gross profit............................................ 50.1 52.5 58.5
Operating expenses:
Research and development.............................. 802.9 27.5 17.8
Marketing and selling................................. 267.4 21.8 12.8
General and administrative............................ 164.5 5.6 4.2
Amortization of stock compensation.................... -- 0.2 2.7
------- ----- -----
Total operating expenses......................... 1234.8 55.1 37.5
------- ----- -----
Operating income (loss)................................. (1184.7) (2.6) 21.0
Interest income......................................... 27.2 0.8 0.6
Interest expense........................................ (26.2) (0.5) (0.2)
------- ----- -----
Income (loss) before income taxes....................... (1183.7) (2.3) 21.4
Provision for income taxes.............................. (7.4) (2.3) (5.4)
------- ----- -----
Net income (loss)....................................... (1191.1)% (4.6)% 16.0%
======= ===== =====
</TABLE>
27
<PAGE> 29
YEARS ENDED JANUARY 31, 1998, 1999 AND 2000
NET REVENUE. We recognize revenue upon shipment of product to our
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 our read channel
products. Revenue increased from fiscal 1999 to fiscal 2000 primarily as a
result of continued market acceptance of our read channel products and
commencement of volume shipment of our preamplifier products. We expect that the
rate of growth of our revenue from sales of data storage products will be
considerably lower in fiscal 2001 than the rate of growth we 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 our 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 volume. The increase in gross profit in fiscal 2000 was primarily due to
the substantial increase in sales volume and a reduction in product costs per
unit. We expect our gross profit to decrease as a percentage of revenue due to
increased pricing pressures in the markets in which we compete and to potential
cost increases resulting from limited foundry capacity.
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. We experienced a decline in our yields in the
fourth quarter of fiscal 2000 due to the initial production ramp up of our
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 wafer, mask and reticle 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 year-to-year increases in absolute dollars were primarily due to the
hiring of additional development personnel and, in fiscal 2000, an increase in
prototype wafer, mask and reticle costs, and depreciation expense due to
significant purchases of computer aided design software tools. We expect that
research and development expense will increase substantially in absolute dollars
in future periods and as a percentage of revenue in fiscal 2001 as we develop
new products, engage in other product development initiatives and increase our
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, increased
sales commissions, and expanded sales and marketing activities related to the
further broadening of our customer and product base. We expect that marketing
and selling expense will increase substantially in absolute dollars and as a
percentage of revenue in fiscal 2001 as we hire additional personnel, expand our
sales and marketing efforts, particularly in broadband data communications, and
pay increased sales commissions.
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<PAGE> 30
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
increased professional fees. We expect that general and administrative expense
will continue to increase in absolute dollars as we hire additional personnel
and incur costs associated with being a public company. We also expect our
consulting expenses to increase as a result of post implementation support costs
associated with our new enterprise resource planning system which is currently
being installed. We expect general and administrative expense to fluctuate as a
percentage of revenue due to changes in our sales volume and the fluctuating use
of consultants for post implementation support associated with our enterprise
resource planning system.
AMORTIZATION OF STOCK COMPENSATION. In connection with the grant of stock
options to our employees and directors, we 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. Interest income reflects interest earned on cash and cash
equivalents and investment balances. Interest income was $170,000 in fiscal
1998, $175,000 in fiscal 1999, and $486,000 in fiscal 2000. In each year, the
increase in interest income was primarily due to interest earned on higher
invested cash balances.
INTEREST EXPENSE. Interest expense consists of interest on our notes
payable to bank and capital lease obligations. Interest expense was $164,000 in
fiscal 1998, $101,000 in fiscal 1999, and $156,000 in fiscal 2000. The changes
in interest expense were primarily due to fluctuating average debt balances.
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<PAGE> 31
QUARTERLY RESULTS OF OPERATIONS
The following tables present unaudited quarterly results, in dollars and as
a percentage of net revenue, for each of the eight quarters in the period ended
January 31, 2000. We believe this information reflects all adjustments,
consisting only of normal recurring adjustments, that we 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, JANUARY 31,
1998 1998 1998 1999 1999 1999 1999 2000
--------- -------- ----------- ----------- --------- -------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue............... $ 466 $ 1,862 $5,081 $13,844 $14,056 $16,860 $23,463 $26,996
Cost of product revenue... 285 1,099 2,757 5,962 6,195 7,120 8,874 11,584
------- ------- ------ ------- ------- ------- ------- -------
Gross profit.............. 181 763 2,324 7,882 7,861 9,740 14,589 15,412
Operating expenses:
Research and
development........... 1,451 1,098 1,377 1,911 2,422 2,946 3,716 5,368
Marketing and selling... 687 821 1,238 1,885 1,961 2,511 2,784 3,180
General and
administrative........ 254 224 271 441 651 784 793 1,215
Amortization of stock
compensation.......... -- -- 12 30 80 156 329 1,610
------- ------- ------ ------- ------- ------- ------- -------
Total operating
expenses............ 2,392 2,143 2,898 4,267 5114 6,397 7,622 11,373
------- ------- ------ ------- ------- ------- ------- -------
Operating income (loss)... (2,211) (1,380) (574) 3,615 2,747 3,343 6,967 4,039
Interest income........... 77 51 28 19 52 72 129 233
Interest expense.......... (1) (9) (72) (19) (29) (59) (41) (27)
------- ------- ------ ------- ------- ------- ------- -------
Income (loss) before
income taxes............ (2,135) (1,338) (618) 3,615 2,770 3,356 7,055 4,245
Provision for income
taxes................... -- (30) (40) (413) (692) (839) (1,764) (1,061)
------- ------- ------ ------- ------- ------- ------- -------
Net income (loss)......... $(2,135) $(1,368) $ (658) $ 3,202 $ 2,078 $ 2,517 $ 5,291 $ 3,184
======= ======= ====== ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED AS A PERCENTAGE OF NET REVENUE
---------------------------------------------------------------------------------------------------
APRIL 30, JULY 31, OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31, JANUARY 31,
1998 1998 1998 1999 1999 1999 1999 2000
--------- -------- ----------- ----------- --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of product
revenue............... 61.2 59.1 54.3 43.1 44.1 42.2 37.8 42.9
------ ----- ----- ----- ----- ----- ----- ------
Gross profit............ 38.8 40.9 45.7 56.9 55.9 57.8 62.2 57.1
Operating expenses:
Research and
development......... 311.4 59.0 27.1 13.7 17.2 17.5 15.8 19.9
Marketing and
selling............. 147.4 44.1 24.4 13.6 14.0 14.9 11.9 11.8
General and
administrative...... 54.5 12.0 5.4 3.2 4.6 4.7 3.4 4.5
Amortization of stock
compensation........ -- -- 0.2 0.2 0.6 0.9 1.4 6.0
------ ----- ----- ----- ----- ----- ----- ------
Total operating
expenses.......... 513.3 115.1 57.1 30.7 36.4 38.0 32.5 42.2
------ ----- ----- ----- ----- ----- ----- ------
Operating income
(loss)................ (474.5) (74.2) (11.4) 26.2 19.5 19.8 29.7 14.9
Interest income......... 16.5 2.7 0.6 0.1 0.4 0.4 0.5 0.9
Interest expense........ (0.2) (0.5) (1.4) (0.1) (0.2) (0.3) (0.2) (0.1)
------ ----- ----- ----- ----- ----- ----- ------
Income (loss) before
income taxes.......... (458.2) (72.0) (12.2) 26.2 19.7 19.9 30.0 15.7
Provision for income
taxes................. -- (1.6) (0.8) (3.0) (4.9) (5.0) (7.5) (3.9)
------ ----- ----- ----- ----- ----- ----- ------
Net income (loss)....... (458.2)% (73.6)% (13.0)% 23.2% 14.8% 14.9% 22.5% 11.8%
====== ===== ===== ===== ===== ===== ===== ======
</TABLE>
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Our quarterly results of operations have varied from quarter-to-quarter in
the past and we expect them to vary from quarter-to-quarter in future periods.
These fluctuations may occur due to a number of factors, including:
- the cyclical nature of the integrated circuit industry;
- the timing and volume of orders and order cancellations from our
customers;
- the level of acceptance of our products by existing and potential
customers;
- the demand for, seasonality of the markets for, and life cycles of,
products incorporating our products;
- our ability to fund, develop, introduce, ship and support new products
and product enhancements, and the related timing and costs associated
with those activities;
- deferrals of customer orders in anticipation of new products or product
enhancements from us or our competitors;
- the loss of one or more of our major customers;
- fluctuations in our manufacturing yields;
- the introduction of competing products by us or our competitors;
- changes in our product mix;
- competitive pricing pressures;
- the cost and availability of capacity at our integrated circuit
manufacturers and subcontractors;
- the rate at which new markets emerge for products we are currently
developing or for which our design expertise can be utilized to develop
new products;
- transition of our markets to new technologies or standards; and
- departures of key personnel.
Net revenue increased from the preceding quarter in each of the eight
quarters in the period ended January 31, 2000. All of our sales in each of the
eight quarters in the period ended January 31, 2000 have been derived from sales
of our read channel and preamplifier products. Gross profit increased in each
quarter in fiscal 1999, primarily due to substantial increases in product sales.
Gross profit decreased slightly in the first quarter of fiscal 2000, to 55.9% of
net revenue, primarily due to increased test and rework costs related to a
product design issue with a significant customer. The increases in gross profit
in the second and third quarter of fiscal 2000 were primarily due to a reduction
in product costs. The decrease in gross profit in the fourth quarter of fiscal
2000, to 57.1% of net revenue, was due primarily to a decline in yields of our
newest, more complex read channel product. Our gross profit may decline in
future periods due to the expected introduction of competitive products and
increased demand for wafer capacity within the integrated circuit industry.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed operations through a combination of
private sales of convertible preferred stock, bank loan and capital lease
financing and, in fiscal 2000, net cash flow from operations. At January 31,
2000, we had $22.6 million in working capital and $16.6 million in cash and cash
equivalents.
We used cash in our 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 our net loss. In fiscal 1999,
cash used for operating activities was attributable to our net loss and a
significant increase in accounts receivable and inventory, partially offset by
increases in accounts
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<PAGE> 33
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 our inventory levels and operating expenses as
our business has grown. Our operating activities provided cash in the amount of
$12.6 million in fiscal 2000. The increase in cash was primarily a result of our
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 our inventory levels and operating expenses as
our business has grown. The increase in income taxes payable is due to the
increasing amount of income earned in Singapore and Bermuda, both of which have
tax rates lower than the U.S. federal tax rate. The balance of our accounts
receivable at each period-end varies, primarily due to the timing of our
shipments within the period. We have not experienced any material collection
difficulties.
We used cash in our investing activities in the amount of $1.0 million in
fiscal 1998, $1.6 million in fiscal 1999 and $6.8 million in fiscal 2000, in
each case attributable to purchases of property and equipment.
Net cash provided by financing activities was $6.4 million in fiscal 1998,
$6.7 million in fiscal 1999 and $5.3 million in fiscal 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 our bank.
In May 1998, we entered into a loan agreement, which was amended in July
1999, and provides for borrowings of up to $8.0 million in the form of line of
credit advances based on eligible accounts receivable and inventory, and $3.1
million available in the form of equipment advances. Borrowings accrue interest
at the bank's prime rate plus 0.125%, which equaled 8.625% on January 31, 2000,
and are secured by our tangible assets. In fiscal 1999 and 2000 we borrowed $3.6
million under this agreement, which we repaid in full in fiscal 2000. On January
31, 2000, we were in compliance with all line of credit covenants, no amounts
were outstanding and $8.0 million was available for borrowing. This loan
agreement expires in April 2000.
We lease equipment and software under leases with three-year terms. We
intend to exercise purchase options at the end of the lease terms for a minimal
cost. We also plan to spend up to approximately $12.0 million during the next 12
months for test and other equipment and software. We lease our facilities under
a non-cancelable operating lease, which expires in February 2002. We currently
intend to either relocate our headquarters to larger facilities or secure
additional leased space within the next 12 months. We will incur additional
costs related to any relocation or increase in leased facilities, and may have
to pay rent on two leases for a period of time if we relocate.
We believe that the net proceeds from this offering, together with existing
cash balances, will be sufficient to meet our 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 our products,
costs of securing access to adequate manufacturing capacity, the timing and
extent of research and development projects and increases in our operating
expenses. To the extent that funds generated by this offering, together with
existing cash balances and cash from operations, are insufficient to fund our
future activities, we may need to raise additional funds through public or
private equity or debt financing. Although we are currently not a party to any
agreement or letter of intent with respect to a potential acquisition or
strategic arrangement, we may enter into acquisitions or strategic arrangements
in the future, which also could require us to seek additional equity or debt
financing. Additional funds may not be available on terms favorable to us or at
all.
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QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISKS
INTEREST RATE RISK. Our cash equivalents are exposed to financial market
risk due to fluctuation in interest rates, which may affect our interest income.
As of January 31, 2000, our cash included money market securities. Due to the
short term nature of our investment portfolio, we would not expect our operating
results or cash flows to be affected to any significant degree by the effect of
a sudden change in market interest rates. We do not use our investment portfolio
for trading or other speculative purposes.
FOREIGN CURRENCY EXCHANGE RISK. Substantially all of our sales and expenses
are denominated in U.S. dollars, and, as a result, we have relatively little
exposure to foreign currency exchange risk. We do 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 our exposure to foreign currency risk increases,
we may choose to hedge those exposures.
INFLATION
The impact of inflation on our business has not been material for the
fiscal years ended January 31, 1998, 1999 and 2000.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 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 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 our revenue and the majority of our costs are
denominated in U.S. dollars, and to date we have not entered into any derivative
contracts. We do not expect that the adoption of SFAS 133 will have a material
effect on our 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.
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 our financial statements.
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<PAGE> 35
BUSINESS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Our 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".
OUR BUSINESS
We design, develop and market integrated circuits for
communications-related markets. Our products provide the critical interface
between real world, analog signals and the digital information used in computing
and communications systems. We enable our customers to store and transmit
digital information reliably and at high speeds. We initially focused our core
technology on the data storage market, where our products provide industry
leading performance for customers such as Seagate, Samsung, Hitachi, Fujitsu and
Toshiba. Recently, we applied our technology to the broadband data
communications market by introducing our eight-port and six-port Fast Ethernet
transceivers, which are used in network access equipment to provide the
interface between communications systems and Ethernet transmission media. We
believe that our core technology can be used to improve performance across a
wide range of data communications applications. For example, we are actively
developing products for the Gigabit Ethernet market. In addition, we are
committing resources to the development of products for the wireless
communications and cable modem markets. For the fiscal year ended January 31,
2000, we generated $81.4 million in net revenue and $13.1 million in net income.
INDUSTRY BACKGROUND
SATISFYING BANDWIDTH DEMAND
Businesses and consumers today are creating a rapidly growing demand for
high-speed 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 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, set-top boxes, cable modems, 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 local area networks,
storage area networks, wide area networks, the public telephone infrastructure
and the Internet backbone.
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 and also
receives analog signals from communications media and converts them into digital
data that computers can understand and manipulate.
The physical layer device often determines 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, the physical layer device
must overcome a number of factors that can impair signal quality and introduce
errors, including substandard media, noise, signal level degradation over
distance, interference from adjacent lines and signal echo. In
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<PAGE> 36
many computing systems and networks, bandwidth bottlenecks arise where the media
and the physical layer devices are incapable of supporting the required data
transfer rates. As transmission speeds approach the fundamental limits of
particular transmission media, the physical layer device must increasingly
employ sophisticated signal processing algorithms and techniques to accurately
recover the transmitted data.
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
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.
The critical physical layer device in a disk drive is called a read
channel. The read channel 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 local area networks, storage area networks, wide area networks, the
public telephone infrastructure and the Internet. Communications infrastructures
are constantly evolving to support this increase in data transmission demand. In
the wide area network, 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 the
local area network, 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. Going forward, a new standard, Gigabit
Ethernet, which provides data transfer rates of 1,000 megabits per second, is
expected to be broadly deployed to support the increasing data transmission
demand. To date, businesses have made a significant investment in local area
networking infrastructures through the deployment of Category 5 unshielded
twisted pair cables. Based on IDC estimates, in 1999 the worldwide installed
base of 10 and 100 megabit per second Ethernet network interface cards and
switch ports, which connect computing systems to networks, totaled approximately
349 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 bandwidth utilization and
data recovery challenges. A number of problems, such as interference from
adjacent lines and line echo, arise when transmitting data at gigabit rates on
the existing Category 5 cable infrastructure, which was originally designed to
support 100 megabit per second data rates. As a result, the deployment of
Gigabit Ethernet requires either the costly and
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<PAGE> 37
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 access to 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. 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.
THE MARVELL SOLUTION
We design, develop and market integrated circuits for the
communications-related markets of high speed, high density data storage and
broadband data communications. Our integrated circuits combine highly precise
mixed signal technologies with complex signal processing algorithms implemented
with custom digital signal processing engines. Mixed signal technologies employ
both analog and digital circuitry in a single integrated circuit. Our products
are used for transmitting and recovering digitally encoded analog signals from
various types of broadband communications media and allow our customers to store
and move digital data reliably at high data transfer rates while utilizing
existing media infrastructures.
Our products target high volume markets where some of the most critical
success factors are performance, power consumption, quality and cost. We
initially applied our mixed signal and digital signal processing technology to
the data storage market, where we provide leading-edge read channel devices and
preamplifiers to meet the high data transfer rate, high areal density and data
integrity requirements of our customers. We believe that we have achieved
significant market share in read channel integrated circuits for the enterprise
and mobile segments of the data storage market. These segments have the most
demanding performance requirements in terms of data transfer rates and areal
densities. More recently, we applied our core technology to developing high
performance physical layer devices for the broadband data communications market.
We introduced the first member of our data communications product family, an
eight-port physical layer device for 10 and 100 megabits per second Ethernet and
Fast Ethernet applications, in the fourth quarter of calendar year 1999.
Subsequently, we introduced a six-port physical layer device for this market.
Our fast Ethernet physical layer devices provide small form-factor and silicon
chip size, long distance signal transmission capability and low power
consumption. We are currently developing our first generation of Gigabit
Ethernet physical layer devices for use with existing Category 5 cabling
infrastructures.
Key features of our 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, which serves as the
interface between the digital signal processor and the physical
communications media. We have developed high bandwidth, low noise, high
precision analog front-end building blocks in deep sub-micron CMOS
manufacturing processes. Deep sub-micron CMOS generally refers to the
manufacturing processes for generating minimum feature sizes of 0.25
micron and smaller. We are able to design these broadband analog
front-ends in deep sub-micron CMOS manufacturing processes due to a
number of innovations, including proprietary self calibration techniques
that compensate for the inherent variations of these processes. Our
analog circuits are designed to be highly reusable across many of our
products and easily scalable to smaller sub-micron CMOS process
geometries as they emerge.
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- CUSTOM DIGITAL SIGNAL PROCESSING ENGINES. We have designed high
performance, low power digital signal processing engines optimized for
broadband communications applications. These engines are customized to
execute our suite of advanced signal processing algorithms in real time
at high clock rates. For example, our latest generation read channel
device operates at clock rates of more than 750MHz and performs several
hundred billion operations per second.
- PROPRIETARY DIGITAL SIGNAL PROCESSING ALGORITHMS. Our advanced digital
signal processing algorithms enable data transmission at high speeds
across a wide range of physical media with low data error rates. These
signal processing algorithms perform signal equalization and data
detection in the presence of media imperfections such as line
attenuation, signal interference from adjacent lines, line echo and
noise. We have 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, 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. We have successfully combined
advanced analog signal processing blocks with high speed digital signal
processing engines in 0.25- and 0.18-micron CMOS manufacturing
processes. We believe we have 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.
We believe these advantages lead to several key benefits for our customers:
- HIGH PERFORMANCE. In the data storage market our products achieve
industry leading data transfer rates and areal densities. In the
broadband data communications market, our products achieve the required
low error rates when used with lower quality media and attain superior
signal transmission distance when used with standard media. We believe
that the advantages of our broadband data communications products enable
businesses to upgrade their networks without the expense associated with
installing new cabling.
- LOW POWER. Our custom digital signal processing engines use fewer
transistors than standard designs to perform data transfer functions,
reducing overall system power usage. We also implement our designs in
deep sub-micron CMOS processes, which further reduces power
requirements. These designs allow our customers to eliminate costly heat
reduction components in their products.
- COST EFFECTIVE SOLUTIONS. We are able to lower our manufacturing costs
by using advanced manufacturing processes and our custom digital signal
processing technology. These processes and technologies result in
smaller silicon chip size yielding more integrated circuits per wafer.
In addition, our products generate less heat, which allows us to use
less expensive packaging technologies and achieve lower cost system
implementations. These manufacturing advantages reduce the cost of next
generation communications equipment, enabling our customers to offer
their products at competitive prices.
- HIGHER INTEGRATION CAPABILITY. The combination of our use of CMOS
manufacturing processes, small silicon chip size and low power
requirements allows us to deliver more functions in a single integrated
circuit. We believe these capabilities position us to integrate elements
of our customers' designs, currently implemented in discrete integrated
circuits,
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into our products. Integration reduces the overall number of components,
thereby reducing overall system cost.
- ACCELERATED TIME TO MARKET. We help our customers rapidly introduce
higher performance, lower cost products. Many features of our integrated
circuits are software-configurable, allowing our customers to customize
circuit operation for their specific applications. In addition, the
scalability of our designs helps us more rapidly adopt future process
technologies to deliver new generations of products.
MARVELL STRATEGY
Our 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 OUR MARKET POSITION BY DEVELOPING NEW SIGNAL PROCESSING TECHNOLOGIES FOR
BROADBAND COMMUNICATIONS-RELATED APPLICATIONS
We believe that we have built significant 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 processing engines and system-level expertise. We intend
to continue to invest considerable resources in developing new and enhanced
algorithms and improved mixed signal and digital signal processing technologies.
We believe that investment will allow us to develop products that can achieve
data transmission speeds approaching the fundamental limits of particular
transmission media infrastructures. We believe our 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 OUR TECHNOLOGY IN THE BROADBAND DATA COMMUNICATIONS MARKET
We initially applied our mixed signal and digital signal processing
technology expertise to the data communications market through the introduction
of our eight-port and six-port physical layer devices using the Fast Ethernet
signaling protocol. These physical layer devices provide small form-factor,
small silicon chip size, long distance signal transmission capability and low
power consumption. We are currently developing our Gigabit Ethernet physical
layer device products. Additionally, we plan to integrate the physical layer
device with functions previously provided by other integrated circuits, such as
the media access controller, the component that controls device access to the
physical media.
EXTEND OUR LEADERSHIP POSITION IN THE DATA STORAGE MARKET
The data storage market presents a large volume opportunity for our
broadband mixed signal and digital signal processing technologies. We believe
our technology effectively addresses the increasing data access rates and higher
data integrity and reliability requirements of the data storage markets. We have
achieved significant market share in the enterprise and mobile segments of the
data storage market. These segments of the data storage market demand the
highest performance read channel products. We intend to extend our leadership
position in the enterprise and mobile market segments by continuing to develop
and introduce products enabling higher data transfer rates and areal densities.
In addition, we intend to apply our cost effective CMOS-based design to develop
products targeted at the desktop segment.
STRENGTHEN AND EXPAND OUR RELATIONSHIPS WITH CURRENT AND POTENTIAL CUSTOMERS
Our goal is to achieve design wins with early adopters and technology
leaders in the data storage and broadband data communications markets. While we
design products that can be used by multiple customers, we often customize our
products to incorporate our customers' specific requirements. As the markets we
address become increasingly complex and competitive, we anticipate that many of
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our customers will increasingly wish to combine elements of their designs with
our own. We intend to jointly develop highly integrated products with our
customers to meet their cost and performance requirements and to strengthen our
relationships with them. For example, we are actively working with some of our
customers to incorporate specific features developed by them into our read
channel products.
CAPITALIZE ON WIDELY AVAILABLE CMOS MANUFACTURING PROCESSES AND FABLESS
OPERATING MODEL
We intend to continue to use widely available CMOS processes to manufacture
our advanced mixed signal and digital signal processing products. We believe
this will better enable us to reliably manufacture our products in volume,
thereby decreasing our time-to-market and costs, while also facilitating the
development of highly integrated products. We are a fabless integrated circuit
manufacturer in the sense that we rely on third parties to manufacture, assemble
and test our products for us. Our fabless model allows us to focus our resources
on the development of proprietary and innovative mixed signal and digital signal
processing designs, while reducing capital and operating infrastructure
requirements.
MARKETS
We target communications-related markets and applications that require
integrated circuit devices for high speed data transmission. We currently offer
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. IDC estimates that shipments of hard disk drive units will
increase at a compound annual growth rate of 17% from 1998 to 2003, reaching 319
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. We provide solutions tailored to the specific needs of the
enterprise, mobile and desktop segments of this market.
ENTERPRISE. Proliferation of new technologies such as redundant array
of independent drives, storage area networks and web caching is resulting
in increased usage of enterprise data storage devices. IDC projects an 18%
compound annual growth in shipments of enterprise hard disk drive units
from 15 million in 1998 to 34 million in 2003. Enterprise 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
enterprise 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, we
provide 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.
MOBILE. IDC projects a 14% compound annual growth in shipments of
mobile hard disk drive units from 16 million in 1998 to 31 million in 2003.
Manufacturers of storage devices for the mobile segment are primarily
concerned with power consumption, heat dissipation, cost and areal density.
Our product family targeted at this market segment incorporates advanced
data encoding schemes, digital filtering and data detection techniques.
These elements allow us to provide very low power consumption integrated
circuits that can accommodate high data transfer rates and enable very high
areal density disk drives.
DESKTOP AND CONSUMER ENTERTAINMENT. IDC projects a 15% compound annual
growth in shipments of desktop hard disk drive units from 111 million in
1998 to 222 million in 2003. Personal computer users have become
increasingly price sensitive. As a result, disk drive manufacturers focused
on this segment require integrated circuit components that facilitate
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<PAGE> 41
design for high volume, low cost manufacturing. Our CMOS-based design is
well suited to high volume, low cost manufacturing, scalable performance
and integration. In addition, due to our ability to deliver
enterprise-level data transfer rates while meeting the cost requirements of
the desktop segment, we offer our desktop customers an expansion path for
building the higher performance drives of the future. In addition, we
expect 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 100 megabits per second Fast Ethernet network interface cards and
switch ports will grow from 102 million in 1999 to 218 million in 2003. As lower
cost, lower power consumption Gigabit Ethernet physical layer devices become
available, we believe that Gigabit Ethernet will emerge as an important local
and wide area network communications technology.
PRODUCTS
We design, develop and market integrated circuits for the
communications-related markets of high speed, high density data storage and
broadband data communications. Our 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
physical layer interface between the analog signals from the magnetic storage
media and digital signals that computers can understand and manipulate. Our
initial read channel products incorporate sophisticated digital signal
processing partial response maximum likelihood technology, known as PRML, which
enables efficient media utilization through advanced data encoding, digital
filtering and data detection techniques. Our latest generation products
incorporate further advancements in PRML technology such as noise predictive
Viterbi, or NPV, technology. Our read channel products allow our customers to
achieve fast data transfer rates, high areal densities, and low power
dissipation. Our read channels are designed in deep sub-micron CMOS
manufacturing processes and use customized digital signal processing engines and
broadband analog front-ends. We introduced our first generation of PRML read
channels in 1997 and have introduced two subsequent generations of signal
processing technology enhancements since then. We have migrated our
manufacturing process technology from 0.5- to 0.18-micron and our product speed
from 240 to 750 megabits per second. Our read channel integrated circuits target
specific feature and performance requirements of enterprise, mobile and desktop
customers. Beginning with the 88C4000 product family, we implemented a strategy
to consolidate the signal processing algorithms required by each of our
different market segments into a single integrated circuit design. This strategy
provides cost savings and reduced product line complexity.
We are actively working with our customers to incorporate specific features
requested by them in our read channel products. In an effort to enhance
performance and lower cost, we are developing integrated products that
incorporate the read channel, the disk drive controller and embedded memory
functions in one integrated circuit.
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Our current read channel products are shown in the table below.
<TABLE>
- -------------------------------------------------------------------------------------------------------------
CMOS INTRODUCTION
READ CHANNEL DESCRIPTION PERFORMANCE PROCESS DATE*
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
88P2010 First generation PRML read 240Mbits/s 0.5mm 1st Qtr 1997
channel for use in enterprise
storage systems such as RAID,
server and high end workstations.
- -------------------------------------------------------------------------------------------------------------
88C3000 Second generation extended PRML 360Mbits/s 0.35mm 1st Qtr 1998
read channel with built-in
Viterbi metric margin engine for
use in higher density enterprise
storage systems.
- -------------------------------------------------------------------------------------------------------------
88C3100 Second generation PRML with new 300Mbits/s 0.35mm 2nd Qtr 1998
noise predictive Viterbi detector
for extremely high user bit
densities in mobile storage
applications.
- -------------------------------------------------------------------------------------------------------------
88C3020 Lower speed derivative of the 280Mbits/s 0.35mm 3rd Qtr 1998
88C3000 for use in desktop
storage products.
- -------------------------------------------------------------------------------------------------------------
88C4200 Third generation noise predictive 550Mbits/s 0.25mm 1st Qtr 1999
Viterbi PRML read channel for
enterprise and desktop storage
systems.
- -------------------------------------------------------------------------------------------------------------
88C4220 Derivative of the 88C4200 for 380Mbits/s 0.25mm 1st Qtr 1999
lower speed but higher user bit
density mobile storage systems.
- -------------------------------------------------------------------------------------------------------------
88C4300 Third generation PRML with second 550Mbits/s 0.25mm 1st Qtr 2000
generation noise predictive
Viterbi detector for future
mobile and high-end desktop
applications.
- -------------------------------------------------------------------------------------------------------------
88C5200 Fourth generation noise 750Mbits/s 0.18mm 1st Qtr 2000
predictive Viterbi PRML read
channel for use in future
enterprise storage systems.
- -------------------------------------------------------------------------------------------------------------
</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. We
provide the only commercially available preamplifiers manufactured in sub-micron
CMOS processes. We believe our CMOS-based preamplifier products provide high
performance at a lower cost than standard BiCMOS-based products. We introduced
our first preamplifier product in the third quarter of 1998 and our
second-generation product in the second quarter of 1999. We have also introduced
derivative products targeted at a range of applications for each of these
product families.
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<PAGE> 43
Our current preamplifier products are shown in the table below.
<TABLE>
- -------------------------------------------------------------------------------------------------------------
CMOS INTRODUCTION
PREAMPLIFIERS DESCRIPTION PERFORMANCE PROCESS 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
giant-magneto resistive
preamplifier.
- -------------------------------------------------------------------------------------------------------------
81G3002 2-channel derivative of the 300Mbits/s 0.5mm 2nd Qtr 1999
81G3018 design for entry level
desktop.
- -------------------------------------------------------------------------------------------------------------
81G4008 8-channel second generation high 500Mbits/s 0.5mm 2nd Qtr 1999
gain-bandwidth giant-magneto
resistive 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 for entry level desktop.
- -------------------------------------------------------------------------------------------------------------
</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
We are applying our mixed signal and digital signal processing technology
to a variety of broadband data communications markets, including Fast and
Gigabit Ethernet. Our integrated circuits provide the core functionality
required for building Ethernet network interface cards, routers, repeaters, hubs
and switches.
FAST ETHERNET PRODUCTS. Our first products for the Fast Ethernet data
communications market are highly integrated, small form-factor, six-port and
eight-port physical layer devices. These devices contain the active circuitry
needed for interfacing with up to six or eight media access controllers and are
typically used by our customers in Fast Ethernet repeaters, hubs, switches and
routers. We believe these products enable reliable communication over long cable
distances and lower quality cable installations. We believe we were the first to
introduce an eight-port Fast Ethernet physical layer device in a 0.25-micron
CMOS manufacturing process.
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Our current Fast Ethernet products are listed in the table below.
<TABLE>
- --------------------------------------------------------------------------------------------------------------
DATA COMMUNICATIONS CMOS INTRODUCTION
PRODUCTS DESCRIPTION PERFORMANCE PROCESS DATE*
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
88E3080 8-port DSP based Fast Ethernet 10/100Mbits/s 0.25mm 4th Qtr 1999
physical layer device providing
significantly better performance
than required by the IEEE
standard for use in workgroup and
enterprise repeaters, hubs,
switches and routers.
- --------------------------------------------------------------------------------------------------------------
88E3060 6-port DSP based Fast Ethernet 10/100Mbits/s 0.25mm 1st Qtr 2000
physical layer device for use in
small office home office hubs and
switches.
- --------------------------------------------------------------------------------------------------------------
</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.
GIGABIT ETHERNET PRODUCTS. We are currently developing a Gigabit Ethernet
physical layer device for unshielded twisted pair copper wire infrastructures.
We are designing this product for a 0.18-micron CMOS manufacturing process. The
design for this product incorporates sophisticated signal processing algorithms,
as well as higher resolution analog-to-digital and digital-to-analog converters,
to overcome the reduced signal-to-noise ratio of gigabit data rate signals on
standard Category 5 cable. Target applications for this product include network
interface cards, routers, repeaters, hubs and next-generation switches.
CUSTOMERS, SALES AND MARKETING
Our sales and marketing strategy is to achieve design wins with early
adopters and technology leaders in each of our selected markets. Our direct
sales force targets emerging high growth markets that have high intensity
communications processing requirements. Our customers for read channel and
preamplifier products are manufacturers of hard disk drives for the enterprise,
mobile and desktop markets. As of January 31, 2000, we have shipped over 30
million read channels and preamplifiers to our customers in the data storage
industry. A small number of our customers have historically accounted for a
substantial portion of our revenue. The percentage of our revenue accounted for
by our five major customers in fiscal 1999 and 2000 are set forth below.
<TABLE>
<CAPTION>
PERCENTAGE OF
REVENUE
--------------
CUSTOMER 1999 2000
-------- ----- -----
<S> <C> <C>
Samsung..................................................... 46% 36%
Seagate..................................................... 43 24
Hitachi..................................................... 7 14
Fujitsu..................................................... 2 14
Toshiba..................................................... 1 10
-- --
Total............................................. 99% 98%
</TABLE>
We recently introduced two data communications products, our eight-port and
six-port Fast Ethernet physical layer devices. We first began shipping for
evaluation our eight-port product in December 1999 and our six-port product in
March 2000. In March 2000, our eight-port Fast Ethernet device began shipping
for revenue. Other potential customers are currently designing the eight-port
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<PAGE> 45
physical layer device into their products. Our target customers for this product
are leading manufacturers of high speed networking equipment.
To date, substantially all of our data storage product sales have been made
through our direct sales force of nine people. We also complement and support
our direct sales force with manufacturer's representatives in North America and
Asia. In the first calendar quarter 2000, we entered into our first distribution
agreement to support our sales and marketing activities in the data
communications market, and we plan to enter into other distribution agreements
in the near term. We anticipate that sales through distributors will increase as
a percentage of our revenues in future periods. However, we expect a significant
percentage of our sales will continue to come from direct sales to key
customers. As of February 29, 2000, our sales and marketing organization
consisted of 47 employees and 11 manufacturers' representatives. In November
1999, our Japanese subsidiary, Marvell Japan, opened a new technical and sales
support facility in Japan to provide greater support for our international
customers.
Our sales are generally 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 our foundries, we generally place firm
orders for products with our suppliers up to sixteen weeks prior to the
anticipated delivery date and prior to an order for the product. We typically
warrant our products for a 90-day period. To date, we have not experienced
material product returns or warranty expense.
Our marketing team works in conjunction with our sales force and is
organized around our product applications. Due to the complexity of our
products, we introduce our new products to major customers with a global tour by
a marketing, sales and engineering team. We believe that individual meetings are
the most effective and rapid means of communicating the capabilities, benefits
and extremely technical specifications of each new product.
We use field application engineers to provide intensive technical support
and assistance to existing and potential customers in designing, testing and
qualifying systems designs that incorporate our products. We believe that
superior field applications engineering support plays a pivotal role in building
long-term relationships with our customers by improving our customers'
time-to-market, maintaining a high level of customer satisfaction and
encouraging customers to use our next generation of products. As of February 29,
2000, we had eight field application engineers.
MARVELL TECHNOLOGY
We believe our key technical competitive advantages result from our
collection of proprietary technologies that we have developed since our
inception. Our products are based on the following technologies:
- high bandwidth, analog front-end technology;
- advanced communications algorithms and data codings;
- custom digital signal processing engines; and
- reusable building blocks for integrated system-on-a-chip design.
HIGH BANDWIDTH ANALOG FRONT-END TECHNOLOGY
We have developed significant expertise in mixed signal circuit design
architectures and techniques required to design high performance analog
front-ends. We have developed this technology for use with deep sub-micron CMOS
manufacturing processes, which allows us to cost effectively integrate complex
digital signal processing functions with other high level system functions on a
small silicon chip. Our mixed signal circuits achieve performance levels that
are generally associated with more expensive, special purpose integrated circuit
manufacturing process technologies, such as BiCMOS. For example, our full flash
analog-to-digital converters for use in the
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<PAGE> 46
read channel and Ethernet networking applications achieve sampling rates of up
to 900MHz using a 0.18-micron CMOS process. In addition to achieving high
performance, our mixed signal circuits are designed to compensate for variations
inherent in current deep sub-micron CMOS manufacturing processes.
Our high bandwidth analog front-end technology can be used in various
communications-related applications. We are currently developing experimental
mixed signal technologies for extreme high bandwidth applications such as Fibre
Channel transceivers operating at data rates of up to 2.5 gigabits per second
for storage area networks. We are also developing a low phase noise radio
frequency voltage controlled oscillator using CMOS manufacturing process
technology to enable higher levels of integration of silicon components for
cable modem and wireless products.
ADVANCED COMMUNICATIONS ALGORITHMS AND DATA CODINGS
We have also developed complex communications algorithms that are required
for broadband data communications-related applications. Our communications
algorithms and coding techniques perform the signal equalization, data detection
and error corrections required to overcome media imperfections such as line
attenuation, interference from adjacent lines, line echo and noise interference.
These communications algorithms and coding techniques incorporate noise
predictive Viterbi partial response maximum likelihood detection, decision
feedback equalization, decision feedback sequence estimator, forward error
correction, quadrature amplitude modulation, and quadrature phase shift keying
techniques. These communications algorithms and coding techniques enable us 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 PROCESSING ENGINES
We target communications-related markets, which require very fast data
transfer rates and low power dissipation. To achieve the required performance
levels, we implement our signal processing algorithms in custom-designed digital
signal processing engines. Our Fast Ethernet digital signal processing engine
operates at 125MHz clock speed and performs several billion operations per
second while dissipating less than 100 milliwatts of power. Our fastest read
channel digital signal processing engine operates at more than 750MHz clock
speed and performs over 50 billion operations per second while dissipating less
than 750 milliwatts of power. Such performance is not readily available using
standard programmable digital signal processing solutions. We believe our custom
digital signal processing engines, when combined with our library of digital
signal processing circuit building blocks, will enable us to implement
application specific digital signal processing engines 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
We have developed a proprietary set of manufacturing process design rules
that we believe are scalable over several generations of manufacturing process
geometries. We have 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 us to shorten time-to-market for new
products and take advantage of the latest CMOS manufacturing processes. We
believe that as manufacturing process geometries continue shrinking, our
customers will pursue silicon integration strategies. To address this market
development, we have recently developed our own embedded memory technology for
complex system-on-a-chip designs that require large amounts of repairable
on-chip memory. We are also in the process of developing products that integrate
our core mixed signal and digital signal processing engines with our customers'
silicon components and on-chip memory.
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RESEARCH AND DEVELOPMENT
We believe that our future success depends on our ability to introduce
improvements to our existing products and to develop new products that deliver
cost effective solutions for both existing and new markets. Our research and
development efforts are directed largely to the development of proprietary
circuit designs for high bandwidth communications-related applications. We
devote a significant portion of our resources to expanding our core technology
library with designs that enable high performance, reliable communications over
a variety of physical media. We are also focused on incorporating functions
currently provided by stand-alone integrated circuits into our products to
reduce our customers' overall system costs.
We have 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 February 29, 2000, we had 93 employees in engineering and
process development, including 40 with advanced degrees. We have invested, and
expect that we will continue to invest, significant funds for research and
development. Our research and development expense was approximately $5.8 million
in fiscal 1999 and $14.5 million in fiscal 2000.
MANUFACTURING
We believe our fabless manufacturing approach provides us with the benefits
of superior manufacturing capability as well as flexibility to move the
manufacture, assembly and test of our products to those vendors that offer the
best capability at an attractive price. Our engineers work closely with our
foundries and other subcontractors to increase yields, lower manufacturing costs
and improve quality.
INTEGRATED CIRCUIT FABRICATION
Our integrated circuits are fabricated using widely available CMOS
processes, which provide us greater flexibility to engage independent foundries
to manufacture integrated circuits. By outsourcing our manufacturing, we are
able to avoid the cost associated with owning and operating our own
manufacturing facility. This allows us to focus our efforts on the design and
marketing of our products. We currently outsource substantially all of our
integrated circuit manufacturing to Taiwan Semiconductor Manufacturing Company.
We work closely with Taiwan Semiconductor to forecast on a monthly basis our
manufacturing capacity requirements. Our integrated circuits are currently
fabricated in 0.50-, 0.35- and 0.25-micron processes. We are also currently
sampling 0.18-micron products with customers. Because finer manufacturing
processes generally lead to enhanced performance, smaller silicon chip size and
lower power requirements, we continually evaluate the benefits and feasibility
of migrating to smaller geometry process technology in order to reduce cost and
improve performance.
ASSEMBLY AND TEST
Our silicon chips are shipped from our third-party foundries to our
third-party assembly and test facilities where they are assembled into finished
integrated circuit packages and tested. Our products are designed to use low
cost, standard packages and to be tested with widely available test equipment.
In addition, we specifically design our integrated circuits for ease of
testability, further reducing manufacturing costs. We outsource all of our
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
We build quality into our products starting with the design and development
process. Our designs are subjected to extensive circuit simulation under extreme
conditions of temperature, voltage and processing before being committed to
manufacture. We pre-qualify each of our subcontractors
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<PAGE> 48
and conduct regular in-depth quality audits. We closely monitor foundry
production to ensure consistent overall quality, reliability and yield levels.
All of our independent foundry and assembly and test subcontractors have been
awarded ISO 9000 certification.
INTELLECTUAL PROPERTY
Our future revenue growth and overall success depend in large part on our
ability to protect our intellectual property. We rely on a combination of
patents, copyrights, trademarks, trade secret laws, contractual provisions and
licenses to protect our intellectual property. We also enter into
confidentiality agreements with our employees, consultants, suppliers and
customers and seek to control access to, and distribution of, our documentation
and other proprietary information. Despite these precautions, it may be possible
for a third party to copy or otherwise obtain and use our products and
technology without authorization, develop similar technology independently or
design around our patents.
As of February 29, 2000, we had been granted nine United States patents on
various aspects of our technology, with expiration dates ranging from 2015 to
2018, and we had filed nine 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 our patents may be invalidated,
circumvented, challenged or licensed to others.
In addition, the laws of some foreign countries in which our products are
or may be developed, manufactured or sold, including various countries in Asia,
may not protect our products or proprietary information to the same extent as do
the laws of the United States and thus make the possibility of piracy of our
technology and products more likely in these countries.
We have expended and will continue to expend considerable resources in
establishing a patent position designed to protect our intellectual property.
While our ability to compete is enhanced by our ability to protect our
intellectual property, we believe that, in view of the rapid pace of
technological change, the combination of the technical experience and innovative
skills of our employees may be as important to our business as the legal
protection of our patents and other proprietary information.
From time to time, we 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. We 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 intellectual property litigation filed against us, there can be no
assurance that third parties will not assert claims of infringement against us.
Such claims, even those without merit, could be time consuming and result in
costly litigation. We 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 our resources, including our management's
time. Any such litigation could harm our 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. We expect competition to intensify as current competitors
expand their product offerings and new competitors enter the market.
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<PAGE> 49
We believe that our ability to compete successfully in the rapidly evolving
markets for our products depends on a number of factors, including:
- performance, features, quality and price of our products;
- the timing and success of new product introductions by us, our customers
and our competitors;
- the emergence of new industry standards;
- our ability to obtain adequate foundry capacity;
- the number and nature of our competitors in a given market; and
- general market and economic conditions.
Our current products face competition from a number of sources. We believe
our principal competitors in the read channel market are Cirrus Logic, Lucent
Technologies, NEC, STMicroelectronics and Texas Instruments. Our primary
competitors in the preamplifier market are Texas Instruments and Lucent
Technologies. In expanding our presence in the broadband data communications
market, we expect to compete with Broadcom, Intel and National Semiconductor.
Many of our 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 us. 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 we can.
Our current or future competitors may develop and introduce new products that
will be priced lower, provide superior performance or achieve greater market
acceptance than our products. In addition, in the event of a manufacturing
capacity shortage, these competitors may be able to manufacture products when we
are 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 our prospective customers.
Accordingly, it is possible that new competitors or alliances among competitors
could emerge and rapidly acquire significant market share, which would harm our
business.
In addition, many of our 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 our products. We 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 our products in particular, have decreased over the
life of a particular product. We expect that the average unit selling prices of
our products will continue to be subject to significant pricing pressures. In
order to offset expected declines in the average unit selling prices of our
products, we will likely need to reduce the cost of our products. We intend to
accomplish this by implementing design changes that lower the cost of
manufacturing, assembly and testing, by negotiating reduced charges by our
foundries as and if volumes increase, and by successfully managing our
manufacturing and subcontracting relationships. Because we do not operate our
own manufacturing, assembly or testing facilities, we may not be able to reduce
our costs as rapidly as companies that operate their own facilities. If we fail
to introduce lower cost versions of our products in a timely manner or to
successfully manage our manufacturing, assembly and testing relationships, our
business would be harmed.
EMPLOYEES
As of February 29, 2000, we had a total of 207 employees, of which 93 were
in research and development, 47 in sales and marketing, 31 in operations and 36
in general and administration. Our
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<PAGE> 50
employees are not represented by any collective bargaining agreements, and we
have not experienced any work stoppage. We consider our relations with our
employees to be good.
FACILITIES
Our primary facility, housing our research and design function 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 addition, our subsidiaries in Singapore and Japan have
leased space for their operations. Based upon our estimates of future hiring, we
believe that these facilities will be inadequate to meet our requirements past
2000. Accordingly, we will need to locate additional space in California and
Singapore and may find it necessary to vacate our current locations. The
additional space we anticipate requiring may cost substantially more than our
existing space, and we may incur significant additional capital expenditures for
expansion or tenant improvements.
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<PAGE> 51
MANAGEMENT
We are the parent of Marvell Semiconductor, Inc., a California corporation
we founded to develop proprietary technology and to provide selected support
services to us. Set forth below is certain information regarding the executive
officers, directors and some of the other officers of both Marvell Technology
Group Ltd. and Marvell Semiconductor, Inc. as of February 29, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Diosdado P. Banatao(1)(2)......... 53 Co-Chairman of the Board, Marvell Technology Group Ltd.
Sehat Sutardja.................... 38 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......................... 38 Executive Vice President, Corporate Assistant Secretary
and Director of Marvell Technology Group Ltd.; Executive
Vice President, General Manager of Data Communications
Business Unit 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.
Gordon M. Steel................... 55 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....................... 51 Vice President of Sales, Data Communications, Marvell
Semiconductor, Inc.
Larry L. Smith.................... 59 Vice President of Sales, Data Storage, Marvell
Semiconductor, Inc.
LeeChung Yiu...................... 44 Vice President of Engineering, Marvell Semiconductor,
Inc.
Stephen Zadig..................... 49 Vice President of Operations, Marvell Semiconductor, Inc.
Herbert Chang(1)(2)............... 37 Director, Marvell Technology Group Ltd.
John M. Cioffi(2)................. 43 Director, Marvell Technology Group Ltd.
Paul R. Gray(2)................... 57 Director, Marvell Technology Group Ltd.
Ron Verdoorn...................... 49 Director, Marvell Technology Group Ltd.
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
DIOSDADO P. BANATAO has served as our 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, one of our co-founders, has served as our President since
inception and as our 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.
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<PAGE> 52
From 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, one of our co-founders, has served as our Vice President,
Corporate Assistant Secretary and one of our 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 Business Unit 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, one of our co-founders, has served as our Vice President
and one of our 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.
GORDON M. STEEL has served as our Vice President of Finance and Chief
Financial Officer since September 1998 and in a similar capacity for Marvell
Semiconductor, Inc. from the same date. From 1987 to 1998, Mr. Steel was the
Senior Vice President of Finance and Chief Financial Officer for Xilinx Inc., a
designer and manufacturer of proprietary, programmable logic integrated circuits
and related software design tools. Mr. Steel holds a Bachelor of Arts degree in
Economics from Pomona College and a Master of Business Administration from the
Stanford Graduate School of Business.
ALAN ARMSTRONG has served as Vice President of Marketing, Data Storage for
Marvell Semiconductor since July 1999. From 1991 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
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<PAGE> 53
for Level One Communications, Inc., a subsidiary of Intel Corporation. From 1985
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.
LARRY SMITH has served as Vice President of Sales, Data Storage, for
Marvell Semiconductor, Inc. since September 1996. From 1981 until 1996, Mr.
Smith served as a manufacturing sales representative for a number of companies,
including Silicon Systems Inc., a company specializing in the development and
production of both analog and digital integrated circuits for data storage
applications.
LEECHUNG 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 one of our Directors 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 one of our Directors 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.
PAUL R. GRAY has served as one of our Directors since March 2000. Dr. Gray
currently serves as the Dean of the College of Engineering at the University of
California at Berkeley and has been appointed as Vice Chancellor and Provost,
effective May 2000. 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 one of our Directors 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> 54
COMPOSITION OF THE BOARD OF DIRECTORS
Our Bye-laws provide for two or more directors and the number of directors
is currently fixed at eight. Our 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
We have a Compensation Committee comprised of Messrs. Banatao, Chang,
Cioffi and Gray and an Audit Committee comprised of Messrs. Banatao and Chang.
We intend to appoint a third member to the Audit Committee prior to the
consummation of this offering. The Compensation Committee has the authority to
approve salaries and bonuses and other compensation matters for our officers and
consultants, to approve employee health and benefit plans and to administer our
stock option plans. The Audit Committee, which is comprised of independent
directors, has the authority to recommend the appointment of our 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 our 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 our Board of Directors or Compensation Committee.
DIRECTOR COMPENSATION
Our directors do not receive cash compensation for their service as
directors. Under our 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 our common stock annually. For a more detailed description of the 1997
Directors' Stock Option Plan see the discussion in this prospectus under the
heading "Management -- Compensation Plans."
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<PAGE> 55
EXECUTIVE COMPENSATION
The following table shows the cash compensation paid or accrued for the
fiscal year ended January 31, 2000 to our Chief Executive Officer and each of
our most highly compensated executive officers or former executive officers
other than the Chief Executive Officer. We 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 ten percent (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............................................. 165,000 3,081
Vice President of Finance and Chief Financial Officer
</TABLE>
- ---------------
(1) These amounts consist of discretionary profit sharing payments.
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. We have 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
We do not have employment agreements or change in control agreements with
any of our executive officers. Accordingly, our 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
Our Board of Directors adopted our 1995 Stock Option Plan on April 18,
1995, and intends to amend it at a forthcoming board meeting to add flexibility
to the administration of the plan and to add certain other improvements. The
plan will terminate no later than April 18, 2005. The plan provides for the
grant of incentive stock options to our employees and nonstatutory stock options
to our employees, directors and consultants. As of February 29, 2000, 29,500,000
shares of common stock were reserved for issuance under this plan. Of these
shares, 13,008,466 were subject to outstanding options and 4,070,270 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 year, beginning January 1, 2001, 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 our Board.
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<PAGE> 56
Our 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 our 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 our voting power cannot exceed five
years.
A participant may not transfer rights granted under our 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 our stock option plan if we are 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. Our Board of
Directors may not amend, modify, or terminate the stock plan if the amendment,
modification, or termination would impair optionees' rights unless we first
obtain the prior written consent of all optionees who would be adversely
affected.
2000 EMPLOYEE STOCK PURCHASE PLAN
At a forthcoming board meeting, we intend to present for approval the 2000
Employee Stock Purchase Plan, the adoption of which shall be subject to
shareholder approval. The purchase plan will terminate no later than 20 years
after the Board approval. The purchase plan will provide our employees and those
of our participating subsidiaries an opportunity to purchase our common stock
through accumulated payroll deductions.
A total of 1,000,000 shares of common stock will initially be reserved for
issuance under the purchase plan. In addition, the purchase plan will provide
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.
Our Board of Directors or a committee appointed by the Board will
administer the purchase plan. The Board or committee will have full and
exclusive authority to interpret the terms of the purchase plan. In addition,
the Board will have 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 our capital stock, or if
and to the extent that, his or her rights to purchase stock under all of our
employee stock purchase plans accrue at a rate that exceeds $25,000 worth of
stock per calendar year.
The purchase plan will permit participants to purchase common stock though
payroll deductions of up to 20% of the participant's base compensation, which
will include regular straight-time gross earnings and exclude overtime, shift
premiums, incentive compensation or payments, bonuses, and commissions.
Employees will participate in the purchase plan by enrolling in "offering
periods" of up to 24 months, as determined by the plan administrator, each
including four purchase periods. We intend the offering periods to start on the
first trading day of each February and August during the term of the purchase
plan, except that the first offering period is planned to begin on the first
trading day before the effective date of this offering, and is planned to end on
the last trading day of January 2002. Each purchase period will end in a
purchase date on the last trading day of each January and July. An employee may
be enrolled in only one offering period at a time.
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<PAGE> 57
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 will be able to reduce their withholding percentage, but not
below one percent, at any time during an offering period and will be able to
increase their withholding percentage effective the first day of each purchase
period. Participants will be able to end their participation, and will be repaid
their payroll deductions through that date, at any time during an offering
period. Participation will end automatically upon termination of employment.
We intend 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 will provide that, if we merge with or into another
corporation or a sale of substantially all of our 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 our Board of Directors adopted the 1997 Directors'
Stock Option Plan and our 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 our common stock have been
reserved for issuance under the director 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
our 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 our assets, adoption of a plan of liquidation, dissolution, consolidation
or reorganization all unvested options shall immediately vest and we will give
each director a reasonable time thereafter to exercise his or her option.
Alternatively, we may grant the director the right to exercise the option,
whether or not vested, for an equivalent number of shares of the company
acquiring our business by reason of such transaction.
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<PAGE> 58
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 our 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
We sponsor a defined contribution plan intended to qualify under Section
401(k) of the Internal Revenue Code. All employees are generally 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 us to make discretionary matching contributions. To
date, we have not made matching contributions under the plan.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION ON LIABILITY
Bermuda law permits a company to indemnify its directors and officers,
except for any acts of fraud or dishonesty. We have provided in our Bye-laws
that our directors and officers will be indemnified and held harmless out of our
assets from and against any and all actions, costs, charges, losses, damages and
expenses by reason of any act or omission in the discharge of their duty, other
than in the case of fraud or dishonesty.
Bermuda law and our Bye-laws also permit us to purchase insurance for the
benefit of our 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, and to indemnify them in
respect of any loss arising or liability incurred by them other than in respect
of fraud or dishonesty.
We intend to enter into indemnification agreements with our officers and
directors. To the extent permitted by law, the indemnification agreements may
require us, among other things, to indemnify our officers and directors against
certain liabilities that may arise by reason of their status or service as
officers or directors (other than liabilities arising from fraud or dishonesty)
and to advance expenses they incurred as a result of any proceedings against
them as to which they could be indemnified.
There is currently no pending litigation or proceeding involving an officer
or director that will require or permit us to provide indemnification. We are
not aware of any threatened litigation or proceeding that may result in a claim
for such indemnification.
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CERTAIN TRANSACTIONS
Since January 1997, there has not been nor is there currently proposed any
transaction or series of similar transactions to which we were 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 our 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 March 15, 2000, we granted options and issued
shares of our common stock as follows:
- In January 1997, we granted Diosdado Banatao an option to purchase
180,000 shares at an exercise price per share of $0.05.
- In January 1997, we 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 October 1998, we granted Gordon M. Steel options to purchase an
aggregate total of 1,600,000 shares at an exercise price per share of
$0.33. Mr. Steel exercised all of the options in January 1999. In
February 2000, we granted Mr. Steel an option to purchase 15,000 shares
at an exercise price per share of $5.00, none of which have been
exercised.
- In January 1998, we 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, we 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, we 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.
Except as set forth above, none of our executive officers, directors or 5%
shareholders received options to purchase or purchased our common stock during
this period.
CONVERTIBLE NOTE FINANCING AND SERIES D PREFERRED STOCK
In June 1997, in conjunction with issuing convertible promissory notes for
short-term financing, we issued warrants to purchase Series D preferred stock at
an exercise price of $4.33 per share. The number of shares subject to such
warrant equaled 15% of the principal amount of each purchaser's note divided by
the exercise price at the time of issuance. The promissory notes were cancelled
in December 1997, and the accrued indebtedness, consisting of principal and
interest, was converted to Series D preferred stock. Concurrent with the
conversion of the convertible promissory notes, during the period December 1997
through February 1998 we sold additional shares of Series D preferred stock to
investors at a purchase price of $4.33 per share. Set forth below is a
description of the warrants and shares of Series D preferred stock issued to our
officers, directors and 5% shareholders.
- In December 1997, InveStar Burgeon Venture Capital, Inc., purchased
119,330 shares of Series D Preferred for the cancellation of $517,094.50
in accrued indebtedness under a convertible promissory note issued in
June 1997, and we granted to InveStar Burgeon Venture Capital, Inc. a
warrant to purchase 17,307 shares of Series D preferred stock.
- In December 1997, InveStar Semiconductor Development Fund, Inc. purchased
469,428 shares of Series D Preferred for $999,999 in cash and
cancellation of $1,034,189 in accrued indebtedness under a convertible
promissory note issued in June 1997, and we issued to InveStar
Semiconductor Development Fund, Inc. a warrant to purchase 34,616 shares
of Series D preferred stock.
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- In December 1997, Sehat Sutardja and Weili Dai purchased 23,078 shares of
Series D Preferred for cash.
- In December 1997, InveStar Dayspring Venture Capital, Inc. purchased
115,385 shares of Series D Preferred for cash.
- In February 1998, InveStar Semiconductor Development, Inc. purchased
92,309 shares of Series D Preferred for cash.
- In February 1998, InveStar Dayspring Venture Capital, Inc. purchased
46,154 shares of Series D Preferred for cash.
- In February 1998, Forefront Venture Partners, L.P., purchased 46,154
shares of Series D Preferred for cash.
- In February 1998, InveStar Excelsus Venture Capital, Inc. purchased
46,154 shares of Series D Preferred for cash.
- In February 1998, Ron Verdoorn purchased 8,078 shares of Series D
Preferred 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 our shareholders on March 17, 2000. All share numbers and
exercise prices for preferred stock have been adjusted to reflect the 50% stock
dividend in June 1998. Although the number of shares of Series D Preferred was
not affected by the two 100% common stock dividends approved by our shareholders
on March 17, 2000, as a result of the stock dividends, each share of Series D
preferred stock automatically adjusted and became convertible into four shares
of common stock.
InveStar Capital, Inc. acted as placement agent for several sales of the
Series D preferred stock, and as partial consideration for such services we
issued to InveStar Capital, Inc. warrants to purchase 10,825 shares of Series D
preferred stock.
We have entered into an investor rights agreement with each of the
purchasers of our preferred stock, including those set forth above. Under this
agreement, these stockholders are entitled to registration rights with respect
to their shares of common stock issuable upon conversion of the preferred stock
and have defined rights of first refusal upon our issuance of new securities.
DIRECTOR AFFILIATIONS
Our director Ronald Verdoorn 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 our net
revenue in fiscal 1998, 43% of our net revenue in fiscal 1999 and 24% of our net
revenue in fiscal 2000.
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PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of March 15, 2000, and as adjusted to reflect
the sale of the shares in this offering for:
- each person known by us to own beneficially more than 5% of our
outstanding shares;
- each director and executive officer; and
- all directors and executive officers as a group.
The percentage of beneficial ownership for the following table is based on
77,101,316 shares of our common stock outstanding on March 15, 2000, assuming
the conversion of all outstanding shares of preferred stock and preferred and
common stock warrants into common stock. The percentage of beneficial ownership
after this offering also assumes shares of common stock
outstanding after completion of this offering, and assumes no exercise of the
underwriters' option to purchase additional shares in the offering.
Unless otherwise indicated below, to our knowledge, all persons listed
below have sole voting and investment power with respect to their shares of
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 common stock that the
shareholder has sole or shared voting of investment power and any shares of
common stock that the shareholder has a right to acquire within sixty (60) days
after March 15, 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 common stock. Although the number
of shares of preferred stock was not affected by the two 100% common stock
dividends approved by our shareholders on March 17, 2000, as a result of the
stock dividends, each share of preferred stock automatically adjusted and became
convertible into four shares of common stock.
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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 SHARES BENEFICIALLY
OWNED PRIOR OWNED
TO OFFERING AFTER OFFERING
-------------------- --------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
------------------------------------ ---------- ------- ---------- -------
<S> <C> <C> <C> <C>
EXECUTIVE OFFICERS, DIRECTORS AND 5%
SHAREHOLDERS:
Entities Affiliated with InveStar Capital,
Inc.(1)........................................ 8,730,640 11.3% 8,730,640
1737 North First Street
San Jose, CA 95112
Sehat Sutardja(2)................................ 24,092,312 31.2% 24,092,312
Weili Dai(2)..................................... 24,092,312 31.2% 24,092,312
Pantas Sutardja.................................. 12,000,000 15.6% 12,000,000
Gordon M. Steel(3)............................... 1,615,000 2.1% 1,615,000
Diosdado P. Banatao(4)........................... 6,879,208 8.9% 6,879,208
2800 Sand Hill Road, #250
Menlo Park, CA 94025
Herbert Chang(1)................................. 8,730,640 11.3% 8,730,640
1737 North First Street
San Jose, CA 95112
John M. Cioffi................................... 180,000 * 180,000 *
Paul R. Gray(5).................................. 180,000 * 180,000 *
Ron Verdoon...................................... 662,312 * 662,312 *
Executive Officers and Directors
as a Group (9 persons)(6)...................... 54,339,472 70.5% 54,339,472
</TABLE>
- ---------------
* Less than one percent
(1) Represents 161,539 shares of Series D Preferred Stock held by InveStar
Dayspring Venture Capital, Inc., 46,154 shares of Series D Preferred Stock
held by InveStar Excelsus Venture Capital (Int'l), Inc., 570,000 shares of
Series C Preferred Stock, 561,737 shares of Series D Preferred Stock and a
warrant to purchase 34,615 shares of Series D Preferred Stock held by
InveStar Semiconductor Development Fund, Inc., 569,999 shares of Series C
Preferred Stock, 119,330 shares of Series D Preferred Stock and a warrant to
purchase 17,307 shares of Series D Preferred Stock held by InveStar Burgeon
Venture Capital, Inc., 46,154 shares of Series D Preferred Stock held by
Forefront Venture Partners L.P., and warrants to purchase 10,825 shares of
Series D preferred stock issued to 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 member
of Forefront Associates LLC, which is the general partner of Forefront
Venture Partners, L.P.
(2) Dr. Sutardja and Ms. Dai are husband and wife. Includes 9,000,000 shares
held by Dr. Sutardja, of which Ms. Dai may be deemed to be a beneficial
owner although Ms. Dai disclaims such beneficial ownership, 9,000,000 shares
held by Ms. Dai, of which Dr. Sutardja may be deemed to be a beneficial
owner, although Dr. Sutardja disclaims such beneficial ownership, 23,078
shares of Series D Preferred Stock convertible into 92,312 common shares
held jointly by Dr. Sutardja and Ms. Dai, and 6,000,000 shares held by Dr.
Sutardja and Ms. Dai as trustees of the Sutardja Family Trust dated January
31, 1995. Dr. Sutardja and Ms. Dai disclaim beneficial ownership of the
6,000,000 shares held by the Sutardja Family Trust.
(3) Includes 400,000 shares held by each of Mr. Steel's two children. Mr. Steel
disclaims beneficial ownership of the 800,000 shares held by his children,
except to the extent of his pecuniary interest therein, if any. Includes
15,000 shares subject to stock options that are currently exercisable or
will become exercisable within 60 days after March 15, 2000.
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(4) 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 after March 15, 2000.
(5) Includes 144,000 shares subject to stock options that are currently
exercisable or will become exercisable within 60 days after March 15, 2000.
(6) Includes 1,839,000 shares subject to stock options that are currently
exercisable or will become exercisable within 60 days after March 15, 2000.
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DESCRIPTION OF CAPITAL STOCK
Our 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.
COMMON STOCK
As of February 29, 2000, there were 76,366,116 shares of our common stock
issued and outstanding, held of record by approximately 222 shareholders. The
number of shares of common stock outstanding has been adjusted to reflect the
conversion when this offering closes of 6,806,213 outstanding shares of
preferred stock and preferred and common stock warrants into 27,044,852 shares
of common stock, at a conversion ratio of four shares of common stock for each
share of preferred stock. In the event of our liquidation, dissolution or
winding up, holders of common stock would be entitled to receive all of our
assets, pro rata, after payment of all our debts and liabilities, and any
liquidation payment that we may be required to pay to our preferred shareholders
on the date of liquidation. The shares of 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 common stock are, and the
shares of common stock offered hereby, when issued and upon our receipt of the
full purchase price therefore, will be, fully paid and nonassessable.
PREFERRED STOCK
The 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 our 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 the 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
common stock, including the loss of voting control to others, without obtaining
further approval of our shareholders. The issuance of shares of preferred stock
could delay or prevent a change in control of this company, without further
action by our shareholders.
BERMUDA LAW
We were incorporated as an exempted Bermuda company under The Companies
Act, 1981 of Bermuda. This means that we are exempted from the provisions of
Bermuda law which stipulate that at least 60% of our equity must be beneficially
owned by Bermudians. The rights of our shareholders, including those persons who
will become our shareholders in connection with this offering, are governed by
Bermuda law, our Memorandum of Association and Bye-laws. The following is a
summary of certain provisions of Bermuda law and our organizational documents.
Because this summary does not contain all of the information set forth in the
Bermuda law provisions or our organizational documents, we encourage you to read
those documents.
DIVIDENDS. Bermuda law authorizes a company to 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 thereby be less
than the aggregate of its liabilities and its issued share capital and
share premium accounts.
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VOTING RIGHTS. Unless otherwise provided by the Companies Act or a
company's bye-laws, under Bermuda law, questions brought before a general
meeting of shareholders are decided by a majority vote of shareholders present
at the meeting. Each shareholder has one vote, regardless of the number of
shares held, 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 shareholder or shareholders present in person or represented by
proxy and holding between them not less than one-tenth of the total
voting rights of all the shareholders having the right to vote, or
- any shareholder or shareholders present in person or represented by
proxy holding shares conferring the right to vote at the meeting, and
the total paid up on those shares has been paid up equal to at least
one-tenth of the total sum paid up on all shares conferring the right to
vote at the meeting.
Our Bye-laws provide that, subject to the provisions of the Companies Act,
any questions sent to a shareholder vote will be decided by a majority of the
votes cast. At our annual general meeting in April 2000, we intend to seek the
approval of our shareholders of an amendment and restatement of our Bye-laws
requiring two-thirds of the outstanding shares to approve amendments to some
provisions of our Bye-laws.
RIGHTS IN LIQUIDATION. Under Bermuda law, in the event of liquidation,
dissolution or winding up of a company, the proceeds of such liquidation,
dissolution or winding up are distributed pro rata among the holders of common
stock, after satisfaction in full of all claims of creditors and subject to the
preferential rights accorded to any series of preferred stock.
MEETINGS OF SHAREHOLDERS. Under Bermuda law, a company is required to
convene at least one general shareholders' meeting per calendar year. Bermuda
law provides that a special general meeting must be called by the board of
directors and must be called upon the request of shareholders holding not less
than 10% of such 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 general meeting, but the accidental omission of notice to any person
does not invalidate the proceedings at such meeting. Our 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.
Our Bye-laws provide that two persons present in person and representing in
person or by proxy at least 50% of the total issued voting shares constitutes a
quorum.
ACCESS TO BOOKS AND RECORDS AND DISSEMINATION OF INFORMATION. Members of
the general public have the right to inspect the public documents of a company
available at the office of the Registrar of Companies in Bermuda. These
documents include:
- our Memorandum of Association (including its objects and powers), and
- any amendment of our Memorandum of Association.
In addition, our shareholders have the right to inspect:
- our Bye-laws,
- our minutes of general meetings, and
- our audited financial statements, which must be presented at the annual
general meeting.
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Our register of shareholders is also open to inspection by our shareholders
without charge and to members of the general public, upon the payment of a fee.
We are required to maintain our share register in Bermuda but may, subject to
the provisions of the Companies Act, establish a branch register outside
Bermuda. We are required to keep at our registered office a register of our
directors and officers which is open for inspection for not less than two hours
each day by members of the public without charge. However, Bermuda law does not
provide a general right for shareholders to inspect or obtain copies of any
other corporate records.
ELECTION OR REMOVAL OF DIRECTORS. Under Bermuda law and our Bye-laws,
directors are elected at the annual general meeting for a term of one year or
until their successors are elected or appointed, unless they resign or are
earlier removed.
Under Bermuda law, unless otherwise provided in a company's bye-laws, a
director may be removed at a special general meeting of shareholders
specifically called for that purpose, provided that the director was served with
at least 14 days' notice of the meeting. The director has a right to be heard at
such meeting. Any vacancy created by the removal of a director at a special
general meeting may be filled at such meeting by the election of another
director in his or her place or, in the absence of any such election, by the
board of directors.
At our annual general meeting in April 2000, we intend to seek the approval
of our shareholders of an amendment and restatement of our Bye-laws providing
for a classified Board of Directors with staggered terms and limiting the
removal of directors without cause.
AMENDMENT OF MEMORANDUM OF ASSOCIATION AND BYE-LAWS. 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. An
amendment to the memorandum of association, other than an amendment which alters
or reduces a company's share capital, also requires 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 Bermuda law, 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 which alters or reduces 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 of their number as they may appoint in
writing for that purpose. No such application may be made by persons voting in
favor of the amendment.
APPRAISAL RIGHTS AND SHAREHOLDER SUITS. Under Bermuda law, in the event of
a consolidation or amalgamation of two companies, 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, and of
the holders of each class of such shares.
Class actions and derivative actions are generally not available to
shareholders under Bermuda law. The Bermuda courts, however, 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,
- to be illegal, or
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- to violate the company's memorandum of association or bye-laws.
Furthermore, consideration would be given by the Bermuda courts to acts
that are alleged to constitute a fraud against the minority shareholders or, for
instance where an act requires the approval of a greater percentage of the
company's shareholders than those who actually approve 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 to regulate the
company's conduct of affairs in the future or order the purchase of the shares
by any shareholder, by other shareholders or by the company.
WARRANTS
The warrants that we issued will expire upon this initial public offering.
REGISTRATION RIGHTS
Pursuant to the terms of the Investor Rights Agreement dated September 10,
1999, with our preferred shareholders and warrant holders and their transferees
receiving at least 200,000 shares, after this offering the holders of 27,044,852
shares of common stock will have rights with respect to the registration of
their respective shares under the Securities Act. Under the terms of the
agreement, if we propose to register any of our securities under the Securities
Act, either for our own account or for the account of other security holders
exercising registration rights, such holders are entitled to notice of such
registration and are entitled to include their common stock in the registration.
Six months following the effective date of this offering, these shareholders may
also require us to file a registration statement under the Securities Act at our
expense with respect to their shares of common stock, and we are required to use
our best efforts to effect such registration. These shareholders have the right
to request up to two such registration statements. Further, such shareholders
may require us to file additional registration statements on Form S-3 or its
equivalent at our 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
We intend to seek the approval of our shareholders at our annual general
meeting in April 2000, for an amendment to our Bye-laws. The amendment will
implement provisions that may have the effect of delaying, deferring or
discouraging another person from acquiring control of us. These provisions
include:
- following the completion of this offering, the approval of holders of
two-thirds of the shares entitled to vote at an election of directors
shall be required to adopt, amend or repeal our Bye-laws regarding the
election and removal of directors;
- shareholders may only fill vacancies on the board when no quorum of
directors remains;
- following the completion of this offering, our Board of Directors will be
divided 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, 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; and
- we will indemnify officers and directors against losses that they may
incur in investigations and legal proceedings resulting from their
services to us, which may include services in connection with takeover
defense measures.
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TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is .
LISTING
We will apply to have our common stock listed for quotation on the Nasdaq
National Market under the trading symbol "MRVL".
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CERTAIN FOREIGN ISSUER CONSIDERATIONS
There are no limitations on the rights of foreign nationals or persons
non-resident in Bermuda who own our common stock to hold or vote their shares.
Because we have been designated as a non-resident for Bermuda exchange control
purposes, there are no restrictions in Bermuda on our ability to transfer funds
in and out of Bermuda or to pay dividends to United States residents who are
holders of our common stock other than in respect of local Bermuda currency.
In the case of an applicant acting in a special capacity such as an
executor or trustee, at the request of the applicant, certificates may record
the capacity in which the applicant is acting. Notwithstanding the recording of
any such special capacity, we are not bound to investigate or incur any
responsibility in respect of the proper administration of any estate or trust.
We will not take notice of any trust applicable to any of its shares whether or
not we had notice of the trust.
Under Bermuda law, we are an exempted company. This means that we are
exempted from the provisions of Bermuda law that stipulate that at least 60% of
the equity must be beneficially owned by Bermudians. Consents under The Exchange
Control Act, 1972 of Bermuda and the regulations under that Act have been
obtained for the issue and subsequent transfer of the shares of common stock
offered by this prospectus to and among persons not resident in Bermuda for
exchange control purposes. For exchange control purposes, persons regarded as
residents of Bermuda require specific consent under The Exchange Control Act
1972 to purchase shares. The Companies Act permits companies to adopt bye-law
provisions relating to the transfer of shares. There are no limitations imposed
by Bermuda law, our Memorandum of Association or our Bye-laws, on the right of
foreign nationals or nonresidents of Bermuda to hold or vote shares of our
common stock. There is no minimum subscription which must be raised by the issue
of shares to provide the funds required for the purposes of Section 28 of the
Companies Act.
As an exempted company, we may not, unless authorized by our Memorandum of
Association or any other act, participate in certain business transactions,
including:
- the acquisition or holding of land in Bermuda, except as required for
our business and held by way of lease or tenancy for terms of not more
than 50 years;
- the taking of mortgages on land in Bermuda; or
- the carrying on of business of any kind in Bermuda, except in
furtherance of our business carried on outside Bermuda or under a
license granted by the Bermuda Minister of Finance.
The Bermuda government actively encourages foreign investment in exempted
entities which, like us, are based in Bermuda but do not operate in competition
with local business. In addition to having no restrictions on the degree of
foreign ownership, we are not subject to taxes on its income or dividends or to
any foreign exchange controls in Bermuda. In addition, there is no capital gains
tax in Bermuda, and we can accumulate, as required, without limitation.
We have been advised by our legal advisor in Bermuda that 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 and
that 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 securities laws, would, therefore, not be automatically
enforceable in Bermuda.
Nevertheless, a final and conclusive judgment obtained in a state court or
federal court of the United States based upon a contractual obligation under
which a sum of money is payable could be enforced by an action in the Supreme
Court of Bermuda, without reexamination of the merits, under the common law
doctrine of obligation. A final opinion as to the availability of this remedy
could only be given when the facts surrounding the judgment were known but, on
general principles, we would
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expect an application to be successful on the basis of advice from our legal
advisor in Bermuda, provided that the judgment:
- was final and conclusive;
- was not obtained by fraud;
- was not and its enforcement would not be contrary to public policy of
Bermuda;
- was obtained in circumstances where the proceedings were not contrary to
the rules of natural justice; and
- was the subject of the correct procedures under the law of Bermuda for
its enforcement.
A Bermuda court may impose civil liability on us or our directors or
officers in a suit brought in the Supreme Court of Bermuda against us or those
persons with respect to a violation of United States securities law, provided
that the facts surrounding the violation would constitute or give rise to a
cause of action under Bermuda law.
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TAXATION
TAXATION OF MARVELL
We believe that a significant portion of our income will not be subject to
tax in Bermuda, which currently has no corporate income tax, or other countries
in which we or our affiliates conduct activities or in which our customers are
located, including the United States. However, our belief is based upon the
anticipated nature and conduct of our business, which may change, and upon our
understanding of our position under the tax laws of the various countries in
which we have assets or conduct business. Our position may be subject to review
and possible challenge by taxing authorities and to possible changes in law that
could have retroactive effect. The extent to which taxing jurisdictions may
require us to pay tax or to make payments in lieu of tax cannot be determined in
advance. In addition, our operations and payments due to us may be affected by
changes in taxation, including retroactive tax claims or assessments of
withholding on amounts payable to us or other taxes assessed at the source, in
excess of the taxation we anticipate based on our business contacts and
practices and the current tax regimes. These factors could harm our financial
results.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
We and our non-United States subsidiaries will be subject to United States
federal income tax at regular corporate rates, and to United States branch
profits tax, on our income that is effectively connected with the conduct of a
trade or business within the United States, and will be required to file federal
income tax returns reflecting that income. We intend to conduct our business so
as to limit the amount of our effectively connected income. However, the
Internal Revenue Service might not agree with our positions in this regard.
Moreover, our United States subsidiary will be subject to United States federal
income tax on its worldwide income regardless of its source, subject to
reduction by allowable foreign tax credits, and distributions by our United
States subsidiary to us or our foreign subsidiaries generally will be subject to
United States withholding.
BERMUDA TAX CONSIDERATIONS
Under current Bermuda law, we are not subject to tax on income or capital
gains. Furthermore, we have obtained from the Minister of Finance of Bermuda
under the Exempted Undertakings Tax Protection Act 1966, as amended, an
undertaking that, in the event that Bermuda enacts any legislation imposing tax
computed on profits, income, any capital asset, gain or appreciation, or any tax
in the nature of estate duty or inheritance tax, then the imposition of such tax
will not be applicable to us or to any of our operations, or our shares, capital
or common stock, until March 28, 2016. The undertaking does not, however,
prevent the imposition of property taxes on any company owning real property or
leasehold interests in Bermuda.
SINGAPORE TAX CONSIDERATIONS
The Economic Development Board of Singapore has informed us that it intends
to recommend us for pioneer status. We believe that we will shortly receive
official approval of pioneer status for a period of at least six years,
commencing July 1, 1999. We anticipate that as a consequence a significant
portion of our income in Singapore will be free from the 26% Singapore tax rate
during this period. We have agreed to meet certain requirements as to investment
and headcount in Singapore, and barring unexpected events, we anticipate that we
will meet such requirements.
TAXATION OF SHAREHOLDERS
In the opinion of Fenwick & West LLP, our special United States federal
income tax counsel, the summary set forth below under "Taxation of
Shareholders -- United States Federal Income Tax Considerations" accurately
describes certain material United States federal income tax consequences that
may be relevant to the ownership and disposition of our common stock. In the
opinion of
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Conyers, Dill & Pearman, our special Bermuda counsel, the summary set forth
below under "Taxation of Shareholders -- Bermuda Tax Considerations" accurately
describes certain material Bermuda tax consequences that may be relevant to the
purchase, ownership and disposition of our common stock. Unless otherwise
stated, the discussion below deals only with our common stock held as capital
assets by United States Holders, as defined below, who purchase the common stock
upon original issuance at its original offering price. The discussion does not
deal with all possible tax consequences relating to an investment in our common
stock and does not purport to deal with the tax consequences applicable to all
categories of investors, some of which, such as dealers in securities, financial
institutions, insurance companies, tax-exempt entities, and shareholders who are
subject to the alternative minimum tax, may be subject to special rules. In
particular, the discussion does not address the tax consequences under state,
local, estate, or other national, for example, non-United States, non-Bermuda,
tax laws. Accordingly, each prospective investor should consult its own tax
advisor regarding the particular tax consequences to it of an investment in our
common stock. The following discussion is based upon laws, regulations and
relevant interpretations thereof in effect as of the date of this prospectus,
all of which are subject to change, possibly retroactively.
BERMUDA TAX CONSIDERATIONS
Under current Bermuda law, no income, withholding or other taxes or stamp
or other duties will be imposed upon the issue, transfer or sale of our common
stock or on any payments on the common stock. The undertaking on taxes we
obtained from the Minister of Finance of Bermuda is described under the heading
"Taxation of Marvell -- Bermuda Tax Considerations".
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain material United States federal income
tax considerations that apply to the ownership and disposition of our common
stock by United States Holders, as defined below, as of the date of this
prospectus. This summary deals only with common stock that is held as a capital
asset within the meaning of Section 1221 of the Internal Revenue Code by a
United States Holder, and does not address tax considerations applicable to
United States Holders that may be subject to special tax rules, such as dealers
or traders in securities, financial institutions, insurance companies,
tax-exempt entities, United States Holders subject to alternative minimum tax,
United States Holders that hold common stock as part of a straddle, conversion
transaction, constructive sale or other arrangement involving more than one
position, United States Holders that have a principal place of business or "tax
home" outside the United States or United States Holders whose functional
currency is not the United States dollar. In addition, the summary generally
does not address the tax consequences to the United States Holders that own, or
are deemed for United States federal income tax purposes to own, pursuant to
complex attribution and constructive ownership rules, 10% or more of our voting
stock or that of any of our non-United States subsidiaries ("10% Shareholders").
The discussion below is based upon United States federal income tax law and
administrative practice as of the date of this prospectus; future legislation,
regulations, administrative interpretations, or court decisions could change
such laws either prospectively or retroactively, so as to result in United
States federal income tax consequences different from those discussed below.
THE DISCUSSION SET OUT BELOW IS INTENDED ONLY AS A GENERAL SUMMARY OF
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN
THE COMMON STOCK. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX
ADVISORS AS TO THE TAX CONSEQUENCES OF AN INVESTMENT IN THE COMMON STOCK,
INCLUDING THE APPLICATION TO THEIR PARTICULAR SITUATIONS OF THE TAX
CONSIDERATIONS DISCUSSED BELOW, AS WELL AS THE APPLICATION OF STATE, LOCAL,
ESTATE, FOREIGN OR OTHER FEDERAL TAX LAWS. THE STATEMENTS OF UNITED STATES
FEDERAL INCOME TAX LAW SET OUT BELOW ARE BASED ON THE LAWS IN FORCE AND
INTERPRETATIONS THEREOF AS OF THE DATE OF THIS PROSPECTUS, AND ARE SUBJECT
TO ANY CHANGES OCCURRING AFTER THAT DATE.
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As used in this discussion, a "United States Holder" of common stock means
a holder that is:
- a citizen or resident of the United States;
- a corporation, partnership or other entity created or organized in or
under the laws of the United States or any political subdivision thereof;
- an estate the income of which is subject to United States federal income
taxation regardless of its source; or
- a trust which is subject to the supervision of a court within the United
States and the control of a United States person as described in Section
7701(a)(30) of the Internal Revenue Code.
TAXATION OF DISTRIBUTIONS
Subject to the passive foreign investment company rules described below, to
the extent paid out of current or accumulated earnings and profits, as
determined under United States federal income tax principles, a distribution
made with respect to our common stock will be includible for United States
federal income tax purposes in the gross income of a United States Holder as
ordinary income. These dividends will not be eligible for the dividends received
deduction allowed to corporations under Section 243 of the Internal Revenue
Code. To the extent that the amount of any distribution exceeds our earnings and
profits, the distribution will first be treated as a tax-free return of capital
to the extent of the United States Holder's adjusted tax basis in the common
stock, and thereafter as capital gain. We do not anticipate paying cash
dividends in the foreseeable future. See "Dividend Policy." For so long as we
are a "United States-owned foreign corporation," distributions with respect to
our common stock that are taxable as dividends generally will be treated for
United States foreign tax credit purposes as either (1) foreign source "passive
income," or, in the case of certain United States Holders, foreign source
"financial services income," or (2) United States source income, in proportion
to our earnings and profits in the year of such distribution allocable to
foreign and United States sources. For this purpose, we will be treated as a
United States-owned foreign corporation so long as stock representing 50% or
more of our voting power or value is owned, directly or indirectly, by United
States Holders.
TAXATION OF CAPITAL GAINS
Subject to the PFIC rules described below, for United States federal income
tax purposes, a United States Holder will recognize gain or loss on any sale or
other disposition of common stock in an amount equal to the difference between
the amount realized for the common stock and the United States Holder's adjusted
tax basis in the common stock. This gain or loss generally will be capital gain
or loss. Capital gain of individuals derived with respect to capital assets held
for more than one year is eligible for reduced rates of taxation depending upon
the holding period of such capital assets. The deductibility of capital losses
is subject to limitations. Any gain or loss recognized by a United States Holder
generally will be treated as United States source.
PASSIVE FOREIGN INVESTMENT COMPANY (PFIC)
We believe that we are not a passive foreign investment company, or PFIC,
and do not expect to become a PFIC in the future for United States federal
income tax purposes, although there can be no assurance in this regard. Our
conclusion is a factual determination made annually and thus is subject to
change. In addition, it is based, in part, on interpretations of existing law
that we believe are reasonable, but which have not been approved by any taxing
authority.
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In general, we will be classified as a PFIC with respect to a United States
Holder if, for any taxable year in which the United States Holder held common
stock, either:
- at least 75% of our gross income for the taxable year is passive income;
or
- at least 50% of the average percentage of our assets by value produce or
are held for the production of passive income.
For this purpose, passive income generally includes dividends, interest,
royalties, rents, other than certain rents and royalties derived in the active
conduct of a trade or business, annuities and gains from assets that produce
passive income other than sales of inventory. If we own directly or indirectly
at least 25% by value of the stock of another corporation, we will be treated
for purposes of the PFIC tests as owning our proportionate share of the assets
of the other corporation, and as receiving directly our proportionate share of
the other corporation's income. If we are classified as a PFIC in any year with
respect to which a United States person is a shareholder, we generally will
continue to be treated as a PFIC with respect to such shareholder in all
succeeding years, regardless of whether we continue to meet the income or asset
test described above, subject to certain possible shareholder elections that may
apply in certain circumstances.
If we were to be classified as a PFIC, the United States federal income tax
consequences to a United States Holder with respect to our common stock would
change significantly from the consequences presented in this discussion. For
example, special rules generally would apply to direct and certain indirect
United States Holders upon disposition of the common stock, receipt of an
"excess distribution," as defined in Section 1291(b) of the Internal Revenue
Code, specified nonrecognition transactions, or use of our common stock as
security for a loan. Those United States Holders could be subject to tax as if
the gain or distribution were ordinary income earned ratably over the holding
period for the common stock, including an interest charge on the deferred tax,
and other adverse tax consequences. Alternatively, a United States Holder of
stock in a PFIC that is treated as "marketable stock" may make a mark-to-market
election. If a United States Holder were to make a timely filed mark-to-market
election with respect to our common stock owned, or treated as owned, at the
close of the United States Holder's taxable year, the United States Holder would
include as ordinary income in that taxable year any excess of the fair market
value of the United States Holder's common stock as of the close of such year
over its adjusted basis. The United States Holder would be allowed a deduction
for such taxable year in the amount of any excess of the adjusted basis of the
United States Holder's common stock over its fair market value at the close of
the taxable year, limited to the amount of the net mark-to-market gains
previously included by the United States Holder in income. The electing United
States Holder's basis in the stock would be adjusted to reflect any such income
or loss amounts. Any gain or loss on the sale of the common stock would be
ordinary income or loss, except that any loss will be ordinary loss only to the
extent of the previously included net mark-to-market gain. If the United States
Holder were to make a timely qualified electing fund election, the rules
described above generally would not apply. If a qualified electing fund election
were made, the United States Holder would be currently taxable on the United
States Holder's pro rata share of our ordinary earnings and profits and net
capital gains, regardless of whether or not distributions were received. The
United States Holder's basis in the common stock would be increased to reflect
taxed but undistributed income. Distributions of income that had previously been
taxed would result in a corresponding reduction of basis in the common stock and
would not be taxed again as a distribution to the United States Holder. If we
are treated as a PFIC, we intend to notify United States Holders and to provide
to United States Holders such information as may be required to make a qualified
electing fund election effective.
A United States Holder who owns our common stock during any year that we
are a PFIC must file IRS Form 8621. United States Holders should consult their
tax advisors concerning the United States federal income tax consequences of
holding our common stock if we are a PFIC, including the advisability and
availability of making any of the foregoing elections.
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FOREIGN PERSONAL HOLDING COMPANY
A foreign corporation is a foreign personal holding company if at least 60%
of its gross income for the taxable year is foreign personal holding company
income, generally certain types of passive income, and if at any time during the
taxable year more than 50% of the stock by vote or by value is owned, directly
or indirectly, by or for not more than five individuals who are citizens or
residents of the United States (the "United States group"). In some situations,
the minimum percentage of foreign personal holding company income is 50%, rather
than 60%. Foreign personal holding companies are defined to exclude certain
types of foreign corporations. If we or one of our non-United States
subsidiaries were classified as a foreign personal holding company, then United
States Holders including certain indirect holders who owned common stock on the
last day of the taxable year when the United States group existed, would be
taxed upon their pro rata shares of the undistributed foreign personal holding
company income of Marvell or our non-United States subsidiaries. Certain
information would be required on the returns of such United States Holders who
owned 5% or more of the value of the stock on the last day on which the United
States group existed. If we or one of our non-United States subsidiaries were a
foreign personal holding company and the United States Holders described above
were required to include a dividend amount in their United States federal
taxable income, adjustments would need to be made to our or our non-United
States subsidiary's accumulated earnings and profits and paid in surplus, and to
such United States Holders' respective bases in their common stock. In addition,
United States Holders who acquire their common stock from decedents would not
receive a "stepped-up" basis in that common stock. Instead, those United States
Holders would have a tax basis equal to the lower of the fair market value of
that common stock or the decedent's basis. We believe that it is very unlikely
that the shareholder test will be met for any taxable year beginning after this
offering. We intend to manage our affairs so as to minimize having income
imputed to our United States Holders under these rules, to the extent the
management of our affairs in this manner is consistent with our business goals,
although there can be no assurance in this regard.
PERSONAL HOLDING COMPANY
A corporation classified as a personal holding company is subject to a
39.6% tax on its undistributed personal holding company income. Foreign
corporations, such as Marvell, determine their liability for personal holding
company tax by considering only (1) gross income derived from United States
sources and (2) gross income that is effectively connected with a United States
trade or business. A corporation will be classified as a personal holding
company if (1) at any time during the last half of the corporation's taxable
year, five or fewer individuals own more than 50% of the corporation's stock, by
value, directly or indirectly and (2) the corporation receives at least 60% of
its adjusted ordinary gross income from certain passive sources. However, if a
corporation is a foreign personal holding company or a PFIC, it cannot be a
personal holding company. We believe that it is very unlikely that we could meet
the personal holding company shareholder test in a given taxable year beginning
after the offering. We intend to manage our affairs so as to attempt to avoid or
minimize the imposition of the personal holding company tax, to the extent
management of our affairs in this manner is consistent with our business goals,
although there can be no assurance in this regard.
CONTROLLED FOREIGN CORPORATIONS
If 10% Shareholders (as defined above) own, in the aggregate, more than
50%, measured by voting power or value, of our shares or any of our non-United
States corporate subsidiaries, directly, indirectly, or by attribution, Marvell
or any such non-United States subsidiary would be a controlled foreign
corporation. If characterized as controlled foreign corporations, then a portion
of our undistributed income and that of our non-United States subsidiaries may
be includible in the taxable income of the 10% Shareholders of those entities.
If a 10% Shareholder has reported inclusions in income from a controlled foreign
corporation, the 10% Shareholder may not have to include previously taxed
amounts in income again upon distribution. If Marvell or one of our non-United
States
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subsidiaries becomes a controlled foreign corporation, the United States federal
income tax consequences to a United States Holder who is a 10% Shareholder of
owning or disposing of shares in such corporations change significantly from the
consequences presented in this section. It is possible that Marvell and our
non-United States subsidiaries may be controlled foreign corporations or may
become controlled foreign corporations in the future. However, as discussed
above, controlled foreign corporation status generally only has potentially
adverse consequences to 10% Shareholders.
TAXATION OF NON-UNITED STATES HOLDERS
For United States federal income tax purposes, a non-United States holder
generally will not be subject to tax or withholding on distributions made with
respect to, and gains realized from the disposition of, our common stock unless
such distributions and gains are "effectively connected" with the holder's
conduct of a trade or business in the United States, or, in the case of gains,
if the holder is an individual, the holder is present in the United States for
183 or more days in the taxable year of the sale and certain other conditions
exist.
INFORMATION REPORTING AND BACKUP WITHHOLDING UNITED STATES HOLDERS
In general, information reporting requirements will apply to dividends in
respect of our common stock or the proceeds received on the sale, exchange, or
redemption of the common stock paid within the United States, and in some cases,
outside of the United States, to United States Holders other than certain exempt
recipients, such as corporations, and a 31% backup withholding may apply to
those amounts if the United States Holder fails to provide an accurate taxpayer
identification number or to report dividends required to be shown on its United
States federal income tax returns. The amount of any backup withholding from a
payment to a United States Holder will be allowable as a credit against the
United States Holder's United States federal income tax liability, provided that
the required information or appropriate claim for refund is furnished to the
IRS.
NON-UNITED STATES HOLDERS
Under current law, United States information reporting requirements and
backup withholding generally will not apply to dividends paid to a non-United
States Holder at an address outside the United States unless the payer has
knowledge that the payee is a United States person. However, under recently
finalized United States Treasury regulations effective for payments made after
December 31, 2000, a non-United States Holder will generally be subject to
backup withholding unless applicable certification requirements are met.
As a general matter, information reporting and backup withholding will not
apply to a payment of the proceeds of a sale of our common stock effected
outside the United States by a foreign office for a non-United States Holder.
However, payment of the proceeds of a sale of our common stock within the United
States or conducted through certain United States related financial
intermediaries is subject to both backup withholding and information reporting
unless the beneficial owner certifies under penalties of perjury that it is a
non-United States Holder and the payer does not have actual knowledge that the
beneficial owner is a United States person or the holder otherwise establishes
an exemption.
The amount of any backup withholding from a payment to a non-United States
Holder will be allowable as a credit against such non-United States Holder's
United States federal income tax liability, provided that the required
information or appropriate claim for refund is furnished to the IRS.
Holders should consult their tax advisors regarding the application of
information reporting and backup withholding to their particular situations, the
availability of an exemption from reporting and withholding requirements, and
the procedure for obtaining an exemption, if available.
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SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial amount of our common stock, including shares
issued upon exercise of outstanding options and warrants, in the public market
after this offering could adversely affect the prevailing market price of our
common stock.
Upon completion of this offering, we will have outstanding an aggregate of
shares of our common stock, based on shares of common stock
outstanding as of February 29, 2000. Of these shares, all of the
shares of our common stock sold in this offering will be freely tradable without
restriction or further registration under the Securities Act, unless the shares
are purchased by "affiliates" as that term is defined in Rule 144 under the
Securities Act. Any shares purchased by an affiliate may not be resold except
pursuant to an effective registration statement or an applicable exemption from
registration, including an exemption under Rule 144 of the Securities Act. The
remaining 76,366,116 shares of common stock held by existing shareholders are
"restricted securities" as that term is defined in Rule 144 under the Securities
Act. These restricted securities may be sold in the public market only if they
are registered or if they qualify for an exemption from registration under Rule
144 or Rule 701 under the Securities Act. These rules are summarized below. Of
the remaining shares of common stock that constitute restricted securities,
shares held by existing shareholders are subject to contractual
restrictions on resale as described more fully under the heading "Underwriting."
Upon the expiration or waiver of the contractual restrictions on resale
described under the heading "Underwriting" and subject to the provisions of Rule
144 and Rule 701, restricted shares of common stock, assuming the
exercise of outstanding warrants and vested stock options, will be available for
sale in the public market 180 days after the date of this prospectus. The sale
of these restricted securities is subject, in the case of shares held by
affiliates, to the volume restrictions contained in Rule 144.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year from the later of the date those shares of
common stock were acquired from us or from an affiliate of ours would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of:
(1) one percent of the number of shares of common stock then
outstanding, which will equal approximately shares
immediately after this offering; or
(2) the average weekly trading volume of the common stock on the
Nasdaq National Market during the four calendar weeks preceding the filing
of a notice on Form 144 with respect to the sale of any shares of common
stock.
The sales of any shares of common stock under Rule 144 are also subject to
manner of sale provisions and notice requirements and to the availability of
current public information about us. Affiliates may sell shares not constituting
restricted securities in accordance with the foregoing volume limitations and
other restrictions, but without regard to the one-year holding period.
RULE 144(k)
In addition, under Rule 144(k), a person who is not one of our affiliates
at any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years from the later of
the date such shares of common stock were acquired from us or from an affiliate
of ours is entitled to sell those shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
Therefore, unless otherwise restricted pursuant to the lock-up agreements or
otherwise, those shares may be sold immediately upon the completion of this
offering.
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RULE 701
In general, under Rule 701 of the Securities Act as currently in effect,
each of our employees, consultants or advisors who purchased shares from us in
connection with a compensatory stock plan or other written agreement is eligible
to resell those shares 90 days after the effective date of this offering in
reliance on Rule 144, but without compliance with some of the restrictions,
including the holding period, contained in Rule 144.
REGISTRATION RIGHTS
Immediately after the completion of this offering, in accordance with an
Investor Rights Agreement dated September 10, 1999, certain of our shareholders
and warrantholders beneficially owning 27,044,852 shares of our common stock
will have rights with respect to the registration of their shares under the
Securities Act. Under the terms of the agreement, if we propose to register any
of our securities under the Securities Act, either for our own account or for
the account of other security holders exercising registration rights, such
holders are entitled to notice of such registration and are entitled to include
their common stock in the registration. Six months following the effective date
of this offering, these shareholders may also require us to file a registration
statement under the Securities Act at our expense with respect to their shares
of common stock, and we are required to use our best efforts to effect such
registration. These shareholders have the right to request up to two such
registration statements. Further, such shareholders may require us to file
additional registration statements on Form S-3 or its equivalent at our expense.
Each of these rights are 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.
STOCK OPTIONS
At February 29, 2000, 13,008,466 options to purchase shares of our common
stock were outstanding under our stock option plans and otherwise. Shortly after
the effective date of this offering, we expect to file a registration statement
under the Securities Act covering shares of common stock reserved
for issuance under our stock option plans. Upon the filing of the registration
statement relating to the reserved shares of common stock and upon expiration of
the 180-day lockup agreements, approximately shares of common stock
issuable upon exercise of stock options will be immediately eligible for sale in
the public market, subject to Rule 144 volume limitations applicable to our
affiliates.
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UNDERWRITING
Marvell and the underwriters named below have entered into an underwriting
agreement with respect to the shares being offered. Subject to certain
conditions, each underwriter has severally agreed to purchase the number of
shares indicated in the following table. Goldman, Sachs & Co., J. P. Morgan
Securities Inc. and FleetBoston Robertson Stephens Inc. are the representatives
of the underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co. .......................................
J.P. Morgan Securities Inc. ................................
FleetBoston Robertson Stephens Inc. ........................
----------
Total.............................................
==========
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
shares from Marvell to cover such sales. They may exercise that option
for 30 days. If any shares are purchased pursuant to this option, the
underwriters will severally purchase shares in approximately the same proportion
as set forth in the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by Marvell. Such amounts are
shown assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
Paid by Marvell
<TABLE>
<CAPTION>
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share............................................. $ $
Total................................................. $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this Prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the underwriters to
certain other brokers or dealers at a discount of up to $ per share from the
initial public offering price. If all the shares are not sold at the initial
public offering price, the representatives may change the offering price and the
other selling terms.
Marvell, its directors, officers, employees, and shareholders have agreed
with the underwriters not to dispose of or hedge any of their common stock or
securities convertible into or exchangeable for shares of the common stock
during the period from the date of this prospectus continuing through the date
180 days after the date of this prospectus, except with the prior written
consent of Goldman, Sachs & Co. The agreement does not apply to any existing
employee benefit plans. See "Shares Available for Future Sale" for a discussion
of certain transfer restrictions.
Prior to the offering, there has been no public market for the shares. The
initial public offering price will be negotiated among Marvell and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be Marvell's historical performance, estimates of the business
potential and earnings prospects of Marvell, an assessment of Marvell's
management and the consideration of the above factors in relation to market
valuation of companies in related businesses.
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Marvell will apply for quotation of the common stock on the Nasdaq National
Market under the symbol "MRVL".
At Marvell's request, the underwriters have reserved up to
shares of common stock for sale at the initial public offering price to persons
with preexisting strategic or other relationships with Marvell through a
directed share program. The number of shares of common stock available for sale
to the general public will be reduced to the extent that these persons purchase
these reserved shares. Any shares not so purchased will be offered by the
underwriters to the general public on the same basis as the other shares offered
hereby.
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in this offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while the offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
Marvell estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately
$ .
Marvell has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act.
VALIDITY OF COMMON STOCK
Conyers, Dill & Pearson, Bermuda, will pass upon the validity of the
issuance of the shares of common stock offered by this prospectus for us.
Appleby, Spurling & Kempe, Bermuda, will pass upon the validity of the issuance
of the shares of common stock for the underwriters. Certain legal matters in
connection with this offering will be passed for us by Gibson, Dunn & Crutcher
LLP, San Francisco, California. The underwriters are being represented as to
U.S. legal matters by Sullivan & Cromwell, Los Angeles, California.
EXPERTS
The financial statements as of January 31, 2000 and 1999 and for each of
the three years in the period ended January 31, 2000 included in this 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.
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ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1, including exhibits and schedules, under the Securities
Act with respect to the common stock to be sold in this offering. This
prospectus, which constitutes a part of the registration statement, does not
contain all of the information set forth in the registration statement or the
exhibits and schedules that are part of the registration statement. Any
statements made in this prospectus as to the contents of any contract, agreement
or other document are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the registration
statement, we refer you to the exhibit for a more complete description of the
matter involved, and each statement in this prospectus shall be deemed qualified
in its entirety by this reference. You may read and copy all or any portion of
the registration statement or any reports, statements or other information in
the files at the following public reference facilities of the SEC:
<TABLE>
<S> <C> <C>
Washington, D.C. New York, New York Chicago, Illinois
Room 1024 Seven World Trade Center 500 West Madison Street
450 Fifth Street, N.W. Suite 1300 Suite 1400
Washington, D.C., 20549 New York, New York 10048 Chicago, Illinois 60661
</TABLE>
You can request copies of these documents upon payment of a duplicating fee
by writing to the SEC. You may call the SEC at 1-800-SEC-0330 for further
information on the operation of its public reference rooms. Our filings,
including the registration statement, will also be available to you on the
Internet web site maintained by the SEC at http://www.sec.gov.
We intend to furnish our shareholders with annual reports containing
financial statements audited by our independent auditors, and make available to
our shareholders quarterly reports for the first three quarters of each year
containing unaudited interim financial statements.
80
<PAGE> 82
MARVELL TECHNOLOGY GROUP LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Shareholders' Equity (Deficit)... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 83
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 and of
cash flows present fairly, in all material respects, the financial position of
Marvell Technology Group Ltd. and its subsidiaries as of January 31, 1999 and
2000, and the results of its operations and its 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 March 21, 2000
F-2
<PAGE> 84
MARVELL TECHNOLOGY GROUP LTD.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
JANUARY 31, JANUARY 31,
-------------------- 2000
1999 2000 (UNAUDITED)
-------- -------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 5,515 $ 16,600 $ 17,281
Accounts receivable, net of allowance for doubtful
accounts of $100 and $100........................ 5,497 14,701 14,701
Inventory, net...................................... 2,315 4,830 4,830
Prepaid expenses and other current assets........... 188 1,195 1,195
Deferred income taxes............................... 842 1,456 1,456
-------- -------- --------
Total current assets........................ 14,357 38,782 39,463
Property and equipment, net........................... 2,081 7,413 7,413
Other noncurrent assets............................... 125 305 305
-------- -------- --------
Total assets................................ $ 16,563 $ 46,500 $ 47,181
-------- -------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable to bank............................... $ 649 $ -- $ --
Accounts payable.................................... 3,735 5,698 5,698
Accrued liabilities................................. 1,432 3,050 3,050
Accrued employee compensation....................... 476 1,474 1,474
Income taxes payable................................ 1,189 5,875 5,875
Capital lease obligations........................... 11 74 74
-------- -------- --------
Total current liabilities................... 7,492 16,171 16,171
Notes payable to bank................................. 888 -- --
Capital lease obligations, less current portion....... 9 36 36
-------- -------- --------
Total liabilities........................... 8,389 16,207 16,207
-------- -------- --------
Commitments (Note 9)
Mandatorily redeemable convertible preferred stock,
$0.002 par value; 8,000,000 shares authorized,
5,880,598 and 6,609,860 shares issued and
outstanding actual; 8,000,000 shares authorized and
none issued and outstanding pro forma (unaudited)... 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; 242,000,000 shares
authorized, 75,976,412 shares issued and
outstanding pro forma (unaudited)................ 89 98 152
Additional paid-in capital.......................... 1,692 17,580 40,560
Deferred stock-based compensation................... (220) (11,897) (11,897)
Retained earnings (accumulated deficit)............. (10,911) 2,159 2,159
-------- -------- --------
Total shareholders' equity (deficit)........ (9,350) 7,940 30,974
-------- -------- --------
Total liabilities and shareholders'
equity.................................... $ 16,563 $ 46,500 $ 47,181
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-3
<PAGE> 85
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................................... 312 10,103 33,773
Research and development.................................. 5,018 5,837 14,452
Marketing and selling..................................... 1,671 4,631 10,436
General and administrative................................ 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
======= ======= =======
Pro forma net income per share:
Pro forma basic net income per share (unaudited).......... $ 0.20
=======
Pro forma diluted net income per share (unaudited)........ $ 0.16
=======
Weighted average shares -- basic (unaudited).............. 66,147
=======
Weighted average shares -- diluted (unaudited)............ 81,545
=======
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-4
<PAGE> 86
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
<PAGE> 87
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 income taxes................................ (317) (453) (614)
------- ------- -------
Net cash provided by (used in) operating
activities...................................... (6,829) (2,926) 12,642
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
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 $ 88 $ 206
======= ======= =======
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
<PAGE> 88
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
F-7
<PAGE> 89
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
institutions, the composition and maturities of which are regularly monitored by
management. The Company believes that 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
F-8
<PAGE> 90
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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
<PAGE> 91
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>
PRO FORMA NET INCOME PER SHARE (UNAUDITED)
Pro forma net income per share for the year ended January 31, 2000 is
computed using the weighted average number of common shares outstanding,
including the conversion of the Company's Series A, Series B, Series C, Series D
and Series E mandatorily redeemable convertible preferred stock outstanding into
shares of the Company's common stock effective upon the closing of the Company's
initial public offering ("IPO") as if such conversion occurred on February 1,
1999 or at the date of original issuance, if later. The calculation of pro forma
diluted net income per share includes incremental common shares issuable upon
the exercise of stock options and common and preferred stock warrants.
PRO FORMA BALANCE SHEET (UNAUDITED)
Effective upon the closing of the IPO, the outstanding Series A, Series B,
Series C, Series D and Series E preferred stock will automatically convert into
an aggregate of 26,439,440 shares of common
F-10
<PAGE> 92
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
stock and outstanding preferred and common stock warrants are expected to be
exercised into 605,412 shares of common stock for aggregate proceeds of
approximately $681,000. The pro forma effects of these transactions are
unaudited and have been reflected in the accompanying pro forma balance sheet as
of January 31, 2000.
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.
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, respectively. Accumulated depreciation for
such equipment was $53 and $124 at January 31, 1999 and 2000, respectively.
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
F-11
<PAGE> 93
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 under the line of credit
or 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.
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.
F-12
<PAGE> 94
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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, 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) closing of an initial public
offering of the Company's common stock, or (ii) May 21, 2003. The Company valued
the warrants
F-13
<PAGE> 95
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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) closing of an initial public
offering of 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 expire 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.
F-14
<PAGE> 96
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
OPTIONS
SHARES 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
5,034,148 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
<PAGE> 97
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
REMAINING WEIGHTED
NUMBER CONTRACTUAL EXERCISE
OUTSTANDING LIFE 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
---------------------
WEIGHTED
AVERAGE
NUMBER EXERCISE
VESTED 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
F-16
<PAGE> 98
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SFAS 123. 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, respectively. 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.
In February 2000, the Company granted options to employees and recognized
unearned stock compensation of approximately $5,851,000. Such unearned stock
compensation will be amortized using the accelerated method over the vesting
period of five years and may decrease due to employees that terminate 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
<PAGE> 99
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>
Credits............................................ $363 $627 $1,310
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..................................... 38.4 262.2 --
Difference in U.S. and non-U.S. taxes............... -- (8.5) (8.2)
State taxes, net of federal benefit................. (0.9) (23.5) (0.9)
General business credits............................ (3.0) (88.8) (5.4)
Non-cash stock compensation......................... -- 3.3 4.4
Other............................................... 0.1 0.7 0.1
----- ----- ----
Effective tax rate........................ 0.6% 111.4% 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.
F-18
<PAGE> 100
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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>
F-19
<PAGE> 101
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 major U.S. financial institution as security for a standby letter of
credit with a major supplier for the same amount. This standby letter of credit
expires on September 1, 2000.
F-20
<PAGE> 102
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Special Note Regarding Forward-Looking
Statements.......................... 21
Use of Proceeds....................... 22
Dividend Policy....................... 22
Capitalization........................ 23
Dilution.............................. 24
Selected Consolidated Financial
Data................................ 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 26
Business.............................. 34
Management............................ 50
Certain Transactions.................. 58
Principal Shareholders................ 60
Description of Capital Stock.......... 63
Certain Foreign Issuer
Considerations...................... 68
Taxation.............................. 70
Shares Eligible for Future Sale....... 76
Underwriting.......................... 78
Validity of Common Stock.............. 79
Experts............................... 79
Additional Information................ 80
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
------------------------
Through and including , 2000 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a prospectus
when acting as an underwriter and with respect to an unsold allotment or
subscription.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
Shares
MARVELL TECHNOLOGY
GROUP LTD.
Common Stock
------------------------
LOGO
------------------------
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
ROBERTSON STEPHENS
Representatives of the Underwriters
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 103
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates, except
the Securities and Exchange Commission Registration Fee and the National
Association of Securities Dealers, Inc. Filing Fee.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 19,800
National Association of Securities Dealers Filing Fee....... 8,000
Nasdaq National Market Listing Fee..........................
Blue Sky Fees and Expenses..................................
Transfer Agent and Registrar Fees...........................
Accounting Fees and Expenses................................
Directors and Officers Liability Insurance..................
Legal Fees and Expenses.....................................
Printing Expenses...........................................
Miscellaneous...............................................
--------
Total..................................................... $
========
</TABLE>
ITEM 14. 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 of 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.
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 plans to purchase
indemnification insurance for its officers and directors.
II-1
<PAGE> 104
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
From January 1, 1997 through February 29, 2000, we have issued and sold the
following unregistered securities:
1. In June, 1997, we issued convertible promissory notes in the
aggregate principal amount of $2,211,250 to six investors for $2,211,250 in
cash. In conjunction with the issuance of the convertible promissory notes,
we issued warrants to purchase 76,544 shares of Series D preferred stock to
such investors at an exercise price of $4.33 per share, which warrants
expire, if not earlier exercised, on the earlier of June 27, 2000 or the
consummation of this offering. The number of shares subject to such warrant
equaled 15% of the principal amount of each purchaser's note divided by the
exercise price, which was $6.50 prior to the June 1998 stock split. In
December 1997, these noteholders converted the convertible promissory notes
into 510,288 shares of Series D Preferred at a conversion price of $4.33
per share.
2. In December 1997, as partial consideration for acting as our
placement agents, we issued warrants to InveStar Capital, Inc. and
Hambrecht & Quist LLC to purchase an aggregate of 16,929 shares of Series D
preferred stock at an exercise price of $4.33 per share, which warrants
expire, if not earlier exercised, on the earlier of June 27, 2000 or the
consummation of this offering.
3. During the period December 1997 through January 2000, we sold an
aggregate of 2,525,787 shares of Series D preferred stock to 54 investors
at a purchase price of $4.33 per share for an aggregate consideration of
$10,945,077 in cash.
4. In May 1998, in connection with a loan agreement we issued a
warrant to our bank to purchase up to 45,000 shares of Series D preferred
stock at an exercise price of $4.33 per share.
5. In June 1999, in connection with a loan agreement we issued a
warrant to our bank to purchase up to 60,000 shares of common stock at an
exercise price of $1.50.
6. In July 1999, we sold an aggregate of 350,000 shares of Series E
preferred stock to an investor at a purchase price of $10.00 per share for
an aggregate consideration of $3,500,000 in cash.
7. As of February 29, 2000, 13,783,674 shares of common stock had been
issued to our employees, directors and consultants upon exercise of options
at exercise prices ranging from $0.03 to $5.00 per share and 13,008,466
shares of common were issuable upon exercise of outstanding options under
our stock option plans at exercise prices ranging from $0.03 to $5.00 per
share.
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 our shareholders on March 17, 2000. All share numbers and
exercise prices for preferred stock have been adjusted to reflect the 50% stock
dividend in June 1998. Although the number of shares of Series D preferred stock
and the Series E preferred stock were not affected by the two 100% common stock
dividends approved by our shareholders on March 17, 2000, all of the 2,525,787
outstanding shares of Series D preferred stock and the 350,000 shares of Series
E preferred stock will automatically convert on a four-for-one basis into shares
of common stock upon the consummation of this offering.
The sales and issuances of securities listed above were deemed to be exempt
from registration under Section 4(2) of the Securities Act, Regulation D
thereunder as transactions not involving a public offering or by virtue of Rule
701 as transactions pursuant to compensatory benefit plans and contracts
relating to compensation. All of the foregoing securities are deemed restricted
securities for purposes of the Securities Act.
II-2
<PAGE> 105
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<S> <C>
1.1 Form of Underwriting Agreement*
3.1 Memorandum of Association
3.2 Bye-laws
4.1 Specimen Common Stock Certificate*
5.1 Opinion of Conyers, Dill & Pearman*
8.1 Tax Opinion of Fenwick & West LLP*
8.2 Tax Opinion of Conyers, Dill & Pearman*
10.1 1995 Stock Option Plan
10.2 1997 Directors' Stock Option Plan
10.3 2000 Employee Stock Purchase Plan
10.4 Sublease between Netscape Communications, Inc. and Marvell
Semiconductor, Inc. dated October 1, 1998
10.5 First Amendment to Sublease between Netscape Communications,
Inc. and Marvell Semiconductor, Inc. dated October 1, 1999
10.6 Investor Rights Agreement dated September 10, 1999
21.1 Subsidiaries
23.1 Consent of Conyers, Dill & Pearman (contained in Exhibits
5.1 and 8.2)*
23.2 Consent of Fenwick & West LLP (contained in Exhibit 8.1)*
23.3 Consent of PricewaterhouseCoopers LLP
24.1 Power of Attorney (included in II-4 -- II-5)
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment
Other financial statement schedules are omitted because the information
called for is not required or is shown either in the financial statements or the
notes thereto.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under "Item
14 -- Indemnification of Directors and Officers" above, 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 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 and will be governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
II-3
<PAGE> 106
(2) For the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus 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 provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
II-4
<PAGE> 107
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, 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 the 23rd day of March, 2000.
MARVELL TECHNOLOGY GROUP LTD.
By: /s/ SEHAT SUTARDJA
------------------------------------
Dr. Sehat Sutardja
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Sehat Sutardja and Thor Buell and each of
them, his or her true and lawful attorneys-in-fact and agents with full power of
substitution, for him or her and in his or her name, place and stead, in any and
all capacities, to sign any and all amendments, including post-effective
amendments, to this Registration Statement, and to sign any registration
statement for the same offering covered by the Registration Statement that is to
be effective upon filing pursuant to Rule 462(b) promulgated under the
Securities Act of 1933, as amended, and all post-effective amendments thereto,
and to file the same, with all exhibits thereto and all documents in connection
therewith, making such changes in this Registration Statement as such person or
persons so acting deems appropriate, with the Securities and Exchange Commission
and the Registrar of Companies in Bermuda or any other regulatory authority in
Bermuda as appropriate, 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 and about the premises, as fully to
all intents and purposes as 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, or his, her or their substitute or substitutes, may lawfully do or cause
to be done or by virtue hereof. Pursuant to the requirements of the Securities
Act of 1933, as amended, this Registration Statement has been signed by the
following persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ SEHAT SUTARDJA Co-Chairman of the Board, March 23, 2000
- ------------------------------------------------ President and Chief Executive
Dr. Sehat Sutardja Officer (Principal Executive
Officer)
/s/ GORDON M. STEEL Chief Financial Officer and March 23, 2000
- ------------------------------------------------ Vice President of Finance
Gordon M. Steel (Principal Financial and Accounting
Officer)
/s/ WEILI DAI Executive Vice President March 23, 2000
- ------------------------------------------------ and Director
Weili Dai
/s/ PANTAS SUTARDJA Chief Technology Officer March 23, 2000
- ------------------------------------------------ and Director
Dr. Pantas Sutardja
</TABLE>
II-5
<PAGE> 108
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DIOSDADO BANATAO Co-Chairman of the Board March 23, 2000
- ------------------------------------------------
Diosdado Banatao
/s/ HERBERT CHANG Director March 23, 2000
- ------------------------------------------------
Herbert Chang
Director
- ------------------------------------------------
Dr. John M. Cioffi
Director
- ------------------------------------------------
Dr. Paul R. Gray
/s/ RON VERDOORN Director March 23, 2000
- ------------------------------------------------
Ron Verdoorn
</TABLE>
II-6
<PAGE> 109
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<C> <S>
1.1 Form of Underwriting Agreement*
3.1 Memorandum of Association
3.2 Bye-laws
4.1 Specimen Common Stock Certificate*
5.1 Opinion of Conyers, Dill & Pearman*
8.1 Tax Opinion of Fenwick & West LLP*
8.2 Tax Opinion of Conyers, Dill & Pearman*
10.1 1995 Stock Option Plan
10.2 1997 Directors' Stock Option Plan
10.3 2000 Employee Stock Purchase Plan
10.4 Sublease between Netscape Communications, Inc. and Marvell
Semiconductor, Inc. dated October 1, 1998
10.5 First Amendment to Sublease between Netscape Communications,
Inc. and Marvell Semiconductor, Inc. dated October 1, 1999
10.6 Investor Rights Agreement dated September 10, 1999
21.1 Subsidiaries
23.1 Consent of Conyers, Dill & Pearman (contained in Exhibits
5.1 and 8.2)*
23.2 Consent of Fenwick & West LLP (contained in Exhibit 8.1)*
23.3 Consent of PricewaterhouseCoopers LLP
24.1 Power of Attorney (included in II-4 -- II-5)
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment
<PAGE> 1
EXHIBIT 3.1
FORM NO. 2
[LOGO]
BERMUDA
THE COMPANIES ACT 1981
MEMORANDUM OF ASSOCIATION OF
COMPANY LIMITED BY SHARES
(SECTION 7(1) AND (2))
MEMORANDUM OF ASSOCIATION
OF
MARVELL TECHNOLOGY GROUP LTD.
(hereinafter referred to as "the Company")
1. The liability of the members of the Company is limited to the amount (if
(if any) for the time being unpaid on the shares respectively held by them.
2. We, the undersigned, namely,
<TABLE>
<CAPTION>
NAME ADDRESS BERMUDIAN NATIONALITY NUMBER OF
STATUS SHARES
(Yes/No) SUBSCRIBED
<S> <C> <C> <C> <C>
Lisa Marshall Clarendon House
2 Church Street
Hamilton HM 11
Bermuda Yes British one
Nicholas B. Dill " Yes British one
John Sharpe " Yes British one
</TABLE>
do hereby respectively agree to take such number of shares of the Company as may
be allotted to us respectively by the provisional directors of the Company, not
exceeding the number of shares for which we have respectively subscribed, and to
satisfy such calls as may be made by the directors, provisional directors or
promoters of the Company in respect of the shares allotted to us respectively.
<PAGE> 2
3. The Company is to be an exempted Company as defined by the Companies Act
1981.
4. The Company has power to hold land situated in Bermuda not exceeding in
all, including the following parcels-
N/A
5. The authorised share capital of the Company is US$12,000.00 divided into
shares of US$.002 each. The minimum subscribed share capital of the
Company is US$12,000.00.
6. The objects for which the Company is formed and incorporated are -
1. As set out in paragraphs (b) to (n) and (p) to (u) inclusive of the
Second Schedule to the Companies Act 1981.
7. Powers of the Company
---------------------
1. The Company shall, pursuant to the Section 42 of the Companies Act
1981, have the power to issue preference shares which are, at the
option of the holder, liable to be redeemed.
<PAGE> 1
Exhibit 3.2
B Y E - L A W S
of
MARVELL TECHNOLOGY GROUP LTD.
<PAGE> 2
(i)
TABLE OF CONTENTS
Bye-Law
<TABLE>
<S> <C>
1 Interpretation
2 Board of Directors
3 Management of the Company
4 Power to appoint managing director or
chief executive officer
5 Power to appoint manager
6 Power to authorise specific actions
7 Power to appoint attorney
8 Power to delegate to a committee
9 Power to appoint and dismiss employees
10 Power to borrow and charge property
11 Exercise of power to purchase shares of or
discontinue the Company
12 Election of Directors
13 Defects in appointment of Directors
14 Alternate Directors
15 Removal of Directors
17 Notice of meetings of the Board
18 Quorum at meetings of the Board
19 Meetings of the Board
20 Unanimous written resolutions
21 Contracts and disclosure of Directors' interests
22 Remuneration of Directors
23 Officers of the Company
24 Appointment of Officers
25 Remuneration of Officers
26 Duties of Officers
27 Chairman of meetings
28 Register of Directors and Officers
29 Obligations of Board to keep minutes
30 Indemnification of Directors and Officers
of the Company
31 Waiver of claim by Member
32 Notice of annual general meeting
33 Notice of special general meeting
34 Accidental omission of notice of general meeting
35 Meeting called on requisition of members
</TABLE>
<PAGE> 3
(ii)
<TABLE>
<S> <C>
36 Short notice
37 Postponement of meetings
38 Quorum for general meeting
39 Adjournment of meetings
40 Attendance at meetings
41 Written resolutions
42 Attendance of Directors
43 Voting at meetings
44 Voting on show of hands
45 Decision of chairman
46 Demand for a poll
47 Seniority of joint holders voting
48 Instrument of proxy
49 Representation of corporations at meetings
50 Rights of shares
51 Power to issue shares
52 Variation of rights, alteration of share capital and purchase
of shares of the Company
53 Registered holder of shares
54 Death of a joint holder
55 Share certificates
56 Calls on shares
57 Forfeiture of Shares
58 Contents of Register of Members
59 Inspection of Register of Members
60 Determination of record dates
61 Instrument of transfer
62 Restriction on Transfer
63 Transfers by joint holders
64 Representative of deceased Member
65 Registration on death or bankruptcy
66 Declaration of dividends by Board
67 Other distributions
68 Reserve fund
69 Deduction of amounts due to the Company
70 Issue of bonus shares
71 Records of account
72 Financial year end
73 Financial statements
74 Appointment of Auditor
75 Remuneration of Auditor
76 Vacation of office of Auditor
</TABLE>
<PAGE> 4
(iii)
<TABLE>
<S> <C>
77 Access to books of the Company
78 Report of the Auditor
79 Notices to Members of the Company
80 Notices to joint Members
81 Service and delivery of notice
82 The seal
83 Manner in which seal is to be affixed
84 Winding-up/distribution by liquidator
85 Alteration of Bye-laws
</TABLE>
<PAGE> 5
INTERPRETATION
1. Interpretation
(1) In these Bye-laws the following words and expressions shall, where
not inconsistent with the context, have the following meanings respectively:-
(a) "Act" means the Companies Act 1981 as amended from time to
time;
(b) "Alternate Director" means an alternate Director appointed
in accordance with these Bye-laws;
(c) "Auditor" includes any individual or partnership;
(d) "Board" means the Board of Directors appointed or elected
pursuant to these Bye-laws and acting by resolution in
accordance with the Act and these Bye-laws or the Directors
present at a meeting of Directors at which there is a
quorum;
(e) "Company" means the company for which these Bye-laws are
approved and confirmed;
(f) "Director" means a director of the Company and shall
include an Alternate Director;
(g) "Member" means the person registered in the Register of
Members as the holder of shares in the Company and, when
two or more persons are so registered as joint holders of
shares, means the person whose name stands first in the
Register of Members as one of such joint holders or all of
such persons as the context so requires;
(h) "notice" means written notice as further defined in these
Bye-laws unless otherwise specifically stated;
(i) "Officer" means any person appointed by the Board to hold
an office in the Company;
(j) "Register of Directors and Officers" means the Register of
Directors and Officers referred to in these Bye-laws;
<PAGE> 6
- 3 -
(k) "Register of Members" means the Register of Members
referred to in these Bye-laws; and
(l) "Secretary" means the person appointed to perform any or
all the duties of secretary of the Company and includes any
deputy or assistant secretary.
(2) In these Bye-laws, where not inconsistent with the context:-
(a) words denoting the plural number include the singular
number and vice versa;
(b) words denoting the masculine gender include the feminine
gender;
(c) words importing persons include companies, associations or
bodies of persons whether corporate or not;
(d) the word:-
(i) "may" shall be construed as permissive;
(ii) "shall" shall be construed as imperative; and
(e) unless otherwise provided herein words or expressions
defined in the Act shall bear the same meaning in these
Bye-laws.
(3) Expressions referring to writing or written shall, unless the
contrary intention appears, include facsimile, printing, lithography,
photography and other modes of representing words in a visible form.
(4) Headings used in these Bye-laws are for convenience only and are not
to be used or relied upon in the construction hereof.
<PAGE> 7
- 4 -
BOARD OF DIRECTORS
2. Board of Directors
The business of the Company shall be managed and conducted by the Board.
3. Management of the Company
(1) In managing the business of the Company, the Board may exercise all
such powers of the Company as are not, by statute or by these Bye-laws, required
to be exercised by the Company in general meeting subject, nevertheless, to
these Bye-laws, the provisions of any statute and to such regulations as may be
prescribed by the Company in general meeting.
(2) No regulation or alteration to these Bye-laws made by the Company in
general meeting shall invalidate any prior act of the Board which would have
been valid if that regulation or alteration had not been made.
(3) The Board may procure that the Company pays all expenses incurred in
promoting and incorporating the Company.
4. Power to appoint managing director or chief executive officer
The Board may from time to time appoint one or more Directors to the
office of managing director or chief executive officer of the Company who shall,
subject to the control of the Board, supervise and administer all of the general
business and affairs of the Company.
5. Power to appoint manager
<PAGE> 8
- 5 -
The Board may appoint a person to act as manager of the Company's day to
day business and may entrust to and confer upon such manager such powers and
duties as it deems appropriate for the transaction or conduct of such business.
6. Power to authorise specific actions
The Board may from time to time and at any time authorise any company,
firm, person or body of persons to act on behalf of the Company for any specific
purpose and in connection therewith to execute any agreement, document or
instrument on behalf of the Company.
7. Power to appoint attorney
The Board may from time to time and at any time by power of attorney
appoint any company, firm, person or body of persons, whether nominated directly
or indirectly by the Board, to be an attorney of the Company for such purposes
and with such powers, authorities and discretions (not exceeding those vested in
or exercisable by the Board) and for such period and subject to such conditions
as it may think fit and any such power of attorney may contain such provisions
for the protection and convenience of persons dealing with any such attorney as
the Board may think fit and may also authorise any such attorney to sub-delegate
all or any of the powers, authorities and discretions so vested in the attorney.
Such attorney may, if so authorised under the seal of the Company, execute any
deed or instrument under such attorney's personal seal with the same effect as
the affixation of the seal of the Company.
8. Power to delegate to a committee
The Board may delegate any of its powers to a committee appointed by the
Board and every such committee shall conform to such directions as the Board
shall impose on them.
9. Power to appoint and dismiss employees
<PAGE> 9
- 6 -
The Board may appoint, suspend or remove any manager, secretary, clerk,
agent or employee of the Company and may fix their remuneration and determine
their duties.
10. Power to borrow and charge property
The Board may exercise all the powers of the Company to borrow money and
to mortgage or charge its undertaking, property and uncalled capital, or any
part thereof, and may issue debentures, debenture stock and other securities
whether outright or as security for any debt, liability or obligation of the
Company or any third party.
11. Exercise of power to purchase shares of or discontinue the Company
(1) The Board may exercise all the powers of the Company to purchase all
or any part of its own shares pursuant to Section 42A of the Act.
(2) The Board may exercise all the powers of the Company to discontinue
the Company to a named country or jurisdiction outside Bermuda pursuant to
Section 132G of the Act.
12. Election of Directors
The Board shall consist of not less than two Directors or such number in
excess thereof as the Members may from time to time determine who shall be
elected or appointed in the first place at the statutory meeting of the Company
and thereafter, except in the case of casual vacancy, at the annual general
meeting or at any special general meeting called for the purpose and who shall
hold office for such term as the Members may determine or, in the absence of
such determination, until the next annual general meeting or until their
successors are elected or appointed or their office is otherwise vacated, and
any general meeting may authorise the Board to fill any vacancy in their number
left unfilled at a general meeting.
13. Defects in appointment of Directors
<PAGE> 10
- 7 -
All acts done bona fide by any meeting of the Board or by a committee of
the Board or by any person acting as a Director shall, notwithstanding that it
be afterwards discovered that there was some defect in the appointment of any
Director or person acting as aforesaid, or that they or any of them were
disqualified, be as valid as if every such person had been duly appointed and
was qualified to be a Director.
14. Alternate Directors
(1) Any general meeting of the Company may elect a person or persons to
act as a Director in the alternative to any one or more of the Directors of the
Company or may authorise the Board to appoint such Alternate Directors. Unless
the Members otherwise resolve, any Director may appoint a person or persons to
act as a Director in the alternative to himself or herself by notice in writing
deposited with the Secretary. Any person so appointed shall have all the rights
and powers of the Director or Directors for whom such person is appointed in the
alternative provided that such person shall not be counted more than once in
determining whether or not a quorum is present.
(2) An Alternate Director shall be entitled to receive notice of all
meetings of the Board and to attend and vote at any such meeting at which a
Director for whom such Alternate Director was appointed in the alternative is
not personally present and generally to perform at such meeting all the
functions of such Director for whom such Alternate Director was appointed.
(3) An Alternate Director shall cease to be such if the Director for whom
such Alternate Director was appointed ceases for any reason to be a Director but
may be re-appointed by the Board as alternate to the person appointed to fill
the vacancy in accordance with these Bye-laws.
15. Removal of Directors
<PAGE> 11
- 8 -
(1) Except as provided for in Bye-Law 50, and subject to any provision to
the contrary in these Bye-laws, the Members may, at any special general meeting
convened and held in accordance with these Bye-laws, remove a Director provided
that the notice of any such meeting convened for the purpose of removing a
Director shall contain a statement of the intention so to do and be served on
such Director not less than 14 days before the meeting and at such meeting such
Director shall be entitled to be heard on the motion for such Director's
removal.
(2) Except as provided for in Bye-law 50, a vacancy of the Board created
by the removal of a Director under the provisions of subparagraph (1) of this
Bye-law may be filled by the Members at the meeting at which such Director is
removed and, in the absence of such election or appointment, the Board may fill
the vacancy.
16. Vacancies on the Board
(1) Except as provided for in Bye-law 50, the Board shall have the power
from time to time and at any time to appoint any person as a Director to fill a
vacancy on the Board occurring as the result of the death, disability,
disqualification or resignation of any Director and to appoint an Alternate
Director to any Director so appointed.
(2) The Board may act notwithstanding any vacancy in its number but, if
and so long as its number is reduced below the number fixed by these Bye-laws as
the quorum necessary for the transaction of business at meetings of the Board,
the continuing Directors or Director may act for the purpose of (i) summoning a
general meeting of the Company or (ii) preserving the assets of the Company.
(3) The office of Director shall be vacated if the Director:
(a) is removed from office pursuant to these Bye-laws or is
prohibited from being a Director by law;
<PAGE> 12
- 9 -
(b) is or becomes bankrupt or makes any arrangement or
composition with his creditors generally;
(c) is or becomes of unsound mind or dies;
(d) resigns his or her office by notice in writing to the
Company.
17. Notice of meetings of the Board
(1) A Director may, and the Secretary on the requisition of a Director
shall, at any time summon a meeting of the Board.
(2) Notice of a meeting of the Board shall be deemed to be duly given to
a Director if it is given to such Director verbally in person or by telephone or
otherwise communicated or sent to such Director by post, cable, telex,
telecopier, facsimile or other mode of representing words in a legible and
non-transitory form at such Director's last known address or any other address
given by such Director to the Company for this purpose.
18. Quorum at meetings of the Board
The quorum necessary for the transaction of business at a meeting of the
Board shall be three Directors.
19. Meetings of the Board
(1) The Board may meet for the transaction of business, adjourn and
otherwise regulate its meetings as it sees fit.
(2) Directors may participate in any meeting of the Board by means of
such telephone, electronic or other communication facilities as permit all
persons participating in the meeting to communicate with each other
simultaneously and instantaneously, and participation in such a meeting shall
constitute presence in person at such meeting.
(3) A resolution put to the vote at a meeting of the Board shall be
carried by the affirmative votes of a majority of the votes cast and in the case
of an equality of votes
<PAGE> 13
- 10 -
the resolution shall fail. Notwithstanding the foregoing, a resolution to
approve any of the following shall require the affirmative vote of at least four
directors:
(a) the issue of shares in the capital of the Company or any
obligations, charges or debts convertible into shares or
involving rights to vote under any circumstances;
(b) the winding up, dissolution or termination of the corporate
existence of the Company;
(c) borrowing of any amount by the Company which exceeds in the
aggregate $1,000,000 or the mortgage, pledge or grant of a
security interest in any property of the Company which
exceeds in the aggregate $1,000,000;
(d) entering into or material modification by the Company of
any contract or commitment which requires payment in excess
of $1,000,000 in the aggregate; and
(e) purchasing, acquiring, selling or disposing of any tangible
or intangible asset for amounts in excess of $1,000,000.
20. Unanimous written resolutions
A resolution in writing signed by all the Directors which may be in
counterparts, shall be as valid as if it had been passed at a meeting of the
Board duly called and constituted, such resolution to be effective on the date
on which the last Director signs the resolution. For the purposes of this
Bye-law only, "Director" shall not include an Alternate Director.
21. Contracts and disclosure of Directors' interests
(1) Any Director, or any Director's firm, partner or any company with
whom any Director is associated, may act in a professional capacity for the
Company and such Director or such Director's firm, partner or such company shall
be entitled to remuneration for professional services as if such Director were
not a Director, provided that nothing herein contained shall authorise a
Director or Director's firm, partner or such company to act as Auditor of the
Company.
<PAGE> 14
- 11 -
(2) A Director who is directly or indirectly interested in a contract or
proposed contract or arrangement with the Company shall declare the nature of
such interest as required by the Act.
(3) Following a declaration being made pursuant to this Bye-law, and
unless disqualified by the chairman of the relevant Board meeting, a Director
may vote in respect of any contract or proposed contract or arrangement in which
such Director is interested and may be counted in the quorum at such meeting.
22. Remuneration of Directors
The remuneration, (if any) of the Directors shall be determined by the
Company in general meeting and shall be deemed to accrue from day to day. The
Directors may also be paid all travel, hotel and other expenses properly
incurred by them in attending and returning from meetings of the Board, any
committee appointed by the Board, general meetings of the Company, or in
connection with the business of the Company or their duties as Directors
generally.
OFFICERS
23. Officers of the Company
The Officers of the Company shall consist of a President and a Vice
President or a Chairman and a deputy Chairman, a Secretary and such additional
Officers as the Board may from time to time determine all of whom shall be
deemed to be Officers for the purposes of these Bye-laws.
24. Appointment of Officers
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(1) The Board shall, as soon as possible after the statutory meeting of
Members and after each annual general meeting appoint a President and Vice
President or a Chairman and Deputy Chairman who shall be Directors.
(2) The Secretary and additional Officers, if any, shall be appointed by
the Board from time to time.
25. Remuneration of Officers
The Officers shall receive such remuneration as the Board may from time
to time determine.
26. Duties of Officers
The Officers shall have such powers and perform such duties in the
management, business and affairs of the Company as may be delegated to them by
the Board from time to time.
27. Chairman of meetings
Unless otherwise agreed by a majority of those attending and entitled to
attend and vote thereat, the Chairman, if there be one, and if not the President
shall act as chairman at all meetings of the Members and of the Board at which
such person is present. In their absence the Deputy Chairman or Vice President,
if present, shall act as chairman and in the absence of all of them a chairman
shall be appointed or elected by those present at the meeting and entitled to
vote.
28. Register of Directors and Officers
(1) The Board shall cause to be kept in one or more books at its
registered office a Register of Directors and Officers and shall enter therein
the following particulars with respect to each Director and the President, each
Vice-President, the Chairman, and each Deputy Chairman, provided that each such
person is a Director and the Secretary, that is to say:
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(a) first name and surname; and
(b) address.
(2) The Board shall, within the period of fourteen days from the
occurrence of-
(a) any change among its Directors, the President, any
Vice-President, the Chairman, and any Deputy Chairman,
provided that each such person is a Director, and in the
Secretary; or
(b) any change in the particulars contained in the Register of
Directors and Officers,
cause to be entered on the Register of Directors and Officers the particulars of
such change and the date on which such change occurred.
(3) The Register of Directors and Officers shall be open to inspection at
the office of the Company on every business day, subject to such reasonable
restrictions as the Board may impose, so that not less than two hours in each
business day be allowed for inspection.
MINUTES
29. Obligations of Board to keep minutes
The Board shall cause minutes to be duly entered in books provided for
the purpose:-
(a) of all elections and appointments of Officers;
(b) of the names of the Directors present at each meeting of
the Board and of any committee appointed by the Board; and
(c) of all resolutions and proceedings of general meetings of
the Members, meetings of the Board, meetings of managers
and meetings of committees appointed by the Board.
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INDEMNITY
30. Indemnification of Directors and Officers of the Company
The Directors, Secretary and other Officers for the time being of the
Company and the liquidator or trustees (if any) for the time being acting in
relation to any of the affairs of the Company and every one of them, and their
heirs, executors and administrators, shall be indemnified and secured harmless
out of the assets of the Company from and against all actions, costs, charges,
losses, damages and expenses which they or any of them, their heirs, executors
or administrators, shall or may incur or sustain by or by reason of any act
done, concurred in or omitted in or about the execution of their duty, or
supposed duty, 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 the Company 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 the Company 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, PROVIDED THAT this indemnity shall not extend to any matter in respect
of any fraud or dishonesty which may attach to any of said persons.
31. Waiver of claim by Member
Each Member agrees to waive any claim or right of action such Member
might have, whether individually or by or in the right of the Company, against
any Director or Officer 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 the Company, PROVIDED THAT such waiver
shall not extend to any matter in respect of any fraud or dishonesty which may
attach to such Director or Officer.
<PAGE> 18
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MEETINGS
32. Notice of annual general meeting
The annual general meeting of the Company shall be held in each year
other than the year of incorporation at such time and place as the President or
the Chairman or any two Directors or any Director and the Secretary or the Board
shall appoint. At least five days notice of such meeting shall be given to each
Member stating the date, place and time at which the meeting is to be held, that
the election of Directors will take place thereat, and as far as practicable,
the other business to be conducted at the meeting.
33. Notice of special general meeting
The President or the Chairman or any two Directors or any Director and
the Secretary or the Board may convene a special general meeting of the Company
whenever in their judgment such a meeting is necessary, upon not less than five
days' notice which shall state the date, time, place and the general nature of
the business to be considered at the meeting.
34. Accidental omission of notice of general meeting
The accidental omission to give notice of a general meeting to, or the
non-receipt of notice of a general meeting by, any person entitled to receive
notice shall not invalidate the proceedings at that meeting.
35. Meeting called on requisition of Members
Notwithstanding anything herein, the Board shall, on the requisition of
Members holding at the date of the deposit of the requisition not less than
one-tenth of such of the paid-up share capital of the Company as at the date of
the deposit carries the right to vote at general meetings of the Company,
forthwith proceed to convene a special general meeting of the Company and the
provisions of section 74 of the Act shall apply.
<PAGE> 19
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36. Short notice
A general meeting of the Company shall, notwithstanding that it is called
by shorter notice than that specified in these Bye-laws, be deemed to have been
properly called if it is so agreed by (i) all the Members entitled to attend and
vote thereat in the case of an annual general meeting; and (ii) by a majority in
number of the Members having the right to attend and vote at the meeting, being
a majority together holding not less than 95% in nominal value of the shares
giving a right to attend and vote thereat in the case of a special general
meeting.
37. Postponement of meetings
The Board may postpone any general meeting called in accordance with the
provisions of these Bye-laws (other than a meeting requisitioned under these
Bye-laws) provided that notice of postponement is given to each Member before
the time for such meeting. Fresh notice of the date, time and place for the
postponed meeting shall be given to each Member in accordance with the
provisions of these Bye-laws.
38. Quorum for general meeting
At any general meeting of the Company two persons present in person and
representing in person or by proxy in excess of 50% of the total issued voting
shares in the Company throughout the meeting shall form a quorum for the
transaction of business, PROVIDED that if the Company shall at any time have
only one Member, one Member present in person or by proxy shall form a quorum
for the transaction of business at any general meeting of the Company held
during such time. If within half an hour from the time appointed for the meeting
a quorum is not present, the meeting shall stand adjourned to the same day one
week later, at the same time and place or to such other day, time or place as
the Board may determine.
39. Adjournment of meetings
<PAGE> 20
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The chairman of a general meeting may, with the consent of the Members at
any general meeting at which a quorum is present (and shall if so directed),
adjourn the meeting. Unless the meeting is adjourned to a specific date and
time, fresh notice of the date, time and place for the resumption of the
adjourned meeting shall be given to each Member in accordance with the
provisions of these Bye-laws.
40. Attendance at meetings
Members may participate in any general meeting by means of such
telephone, electronic or other communication facilities as permit all persons
participating in the meeting to communicate with each other simultaneously and
instantaneously, and participation in such a meeting shall constitute presence
in person at such meeting.
41. Written resolutions
(1) Subject to subparagraph (6), anything which may be done by resolution
of the Company in general meeting or by resolution of a meeting of any class of
the Members of the Company, may, without a meeting and without any previous
notice being required, be done by resolution in writing signed by, or, in the
case of a Member that is a corporation whether or not a company within the
meaning of the Act, on behalf of, all the Members who at the date of the
resolution would be entitled to attend the meeting and vote on the resolution.
(2) A resolution in writing may be signed by, or, in the case of a Member
that is a corporation whether or not a company within the meaning of the Act, on
behalf of, all the Members, or any class thereof, in as many counterparts as may
be necessary.
(3) For the purposes of this Bye-law, the date of the resolution is the
date when the resolution is signed by, or, in the case of a Member that is a
corporation whether or not a company within the meaning of the Act, on behalf
of, the last Member to sign and
<PAGE> 21
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any reference in any Bye-law to the date of passing of a resolution is, in
relation to a resolution made in accordance with this Bye-law, a reference to
such date.
(4) A resolution in writing made in accordance with this Bye-law is as
valid as if it had been passed by the Company in general meeting or by a meeting
of the relevant class of Members, as the case may be, and any reference in any
Bye-law to a meeting at which a resolution is passed or to Members voting in
favour of a resolution shall be construed accordingly.
(5) A resolution in writing made in accordance with this Bye-law shall
constitute minutes for the purposes of sections 81 and 82 of the Act.
(6) This Bye-law shall not apply to:
(a) a resolution passed pursuant to section 89(5) of the Act;
or
(b) a resolution passed for the purpose of removing a Director
before the expiration of his term of office under Bye-law
15.
42. Attendance of Directors
The Directors of the Company shall be entitled to receive notice of and
to attend and be heard at any general meeting.
43. Voting at meetings
(1) Subject to the provisions of the Act and these Bye-laws, any question
proposed for the consideration of the Members at any general meeting shall be
decided by the affirmative votes of a majority of the votes cast in accordance
with the provisions of these Bye-laws and in the case of an equality of votes
the resolution shall fail.
<PAGE> 22
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(2) No Member shall be entitled to vote at any general meeting unless
such Member has paid all the calls on all shares held by such Member.
44. Voting on show of hands
At any general meeting a resolution put to the vote of the meeting shall,
in the first instance, be voted upon by a show of hands and, subject to any
rights or restrictions for the time being lawfully attached to any class of
shares and subject to the provisions of these Bye-laws, every Member present in
person and every person holding a valid proxy at such meeting shall be entitled
to one vote and shall cast such vote by raising his or her hand.
45. Decision of chairman
At any general meeting a declaration by the chairman of the meeting that
a question proposed for consideration has, on a show of hands, been carried, or
carried unanimously, or by a particular majority, or lost, and an entry to that
effect in a book containing the minutes of the proceedings of the Company shall,
subject to the provisions of these Bye-laws, be conclusive evidence of that
fact.
46. Demand for a poll
(1) Notwithstanding the provisions of the immediately preceding two
Bye-laws, at any general meeting of the Company, in respect of any question
proposed for the consideration of the Members (whether before or on the
declaration of the result of a show of hands as provided for in these Bye-laws),
a poll may be demanded by any of the following persons:-
(a) the chairman of such meeting; or
<PAGE> 23
- 20 -
(b) at least three Members present in person or represented by
proxy; or
(c) any Member or Members present in person or represented by
proxy and holding between them not less than one-tenth of
the total voting rights of all the Members having the right
to vote at such meeting; or
(d) any Member or Members present in person or represented by
proxy holding shares in the Company conferring the right to
vote at such meeting, being shares on which an aggregate
sum has been paid up equal to not less than one-tenth of
the total sum paid up on all such shares conferring such
right.
(2) Where, in accordance with the provisions of subparagraph (1) of this
Bye-law, a poll is demanded, subject to any rights or restrictions for the time
being lawfully attached to any class of shares, every person present at such
meeting shall have one vote for each share of which such person is the holder or
for which such person holds a proxy and such vote shall be counted in the manner
set out in sub-paragraph (4) of this Bye-Law or in the case of a general meeting
at which one or more Members are present by telephone in such manner as the
chairman of the meeting may direct and the result of such poll shall be deemed
to be the resolution of the meeting at which the poll was demanded and shall
replace any previous resolution upon the same matter which has been the subject
of a show of hands.
(3) A poll demanded in accordance with the provisions of subparagraph (1)
of this Bye-law, for the purpose of electing a chairman or on a question of
adjournment, shall be taken forthwith and a poll demanded on any other question
shall be taken in such manner and at such time and place as the chairman may
direct and any business other than that upon which a poll has been demanded may
be proceeded with pending the taking of the poll.
(4) Where a vote is taken by poll, each person present and entitled to
vote shall be furnished with a ballot paper on which such person shall record
his or her vote in such manner as shall be determined at the meeting having
regard to the nature of the
<PAGE> 24
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question on which the vote is taken, and each ballot paper shall be signed or
initialled or otherwise marked so as to identify the voter and the registered
holder in the case of a proxy. At the conclusion of the poll, the ballot papers
shall be examined and counted by a committee of not less than two Members or
proxy holders appointed by the chairman for the purpose and the result of the
poll shall be declared by the chairman.
47. Seniority of joint holders voting
In the case of joint holders the vote of the senior who tenders a vote,
whether in person or by proxy, shall be accepted to the exclusion of the votes
of the other joint holders, and for this purpose seniority shall be determined
by the order in which the names stand in the Register of Members.
48. Instrument of proxy
The instrument appointing a proxy shall be in writing in the form, or as
near thereto as circumstances admit, of Form "A" in the Schedule hereto, under
the hand of the appointor or of the appointor's attorney duly authorised in
writing, or if the appointor is a corporation, either under its seal, or under
the hand of a duly authorised officer or attorney. The decision of the chairman
of any general meeting as to the validity of any instrument of proxy shall be
final.
49. Representation of corporations at meetings
A corporation which is a Member may, by written instrument, authorise
such person as it thinks fit to act as its representative at any meeting of the
Members and the person so authorised shall be entitled to exercise the same
powers on behalf of the corporation which such person represents as that
corporation could exercise if it were an individual Member. Notwithstanding the
foregoing, the chairman of the meeting may accept such assurances as he or she
thinks fit as to the right of any person to attend and vote at general meetings
on behalf of a corporation which is a Member.
<PAGE> 25
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SHARE CAPITAL AND SHARES
50. Subject to any resolution of the Members to the contrary and without
prejudice to any special rights previously conferred on the holders of any
existing shares or class of shares, the share capital of the Company is divided
into two classes of shares to be designated respectively Common Stock (the
"Common") and Preferred Stock (the "Preferred"). The Preferred may be issued
from time to time in one or more series. The Board of Directors is authorized to
fix the number of shares of any series of the Preferred and to determine or
alter the rights, preferences, privileges, and restrictions granted to or
imposed upon any wholly unissued series of the Preferred and, within the limits
and restrictions stated in any resolution or resolutions of the Board of
Directors originally fixing the number of shares constituting any series of the
Preferred, to increase or decrease (but not below the number of shares of any
such series then outstanding) the number of shares of any such series subsequent
to the issue of shares of that series. The first series of the Preferred shall
be designated Series A Preferred Stock ("Series A Preferred") and shall consist
of up to 525,000 shares. The second series of the Preferred shall be designated
Series B Preferred Stock ("Series B Preferred") and shall consist of up to
1,119,091 shares. The third series of the Preferred shall be designated Series C
Preferred Stock (the "Series C Preferred") and shall consist of up to 2,184,280
shares. The fourth series of the Preferred shall be designated Series D
Preferred Stock (the "Series D Preferred") and shall consist of up to 3,750,000
shares. The fifth series of the Preferred shall be designated Series E Preferred
Stock (the "Series E Preferred") and shall consist of up to 421,629 shares.
The holders of the shares of COMMON STOCK shall, subject to the
provisions of these Bye-laws:
(a) be entitled to one vote per share;
(b) be entitled to such dividends as the Board may from time to time
declare, but only if dividends at the annual rate set forth in (b) below shall
have been paid or declared and set apart upon all shares of Preferred for such
fiscal year, and no dividend shall be declared or paid with respect to the
Common Stock unless at the same time an
<PAGE> 26
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equivalent dividend (which shall be in addition to the dividend on the Preferred
referred to immediately previously) is declared or paid with respect to the
Preferred;
(c) in the event of a winding-up or dissolution of the Company, whether
voluntary or involuntary or for the purpose of a reorganization or otherwise or
upon any distribution of capital, be entitled to the surplus assets of the
Company, subject to the rights of the Preferred shares; and
(d) generally be entitled to enjoy all of the rights attaching to shares.
The holders of shares of SERIES A PREFERRED, SERIES B PREFERRED, SERIES C
PREFERRED, SERIES D PREFERRED AND SERIES E PREFERRED shall be subject to the
provisions of these Bye-laws:
(a) Voting Rights; Directors.
1. Except as otherwise required by law, the holder of each share of
Preferred shall be entitled to the number of votes equal to the number of shares
of Common Stock into which such share of Preferred could be converted at the
record date for determination of the shareholders entitled to vote on such
matters, or, if no such record date is established, at the date such vote is
taken or any written consent of shareholders is solicited, such votes to be
counted together with all other shares of stock of the Company having general
voting power and not separately as a class. Fractional votes by the holders of
Preferred shall not, however, be permitted and any fractional voting rights
shall (after aggregating all shares into which shares of the Preferred held by
each holder could be converted) be rounded to the nearest whole number. Holders
of Common Stock and the Preferred shall be entitled to notice of any
shareholders' meeting in accordance with the Bye-laws of the Company.
2. The holders of a majority of the outstanding shares of Series B
Preferred, voting as a class, shall be entitled to elect one (1) member of the
Board of Directors (the "Series B Director").
<PAGE> 27
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3. The holders of a majority of the outstanding shares of Series C
Preferred, voting as a class, shall be entitled to one (1) member of the Board
of Directors (the "Series C Director").
a) In the case of a vacancy in the office of the Series B Director, a
majority of the holders of the Series B Preferred shall elect a successor to
serve for the unexpired term of the Series B Director whose office is vacant.
b) The Series B Director may only be removed by the vote or written
consent of the majority of the holders of the Series B Preferred.
c) In the case of a vacancy in the office of the Series C Director, a
majority of the holders of the Series C Preferred shall elect a successor to
serve for the unexpired term of the Series C Director whose office is vacant.
d) The Series C Director may only be removed by the vote or written
consent of the majority of the holders of the Series C Preferred.
(b) Dividends. The holders of outstanding Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred and Series E Preferred shall
be entitled to receive in any fiscal year, when, if and as declared by the Board
of Directors, out of any assets at the time legally available therefor,
dividends in cash at an annual rate of $0.047, $0.077 per share, $0.245 per
share, $0.303 per share and $0.70 per share (as appropriately adjusted for any
combinations, consolidations, subdivisions, or stock dividends with respect to
such shares of Preferred), respectively. Such dividends shall be payable, when,
as and if declared by the Board of Directors. The right to such dividends shall
not be cumulative, and no right shall accrue to holders of Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred or Series E Preferred
by reason of the fact that dividends on such shares were not declared in any
prior year, nor shall any undeclared or unpaid dividends bear or accrue
interest. Any declared but unpaid dividends on Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred or Series E Preferred shall be
paid upon the conversion of such shares into Common Stock either (at the option
of the Company) by payment of cash or by the issuance of additional shares
<PAGE> 28
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of Common Stock based upon the fair market value of the Common Stock at the time
of conversion, as determined by the Board of Directors.
(c) Liquidation Preference. In the event of any liquidation, dissolution,
or winding up of the Company, either voluntary or involuntary, distributions to
the shareholders of the Company shall be made in the following manner:
1. The holders of the Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred and Series E Preferred shall be entitled, on a
pari passu basis, to receive, prior and in preference to any distribution of any
of the assets or surplus funds of the Company to the holders of the Common Stock
by reason of their ownership of such stock, the amount of $0.667, $1.10, $3.50,
$4.33 and $10.00 per share, respectively, for each share of Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred or Series E Preferred
then held by them, (as appropriately adjusted for any combinations,
consolidations, subdivisions, or stock dividends with respect to such shares of
Preferred) and, in addition, an amount equal to all declared but unpaid
dividends on the Series A Preferred (the "Series A Preferred Per Share
Liquidation Preference"), all declared but unpaid dividends on the Series B
Preferred (the "Series B Preferred Per Share Liquidation Preference"), all
declared but unpaid dividends on the Series C Preferred (the "Series C Preferred
Per Share Liquidation Preference"), all declared but unpaid dividends on the
Series D Preferred (the "Series D Preferred Per Share Liquidation Preference")
and all declared but unpaid dividends on the Series E Preferred (the "Series E
Preferred Per Share Liquidation Preference"). If the assets and funds thus
distributed among the holders of Series A Preferred, Series B Preferred, Series
C Preferred, Series D Preferred and Series E Preferred shall be insufficient to
permit the payment to such holders of the full aforesaid respective preferential
amounts for such series of Preferred, then the entire assets and funds of the
Company legally available for distribution shall be distributed ratably among
the holders of Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred and Series E Preferred on a pari passu basis, in proportion
to the full
<PAGE> 29
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respective preferential amount each such holder is otherwise entitled to receive
with respect to such series of Preferred.
2. If the assets and funds of the Company available for distribution to
shareholders exceed the aggregate amount of the Series A Preferred Per Share
Liquidation Preference, the Series B Preferred Per Share Liquidation Preference,
the Series C Preferred Per Share Liquidation Preference, the Series D Preferred
Per Share Liquidation Preference and the Series E Preferred Per Share
Liquidation Preference payable with respect to all shares of Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred and Series E
Preferred, respectively, then, after payment required by paragraph (1) above
shall have been made or irrevocably set aside, the remaining assets of the
Company available for distribution to shareholders shall be distributed among
the holders of Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred, Series E Preferred and Common Stock pro rata based on the
number of shares of Common Stock then outstanding and the number of shares of
Common Stock into which the outstanding shares of Preferred are then
convertible; provided, however, that such pro rata participation by the Series A
Preferred shall cease upon the receipt by the holders of the Series A Preferred
(pursuant to this Section (c)(2)) of an amount equal to $1.667 per share of the
Series A Preferred (as appropriately adjusted for any combinations,
consolidations, subdivisions, or stock dividends with respect to such shares of
Preferred), and further provided, that such pro rata participation by the Series
B Preferred shall cease upon the receipt by the holders of the Series B
Preferred (pursuant to this Section (c)(2)) of an amount equal to $2.750 per
share of the Series B Preferred (as appropriately adjusted for any combinations,
consolidations, subdivisions, or stock dividends with respect to such shares of
Preferred), and further provided, that such pro rata participation by the Series
C Preferred shall cease upon the receipt by the holders of the Series C
Preferred (pursuant to this Section (c)(2)) of an amount equal to $8.75 per
share of the Series C Preferred (as appropriately adjusted for any combinations,
consolidations, subdivisions, or stock dividends with respect to such shares of
Preferred), and further provided, that such pro rata participation by the Series
D Preferred shall cease upon receipt by the holders of the Series D Preferred
(pursuant to this Section (c)(2)) of an
<PAGE> 30
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amount equal to $10.833 per share of the Series D Preferred (as appropriately
adjusted for any combinations, consolidations, subdivisions, or stock dividends
with respect to such shares of Preferred), and further provided, that such pro
rata participation by the Series E Preferred shall cease upon receipt by the
holders of the Series E Preferred (pursuant to this Section (c)(2)) of an amount
equal to $25.00 per share of the Series E Preferred (as appropriately adjusted
for any combinations, consolidations, subdivisions, or stock dividends with
respect to such shares of Preferred), and thereafter the holders of Common Stock
shall be entitled to receive all remaining assets of the Company available for
distribution to shareholders pro rata based on the number of shares of Common
Stock then outstanding.
3. For purposes of this Section (c), an amalgamation, merger or
consolidation of the Company with or into any other company or companies, or the
amalgamation, merger or consolidation of any other company or companies into the
Company, which results in the shareholders of the Company prior to the
transaction owing less than 50% of the voting power of the surviving entity or a
sale of all or substantially all the assets of the Company unless the
stockholders prior to the sale own at least 50% of the surviving entity receive
distributions in cash or securities of another company or companies as a result
of such amalgamation, consolidation or merger, or a sale of all or substantially
all of the assets of the Company shall be treated as a liquidation, dissolution
or winding up of the Company.
4. If any of the assets of the Company are to be distributed other than
in cash under this Section (c) or for any purpose, then the Board of Directors
of the Company shall in good faith determine the value of such assets to be
distributed to the holders of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred, Series E Preferred and Common Stock.
(d) Conversion. The holders of the Preferred have conversion rights as
follows (the "Conversion Rights"):
<PAGE> 31
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1. Right to Convert. Each share of Series A Preferred shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of the Company or any transfer agent for
the Series A Preferred, into such number of fully paid and nonassessable shares
of Common Stock as is determined by dividing the Series A Conversion Value per
share of the Series A Preferred by the Conversion Price for the Series A
Preferred (determined as hereinafter provided) in effect at the time of the
conversion. Each share of Series B Preferred shall be convertible, at the option
of the holder thereof, at any time after the date of issuance of such share at
the office of the Company or any transfer agent for the Series B Preferred, into
such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing the Series B Conversion Value per share of the Series B
Preferred by the Conversion Price for the Series B Preferred (determined as
hereinafter provided) in effect at the time of the conversion. Each share of
Series C Preferred shall be convertible, at the option of the holder thereof, at
any time after the date of issuance of such share at the office of the Company
or any transfer agent for the Series C Preferred, into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing the Series
C Conversion Value per share of the Series C Preferred by the Conversion Price
for the Series C Preferred (determined as hereinafter provided) in effect at the
time of the conversion. Each share of Series D Preferred shall be convertible,
at the option of the holder thereof, at any time after the date of issuance of
such share at the office of the Company or any transfer agent for the Series D
Preferred, into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing the Series D Conversion Value per share of
the Series D Preferred by the Conversion Price for the Series D Preferred
(determined as hereinafter provided) in effect at the time of the conversion.
Each share of Series E Preferred shall be convertible, at the option of the
holder thereof, at any time after the date of issuance of such share at the
office of the Company or any transfer agent for the Series E Preferred, into
such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing the Series E Conversion Value per share of the Series E
Preferred by the Conversion Price for the Series E Preferred (determined as
hereinafter provided)
<PAGE> 32
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in effect at the time of the conversion. The initial Conversion Price per share
of Series A Preferred shall be $0.667. The Series A Conversion Value per share
of Series A Preferred shall be $0.667. The initial Conversion Price per share of
Series B Preferred shall be $1.10. The Series B Conversion Value per share of
Series B Preferred shall be $1.10. The initial Conversion Price per share of
Series C Preferred shall be $3.50. The Series C Conversion Value per share of
Series C Preferred shall be $3.50. The initial Conversion Price per share of
Series D Preferred shall be $4.333. The Series D Conversion Value per share of
Series D Preferred shall be $4.333. The Series E Conversion Value per share of
Series E Preferred shall be $10.00. The initial Conversion Price per share of
Series E Preferred shall be $10.00. The initial Conversion Price of each of the
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred
and Series E Preferred shall be subject to adjustment as hereinafter provided.
2. Automatic Conversion. Each share of Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred and Series E Preferred shall
automatically be converted into shares of Common Stock at the then effective
Conversion Price (i) upon the closing of a firm commitment underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of Common Stock for the
account of the Company to the public at a price per share (prior to deduction of
underwriter commissions and offering expenses) of not less than $13.00 per share
(appropriately adjusted for any recapitalizations, combinations, stock
dividends, subdivisions or split-ups) and an aggregate offering price to the
public of not less than $10,000,000 (prior to deduction of underwriter
commissions and offering expenses), (ii) in respect of the Series A Preferred,
upon the Company's receipt of the written consent of the holders of greater than
one-half (1/2) of the then outstanding shares of Series A Preferred to the
conversion of all then outstanding Series A Preferred under this Section (d),
(iii) in respect of the Series B Preferred, upon the Company's receipt of the
written consent of the holders of greater than one-half (1/2) of the then
outstanding shares of Series B Preferred to the conversion of all then
outstanding Series B Preferred under this Section (d), (iv) in respect of the
Series C Preferred, upon the Company's receipt of the written consent of the
holders of greater than one-half (1/2) of the then outstanding
<PAGE> 33
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shares of Series C Preferred to the conversion of all then outstanding Series C
Preferred under this Section (d), (v) in respect of the Series D Preferred, upon
the Company's receipt of the written consent of the holders of greater than
one-half (1/2) of the then outstanding shares of Series D Preferred to the
conversion of all then outstanding Series D Preferred under this Section (d) or
(vi) in respect of the Series E Preferred, upon the Company's receipt of the
written consent of the holders of greater than one-half (1/2) of the then
outstanding shares of Series E Preferred to the conversion of all then
outstanding Series E Preferred under this Section (d). In the event of the
automatic conversion of the Preferred upon a public offering as aforesaid, the
person(s) entitled to receive the Common Stock issuable upon such conversion of
the Preferred shall not be deemed to have converted such shares of Preferred
until immediately prior to the closing of such sale of securities.
3. Mechanics of Conversion. No fractional shares of Common Stock shall be
issued upon conversion of shares of Preferred. In lieu of any fractional shares
to which the holder would otherwise be entitled, the Company shall pay cash
equal to such fraction multiplied by the then effective Conversion Price for
such series of Preferred. Before any holder of Preferred shall be entitled to
convert the same into full shares of Common Stock and to receive certificates
therefor, such holder shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Company or of any transfer agent for the
Preferred, and shall give written notice to the Company at such office that such
holder elects to convert the same; provided, however, that in the event of an
automatic conversion pursuant to Section (d)(2), the outstanding shares of
Preferred that is the subject of such automatic conversion shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Company or its transfer agent, and provided further that the Company shall not
be obligated to issue certificates evidencing the shares of Common Stock
issuable upon such automatic conversion unless the certificates evidencing such
shares of Preferred are either delivered to the Company or its transfer agent as
provided above, or the holder notifies the Company or its transfer agent that
such certificates have been lost, stolen or destroyed and executes an agreement
<PAGE> 34
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satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection with such certificates. The Company shall, as soon as
practicable after delivery of such certificate, or such agreement and
indemnification in the case of a lost certificate, issue and deliver at such
office to such holder of Preferred, a certificate or certificates for the number
of shares of Common Stock to which such holder shall be entitled as aforesaid
and a check payable to the holder in the amount of any cash amounts payable as
the result of a conversion into fractional shares of Common Stock. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Preferred to be
converted, or in the case of automatic conversion on the date of closing of the
offering or the effective date of such written consent, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date.
4. Adjustments to Conversion Price.
(a) Adjustments for Stock Dividends, Subdivisions, Combinations or
Consolidation of Common Stock. In the event the outstanding shares of Common
Stock shall be subdivided (by stock split, or otherwise), into a greater number
of shares of Common Stock, or the Company shall declare or pay any dividend on
the Common Stock payable in Common Stock, the applicable Conversion Price for
the Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred and Series E Preferred then in effect shall, concurrently with the
effectiveness of such subdivision or stock dividend, be proportionately
decreased based on the ratio of (i) the number of shares of Common Stock
outstanding immediately prior to such subdivision or stock dividend to (ii) the
number of shares of Common Stock outstanding immediately after such subdivision
or stock dividend. In the event the outstanding shares of Common Stock shall be
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares of Common Stock, the applicable Conversion Price for the Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series
E Preferred then in effect
<PAGE> 35
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shall, concurrently with the effectiveness of such combination or consolidation,
be proportionately increased on the same basis as set forth above.
(b) Adjustments for Other Distributions. In the event the Company
at any time or from time to time makes, or fixes a record date for the
determination of holders of Common Stock entitled to receive any distribution
payable in securities of the Company other than shares of Common Stock, and
other than as otherwise adjusted for in this Section (d)(4), then and in each
such event provision shall be made so that the holders of Preferred shall
receive upon conversion thereof, in addition to the number of shares of Common
Stock receivable thereupon, the amount of securities of the Company which they
would have received had their shares of Preferred been converted into Common
Stock on the date of such event and had they thereafter, during the period from
the date of such event to and including the date of conversion, retained such
securities receivable by them as aforesaid during such period, subject to all
other adjustments called for during such period under this Section (d)(4) with
respect to the rights of the holders of such series of Preferred.
(c) Adjustments for Reclassification, Exchange and Substitution.
If the Common Stock issuable upon conversion of shares of Preferred shall be
changed into the same or a different number of shares of any other class or
classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares provided for
above), the applicable Conversion Price of the Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred and Series E Preferred then in
effect shall, concurrently with the effectiveness of such reorganization or
reclassification, be proportionately adjusted such that the shares of Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series
E Preferred shall be convertible into, in lieu of the number of shares of Common
Stock which the holders would otherwise have been entitled to receive, a number
of shares of such other class or classes of stock equivalent to the number of
shares of Common Stock that would be subject to receipt by the holders upon
conversion of the Series A Preferred,
<PAGE> 36
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Series B Preferred, Series C Preferred, Series D Preferred and Series E
Preferred, respectively, immediately prior to such reclassification or capital
reorganization.
(d) Preferred Conversion Price Adjustments. The Conversion Price
for the Series A Preferred, Conversion Price for the Series B Preferred, the
Conversion Price for the Series C Preferred, the Conversion Price for the Series
D Preferred and the Conversion Price for the Series E Preferred shall be subject
to adjustment from time to time as follows:
(i) Special Definitions. For purposes of this Section 4(d),
the following definitions shall apply:
(1) "Options" shall mean rights, options or warrants
to subscribe for, purchase or otherwise acquire either Common or Convertible
Securities.
(2) "Series A Original Issue Date" shall mean the
date on which the first share of Series A Preferred was first issued.
(3) "Series B Original Issue Date" shall mean the
date on which the first share of Series B Preferred was first issued.
(4) "Series C Original Issue Date" shall mean the
date on which the first share of Series C Preferred was first issued.
(5) "Series D Original Issue Date" shall mean the
date on which the first share of Series D Preferred was first issued.
(6) "Series E Original Issue Date" shall mean the
date on which the first share of Series E Preferred was first issued.
<PAGE> 37
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(7) "Convertible Securities" shall mean any
evidences of indebtedness, shares or other securities convertible into or
exchangeable for Common.
(8) "Additional Shares of Common" shall mean all
shares of Common issued (or, pursuant to Section 4(d)(iii) below, deemed to be
issued) by the Company after the Series E Original Issue Date, other than shares
of Common issued or issuable:
(a) upon conversion of shares of the Preferred.
(b) up to 6,475,000 shares issued or issuable to
officers, directors, employees and consultants of the Company pursuant to
incentive plans or arrangements, including the Company's 1995 Stock Option Plan
and 1997 Director's Stock Option Plan (as amended from time to time), or other
stock arrangements which have been approved by the Board;
(c) up to 150,000 shares issued or issuable to
commercial banking or equipment leases financing entities in connection with
such commercial transactions as the Board shall approve, or issued or issuable
to corporations or other entities in connection with such strategic or
commercial transactions as the Board shall approve, provided that the Board
shall also approve the grant of shares or other securities exercisable for such
shares in connection therewith;
(d) pursuant to any event for which adjustment has
already been made pursuant to this Section (d)(4); or
(e) as a dividend or distribution on the Preferred.
(ii) No Adjustment of Conversion Price. No adjustment in
the Series A Conversion Price, Series B Conversion Price , Series C Conversion
Price, Series D Conversion Price or Series E Conversion Price shall be made in
respect of the
<PAGE> 38
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issuance of Additional Shares of Common unless the consideration per share for
an Additional Share of Common issued or deemed to be issued by the Company is
less than the Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price, Series D Conversion Price or Series E Conversion Price, as
applicable, in effect on the date of and immediately prior to such issue.
(iii) Deemed Issue of Additional Shares of Common. Except
as provided in Section 4(b) above, in the event the Company at any time or from
time to time after the Series A Original Issue Date with respect to the Series A
Preferred, after the Series B Original Issue Date with respect to the Series B
Preferred, after the Series C Original Issue Date with respect to the Series C
Preferred, after the Series D Original Issue Date with respect to the Series D
Preferred and after the Series E Original Issue Date with respect to the Series
E Preferred, shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares (as set forth in the instrument relating thereto without regard to any
provisions contained therein for a subsequent adjustment of such number) of
Common issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common issued as of the
time of such issue or, in case such a record date shall have been fixed, as of
the close of business on such record date, provided that in any such case in
which Additional Shares of Common are deemed to be issued:
(1) no further adjustment in the Series A Conversion
Price, or Series B Conversion Price, Series C Conversion Price, Series D
Conversion Price or Series E Conversion Price, as applicable, shall be made upon
the subsequent issue of Convertible Securities or shares of Common upon the
exercise of such Options or conversion or exchange of such Convertible
Securities.
<PAGE> 39
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(2) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Company, or increase or decrease in
the number of shares of Common issuable upon the exercise, conversion or
exchange thereof, the Series A Conversion Price, Series B Conversion Price,
Series C Conversion Price, Series D Conversion Price or Series E Conversion
Price, as applicable, computed upon the initial conversion prices thereof set
forth in Section (d)(1) above (or upon the occurrence of a record date with
respect thereto), and any subsequent adjustments based thereon, shall, upon any
such increase or decrease becoming effective, be recomputed to reflect such
increase or decrease insofar as it affects such Options or the rights of
conversion or exchange under such Convertible Securities; and
(3) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the Series A Conversion Price, Series B Conversion
Price, Series C Conversion Price, Series D Conversion Price or Series E
Conversion Price, as applicable, computed upon the initial conversion prices set
forth in Section (d)(1) above, and any subsequent adjustments based thereon,
shall, upon such expiration, be recomputed as if:
(a) in the case of Convertible Securities or
Options for Common, the only Additional Shares of Common issued were shares of
Common, if any, actually issued upon the exercise of such Options or the
conversion or exchange of such Convertible Securities, and the consideration
received therefor was the consideration actually received by the Company for the
issue of all such Options, whether or not exercised, plus the consideration
actually received by the Company upon such exercise, or for the issue of all
such Convertible Securities which were actually converted or exchanged plus the
consideration actually received by the Company upon such conversion or exchange,
if any, and
(b) in the case of Options for
<PAGE> 40
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Convertible Securities, only the Convertible Securities, if any, actually issued
upon the exercise thereof were issued at the time of issue of such Options and
the consideration received by the Company for the Additional Shares of Common
deemed to have been then issued was the consideration actually received by the
Company for the issue of all such Options, whether or not exercised, plus the
consideration deemed to have been received by the Company upon the issue of the
Convertible Securities with respect to which such Options were actually
exercised; and
(4) no readjustment pursuant to clause (2) or (3)
above shall have the effect of: (v) increasing the Series A Conversion Price to
an amount which exceeds the initial Series A Conversion Price set forth in
Section (d)(1) above, (w) increasing the Series B Conversion Price to an amount
which exceeds the initial Series B Conversion Price set forth in Section (d)(1)
above, (x) increasing the Series C Conversion Price to an amount which exceeds
the initial Series C Conversion Price set forth in Section (d)(1) above, (y)
increasing the Series D Conversion Price to an amount which exceeds the initial
Series D Conversion Price set forth in Section (d)(1) above or (z) increasing
the Series E Conversion Price to an amount which exceeds the initial Series E
Conversion Price set forth in Section (d)(1) above.
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common. In the event this Company shall issue Additional
Shares of Common (including Additional Shares of Common deemed to be issued
pursuant to Section 4(d)(iii) but excluding stock dividends, subdivisions or
split-ups that are the subject of adjustment pursuant to Section 4(a)) without
consideration or for a consideration per share less than the Series A Conversion
Price, Series B Conversion Price, Series C Conversion Price, Series D Conversion
Price and/or Series E Conversion Price applicable on and immediately prior to
such issue, then and in such event, the Series A Conversion Price, Series B
Conversion Price, Series C Conversion Price, Series D Conversion Price and/or
Series E Conversion Price as applicable, shall be reduced, concurrently with
such issue, to a price (calculated to the nearest cent) determined by
multiplying the Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price, Series D Conversion Price and/or Series E Conversion Price, as
applicable, in effect on the date of and immediately prior to such issue by a
fraction, the numerator of which shall be the number of shares of Common Stock
issuable upon conversion of any class or series of Preferred Stock (or shares
issued upon conversion thereof) outstanding immediately prior to such issue,
plus 10,600,000 shares (as appropriately adjusted for any combinations,
consolidations, subdivisions, or stock dividends with respect to such shares of
Common) of Common, plus the number of shares of Common which the aggregate
consideration received by the Company for the total number of Additional Shares
of Common so issued would purchase at the Series A Conversion Price, Series B
Conversion Price, Series C Conversion Price, Series D
<PAGE> 41
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Conversion Price, and/or Series E Conversion Price, as applicable, in effect on
the date of and immediately prior to such issue; and the denominator of which
shall be the number of shares of Common Stock issuable upon conversion of any
class or series of Preferred Stock (or shares issued upon conversion thereof)
outstanding immediately prior to such issue, plus 10,600,000 shares (as
appropriately adjusted for any combinations, consolidations, subdivisions, or
stock dividends with respect to such shares of Common) of Common, plus the
number of such Additional Shares of Common so issued.
(v) Determination of Consideration. For purposes of this
Section 4(d), the consideration received by the Company for the issue of any
Additional Shares of Common shall be computed as follows:
(1) Cash and Property. Such consideration shall:
(a) insofar as it consists of cash, be
computed at the aggregate amount of cash received by the Company;
(b) insofar as it consists of property other
than cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board; and
<PAGE> 42
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(c) in the event Additional Shares of Common
are issued together with other shares or securities or other assets of the
Company for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board.
(2) Options and Convertible Securities. The
consideration per share received by the Company for Additional Shares of Common
deemed to have been issued pursuant to Section 4(d)(iii), relating to Options
and Convertible Securities, shall be determined by dividing
(a) the total amount, if any, received or
receivable by the Company as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Company upon the exercise of such Options or the
conversion or exchange of such Convertible Securities, or in the case of Options
for Convertible Securities, the exercise of such options for Convertible
Securities and the conversion or exchange of such Convertible Securities by
(b) the maximum number of shares of Common
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
5. No Impairment. The Company will not, by amendment of its Memorandum of
Association or Bye-laws or through any reorganization, transfer of assets,
consolidation, amalgamation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by the Company but
will at all times in good faith
<PAGE> 43
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assist in the carrying out of all the provisions of this Section (d) and in the
taking of all such action as may be necessary or appropriate in order to protect
the conversion rights of the holders of Preferred against impairment.
6. Certificate as to Adjustments. Upon the occurrence of each adjustment
or readjustment of the then applicable Conversion Price for the Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred and/or
Series E Preferred pursuant to Section (d)(4), the Company at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and furnish to each holder of such series of Preferred a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Company shall, upon the
written request at any time of any holder of Preferred, furnish or cause to be
furnished to such holder a like certificate setting forth (i) such adjustments
and readjustments, (ii) the applicable Conversion Price in effect at the time
for such series, and (iii) the number of shares of Common Stock and the amount,
if any, of other property which at the time would be received upon the
conversion of such shares of Preferred.
7. Notices of Record Date. In the event that the Company shall propose at
any time:
a) to declare any dividend or distribution upon its Common Stock,
whether in cash, property, stock or other securities, whether or not a regular
cash dividend and whether or not out of earnings or earned surplus;
b) to offer for subscription pro rata to the holders of any class
or series of its stock any additional shares of stock of any class or series or
any other similar rights;
c) to effect any reclassification or recapitalization of its
Common Stock outstanding which results in a change in the Common Stock; or
<PAGE> 44
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d) to merge or consolidate with or into any other corporation, or
sell, lease or convey all or substantially all its property or business, or to
liquidate, dissolve or wind up;
Then, in connection with each such event, the Company shall send
to the holders of the Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred and Series E Preferred:
(i) at least 20 days' prior written notice of the date on
which a record shall be taken for such dividend, distribution or subscription
offer (and specifying the date on which the holders of Common Stock shall be
entitled thereto) or for determining rights to vote on the matters referred to
in (c) and (d) above; and
(ii) in the case of the matters referred to in (c) and
(d) above, at least 20 days' prior written notice of the date when the same
shall take place and specifying the date on which the holders of Common Stock
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon the occurrence of such event or the record date for
the determination of such holders if such record date is earlier.
Each such written notice shall be delivered personally or given by first
class mail, postage prepaid, addressed to the holders of the Series A Preferred,
the Series B Preferred, the Series C Preferred, the Series D Preferred and the
Series E Preferred at the address for each such holder as shown on the books of
the Company.
8. Certain Covenants.
a) In addition to any other rights provided by law, so long as
any shares of Series A Preferred, Series B Preferred, Series C Preferred, Series
D Preferred
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and Series E Preferred shall be outstanding, the Company shall not, without
first obtaining the affirmative vote or written consent of the holders of not
less than a majority of the outstanding shares of the Series A Preferred, Series
B Preferred, Series C Preferred, Series D Preferred and Series E Preferred
(voting together as a single class):
(i) authorize or issue (i) any additional shares of
Series A Preferred, (ii) any additional shares of Series B Preferred, (iii) any
additional shares of Series C Preferred, (iv) any additional shares of Series D
Preferred or (v) any additional shares of Series E Preferred;
(ii) declare or pay any dividend on shares of Common Stock,
other than such dividends as are payable solely in shares of Common Stock, or
repurchase or redeem any shares of Common Stock or Preferred other than such
repurchases or redemptions of shares made from employees, officers, directors or
consultants upon their termination at their original issue price;
(iii) authorize or issue any series or class of shares
having rights or preferences superior to the Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred or Series E Preferred as to
dividend rights or liquidation preferences, or having redemption rights, ratchet
or narrower-based weighted average anti-dilution protection than that afforded
the Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred or Series E Preferred or a liquidation preference per share that
exceeds two times the aggregate amount invested per share with respect to such
series or class of shares, or that is afforded separate voting rights with
respect to subject matters in addition to those set forth in this Section 8 (or
afforded by operation of law) for which Series A Preferred, Series B Preferred,
Series C Preferred, Series D Preferred or Series E Preferred has such voting
rights or other extraordinary voting rights not afforded the Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred or Series E Preferred
herein or by operation of law;
<PAGE> 46
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(iv) merge or consolidate with or into, or permit
subsidiary to merge with into, any other corporation, corporations or other
entity or entities unless shareholders of the Company immediately prior to such
merger or consolidation continue to hold not less than fifty percent of the
outstanding voting power of the surviving corporation or entity, or sell or
otherwise dispose of all or substantially all of its assets; or
(v) adversely alter or change any of the powers,
preferences, privileges or rights of the Series A Preferred, Series B Preferred,
Series C Preferred, Series D Preferred or Series E Preferred.
51. Power to issue shares
(1) Subject to these Bye-laws and to any resolution of the Members to the
contrary and without prejudice to any special rights previously conferred on the
holders of any existing shares or class of shares, the Board shall have power to
issue any unissued shares of the Company on such terms and conditions as it may
determine and any shares or class of shares may be issued with such preferred,
deferred or other special rights or such restrictions, whether in regard to
dividend, voting, return of capital or otherwise as the Company may from time to
time by resolution of the Members prescribe.
(2) The Board shall, in connection with the issue of any share, have the
power to pay such commission and brokerage as may be permitted by law.
(3) The Company shall not give, whether directly or indirectly, whether
by means of loan, guarantee, provision of security or otherwise, any financial
assistance for the purpose of a purchase or subscription made or to be made by
any person of or for any shares in the Company, but nothing in this Bye-Law
shall prohibit transactions mentioned in Sections 39A, 39B and 39C of the Act.
(4) The Company may from time to time do any one or more of the following
<PAGE> 47
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things:
(a) make arrangements on the issue of shares for a difference
between the Members in the amounts and times of payments of
calls on their shares;
(b) accept from any Member the whole or a part of the amount
remaining unpaid on any shares held by him, although no
part of that amount has been called up;
(c) pay dividends in proportion to the amount paid up on each
share where a larger amount is paid up on some shares than
on others; and
(d) issue its shares in fractional denominations and deal with
such fractions to the same extent as its whole shares and
shares in fractional denominations shall have in proportion
to the respective fractions represented thereby all of the
rights of whole shares including (but without limiting the
generality of the foregoing) the right to vote, to receive
dividends and distributions and to participate in a winding
up.
52. Variation of rights, alteration of share capital and purchase of shares of
the Company
(1) Subject to the provisions of Sections 42 and 43 of the Act any
preference shares may be issued or converted into shares that, at a determinable
date or at the option of the Company, are liable to be redeemed on such terms
and in such manner as the Company before the issue or conversion may by
resolution of the Members determine.
(2) If at any time the share capital is divided into different classes of
shares, the rights attached to any class (unless otherwise provided by the terms
of issue of the shares of that class) may, whether or not the Company is being
wound-up, be varied with the consent in writing of the holders of three-fourths
of the issued shares of that class or with the sanction of a resolution passed
by a majority of the votes cast at a separate general meeting of the holders of
the shares of the class in accordance with Section 47 (7) of the Act. The rights
conferred upon the holders of the shares of any class issued with preferred or
other rights shall not, unless otherwise expressly provided by the terms of
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issue of the shares of that class, be deemed to be varied by the creation or
issue of further shares ranking pari passu therewith.
(3) The Company may from time to time by resolution of the Members change
the currency denomination of, increase, alter or reduce its share capital in
accordance with the provisions of Sections 45 and 46 of the Act. Where, on any
alteration of share capital, fractions of shares or some other difficulty would
arise, the Board may deal with or resolve the same in such manner as it thinks
fit including, without limiting the generality of the foregoing, the issue to
Members, as appropriate, of fractions of shares and/or arranging for the sale or
transfer of the fractions of shares of Members.
(4) The Company may from time to time purchase its own shares in
accordance with the provisions of Section 42A of the Act.
53. Registered holder of shares
(1) The Company shall be entitled to treat the registered holder of any
share as the absolute owner thereof and accordingly shall not be bound to
recognise any equitable or other claim to, or interest in, such share on the
part of any other person.
(2) Any dividend, interest or other moneys payable in cash in respect of
shares may be paid by cheque or draft sent through the post directed to the
Member at such Member's address in the Register of Members or, in the case of
joint holders, to such address of the holder first named in the Register of
Members, or to such person and to such address as the holder or joint holders
may in writing direct. If two or more persons are registered as joint holders of
any shares any one can give an effectual receipt for any dividend paid in
respect of such shares.
54. Death of a joint holder
Where two or more persons are registered as joint holders of a share or
shares then in the event of the death of any joint holder or holders the
remaining joint holder or holders
<PAGE> 49
- 46 -
shall be absolutely entitled to the said share or shares and the Company shall
recognise no claim in respect of the estate of any joint holder except in the
case of the last survivor of such joint holders.
55. Share certificates
(1) Every Member shall be entitled to a certificate under the seal of the
Company (or a facsimile thereof) specifying the number and, where appropriate,
the class of shares held by such Member and whether the same are fully paid up
and, if not, how much has been paid thereon. The Board may by resolution
determine, either generally or in a particular case, that any or all signatures
on certificates may be printed thereon or affixed by mechanical means.
(2) The Company shall be under no obligation to complete and deliver a
share certificate unless specifically called upon to do so by the person to whom
such shares have been allotted.
(3) If any such certificate shall be proved to the satisfaction of the
Board to have been worn out, lost, mislaid or destroyed the Board may cause a
new certificate to be issued and request an indemnity for the lost certificate
if it sees fit.
56. Calls on shares
(1) The Board may from time to time make such calls as it thinks fit upon
the Members in respect of any monies unpaid on the shares allotted to or held by
such Members and, if a call is not paid on or before the day appointed for
payment thereof, the Member may at the discretion of the Board be liable to pay
the Company interest on the amount of such call at such rate as the Board may
determine, from the date when such call was payable up to the actual date of
payment. The joint holders of a share shall be jointly and severally liable to
pay all calls in respect thereof.
<PAGE> 50
- 47 -
(2) The Board may, on the issue of shares, differentiate between the
holders as to the amount of calls to be paid and the times of payment of such
calls.
57. Forfeiture of shares
(1) If any Member fails to pay, on the day appointed for payment thereof,
any call in respect of any share allotted to or held by such Member, the Board
may, at any time thereafter during such time as the call remains unpaid, direct
the Secretary to forward to such Member a notice in the form, or as near thereto
as circumstances admit, of Form "B" in the Schedule hereto.
(2) If the requirements of such notice are not complied with, any such
share may at any time thereafter before the payment of such call and the
interest due in respect thereof be forfeited by a resolution of the Board to
that effect, and such share shall thereupon become the property of the Company
and may be disposed of as the Board shall determine.
(3) A Member whose share or shares have been forfeited as aforesaid
shall, notwithstanding such forfeiture, be liable to pay to the Company all
calls owing on such share or shares at the time of the forfeiture and all
interest due thereon.
REGISTER OF MEMBERS
58. Contents of Register of Members
The Board shall cause to be kept in one or more books a Register of
Members and shall enter therein the following particulars:-
(a) the name and address of each Member, the number and, where
appropriate, the class of shares held by such Member and the
amount paid or agreed to be considered as paid on such shares;
(b) the date on which each person was entered in the Register of
Members;
<PAGE> 51
- 48 -
and
(c) the date on which any person ceased to be a Member for one year
after such person so ceased.
59. Inspection of Register of Members
The Register of Members shall be open to inspection at the registered
office of the Company on every business day, subject to such reasonable
restrictions as the Board may impose, so that not less than two hours in each
business day be allowed for inspection. The Register of Members may, after
notice has been given by advertisement in an appointed newspaper to that effect,
be closed for any time or times not exceeding in the whole thirty days in each
year.
60. Determination of record dates
Notwithstanding any other provision of these Bye-laws, the Board may fix
any date as the record date for:-
(a) determining the Members entitled to receive any dividend; and
(b) determining the Members entitled to receive notice of and to vote
at any general meeting of the Company.
TRANSFER OF SHARES
61. Instrument of transfer
(1) An instrument of transfer shall be in the form or as near thereto as
circumstances admit of Form "C" in the Schedule hereto or in such other common
form as the Board may accept. Such instrument of transfer shall be signed by or
on behalf of the transferor and transferee provided that, in the case of a fully
paid share, the Board may accept the instrument signed by or on behalf of the
transferor alone. The transferor shall be deemed to remain the holder of such
share until the same has been transferred to the transferee in the Register of
Members.
<PAGE> 52
- 49 -
(2) The Board may refuse to recognise any instrument of transfer unless
it is accompanied by the certificate in respect of the shares to which it
relates and by such other evidence as the Board may reasonably require to show
the right of the transferor to make the transfer.
62. Restriction on transfer
(1) The Board may in its absolute discretion and without assigning any
reason therefor refuse to register the transfer of a share. The Board shall
refuse to register a transfer unless all applicable consents, authorisations and
permissions of any governmental body or agency in Bermuda have been obtained.
(2) If the Board refuses to register a transfer of any share the
Secretary shall, within three months after the date on which the transfer was
lodged with the Company, send to the transferor and transferee notice of the
refusal.
63. Transfers by joint holders
The joint holders of any share or shares may transfer such share or
shares to one or more of such joint holders, and the surviving holder or holders
of any share or shares previously held by them jointly with a deceased Member
may transfer any such share to the executors or administrators of such deceased
Member.
TRANSMISSION OF SHARES
64. Representative of deceased Member
In the case of the death of a Member, the survivor or survivors where the
deceased Member was a joint holder, and the legal personal representatives of
the deceased Member where the deceased Member was a sole holder, shall be the
only persons recognised by the Company as having any title to the deceased
Member's interest in the
<PAGE> 53
- 50 -
shares. Nothing herein contained shall release the estate of a deceased joint
holder from any liability in respect of any share which had been jointly held by
such deceased Member with other persons. Subject to the provisions of Section 52
of the Act, for the purpose of this Bye-law, legal personal representative means
the executor or administrator of a deceased Member or such other person as the
Board may in its absolute discretion decide as being properly authorised to deal
with the shares of a deceased Member.
65. Registration on death or bankruptcy
Any person becoming entitled to a share in consequence of the death or
bankruptcy of any Member may be registered as a Member upon such evidence as the
Board may deem sufficient or may elect to nominate some person to be registered
as a transferee of such share, and in such case the person becoming entitled
shall execute in favour of such nominee an instrument of transfer in the form,
or as near thereto as circumstances admit, of Form "D" in the Schedule hereto.
On the presentation thereof to the Board, accompanied by such evidence as the
Board may require to prove the title of the transferor, the transferee shall be
registered as a Member but the Board shall, in either case, have the same right
to decline or suspend registration as it would have had in the case of a
transfer of the share by that Member before such Member's death or bankruptcy,
as the case may be.
DIVIDENDS AND OTHER DISTRIBUTIONS
66. Declaration of dividends by the Board
The Board may, subject to these Bye-laws and in accordance with Section
54 of the Act, declare a dividend to be paid to the Members, in proportion to
the number of shares held by them, and such dividend may be paid in cash or
wholly or partly in specie in which case the Board may fix the value for
distribution in specie of any assets.
67. Other distributions
The Board may declare and make such other distributions (in cash or in
specie) to
<PAGE> 54
- 51 -
the Members as may be lawfully made out of the assets of the Company.
68. Reserve fund
The Board may from time to time before declaring a dividend set aside,
out of the surplus or profits of the Company, such sum as it thinks proper as a
reserve fund to be used to meet contingencies or for equalising dividends or for
any other special purpose.
69. Deduction of Amounts due to the Company
The Board may deduct from the dividends or distributions payable to any
Member all monies due from such Member to the Company on account of calls or
otherwise.
CAPITALISATION
70. Issue of bonus shares
(1) The Board may resolve to capitalise any part of the amount for the
time being standing to the credit of any of the Company's share premium or other
reserve accounts or to the credit of the profit and loss account or otherwise
available for distribution by applying such sum in paying up unissued shares to
be allotted as fully paid bonus shares pro rata to the Members.
(2) The Company may capitalise any sum standing to the credit of a
reserve account or sums otherwise available for dividend or distribution by
applying such amounts in paying up in full partly paid shares of those Members
who would have been entitled to such sums if they were distributed by way of
dividend or distribution.
ACCOUNTS AND FINANCIAL STATEMENTS
71. Records of account
The Board shall cause to be kept proper records of account with respect
to all
<PAGE> 55
- 52 -
transactions of the Company and in particular with respect to:-
(a) all sums of money received and expended by the Company and the
matters in respect of which the receipt and expenditure relates;
(b) all sales and purchases of goods by the Company; and
(c) the assets and liabilities of the Company.
Such records of account shall be kept at the registered office of the Company
or, subject to Section 83 (2) of the Act, at such other place as the Board
thinks fit and shall be available for inspection by the Directors during normal
business hours.
72. Financial year end
The financial year end of the Company may be determined by resolution of
the Board and failing such resolution shall be 31st December in each year.
73. Financial statements
Subject to any rights to waive laying of accounts pursuant to Section 88
of the Act, financial statements as required by the Act shall be laid before the
Members in general meeting.
AUDIT
74. Appointment of Auditor
Subject to Section 88 of the Act, at the annual general meeting or at a
subsequent special general meeting in each year, an independent representative
of the Members shall be appointed by them as Auditor of the accounts of the
Company. Such Auditor may be a Member but no Director, Officer or employee of
the Company shall, during his or her continuance in office, be eligible to act
as an Auditor of the Company.
<PAGE> 56
- 53 -
75. Remuneration of Auditor
The remuneration of the Auditor shall be fixed by the Company in general
meeting or in such manner as the Members may determine.
76. Vacation of office of Auditor
If the office of Auditor becomes vacant by the resignation or death of
the Auditor, or by the Auditor becoming incapable of acting by reason of illness
or other disability at a time when the Auditor's services are required, the
Board shall, as soon as practicable, convene a special general meeting to fill
the vacancy thereby created.
77. Access to books of the Company
The Auditor shall at all reasonable times have access to all books kept
by the Company and to all accounts and vouchers relating thereto, and the
Auditor may call on the Directors or Officers of the Company for any information
in their possession relating to the books or affairs of the Company.
78. Report of the Auditor
(1) Subject to any rights to waive laying of accounts or appointment of
an Auditor pursuant to Section 88 of the Act, the accounts of the Company shall
be audited at least once in every year.
(2) The financial statements provided for by these Bye-laws shall be
audited by the Auditor in accordance with generally accepted auditing standards.
The Auditor shall make a written report thereon in accordance with generally
accepted auditing standards and the report of the Auditor shall be submitted to
the Members in general meeting.
(3) The generally accepted auditing standards referred to in subparagraph
(2) of this Bye-law may be those of a country or jurisdiction other than
Bermuda. If so, the financial statements and the report of the Auditor must
disclose this fact and name such
<PAGE> 57
- 54 -
country or jurisdiction.
NOTICES
79. Notices to Members of the Company
A notice may be given by the Company to any Member either by delivering
it to such Member in person or by sending it to such Member's address in the
Register of Members or to such other address given for the purpose. For the
purposes of this Bye-law, a notice may be sent by mail, courier service, cable,
telex, telecopier, facsimile or other mode of representing words in a legible
and non-transitory form.
80. Notices to joint Members
Any notice required to be given to a Member shall, with respect to any
shares held jointly by two or more persons, be given to whichever of such
persons is named first in the Register of Members and notice so given shall be
sufficient notice to all the holders of such shares.
81. Service and delivery of notice
Any notice shall be deemed to have been served at the time when the same
would be delivered in the ordinary course of transmission and, in proving such
service, it shall be sufficient to prove that the notice was properly addressed
and prepaid, if posted, and the time when it was posted, delivered to the
courier or to the cable company or transmitted by telex, facsimile or other
method as the case may be.
SEAL OF THE COMPANY
82. The seal
The seal of the Company shall be in such form as the Board may from time
to time determine. The Board may adopt one or more duplicate seals for use
outside Bermuda.
<PAGE> 58
- 55 -
83. Manner in which seal is to be affixed
The seal of the Company shall not be affixed to any instrument except
attested by the signature of a Director and the Secretary or any two Directors,
or some other person appointed by the Board for the purpose, provided that any
Director, or Officer, may affix the seal of the Company attested by such
Director or Officer's signature only to any authenticated copies of these
Bye-laws, the incorporating documents of the Company, the minutes of any
meetings or any other documents required to be authenticated by such Director or
Officer.
WINDING-UP
84. Winding-up/distribution by liquidator
If the Company shall be wound up the liquidator may, with the sanction of
a resolution of the Members, divide amongst the Members in specie or in kind the
whole or any part of the assets of the Company (whether they shall consist of
property of the same kind or not) and may, for such purpose, set such value as
he or she deems fair upon any property to be divided as aforesaid and may
determine how such division shall be carried out as between the Members or
different classes of Members. The liquidator may, with the like sanction, vest
the whole or any part of such assets in trustees upon such trusts for the
benefit of the Members as the liquidator shall think fit, but so that no Member
shall be compelled to accept any shares or other securities or assets whereon
there is any liability.
ALTERATION OF BYE-LAWS
85. Alteration of Bye-laws
No Bye-law shall be rescinded, altered or amended and no new Bye-law
shall be made until the same has been approved by a resolution of the Board and
by a resolution of the Members.
<PAGE> 59
- 56 -
*****
***
*
<PAGE> 60
- 57 -
SCHEDULE - FORM A (Bye-law 48)
..............................................
P R O X Y
I
of
the holder of share in the above-named Company hereby
appoint .................................................... or failing him/her
................................................. or failing him/her
................................................. as my proxy to vote on my
behalf at the General Meeting of the Company to be held on the day of , 19 , and
at any adjournment thereof.
Dated this day of , 19
*GIVEN under the seal of the company
*Signed by the above-named
- -----------------------------------
- -----------------------------------
Witness
*Delete as applicable.
<PAGE> 61
- 58 -
SCHEDULE - FORM B (Bye-law 57)
NOTICE OF LIABILITY TO FORFEITURE FOR NON PAYMENT OF CALL
You have failed to pay the call of [amount of call] made on the ...... day of
........, 19.. last, in respect of the [number] share(s) [numbers in figures]
standing in your name in the Register of Members of the Company, on the ......
day of ........., 19.. last, the day appointed for payment of such call. You are
hereby notified that unless you pay such call together with interest thereon at
the rate of .......... per annum computed from the said ....... day of
........., 19... last, on or before the ....... day of ........., 19... next at
the place of business of the said Company the share(s) will be liable to be
forfeited.
Dated this ....... day of .............., 19...
[Signature of Secretary]
By order of the Board
<PAGE> 62
- 59 -
SCHEDULE - FORM C (Bye-law 61)
TRANSFER OF A SHARE OR SHARES
FOR VALUE RECEIVED .................................................... [amount]
................................................................... [transferor]
hereby sell assign and transfer unto ...............................[transferee]
of ................................................................... [address]
............................................................. [number of shares]
shares of .....................................................[name of Company]
Dated .............................
------------------------------------
(Transferor)
In the presence of:
- -----------------------------------
(Witness)
------------------------------------
(Transferee)
In the presence of:
- -----------------------------------
(Witness)
<PAGE> 63
- 60 -
SCHEDULE - FORM D (Bye-law 65)
TRANSFER BY A PERSON BECOMING ENTITLED ON DEATH/BANKRUPTCY
OF A MEMBER
I/We having become entitled in consequence of the [death/bankruptcy] of
[name of the deceased Member] to [number] share(s) numbered [number in
figures] standing in the register of members of [Company] in the name of
the said [name of deceased Member] instead of being registered
myself/ourselves elect to have [name of transferee] (the "Transferee")
registered as a transferee of such share(s) and I/we do hereby
accordingly transfer the said share(s) to the Transferee to hold the same
unto the Transferee his or her executors administrators and assigns
subject to the conditions on which the same were held at the time of the
execution thereof; and the Transferee does hereby agree to take the said
share(s) subject to the same conditions.
WITNESS our hands this ........ day of ..........., 19...
Signed by the above-named )
[person or persons entitled] )
in the presence of: )
Signed by the above-named )
[transferee] )
in the presence of: )
<PAGE> 1
EXHIBIT 10.1
[PROPOSED]
MARVELL TECHNOLOGY GROUP LTD.
AMENDED AND RESTATED
1995 STOCK OPTION PLAN
1. Purpose. This Plan is intended to attract and retain the best
available individuals as Employees and Consultants of the Company and its
Subsidiaries, to provide additional incentives to those Employees and
Consultants, and to promote the success of the Company's business.
2. Defined Terms. The meanings of defined terms (generally, capitalized
terms) in this Plan are provided in Section 21 ("Glossary").
3. Shares Reserved. Subject to Section 14, a maximum aggregate of
13,750,000 Shares may be issued under this Plan; provided however, that
beginning the first business day of each calendar year starting January 1, 2001
or after, there shall be added to this Plan the lesser of an additional (i)
5,000,000 shares of Common Stock, (ii) 5.0% of the outstanding shares of capital
stock on such date, or (iii) an amount determined by the Board. The Shares may
be authorized, but unissued, or reacquired Common Stock. If an Option expires or
becomes unexercisable for any reason, any unpurchased Optioned Shares shall be
available for future issuance under this Plan. Shares retained to satisfy tax
withholding obligations do not reduce the number authorized for issuance.
4. Administration.
(a) In General. This Plan shall be administered by the Board or a
Committee appointed by the Board. Once appointed, a Committee shall serve until
otherwise directed by the Board. From time to time, the Board may increase the
size of the Committee and appoint additional members, remove members (with or
without cause) and appoint new members in their stead, fill vacancies however
caused, and terminate the Committee and thereafter directly administer this
Plan.
(b) After Exchange Act Applies. After the Company becomes subject to the
Exchange Act, the Board may provide for administration of this Plan with respect
to Employees who are also officers or directors of the Company by a Committee
constituted so as to permit this Plan to comply as a discretionary plan with
Rule 16b-3 promulgated under the Exchange Act or any successor thereto. A
Committee appointed under this Section 4(b) may be separate from any Committee
appointed to administer this Plan with respect to Employees who are neither
officers nor directors.
(c) Powers of the Administrator. Subject to the provisions of this Plan
and in the case of a Committee, the specific duties delegated by the Board, the
Administrator shall have the authority, in its discretion:
<PAGE> 2
(i) to determine the Fair Market Value of the Common Stock;
(ii) to grant Options to such Consultants and Employees as it
selects;
(iii) to determine the terms and conditions of each Option
granted, including without limitation the number of Shares of Optioned
Stock, the exercise price per share, and whether an Option is to be
granted as an ISO or a NSO;
(iv) to approve forms of agreement for use under this Plan;
(v) to determine whether and under what circumstances to offer
to buy out an Option for cash or Shares under Section 13;
(vi) to modify grants of Options to participants who are foreign
nationals or employed outside of the United States in order to recognize
differences in local law, tax policies, or customs; and
(vii) to construe and interpret the terms of this Plan and
Options granted pursuant to this Plan.
(d) Administrator's Decisions Binding. All decisions, determinations,
and interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options, and no member of the
Administrator shall be liable for any such determination, decision, or
interpretation made in good faith.
5. Eligibility.
(a) NSOs/ISOs. Nonstatutory Stock Options may be granted to Employees
and Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if otherwise
eligible, be granted additional Options.
(b) Limitations.
(i) If the Company or a successor issues any class of common
equity securities required to be registered under Section 12 of the
Exchange Act or if this Plan is assumed by a corporation that has a
class of such securities, the following limitations shall apply to
grants of Options to Employees:
(ii) No Employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 1,000,000 Shares, adjusted
proportionately in connection with any change in the Company's
capitalization as described in Section 14. If an Option is granted but
canceled in the same fiscal year, it shall nonetheless count against the
2
<PAGE> 3
foregoing limit. Reduction of an Option's exercise price is treated as a
cancellation of the Option and the grant of a new Option.
6. Term of Options. The term of each Option shall be determined by the
Administrator at the time of grant but shall not exceed ten years. In the case
of an ISO granted to an Optionee who, at the time of grant, owns stock
representing more than ten percent of the voting power of all classes of stock
of the Company or any Parent or Subsidiary, the Option term shall not exceed
five years.
7. Date of Grant. Unless otherwise determined by the Administrator, the
date of grant of an Option shall be the date on which the Administrator
completes the actions necessary to grant the Option. Notice of the grant shall
be given to the Optionee within a reasonable time after the date of the grant.
8. Exercise Price and Form of Consideration.
(a) Price. The per-Share exercise price of an Option shall be determined
by the Administrator at the time of grant, but:
(i) In the case of an ISO:
(A) granted to an Employee who, at the time of grant, owns stock
representing more than ten percent of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the
per-Share exercise price shall be at least 110% of the Fair
Market Value on the date of grant; or
(B) granted to any other Employee, the per-Share exercise price
shall be at least the Fair Market Value on the date of grant.
(ii) In the case of a NSO:
(A) granted to an Employee who, at the time of grant, owns stock
representing more than ten percent of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the
per-Share exercise price shall be at least the Fair Market Value
on the date of grant; or
(B) granted to any other Employee, the per-Share exercise price
shall be at least 85% of the Fair Market Value on the date of
grant.
(b) Form of Payment. Payment for Shares upon exercise of an Option shall
be made in any lawful consideration approved by the Administrator and may,
without limitation, consist of (1) cash, (2) check, (3) other Shares that have a
Fair Market Value on the date of payment equal to the aggregate exercise price
of the Shares as to which
3
<PAGE> 4
Option is exercised, (4) delivery by a broker or brokerage firm approved by the
Administrator of a properly executed exercise notice together with payment of
the exercise price and such other documentation as the Administrator shall
require, or (5) any combination of the foregoing.
9. Exercise.
(a) Exercisability. Each Option shall be exercisable at such times and
under such conditions as determined by the Administrator at the time of grant,.
(b) Vesting. Each Option and the corresponding Optioned Stock shall vest
at such times and under such conditions as determined by the Administrator at
the time of grant, and as are otherwise permissible under the terms of this
Plan, including without limitation performance criteria with respect to the
Company and/or the Optionee.
(c) Fractional Shares. An Option may not be exercised for a fraction of
a Share.
(d) Manner of Exercise; Rights as a Shareholder. Unless otherwise
allowed by the Administrator, an Option shall be exercised by delivery to the
Company of all of the following: (i) written notice of exercise by the Optionee,
in a form approved by the Administrator and in accordance with the terms of the
Option, (ii) full payment for the Shares with respect to which the Option is
exercised, and (iii) payment (or provision for payment) of withholding taxes
pursuant to Subsection (f), below. Delivery of any of the foregoing may be by
electronic means approved by the Administrator. The Optionee shall be treated as
a shareholder of the Company with respect to the purchased Shares upon
completion of exercise of the Option.
(e) Optionee Representations. If Shares purchasable pursuant to the
exercise of an Option have not been registered under the Securities Act of 1933,
as amended, at the time the Option is exercised, the Optionee shall, if required
by the Administrator, as a condition to exercise of all or any portion of the
Option, deliver to the Company an investment representation statement in a form
approved by the Administrator.
(e) Termination of Employment or Consulting Relationship. If an
Optionee's Continuous Service terminates, the Optionee (or the Optionee's estate
or heirs, if termination is due to death or the Optionee dies during the
post-termination exercise period of the Option) may exercise the Option, (i)
only within such period of time as is determined by the Administrator (but no
later than the expiration date determined by the Administrator at the time of
grant) and the Option shall terminate at the end of that period, and (ii) unless
otherwise determined by the Administrator, only to the extent that the Optionee
was entitled to exercise it at the date of termination.
(f) Tax Withholding. The Company's obligation to deliver Shares upon
exercise of an Option is subject to payment (or provision for payment
satisfactory to the
4
<PAGE> 5
Administrator) by the Optionee of all federal, state, and local income and
employment taxes that the Administrator determines in its discretion to be due
as a result of the exercise of the Option or sale of the Shares.
10. Rule 16b-3. Except to the extent determined by the Administrator,
Options granted to persons subject to Section 16(b) of the Exchange Act shall
comply with Rule 16b-3 and shall contain such terms as may be required or
desirable to qualify Plan transactions for the maximum exemption from Section 16
of the Exchange Act.
11. Non-Transferability of Options. Options may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
12. Lockup Agreement. Grant and exercise of each Option are subject to
the Optionee's agreement, upon the request of (and in form and substance
satisfactory to) the Company or the underwriters managing an initial firmly
underwritten public offering of the Company's securities, not to sell, make any
short sale of, loan, grant any option for the purchase of, or otherwise dispose
of any Shares or any derivative security (unless included in the registration of
Shares offered) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed 180
days) from the effective date of the registration as the Company or underwriters
may specify.
13. Buyout of Options. The Administrator may at any time offer to buy
out an Option for a payment in cash or Shares, based on such terms and
conditions as the Administrator shall establish and communicate to the Optionee
at the time of the offer.
14. Changes in Capitalization or Control.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Optioned Stock and the
number of Shares that have been authorized for issuance under this Plan but as
to which no Options have then been granted or that have been returned to this
Plan upon cancellation or expiration of an Option, as well as the price per
share of Optioned Stock, shall be proportionately adjusted for any change in the
number of issued Shares resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
change in the number of issued Shares effected without receipt of consideration
by the Company (not counting Shares issued upon conversion of convertible
securities of the Company as "effected without receipt of consideration"). Such
adjustment shall be made by the Board and shall be final, binding, and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no consequent adjustment shall be made with respect
to, the number or price of Shares subject to this Plan.
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(b) Change in Control. The Administrator may, in its discretion,
determine at any time from and after the grant of an Option the effect that a
Change in Control shall have upon the Option; provided however, that a Change in
Control shall not have the effect of impairing the rights of any Optionee under
any then-outstanding Option without his or her prior written consent. Without
limiting the foregoing sentence, the Administrator may determine that upon a
Change in Control, an Option:
(i) shall become fully vested and exercisable either for a
limited period following the Change in Control or for the remainder of
the Option's term;
(ii) shall terminate upon or after a specified period following
the Change in Control;
(iii) shall be cancelled in exchange for cash in the amount of
the excess of the fair market value of the Optioned Shares over the
exercise price upon termination; or
(iv) shall be treated as provided under a combination of clauses
(i) through (iii), or shall be so treated only if not adequately assumed
(or substituted for) by a surviving or successor person or entity in the
transactions or events that give rise to the Change in Control.
For purposes of this Section 14(b), the "Administrator" shall be the
Administrator as constituted before the Change in Control occurs.
15. Amendments. The Board may at any time amend, alter, suspend, or
discontinue this Plan, but no such action shall impair the rights of any
Optionee under any then-outstanding Option without his or her prior written
consent.
16. Securities Regulation Requirements.
(a) Compliance with Rule; Buy-out Offer. In general, Shares shall not be
issued pursuant to the exercise of an Option unless the exercise of the Option
and issuance of the Shares comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, the requirements
of any stock exchange upon which the Shares may then be listed, and the
requirements of any regulatory body having jurisdiction. When the Company
receives notice of exercise of an Option, if the Administrator believes in its
discretion that the period before Shares may be issued will exceed 21 days, the
Administrator shall (unless it determines that such an offer is itself prevented
by the rules described in the preceding sentence) make an offer pursuant to
Section 12 to buy out the portion of the Option corresponding to the number of
Shares whose issuance is thus prevented. The buy-out offer shall be valid for at
least 21 days.
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(b) Optionee Investment Representation. As a condition to the exercise
of an Option, the Company may require the person exercising the Option to
represent and warrant that the Shares are being purchased only for investment
and without any present intention to sell or distribute the Shares if, in the
opinion of counsel for the Company, such a representation is required by law.
17. Written Option Agreements. Options shall be evidenced by written
agreements in a form the Administrator approves from time to time. The written
agreement shall designate the Option as either an Incentive Stock Option or a
Nonstatutory Stock Option. Delay in executing a written agreement shall not
affect the date of grant of an Option; however, an Option may not be exercised
until a written agreement has been executed by the Company and the Optionee.
18. Shareholder Approval. This Plan is subject to approval by the
shareholders of the Company within 12 months after the Board adopts this Plan.
Shareholder approval shall be obtained in the degree and manner required under
applicable state and federal law and the rules of any stock exchange upon which
the Common Stock is listed.
19. Information to Optionees. The Company shall provide to each Optionee
copies of financial statements at least annually, at the same time and in the
same form as it furnishes such information to its shareholders. The Company
shall not be required to provide such statements to key employees whose duties
assure their access to equivalent information.
20. No Employment Rights. This Plan does not confer upon any Optionee
any right with respect to continuation of employment or consulting relationship
with the Company, nor shall it interfere in any way with the Company's right to
terminate his or her employment or consulting relationship at any time, with or
without cause.
21. Term of Plan. This Plan shall become effective upon the earlier to
occur of adoption by the Board or approval by the shareholders of the Company,
as described in Section 17. It shall continue in effect for a term of ten years
unless sooner terminated under Section 14.
22. Glossary. The following definitions apply for purposes of this Plan:
(a) "Administrator" means the Board or a committee appointed by the
Board under Section 4.
(b) "Board" means the Board of Directors of the Company.
(c) "Change in Control" means a change in ownership or control of the
Company by any of:
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(i) a merger or consolidation in which the holders of stock
possessing a majority of the voting power in the surviving entity (or a
parent of the surviving entity) did not own a majority of the Common
Stock immediately before the transaction;
(ii) the sale of all or substantially all of the Company's
assets to any other person or entity (other than a Subsidiary);
(iii) the liquidation or dissolution of the Company;
(iv) the direct or indirect acquisition by any person or related
group of persons of beneficial ownership (within the meaning of Rule
13d-3 of the 1934 Act) of securities possessing more than 50% of the
total combined voting power of the Company's outstanding securities
pursuant to a tender or exchange offer made directly to the Company's
shareholders that the Board does not recommend that the shareholders
accept, or
(v) a change in composition of the Board over a period of 36
consecutive months such that a majority of the Board ceases, by reason
of one or more contested elections for Board membership, to be composed
of individuals who either (A) have been Board members continuously since
the beginning of that period or (B) have been elected or nominated for
election as Board members during that period by at least a majority of
the Board members described in clause (A) who were in office when the
Board approved the election or nomination.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Common Stock" means the Common Stock of the Company.
(f) "Company" means Marvell Technology Group Ltd., a Bermuda
corporation.
(g) "Consultant" means any person, other than an Employee, who is
engaged by the Company or any Parent or Subsidiary to perform consulting or
advisory services.
(h) "Continuous Service" means that an Optionee's employment or
consulting relationship with the Company or a Parent or Subsidiary is not
interrupted or terminated. Continuous Service is not interrupted by (i) any
leave of absence approved by the Company, (ii) transfers between locations of
the Company or between the Company, a Parent, a Subsidiary, or any successor, or
(iii) changes in status from Employee to Consultant or Consultant to Employee.
(i) "Employee" means any person employed by the Company or any Parent or
Subsidiary of the Company.
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<PAGE> 9
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(k) "Fair Market Value" means, as of any date, the value of common Stock
determined as follows:
(i) If the Common Stock is quoted on an established stock
exchange or national market system, including without limitation the
National Association of Securities Dealers, Inc. Automated Quotation
("NASDAQ") National Market System, Fair Market Value shall be the
closing sales price (or the closing bid, if no sales are reported) as
quoted on that exchange or system for the day of the determination, as
reported in The Wall Street Journal or an equivalent source, or if the
determination date is not a trading day, then on the most recent
preceding trading day;
(ii) If the Common Stock is quoted on NASDAQ (but not on the
National Market System) or regularly quoted by a recognized securities
dealer but selling prices are not reported, Fair Market Value shall be
the mean between the high bid and low asked prices for the Common Stock
on the day of the determination, or on the most recent preceding trading
day if the determination date is not a trading day; or
(iii) In the absence of an established market for the Common
Stock, Fair Market Value shall be determined by the Administrator.
(l) "Incentive Stock Option" or "ISO" means an Option intended to
qualify as an "incentive stock option" within the meaning of, and to the extent
otherwise permitted by, Section 422 of the Code.
(m) "Nonstatutory Stock Option" or "NSO" means an Option not intended to
qualify as an ISO.
(n) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(o) "Option" means a stock option granted pursuant to this Plan.
(p) "Optioned Stock" means the Common Stock subject to an Option.
(q) "Optionee" means the Employee or Consultant who receives an Option
and includes any person who owns all or any part of an Option, or who is
entitled to exercise an Option, after the death or disability of an Optionee.
(r) "Parent" means a "parent corporation," present or future, as defined
in Section 424(e) of the Code.
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(s) "Plan" means this 1995 Marvell Technology Group Ltd. Stock Option
Plan.
(t) "Share" means a share of the Common Stock, as adjusted in accordance
with Section 13(a).
(u) "Subsidiary" means a "subsidiary corporation," present or future, as
defined in Section 424(f) of the Code.
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<PAGE> 1
EXHIBIT 10.2
MARVELL TECHNOLOGY GROUP, LTD.
1997 DIRECTORS' STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this Directors' Stock
Option Plan are to attract and retain the best available personnel for service
as Directors of the Company, to provide additional incentive to the Outside
Directors of the Company to serve as Directors, and to encourage their
continued service on the Board.
All options granted hereunder shall be nonstatutory stock
options.
2. DEFINITIONS. As used herein, the following definitions shall
apply:
(a) "Board" shall mean the Board of Directors of the
Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the Common Stock of the
Company.
(d) "Company" shall mean MARVELL TECHNOLOGY GROUP, LTD., a
Bermuda corporation.
(e) "Continuous Status as a Director" shall mean the absence
of any interruption or termination of service as a Director.
(f) "Director" shall mean a member of the Board.
(g) "Employee" shall mean any person, including any officer
or director, employed by the Company or any Parent or Subsidiary of the
Company who works at least twenty (20) hours a week for the Company. The
payment of a director's fee by the Company shall not be sufficient in
and of itself to constitute "employment" by the Company.
(h) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(i) "Option" shall mean a stock option granted pursuant to
the Plan. All options shall be nonstatutory stock options (i.e., options
that are not intended to qualify as incentive stock options under
Section 422 of the Code).
(j) "Optioned Stock" shall mean the Common Stock subject to
an Option.
(k) "Optionee" shall mean an Outside Director who receives
an Option.
(l) "Outside Director" shall mean a Director who is not an
Employee.
(m) "Parent" shall mean a "parent corporation," whether now
or hereafter existing, as defined in Section 424(e) of the Code.
<PAGE> 2
(n) "Plan" shall mean this 1997 Directors' Stock Option Plan.
(o) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(p) "Subsidiary" shall mean a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 150,000 Shares (the "Pool") of Common Stock. The Shares may
be authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were
subject thereto shall, unless the Plan shall have been terminated, become
available for future grant under the Plan. If Shares which were acquired upon
exercise of an Option are subsequently repurchased by the Company, such Shares
shall not in any event be returned to the Plan and shall not become available
for future grant under the Plan.
4. ADMINISTRATION OF AND GRANTS OF OPTIONS UNDER THE PLAN.
(a) ADMINISTRATOR. Except as otherwise required herein, the Plan
shall be administered by the Board.
(b) PROCEDURE FOR GRANTS. All grants of Options hereunder shall be
automatic and nondiscretionary and shall be made strictly in accordance with
the following provisions:
(i) No person shall have any discretion to select which
Outside Directors shall be granted Options or to determine the number of Shares
to be covered by Options granted to Outside Directors.
(ii) Each Outside Director shall be automatically granted an
Option to purchase Shares (the "First Option") as follows: (A) with respect to
persons who are Outside Directors on the effective date of this Plan, as
determined in accordance with Section 6 hereof, 30,000 shares on such effective
date, and (B) with respect to any other person, 30,000 shares on the date on
which such person first becomes an Outside Director, whether through election
by the shareholders of the Company or appointment by the Board of Directors to
fill a vacancy. The First Option will vest over five years (twenty percent at
the end of the first year and 1/60th for each month thereafter).
(iii) After the First Option has been granted to an Outside
Director, such Outside Director shall thereafter be automatically granted an
Option to purchase 6,000 Shares (a "Subsequent Option") on the date of each
Annual Meeting of the Company's shareholders immediately following which such
Outside Director is serving on the Board, provided that, on such date, he or
she shall have served on the Board for at least six (6) months prior to the
date of such Annual Meeting. The Subsequent Option will begin to vest from one
month after the fourth
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anniversary of the date of grant in the amount of 1/12th of the Subsequent
Option for each month thereafter.
(iv) Notwithstanding the provisions of subsections (ii) and
(iii) hereof, in the event that a grant would cause the number of Shares
subject to outstanding Options plus the number of Shares previously purchased
upon exercise of Options to exceed to Pool, then each such automatic grant
shall be for that number of Shares determined by dividing the total number of
Shares remaining available for grant by the number of Outside Directors
receiving an Option on such date on the automatic grant date. Any further
grants shall then be deferred until such time, if any, as additional Shares
become available for grant under the Plan through action of the shareholders to
increase the number of Shares which may be issued under the Plan or through
cancellation or expiration of Options previously granted hereunder.
(v) Notwithstanding the provisions of subsections (ii) and
(iii) hereof, any grant of an Option made before the Company has obtained
shareholder approval of the Plan in accordance with Section 17 hereof shall be
conditioned upon obtaining such shareholder approval of the Plan in accordance
with Section 17 hereof.
(vi) The terms of each First Option granted hereunder shall be
as follows:
(1) the First Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Section 9 hereof;
(2) the exercise price per Share shall be 100% of the fair
market value per Share on the date of grant of the First Option, determined in
accordance with Section 8 hereof; and
(3) the First Option shall be exercisable cumulatively
according to the vesting schedule set out in the Notice of Grant.
Alternatively, at the election of the Optionee, it may be exercised in whole or
in part at any time as to Shares which have not yet vested.
(vii) The terms of each Subsequent Option granted hereunder
shall be as follows:
(1) the Subsequent Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Section 9 hereof;
(2) the exercise price per Share shall be 100% of the fair
market value per Share on the date of grant of the Subsequent Option,
determined in accordance with Section 8 hereof; and
(3) the Subsequent Option shall be exercisable
cumulatively according to the vesting schedule set out in the Notice of Grant.
Alternatively, at the election of the Optionee, if may be exercised in whole or
in part at any time as to Shares which have not yet vested.
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(c) POWERS OF THE BOARD. Subject to the provisions and
restrictions of the Plan, the Board shall have the authority, in its
discretion: (i) to determine, upon review of relevant information and in
accordance with Section 8(b) of the Plan, the fair market value of the Common
Stock; (ii) to determine the exercise price per share of Options to be granted,
which exercise price shall be determined in accordance with Section 8(a) of the
Plan; (iii) to interpret the Plan; (iv) to prescribe, amend and rescind rules
and regulations relating to the Plan; (v) to authorize any person to execute on
behalf of the Company any instrument required to effectuate the grant of an
Option previously granted hereunder; and (vi) to make all other determinations
deemed necessary or advisable for the administration of the Plan.
(d) EFFECT OF BOARD'S DECISION. All decisions, determinations
and interpretations of the Board shall be final and binding on all Optionees
and any other holders of any Options granted under the Plan.
(e) SUSPENSION OR TERMINATION OF OPTION. If the President or
his or her designee reasonably believes that an Optionee has committed an act
of misconduct, the President may suspend the Optionee's right to exercise any
option pending a determination by the Board of Directors (excluding the Outside
Director accused of such misconduct). If the Board of Directors (excluding the
Outside Director accused of such misconduct) determines an Optionee has
committed an act of embezzlement, fraud, dishonesty, nonpayment of an
obligation owed to the Company, breach of fiduciary duty or deliberate
disregard of the Company rules resulting in loss, damage or injury to the
Company, or if an Optionee makes an unauthorized disclosure of any Company
trade secret or confidential information, engages in any conduct constituting
unfair competition, induces any Company customer to breach a contract with the
Company or induces any principal for whom the Company acts as agent to
terminate such agency relationship, neither the Optionee nor his or her estate
shall be entitled to exercise any option whatsoever. In making such
determination, the Board of Directors (excluding the Outside Director accused
of such misconduct) shall act fairly and shall give the Optionee an opportunity
to appear and present evidence on Optionee's behalf at a hearing before the
Board or a committee of the Board.
5. ELIGIBILITY. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth
in Section 4(b) hereof. An Outside Director who has been granted an Option may,
if he or she is otherwise eligible, be granted an additional Option or Options
in accordance with such provisions.
The Plan shall not confer upon any Optionee any right with respect
to continuation of service as a Director or nomination to serve as a Director,
nor shall it interfere in any way with any rights which the Director or the
Company may have to terminate his or her directorship at any time.
6. TERM OF PLAN; EFFECTIVE DATE. The Plan shall become effective on
the effectiveness of the registration statement under the Securities Act of
1933, as amended, relating to the Company's initial public offering of
securities. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 13 of the Plan.
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7. TERM OF OPTIONS. The term of each Option shall be ten (10) years from
the date of grant thereof.
8. EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per Share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be 100% of the fair market
value per Share on the date of grant of the Option.
(b) FAIR MARKET VALUE. The fair market value shall be determined by
the Board; provided, however, that where there is a public market for the
Common Stock, the fair market value per Share shall be the mean of the bid and
asked prices of the Common Stock in the over-the-counter market on the date of
grant, as reported in The Wall Street Journal (or, if not so reported, as
otherwise reported by the National Association of Securities Dealers Automated
Quotation ("Nasdaq") System") or, in the event the Common Stock is traded on
the Nasdaq National Market or listed on a stock exchange, the fair market value
per Share shall be the closing price on such system or exchange on the date of
grant of the Option (or, in the event that the Common Stock is not traded on
such date, on the immediately preceding trading date), as reported in The Wall
Street Journal. With respect to any Options granted hereunder concurrently with
the initial effectiveness of the Plan, the fair market value shall be
determined by the Board.
(c) FORM OF CONSIDERATION. The consideration to be paid for the
Shares to be issued upon exercise of an Option shall consist entirely of cash,
check, other Shares of Common Stock having a fair market value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised (which, if acquired from the Company, shall have been
held for at least six months), or any combination of such methods of payment
and/or any other consideration or method of payment as shall be permitted under
applicable corporate law.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE: RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times as set forth in Section
4(b) hereof; provided, however, that no Options shall be exercisable prior to
shareholder approval of the Plan in accordance with Section 17 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 8(c) of the Plan. Until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a shareholder shall
exist with respect to the Optioned Stock, notwithstanding
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<PAGE> 6
the exercise of the Option. A share certificate for the number of Shares so
acquired shall be issued to the Optionee as soon as practicable after exercise
of the Option. No adjustment will be made for a dividend or other right for
which the record date is prior to the date the stock certificate is issued,
except as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF STATUS AS A DIRECTOR. If an Outside Director ceases to
serve as a Director, he or she may, but only within ninety (90) days after the
date he or she ceases to be a Director of the Company, exercise his or her
Option to the extent that he or she was entitled to exercise it at the date of
such termination. Notwithstanding the foregoing, in no event may the Option be
exercised after its term set forth in Section 7 has expired. To the extent that
such Outside Director was not entitled to exercise an Option at the date of
such termination, or does not exercise such Option (which he or she was
entitled to exercise) within the time specified herein, the Option shall
terminate.
(c) DISABILITY OF OPTIONEE. Notwithstanding Section 9(b) above, in the
event a Director is unable to continue his or her service as a Director with
the Company as a result of his or her total and permanent disability (as
defined in Section 22(e)(3) of the Code), he or she may, but only within six
(6) months (or such other period of time not exceeding twelve (12) months as is
determined by the Board) from the date of such termination, exercise his or her
Option to the extent he or she was entitled to exercise it at the date of such
termination. Notwithstanding the foregoing, in no event may the Option be
exercised after its term set forth in Section 7 has expired. To the extent that
he or she was not entitled to exercise the Option at the date of termination,
or if he or she does not exercise such Option (which he or she was entitled to
exercise) within the time specified herein, the Option shall terminate.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee:
(i) During the term of the Option who is, at the time of his or her
death, a Director of the Company and who shall have been in Continuous Status
as a Director since the date of grant of the Option, the Option may be
exercised, at any time within six (6) months following the date of death, by
the Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent of the right to
exercise that would have accrued had the Optionee continued living and remained
in Continuous Status as Director for six (6) months (or such lesser period of
time as is determined by the Board) after the date of death. Notwithstanding
the foregoing, in no event may the Option be exercised after its term set forth
in Section 7 has expired.
(ii) Three (3) months after the termination of Continuous Status as a
Director, the Option may be exercised, at any time within six (6) months
following the date of death, by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only
to the extent of the right to exercise that had accrued at the date of
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termination. Notwithstanding the foregoing, in no event may the option be
exercised after its term set forth in Section 7 has expired.
10. NONTRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution or pursuant to a qualified
domestic relations order (as defined by the Code or the rules thereunder). The
designation of a beneficiary by an Optionee does not constitute a transfer. An
Option may be exercised during the lifetime of an Optionee only by the Optionee
or a transferee permitted by this Section.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS.
(a) ADJUSTMENT. Subject to any required action by the shareholders
of the Company, the number of shares of Common Stock covered by each
outstanding Option, and the number of shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option, as well as the price per share of Common Stock covered by each
such outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the
Company; provided, however, that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option.
(b) CORPORATE TRANSACTIONS. In the event of (i) a dissolution or
liquidation of the Company, (ii) a sale of all or substantially all of the
Company's assets, (iii) a merger or consolidation in which the Company is not
the surviving corporation, or (iv) any other capital reorganization in which
more than fifty percent (50%) of the shares of the Company entitled to vote are
exchanged, the Company shall give to the Eligible Director, at the time of
adoption of the plan for liquidation, dissolution, sale, merger, consolidation
or reorganization, either a reasonable time thereafter within which to exercise
the Option, including Shares as to which the Option would not be otherwise
exercisable, prior to the effectiveness of such liquidation, dissolution, sale,
merger, consolidation or reorganization, at the end of which time the Option
shall terminate, or the right to exercise the Option, including Shares as to
which the Option would not be otherwise exercisable (or receive a substitute
option with comparable terms), as to an equivalent number of shares of stock of
the corporation succeeding the Company or acquiring its business by reason of
such liquidation, dissolution, sale, merger, consolidation or reorganization.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall
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be given to each Outside Director to whom an Option is so granted within a
reasonable time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may amend or
terminate the Plan from time to time in such respects as the Board may deem
advisable; provided that, to the extent necessary and desirable to comply with
Rule 16b-3 under the Exchange Act (or any other applicable law or regulation),
the Company shall obtain approval of the shareholders of the Company to Plan
amendments to the extent and in the manner required by such law or regulation.
Notwithstanding the foregoing, the provisions set forth in Section 4 of this
Plan (and any other Sections of this Plan that affect the formula award terms
required to be specified in this Plan by Rule 16b-3) shall not be amended more
than once every six months, other than to comport with changes in the Code, the
Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment
or termination of the Plan that would impair the rights of any Optionee shall
not affect Options already granted to such Optionee and such Options shall
remain in full force and effect as if this Plan had not been amended or
terminated, unless mutually agreed otherwise between the Optionee and the
Board, which agreement must be in writing and signed by the Optionee and the
Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance. As a
condition to the exercise of an Option, the Company may require the person
exercising such Option to represent and warrant at the time of any such exercise
that the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares, if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.
15. RESERVATION OF SHARES. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan. Inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
16. OPTION AGREEMENT. Options shall be evidenced by written
agreements in such form as the Board shall approve.
-8-
<PAGE> 9
17. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the shareholders of the Company at or prior to the first annual
meeting of shareholders held subsequent to the granting of an Option hereunder.
If such shareholder approval is obtained at a duly held shareholders' meeting,
it may be obtained by the affirmative vote of the holders of a majority of the
outstanding shares of the Company present or represented and entitled to vote
thereon. If such shareholder approval is obtained by written consent, it may be
obtained by the written consent of the holders of a majority of the outstanding
shares of the Company. Options may be granted, but not exercised, before such
shareholder approval.
<PAGE> 10
MARVELL TECHNOLOGY GROUP LTD.
1997 DIRECTORS' STOCK OPTION PLAN
NOTICE OF STOCK OPTION GRANTS
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Stock Option Agreement.
1. NOTICE OF STOCK OPTION GRANT
Optionee's Name and Address
(OptioneeName)
(Address)
(City), (State) (ZipCode)
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Stock Option
Agreement, as follows:
Grant Number (GrantNumber)
-------------------------------
Date of Grant (DateOfGrant)
-------------------------------
Vesting Commencement Date (VestingCommenceDate)
-------------------------------
Exercise Price Per Share (ExercisePricePerShare)
-------------------------------
Total Number of Shares Granted (TotalNumberOfShares)
-------------------------------
Total Exercise Price (TotalExercisePrice)
-------------------------------
Type of Option: Nonstatutory Stock Option
Term/Expiration Date: (TermExpirationDate)
-------------------------------
Vesting Schedule:
This Option may be exercised immediately, in whole or in part, conditioned
upon Optionee entering into a Restricted Stock Purchase Agreement with respect
to any unvested Option Shares. The Shares subject to this Option shall vest
and/or be released from the
<PAGE> 11
Company's repurchase option, as set forth in the Restricted Stock Purchase
Agreement, in accordance with the following schedule.
For the First Options: Twenty percent (20%) of the Shares subject to the
Option shall vest twelve months after the Vesting Commencement Date, and an
additional one-sixtieth (1/60th) of the Shares subject to the Option shall vest
at the end of each month thereafter, so that all of the Shares shall be vested
five (5) years after the Vesting Commencement Date.
For the Subsequent Options: One-twelfth (1/12th) of the Shares subject to
the Option shall vest one month after the fourth anniversary of the date of
grant, and an additional one-twelfth (1/12th) of the Shares subject to the
Option shall vest at the end of each month thereafter, so that all of the
Shares shall be vested five (5) years after the Vesting Commencement Date.
Termination Period:
This Option may be exercised for 90 days after termination of Optionee's
Continuous Status as an Outside Director, or such longer period as may be
applicable upon death or Disability of Optionee's provided in the Plan, but in
no event later than the Expiration Date as provided above.
By your signature and the signature of the Company's representative below,
you and the Company agree that this option is granted under and governed by the
terms and conditions of the 1997 Directors' Stock Option Plan and the
Nonstatutory Stock Option Agreement, all of which are attached and made a part
of this document.
OPTIONEE: MARVELL TECHNOLOGY GROUP, LTD
________________________________________ By: ___________________________________
Signature
________________________________________ Title: ________________________________
Print Name
-2-
<PAGE> 1
EXHIBIT 10.3
MARVELL TECHNOLOGY GROUP LTD.
2000 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose.
This Plan is intended to allow Employees of the Company and its Designated
Subsidiaries to purchase Common Stock through accumulated Payroll deductions.
2. Defined Terms.
The meanings of defined terms (generally, capitalized terms) in this Plan
are provided in Section 23 ("Glossary").
3. Eligibility.
(a) Participation. Any person who is an Employee on an Offering Date
shall be eligible to participate in this Plan during the corresponding Offering
Period.
(b) No Participation by Five-Percent Stockholders. Notwithstanding
Section 3(a), an Employee shall not participate in this Plan during an Offering
Period if immediately after the grant of a Purchase Right on the Offering Date,
the Employee (or any other person whose stock would be attributed to the
Employee under Section 424(d) of the Code) would own stock possessing five
percent or more of the total combined voting power or value of all classes of
stock of the Company or of any Subsidiary. For this purpose, an Employee is
treated as owning stock that he or she could purchase by exercise of Purchase
Rights or other options.
4. Offering Periods.
Except as otherwise determined by the Administrator:
(a) the first Offering Period under this Plan shall begin on the
first business day before the effective date of a firmly underwritten initial
public offering of Common Stock and shall end on the last trading day of January
of the second succeeding calendar year;
(b) a new Offering Period shall begin on the first business day of
each February and August while this Plan is in effect;
(c) the duration of each Offering Period (other than the first
Offering Period) shall be 24 months (measured from the first business day of the
first month to the last business day of the 24th month); and
(d) an Offering Period shall terminate on the first date that no
Participant is enrolled in it.
5. Participation.
<PAGE> 2
(a) An Employee may become a Participant in this Plan by completing a
subscription agreement, in such form as the Administrator may approve from time
to time, and delivering it to the Administrator by 1 p.m. Pacific time on the
applicable Offering Date, unless another time for filing the subscription
agreement is set by the Administrator for all Employees with respect to a given
Offering Period. The subscription agreement shall authorize Payroll deductions
pursuant to this Plan and shall have such other terms as the Administrator may
specify from time to time.
(b) At the end of an Offering Period, each Participant in the
Offering Period who remains an Employee shall be automatically enrolled in the
next succeeding Offering Period (a "Re-enrollment") unless, in a manner and at a
time specified by the Administrator, but in no event later than 1 p.m. Pacific
time on the Offering Date of such succeeding Offering Period, the Participant
notifies the Administrator in writing that the Participant does not wish to be
re-enrolled. Re-enrollment shall be at the withholding percentage specified in
the Participant's most recent subscription agreement. No Participant shall be
automatically re-enrolled whose participation has terminated by operation of
Section 10.
(c) If the fair market value of the Common Stock on any Offering Date
is less it was on the first day of a then-concurrent Offering Period, each
Participant in the concurrent Offering Period shall automatically be withdrawn
from such concurrent Offering Period and shall become a Participant in the
commencing Offering Period. Participation shall be at the withholding percentage
specified in the Participant's most recent (as of 1 p.m. Pacific time on the
relevant Offering Date) subscription agreement. No Participant shall be
automatically re-enrolled whose participation in this Plan has terminated by
operation of Section 10.
6. Payroll Deductions.
(a) Payroll deductions under this Plan shall be in whole percentages,
from a minimum of 1% up to a maximum (not to exceed 20%) established by the
Administrator from time to time, as specified by the Participant in his or her
subscription agreement in effect on the first day of an Offering Period. Payroll
deductions for a Participant shall begin with the first payroll payment date of
the Offering Period and shall end with the last payroll payment date of the
Offering Period, unless sooner terminated by the Participant as provided in
Section 10.
(b) A Participant's Payroll deductions shall be credited to his or
her account under this Plan. A Participant may not make any additional payments
into his or her account.
(c) A Participant may reduce his or her Payroll deductions by any
whole percentage (but not below 1%) at any time during an Offering Period,
effective 15 days after the Participant files with the Administrator a new
subscription agreement authorizing the change. A Participant may change his or
her Payroll deductions during an Offering Period, effective the first business
day after a Purchase Date, by delivering a new subscription agreement
authorizing the change to the Administrator by 1 p.m. Pacific time on the
effective date of the increase.
7. Purchase Rights.
2
<PAGE> 3
(a) Grant of Purchase Rights. On the Offering Date of each Offering
Period, the Participant shall be granted a Purchase Right to purchase during the
Offering Period the number of shares of Common Stock determined by dividing (i)
$25,000 multiplied by the number of (whole or part) calendar years in the
Offering Period by (ii) the fair market value of a share of Common Stock on the
Offering Date.
(b) Terms of Purchase Rights. Except as otherwise determined by the
Administrator, each Purchase Right shall have the following terms:
(i) The per-share price of the shares subject to a Purchase
Right shall be 85% of the lower of the fair market values of a share
of Common Stock on (a) the Offering Date on which the Purchase Right
was granted and (b) the Purchase Date. The fair market value of the
Common Stock on a given date shall be the closing price as reported in
the Wall Street Journal; provided, however, that if there is no public
trading of the Common Stock on that date, then fair market value shall
be determined by the Administrator in its discretion.
(ii) Payment for shares purchased by exercise of Purchase Rights
shall be made only through Payroll deductions under Section 6.
(iii) Upon purchase or disposition of shares acquired by exercise
of a Purchase Right, the Participant shall pay, or make provision
satisfactory to the Administrator for payment of, all tax (and
similar) withholdings that the Administrator determines, in its
discretion, are required due to the acquisition or disposition,
including without limitation any such withholding that the
Administrator determines in its discretion is necessary to allow the
Company and its Subsidiaries to claim tax deductions or other benefits
in connection with the acquisition or disposition.
(iv) During his or her lifetime, a Participant's Purchase Right
is exercisable only by the Participant.
(v) Purchase Rights will in all respects be subject to the
terms and conditions of this Plan, as interpreted by the Administrator
from time to time.
8. Purchase Dates; Purchase of Shares; Refund of Excess Cash.
(a) The Administrator shall establish one or more Purchase Dates for
each Offering Period. Unless otherwise determined by the Administrator, the last
trading day of each January and July in an Offering Period shall be a Purchase
Date.
(b) Except as otherwise determined by the Administrator, and subject
to subsection (c), below, each then-outstanding Purchase Right shall be
exercised automatically on each Purchase Date, following addition to the
Participant's account of that day's Payroll deductions, to purchase
3
<PAGE> 4
the maximum number of full shares of Common Stock at the applicable price using
the Participant's accumulated Payroll deductions.
(c) If on a Purchase Date the fair market value of the Common Stock
is less than 75% of the fair market value of the Common Stock on the immediately
preceding Purchase Date (whether or not such preceding Purchase Date is in the
same Offering Period) (the "Benchmark Date"), then (except as otherwise
determined by the Administrator):
(i) the maximum number of shares that a Participant may
purchase on the Purchase Date shall be determined by multiplying the
fair market value of the Common Stock on the Benchmark Date by 0.6375
and then dividing the Participant's accumulated Payroll deductions by
the result;
(ii) a maximum number of shares established pursuant to the
clause (i) shall remain the maximum number of shares purchasable by a
Participant on any subsequent Purchase Date until the Purchase Date on
which the fair market value of the Common Stock is at least 75% of the
fair market value of the Common Stock on the Benchmark Date; and
(iii) notwithstanding the foregoing, during the initial Offering
Period under this Plan, the Benchmark Date shall be date of the
beginning such Offering Period.
(d) The shares purchased upon exercise of a Purchase Right shall be
deemed to be transferred to the Participant on the Purchase Date.
9. Registration and Delivery of Share Certificates.
(a) Shares purchased by a Participant under this Plan will be
registered in the name of the Participant, or in the name of the Participant and
his or her spouse, or in the name of the Participant and joint tenant(s) (with
right of survivorship), as designated by the Participant.
(b) As soon as administratively feasible after each Purchase Date,
the Company shall deliver to the Participant a certificate representing the
shares purchased upon exercise of a Purchase Right. If approved by the
Administrator in its discretion, the Company may instead (i) deliver a
certificate (or equivalent) to a broker for crediting to the Participant's
account or (ii) make a notation in the Participant's favor of non-certificated
shares on the Company's stock records.
10. Withdrawal; Termination of Employment.
(a) A Participant may withdraw all, but not less than all, the
Payroll deductions credited to his account under this Plan before a Purchase
Date by giving written notice to the Administrator, in a form the Administrator
prescribes from time to time, at least 15 days before the Purchase Date. Payroll
deductions will then cease as to the Participant, no purchase of shares
4
<PAGE> 5
will be made for the Participant on the Purchase Date, and all Payroll
deductions then credited to the Participant's account will be refunded promptly.
(b) Upon termination of a Participant's Continuous Employment for any
reason, including retirement or death, all Payroll deductions credited to the
Participant's account will be promptly refunded to the Participant or, in the
case of death, to the person or persons entitled thereto under Section 14, and
the Participant's Purchase Right will automatically terminate.
(c) A Participant's withdrawal from an offering will not affect the
Participant's eligibility to participate in a succeeding offering or in any
similar plan that may be adopted by the Company.
11. Use of Funds; No Interest.
Amounts withheld from Participants under this Plan shall constitute general
funds of the Company, may be used for any corporate purpose, and need not be
segregated from other funds. No interest shall accrue on a Participant's Payroll
deductions.
12. Number of Shares Reserved.
(a) The following numbers of shares of Common Stock are reserved for
issuance under this Plan, and such number may be issued at any time before
termination of this Plan:
(i) Beginning the date of approval of this Plan by the
stockholders of the Company, 1,000,000 shares of Common Stock; and
(ii) Beginning the first business day of each calendar year
starting January 1, 2001 or after, the lesser of an additional (A)
500,000 shares of Common Stock, (B) 0.75% of the outstanding shares of
capital stock on such date, or (C) an amount determined by the Board.
(b) If the total number of shares that would otherwise be subject to
Purchase Rights granted on an Offering Date exceeds the number of shares then
available under this Plan (after deduction of all shares for which Purchase
Rights have been exercised or are then exercisable), the Administrator shall
make a pro-rata allocation of the available shares in a manner that it
determines to be as uniform and equitable as practicable. In such event, the
Administrator shall give written notice of the reduction and allocation to each
Participant.
(c) The Administrator may, in its discretion, transfer shares
reserved for issuance under this Plan into a plan or plans of similar terms, as
approved by the Board, providing for the purchase of shares of Common Stock to
employees of Subsidiaries designated by the Board that do not (or do not
thereafter) participate in this Plan. Such additional plans may, without
limitation, provide for variances from the terms of this Plan to take into
account special circumstances (such as foreign legal restrictions) affecting the
employees of the designated Subsidiaries.
5
<PAGE> 6
13. Administration.
This Plan shall be administered by the Board or by such directors,
officers, and employees of the Company as the Board may select from time to time
(the "Administrator"). All costs and expenses incurred in administering this
Plan shall be paid by the Company, provided that any taxes applicable to an
Employee's participation in this Plan may be charged to the Employee by the
Company. The Administrator may make such rules and regulations as it deems
necessary to administer this Plan and to interpret any provision of this Plan.
Any determination, decision, or action of the Administrator in connection with
the construction, interpretation, administration, or application of this Plan or
any right granted under this Plan shall be final, conclusive, and binding upon
all persons, and no member of the Administrator shall be liable for any such
determination, decision, or action made in good faith.
14. Designation of Beneficiary.
(a) A Participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the Participant's account under
this Plan in the event of the Participant's death.
(b) A designation of beneficiary may be changed by the Participant at
any time by written notice. In the event of the death of a Participant, and in
the absence of a beneficiary validly designated under this Plan who is living at
the time of the Participant's death, the Administrator shall deliver such shares
and/or cash to the executor or administrator of the Participant's estate, or if
no such executor or administrator has been appointed (to the Administrator's
knowledge), the Administrator, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
Participant or, if no spouse, dependent, or relative is known to the
Administrator, then to such other person as the Administrator may designate.
15. Transferability.
Neither Payroll deductions credited to a Participant's account nor any
rights with regard to the exercise of a Purchase Right or to receive shares
under this Plan may be assigned, transferred, pledged, or otherwise disposed of
in any way (other than by will, the laws of descent and distribution, or as
provided in Section 14) by the Participant. Any such attempt at assignment,
transfer, pledge, or other disposition shall be without effect, except that the
Administrator may treat such act as an election to withdraw funds in accordance
with Section 10.
16. Reports.
Individual accounts will be maintained for each Participant in this Plan.
Statements of account will be given to participating Employees promptly
following each Purchase Date, setting forth the amounts of Payroll deductions,
per-share purchase price, number of shares purchased, and remaining cash
balance, if any.
6
<PAGE> 7
17. Adjustments upon Changes in Capitalization.
(a) Subject to any required action by the stockholders of the
Company, the number of shares of Common Stock covered by each unexercised
Purchase Right and the number of shares of Common Stock authorized for issuance
under this Plan but not yet been placed under a Purchase Right (collectively,
the "Reserves"), as well as the price per share of Common Stock covered by each
unexercised Purchase Right, shall be proportionately adjusted for any change in
the number of issued shares of Common Stock resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
Common Stock, or any change in the number of shares of Common Stock effected
without receipt of consideration by the Company (not counting shares issued upon
conversion of convertible securities of the Company as "effected without receipt
of consideration"). Such adjustment shall made by the Board and shall be final,
binding, and conclusive. Except as expressly provided herein, no issue by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no consequent adjustment shall be made
with respect to, the number or price of shares of Common Stock subject to a
Purchase Right.
(b) In the event of the proposed dissolution or liquidation of the
Company, the then-current Offering Period will terminate immediately before the
consummation of the proposed action, unless otherwise provided by the Board. In
the event of a proposed sale of all or substantially all of the Company's
assets, or the merger of the Company with or into another corporation (if the
Company's stockholders own less than 50% of the total outstanding voting power
in the surviving entity or a parent of the surviving entity after the merger),
each Purchase Right under this Plan shall be assumed or an equivalent purchase
right shall be substituted by the successor corporation or a parent or
subsidiary of the successor corporation, unless the successor corporation does
not agree to assume the Purchase Rights or to substitute equivalent purchase
rights, in which case the Board may, in lieu of such assumption or substitution,
accelerate the exercisability of Purchase Rights and allow Purchase Rights to be
exercisable as to shares as to which they would not otherwise be exercisable, on
terms and for a period that the Board determines in its discretion. To the
extent that the Board accelerates exercisability of Purchase Rights as described
above, it shall promptly so notify all Participants in writing.
(c) The Board may, in its discretion, also make provision for
adjusting the Reserves, as well as the price per share of Common Stock covered
by each outstanding Purchase Right, if the Company effects one or more
reorganizations, recapitalizations, rights offerings, or other increases or
reductions of shares of its outstanding Common Stock, or if the Company
consolidates with or merges into any other corporation, in a transaction not
otherwise covered by this Section 17.
18. Amendment or Termination.
(a) The Board may at any time terminate or amend this Plan. No
amendment may be made without prior approval of the stockholders of the Company
(obtained in the manner described in Section 20) if it would increase the number
of shares that may be issued under this Plan.
7
<PAGE> 8
(b) The Board may elect to terminate any or all outstanding Purchase
Rights at any time, except to the extent that exercisability of such Purchase
Rights has been accelerated pursuant to Section 17(b). If this Plan is
terminated, the Board may also elect to terminate Purchase Rights upon
completion of the purchase of shares on the next Purchase Date or to permit
Purchase Rights to expire in accordance with their terms (with participation to
continue through such expiration dates). If Purchase Rights are terminated
before expiration, any funds contributed to this Plan that have not been used to
purchase shares shall be refunded to Participants as soon as administratively
feasible.
19. Notices.
All notices or other communications by a Participant to the Company or the
Administrator under or in connection with this Plan shall be deemed to have been
duly given when received in the form specified by the Administrator at the
location, or by the person, designated by the Administrator for that purpose.
20. Stockholder Approval.
This Plan shall be submitted to the stockholders of the Company for their
approval within 12 months after the date this Plan is adopted by the Board.
21. Conditions upon Issuance of Shares.
(a) Shares shall not be issued with respect to a Purchase Right
unless the exercise of such Purchase Right and the issuance and delivery of such
shares pursuant thereto complies with all applicable provisions of law, domestic
or foreign, including, without limitation, the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, the rules and
regulations promulgated thereunder, and the requirements of any stock exchange
upon which the shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
(b) As a condition to the exercise of a Purchase Right, the Company
may require the person exercising such Purchase Right to represent and warrant
at the time of any such exercise that the shares are being purchased only for
investment and without any present intention to sell or distribute such shares
if, in the opinion of counsel for the Company, such a representation is required
by any of the aforementioned applicable provisions of law.
22. Term of Plan.
This Plan shall become effective upon the earlier of its adoption by the
Board or its approval by the stockholders of the Company as described in Section
20. It shall continue in effect for a term of 20 years unless sooner terminated
under Section 18.
23. Glossary. The following definitions apply for purposes of this Plan:
8
<PAGE> 9
(a) "Administrator" means the Board or the persons appointed by the
Board to administer this Plan pursuant to Section 13.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Common Stock" means the Common Stock of the Company.
(e) "Company" means Marvell Technology Group Ltd., a Bermuda
corporation.
(f) "Continuous Employment" means the absence of any interruption or
termination of service as an Employee. Continuous Employment shall not be
considered interrupted in the case of a leave of absence agreed to in writing by
the Company, provided that either (i) the leave does not exceed 90 days or (ii)
re-employment upon expiration of the leave is guaranteed by contract or statute.
(g) "Designated Subsidiaries" means the Subsidiaries that have been
designated by the Board from time to time in its sole discretion to participate
in this Plan.
(h) "Employee" means any person, including an officer, who is
customarily employed for at least 20 hours per week and five months per year by
the Company or one of its Designated Subsidiaries. Whether an individual
qualifies as an Employee shall be determined by the Administrator, in its sole
discretion, by reference to Section 3401(c) of the Code and the regulations
promulgated thereunder; unless the Administrator makes a contrary determination,
the Employees of the Company shall, for all purposes of this Plan, be those
individuals who satisfy the customary employment criteria set forth above and
are carried as employees by the Company or a Designated Subsidiary for regular
payroll purposes.
(i) "Offering Date" means the first business day of an Offering
Period.
(k) "Offering Period" means a period established by the Administrator
pursuant to Section 4 during which Payroll deductions are accumulated from
Participants and applied to the purchase of Common Stock.
(l) "Participant" means an Employee who has elected to participate in
this Plan pursuant to Section 5.
(m) "Payroll" means all regular, straight-time gross earnings,
exclusive of payments for overtime, shift premium, incentive compensation or
payments, bonuses, and commissions.
(m) "Plan" means this Marvell Technology Group Ltd. 2000 Employee
Stock Purchase Plan.
9
<PAGE> 10
(n) "Purchase Date" means such business days during each Offering
Period as may be established by the Administrator for the purchase of Common
Stock pursuant to Section 8.
(o) "Purchase Right" means a right to purchase Common Stock granted
pursuant to Section 7.
(p) "Subsidiary" means, from time to time, any corporation, domestic
or foreign, of which not less than 50% of the voting shares are held by the
Company or another Subsidiary of the Company.
10
<PAGE> 1
EXHIBIT 10.4
SUBLEASE
(645 Almanor, Sunnyvale)
THIS SUBLEASE ("Sublease"), dated October __, 1998 for reference
purposes only, is entered into by and between NETSCAPE COMMUNICATIONS, INC., a
Delaware corporation ("Netscape") and MARVELL SEMICONDUCTOR, INC. a California
Corporation ("Subtenant").
RECITALS
A. Netscape leases certain premises consisting of an industrial building
(the "Building") containing approximately 132,000 square feet located at 645
Almanor, Sunnyvale, California, pursuant to that certain Lease dated November 1,
1996 between The Prudential Insurance Company Of America as landlord (the
"Master Landlord") and Netscape, as tenant (the "Master Lease"), as more
particularly described therein (the "Premises"). Capitalized terms used but not
defined herein have the same meanings as they have in the Master Lease. A copy
of the Master Lease is attached hereto as EXHIBIT A.
B. Netscape desires to sublease a portion of the Premises to Subtenant,
and Subtenant desires to sublease a portion of the Premises from Netscape on the
terms and provisions hereof.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, Netscape and Subtenant covenant and agree as follows:
AGREEMENT
1. SUBLEASED PREMISES. On and subject to the terms and conditions below,
Netscape hereby leases to Subtenant, and Subtenant hereby leases from Netscape,
approximately thirty-five thousand eight hundred forty two (35,842) rentable
square feet of the Premises (the "Subleased Premises"). A description of the
Subleased Premises is attached hereto as EXHIBIT B.
2. TERM. This Sublease shall commence on February 1, 1999 (the
"Commencement Date"), provided Netscape has theretofore obtained the consent of
Master Landlord, and shall expire February 15, 2002, unless sooner terminated
pursuant to any provision hereof. Subtenant shall have the right to enter the
Subleased Premises on January 1, 1999 to take reasonable preparatory measures
for its occupancy of the Subleased Premises, including, without limitation, the
installation of its trade fixtures, furnishings, and telephone and computer
equipment. Such entry shall be subject to all of the terms and conditions of
this Sublease, except that Subtenant shall not be required to pay any rent on
account thereof.
3. POSSESSION. If for any reason Netscape cannot deliver possession of
the Subleased Premises to Subtenant on the Commencement Date, Netscape shall not
be subject to any liability therefor, nor shall such failure affect the validity
of this Sublease or the obligations of Subtenant hereunder or extend the term
hereof, provided that no rent shall be due hereunder until possession of the
Subleased Premises has been delivered to Subtenant.
<PAGE> 2
4. RENT.
(a) Subject to section 3 above, commencing on the Commencement Date
and continuing throughout the term of this Sublease, Subtenant shall pay
monthly rent ("Rent") to Netscape in the following amounts:
(i) Base Rent. Subtenant shall pay to Netscape monthly base
rent ("Base Rent") in the following amounts:
<TABLE>
<CAPTION>
Month Monthly Base Rent
----- -----------------
<S> <C>
01-12 $1.45/rentable square foot
13-24 $1.50/rentable square foot
25-End of term $1.55/rentable square foot
</TABLE>
(ii) Additional Rent. In addition to Base Rent, Subtenant shall
also pay to Netscape as additional rent ("Additional Rent") Subtenant's pro rata
share ("Subtenant's Pro-Rata Share") of Building Operating Expenses (as defined
below). Netscape and Subtenant hereby agree that Subtenant's Pro-Rata Share
shall be the quotient derived by dividing the number of rentable square feet of
the Subleased Premises by 132,000. To the extent that Netscape notifies
Subtenant that any items constituting Additional Rent are due and payable under
the Master Lease on a monthly basis, such Additional Rent shall be paid by
Subtenant to Netscape as and when Basic Rent is paid. To the extent that such
items constituting Additional Rent are billed from time to time to Netscape by
Master Landlord, such Additional Rent shall be paid by Subtenant to Netscape
within seven (7) business days after Subtenant's receipt from Netscape of an
invoice therefor.
(b) "Building Operating Expenses" are defined, for purposes of this
Sublease, as all actual costs and expenses paid or incurred by Netscape in
connection with its management, operation, maintenance and repair of the
Premises, including, without limitation: (i) the cost of electricity, natural
gas, water, telephone, waste disposal and all other utilities, (ii) the cost of
maintenance and repairs and all labor and material costs related thereto,
including, without limitation, maintenance and repair of building systems, fire
detection and sprinkler systems, building signs and directories, roof, common
areas (including, without limitation, parking areas, loading and unloading
areas, trash areas, striping, bumpers, irrigation systems, lighting facilities,
elevators, fences and gates) and the cost of general maintenance, cleaning and
service contracts and the cost of all supplies, tools and equipment required in
connection therewith, (iii) the cost incurred by Netscape for license, permit
and inspection fees for the Premises, (iv) wages, salaries, payroll taxes and
other labor costs and employee benefits, (v) management fees (which shall not
exceed management fees charged for similar facilities in the area and in any
event, shall not exceed 5% of all other Building Operating Expenses), (vi)
reasonable fees, charges and other costs of all independent contractors engaged
by Netscape in connection with such management or repairs, (vii) reasonable
accounting and legal expenses, (viii) janitorial and security systems, (ix) all
Operating Expenses (as that term is used in the Master Lease) payable by
Netscape to Master Landlord pursuant to the Master Lease, and (x) any other
expenses of any kind whatsoever reasonably incurred in connection with the
management, operation, maintenance and repair of the Building.
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<PAGE> 3
(i) Audit Rights: Subtenant shall have the right to audit at
Netscape's local offices, at Subtenant's expense, Netscape's accounts and
records relating to Building Operating Expenses. Such audit shall be conducted
by a certified public accountant approved by Netscape, which approval shall not
be unreasonably withheld. If such audit reveals that Netscape has overcharged
Subtenant, the amount overcharged shall be paid to Subtenant within 30 days
after the audit is concluded.
(c) Payment of Rent. If the Commencement Date does not fall on the
first day of a calendar month, Rent for the first month shall be prorated on a
daily basis based upon a calendar month. Rent shall be payable to Netscape in
lawful money of the United States, in advance, without prior notice, demand, or
offset, on or before the first day of each calendar month during the term
hereof. All Rent shall be paid to Netscape at the address specified for notices
to Netscape in Section 16, below.
(d) Subtenant recognizes that late payment of any Rent will result
in administrative expenses to Netscape, the extent of which additional expenses
are extremely difficult and economically impractical to ascertain. Subtenant
therefore agrees that if any Rent shall remain unpaid five (5) days after such
amounts are due, the amount of such Rent shall be increased by a late charge to
be paid to Netscape by Subtenant in an amount equal to the greater of five
hundred dollars ($500.00) or ten percent (10%) of the amount of the delinquent
Rent.
(e) Upon execution of this Sublease, Subtenant shall deliver to
Netscape the sum of fifty-two thousand two hundred and 00/100 dollars
($52,200.00), representing the first month's Base Rent.
5. SECURITY DEPOSIT. Upon execution of this Sublease, Subtenant shall
deposit with Netscape the sum of one hundred twenty-five thousand and 00/100
dollars ($125,000.00) as a security deposit ("Security Deposit"). If Subtenant
fails to pay Rent or other charges when due under this Sublease, or fails to
perform any of its other obligations hereunder, Netscape may use or apply all or
any portion of the Security Deposit for the payment of any Rent or other amount
then due hereunder and unpaid, for the payment of any other sum for which
Netscape may become obligated by reason of Subtenant's default or breach, or for
any loss or damage sustained by Netscape as a result of Subtenant's default or
breach. If Netscape so uses any portion of the Security Deposit, Subtenant shall
restore the Security Deposit to the full amount originally deposited within ten
(10) days after Netscape's written demand. Netscape shall not be required to
keep the Security Deposit separate from its general accounts, and shall have no
obligation or liability for payment of interest on the Security Deposit. The
Security Deposit, or so much thereof as had not theretofore been applied by
Netscape, shall be returned to Subtenant within thirty (30) days of the
expiration or earlier termination of this Sublease, provided Subtenant has
vacated the Subleased Premises.
6. CONDITION OF SUBLEASED PREMISES. Except as otherwise provided in
Section 7 hereof, Subtenant has used due diligence in inspecting the Subleased
Premises and agrees to accept the Subleased Premises in "as-is" condition and
with all faults as of the date of Subtenant's execution of this Sublease,
without any representation or warranty of any kind or nature whatsoever, or any
obligation on the part of Netscape to modify, improve or otherwise prepare the
Subleased Premises for Subtenant's occupancy, and by entry hereunder, Subtenant
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<PAGE> 4
accepts the Subleased Premises in their present condition and without
representation or warranty of any kind by Netscape. Subtenant hereby expressly
waives the provisions of subsection 1 of Section 1932 and Sections 1941 and
1942 of the California Civil Code and all rights to make repairs at the expense
of Netscape as provided in Section 1942 of said Civil Code.
7. CONDITION OF THE SUBLEASED PREMISES UPON COMMENCEMENT. Netscape will
deliver the Subleased Premises in broom clean condition with all building
systems in good working order and repair.
8. USE. Subtenant may use the Subleased Premises only for the purposes
as allowed in the Master Lease, and for no other purpose. Subtenant shall not
use or permit the use of the Subleased Premises in a manner that will create
waste or a nuisance, interfere with or disturb other tenants in the Building or
violate the provisions of the Master Lease. Subtenant shall promptly comply with
all applicable statutes, ordinances, rules, regulations, orders, restrictions
of record, and requirements in effect during the term of this Sublease
governing, affecting and regulating Subtenant's specific use of the Subleased
Premises, or that are triggered by any improvements or alterations done by, or
at the direction of, Subtenant.
9. ALTERATIONS.
(a) Subtenant shall not make any alterations to the Subleased
Premises without the express written consent of Netscape and the Master
Landlord, which shall not be unreasonably withheld, and shall otherwise comply
with the Alterations section of the Master Lease as incorporated herein.
(b) Subject to the foregoing, Subtenant shall at its sole cost and
expense separately demise the Subleased Premises.
10. ASSIGNMENT AND SUBLETTING. Subtenant may not assign, sublet, transfer,
pledge, hypothecate or otherwise encumber the Subleased Premises, in whole or in
part, or permit the use or occupancy of the Subleased Premises by anyone other
than Subtenant, unless Subtenant has obtained Netscape's consent thereto (which
shall not be unreasonably withheld) and the consent of Master Landlord.
Regardless of Netscape's consent, no subletting or assignment shall release
Subtenant of its obligations hereunder. Any rent or other consideration payable
to Subtenant pursuant to any sublease or assignment permitted by this paragraph
which is in excess of the Rent payable to Netscape pursuant hereto as offset by
Subtenant's reasonable subleasing costs ("Sublease Bonus Rent") shall be divided
equally between Netscape and Subtenant.
11. INCORPORATION OF SUBLEASE.
(a) All of the terms and provisions of the Master Lease, except as
provided in subsection (b) below, are incorporated into and made a part of this
Sublease and the rights and obligations of the parties under the Master Lease
are hereby imposed upon the parties hereto with respect to the Subleased
Premises, Netscape being substituted for the "Landlord" in the Master Lease,
and Subtenant being substituted for the "Tenant" in the Master Lease. It is
further understood that where reference is made in the Master Lease to the
"Premises," the same shall mean the Subleased Premises as defined herein;
where reference is made to the "Commencement
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<PAGE> 5
Date," the same shall mean the Commencement Date as defined herein; and where
reference is made to the "Lease," the same shall mean this Sublease.
(b) The following Sections of the Master Lease are not
incorporated herein: Basic Lease Information (except "Use"), 1, 2, 3, 4, 5, 6,
7, 9(a), the first three sentences of 9(b), 10(b), 13(c), 23(c), 24, 26, 28, 30,
37 and 40; Exhibits B-1, B-2, C, C-1 and E.
(c) Subtenant hereby assumes and agrees to perform for Netscape's
benefit, during the term of this Sublease, all of Netscape's obligations with
respect to the Subleased Premises under the Master Lease, except as otherwise
provided herein. Subtenant shall not commit or permit to be committed any act or
omission which violates any term or condition of the Master Lease. Except as
otherwise provided herein, this Sublease shall be subject and subordinate to all
of the terms of the Master Lease.
12. INSURANCE. Subtenant shall be responsible for compliance with the
insurance provisions of the Master Lease with respect to the Subleased Premises.
Such insurance shall insure the performance by Subtenant of its indemnification
obligations hereunder and shall name Master Landlord and Netscape as additional
insureds. All insurance required under this Sublease shall contain an
endorsement requiring thirty (30) days written notice from the insurance company
to Subtenant and Netscape before cancellation or change in the coverage,
insureds or amount of any policy. Subtenant shall provide Netscape with
certificates of insurance evidencing such coverage prior to the commencement of
this Sublease.
13. UTILITIES. Subject to reimbursement pursuant to Section 4(a)(ii) of
this Sublease, Netscape shall provide the Subleased Premises with commercially
reasonable amounts of water, electricity and janitorial service. Netscape
reserves the right to install a separate meter to measure the consumption of any
utility supplied by Netscape. If it is reasonably determined that Subtenant has
been using more than a commercially reasonable amount of any utility supplied by
Netscape, then such installation shall be at the sole cost to Subtenant.
Subtenant shall separately contract with the appropriate utility for any
services desired by Subtenant and not provided by Netscape.
14. SIGNAGE. Subject to approval by Master Landlord, which Netscape
shall use commercially reasonable efforts to obtain, Netscape shall cause to be
installed, at its own cost and expense, monument and door signage for the
Subtenant.
15. DEFAULT. In addition to defaults contained in the Master Lease,
failure of Subtenant to make any payment of Rent when due hereunder shall
constitute an event of default hereunder.
16. NOTICES. The addresses specified in the Master Lease for receipt of
notices to each of the parties are deleted and replaced with the following:
TO NETSCAPE AT: NETSCAPE COMMUNICATIONS, INC.
501 East Middlefield Road
Mountain View, California 94043
Attn: Director of Real Estate
5
<PAGE> 6
WITH COPY TO: COOLEY GODWARD LLP
5 Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Attn: Toni P. Wise
TO SUBTENANT AT: MARVELL SEMICONDUCTOR, INC.
645 Almanor Ave.
Sunnyvale, CA 94086
Attn: The Vice President of Finance
AFTER COMMENCEMENT
DATE: At the Subleased Premises
17. NETSCAPE'S OBLIGATIONS.
(a) To the extent that the provision of any services or the
performance of any maintenance or any other act respecting the Premises or
Building is the responsibility of Master Landlord (collectively "Master Landlord
Obligations"), upon Subtenant's request, Netscape shall make reasonable efforts
to cause Master Landlord to perform such Master Landlord Obligations, provided,
however, that in no event shall Netscape be liable to Subtenant for any
liability, loss or damage whatsoever in the event that Master Landlord should
fail to perform the same, nor shall Subtenant be entitled to withhold the
payment of Rent or terminate this Sublease. It is expressly understood that the
services and repairs which are incorporated herein by reference, including but
not limited to the structural portions of the roof and building, will in fact
be furnished by Master Landlord and not by Netscape, except to the extent
otherwise provided in the Master Lease. In addition, Netscape shall not be
liable for any maintenance, restoration (following casualty or destruction) or
repairs in or to the Building or Subleased Premises, other than its obligation
hereunder to use reasonable efforts to cause Master Landlord to perform its
obligations under the Master Lease. With respect to any maintenance or repair
to be performed by Master Landlord respecting the Subleased Premises, the
parties expressly agree that Subtenant shall have the right to contact Master
Landlord directly to cause it to so perform.
(b) Except as otherwise provided herein, Netscape shall have no
other obligations to Subtenant with respect to the Subleased Premises or the
performance of the Master Landlord Obligations.
18. EARLY TERMINATION OF SUBLEASE. If for any reason, the Master Lease
should terminate prior to the expiration of this Sublease, Netscape shall have
no liability to Subtenant on account of such termination. To the extent that
the Master Lease grants Netscape any discretionary right to terminate the
Master Lease, whether due to casualty, condemnation, or otherwise, Netscape
shall be entitled to exercise or not exercise such right in its complete and
absolute discretion.
19. CONSENT OF MASTER LANDLORD AND NETSCAPE. If Subtenant desires to take
any action which requires the consent or approval of Netscape pursuant to the
terms of this Sublease, prior to taking such action, including, without
limitation, making any alterations, then,
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<PAGE> 7
notwithstanding anything to the contrary herein, (a) Netscape shall have the
same rights of approval or disapproval as Master Landlord has under the Master
Lease, and (b) Subtenant shall not take any such action until it obtains the
consent of Netscape and Master Landlord, as may be required under this Sublease
or the Master Lease. This Sublease shall not be effective unless and until any
required written consent of the Master Landlord shall have been obtained.
20. INDEMNITY. Subtenant shall indemnify, defend, protect, and hold
Netscape and Master Landlord harmless from and against all actions, claims,
demands, costs liabilities, losses, reasonable attorneys' fees, damages,
penalties, and expenses (collectively "Claims") which may be brought or made
against Netscape or which Netscape may pay or incur to the extent caused by (i)
a breach of this Sublease by Subtenant, (ii) any violation of law by Subtenant
or its employees, agents, contractors or invitees (collectively, "Agents")
relating to the use or occupancy of the Subleased Premises, (iii) any act or
omission by Subtenant or its Agents resulting in contamination of any part or
all of the Subleased Premises by Hazardous Materials, or (iv) the negligence or
willful misconduct of Subtenant or its Agents.
Netscape shall indemnify, defend, protect, and hold Subtenant harmless from
and against all actions, claims, demands, cost liabilities, losses, reasonable
attorneys' fees, damages, penalties, and expenses (collectively, "Claims")
which may be brought or made against Subtenant or which Subtenant may pay or
incur to the extent caused by (i) a breach of this Sublease by Netscape, or (ii)
the gross negligence or willful misconduct of Netscape or its Agents.
21. RIGHT OF FIRST REFUSAL. In the event that space on the second floor
of the building becomes available for lease (the "Available Space"), Netscape
shall give Subtenant written notice of such availability, identifying the same
and specifying the basic terms and conditions on which Netscape proposes to
lease the Available Space (the "Availability Notice"). Subtenant shall have
three (3) business days after its receipt of the Availability Notice in which
Subtenant may either give Netscape written notice of Subtenant's acceptance of
the Available Space on the terms and conditions specified in the Availability
Notice (the "Acceptance Notice") or written notice of a counteroffer by
Subtenant for the lease of the Available Space (the "Counter Notice").
Prior to giving the Availability Notice to Subtenant and for three (3)
business days thereafter, Netscape shall not enter into any agreement for the
Available Space with any other person. If during such three (3) business day
period Subtenant gives Netscape an Acceptance Notice, Netscape and Subtenant
shall then promptly enter into a lease for the Available Space on the terms and
conditions specified in the Availability Notice (and otherwise on the terms and
conditions contained in this Sublease). If during such three (3) business day
period Subtenant gives Netscape a Counteroffer Notice, Netscape shall then give
Subtenant written notice either accepting such counteroffer (in which event,
Netscape and Subtenant shall promptly enter into a lease for the Available
Space of the terms and conditions specified in the Counteroffer Notice and
otherwise on the terms and conditions set forth in this Lease) or rejecting
such counteroffer.
After the expiration of such three (3) business day period, if Subtenant
has not given Netscape a timely Acceptance Notice or a timely Counteroffer
Notice, then Netscape shall be free to enter into a lease for the use of the
Available Space to any other person or entity on any terms and conditions.
After the expiration of such three (3) business day period, if Subtenant has
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<PAGE> 8
given Netscape a timely Counteroffer Notice which Netscape has rejected,
Netscape shall be free to enter into an lease for the use of the Available
Space to any other person or entity on any terms and conditions; provided,
however, that Netscape shall not enter into a lease for the use of the
Available Space with any other person or entity on basic terms materially less
favorable to Netscape than those set forth in the Counteroffer Notice (or, if
more than one Counteroffer Notice was timely given, then in the last such
Counteroffer Notice) without giving Subtenant at least three (3) business days
prior written notice of such proposed lease and the opportunity (during such
three (3) business day period by delivery of written notice to Netscape) to
agree to lease the Available Space on the same terms and conditions as those of
such proposed lease.
22. BROKERS. Netscape and Subtenant each represent and warrant that they
have dealt with no broker in connection with this Sublease and the transactions
contemplated herein, except Cornish & Carey Commercial/ONCOR International and
CPS Commercial respectively. Each party shall indemnify, protect, defend and
hold the other party harmless from all costs and expenses (including reasonable
attorneys' fees) arising from or relating to a breach of the foregoing
representation and warranty.
23. NO THIRD PARTY RIGHTS. The benefit of the provisions of this Sublease
is expressly limited to Netscape and Subtenant and their respective permitted
successors and assigns. Under no circumstances will any third party be
construed to have any rights as a third party beneficiary with respect to any
of said provisions.
24. COUNTERPARTS. This Sublease may be signed in two or more
counterparts, each of which shall be deemed an original and all of which shall
constitute one agreement.
IN WITNESS WHEREOF, the parties have executed this Sublease as of the date
first written above.
NETSCAPE: SUBTENANT:
NETSCAPE COMMUNICATIONS, INC., MARVELL SEMICONDUCTOR, INC.,
a Delaware corporation a California Corporation
By: Ed Axelsen By: Gordon M. Steel
------------------------------- ------------------------------------
Sig: /s/ ED AXELSEN Sig: /s/ GORDON M. STEEL
------------------------------ -----------------------------------
Its: Director of Real Estate and Its: Vice President of Finance, CF
Facilities
------------------------------ -----------------------------------
By: By:
------------------------------- ------------------------------------
Sig: Sig:
------------------------------ -----------------------------------
Its: Its:
------------------------------ -----------------------------------
8
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EXHIBIT A
MASTER LEASE
10
<PAGE> 10
LEASE
BETWEEN
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
A NEW JERSEY CORPORATION
AND
NETSCAPE COMMUNICATIONS CORPORATION
A DELAWARE CORPORATION
FOR THE PREMISES LOCATED AT
645 ALMANOR AVENUE
SUNNYVALE, CALIFORNIA 94086
DATED: NOVEMBER 1, 1996
<PAGE> 11
BASIC LEASE INFORMATION
DATE: November 1, 1998
LANDLORD: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey
corporation
TENANT: NETSCAPE COMMUNICATIONS CORPORATION, a Delaware corporation
PREMISES: BUILDING ADDRESS: 645 Almanor Avenue
Sunnyvale, CA 94086
USE: Office, research and development, light manufacturing and
distribution not involving Hazardous Substances
TERM: Commencing on Commencement Date as defined in Section 2(a)
and expiring sixty (60) months after Base Rent Commencement
Date
ESTIMATED
COMMENCEMENT DATE: November 3, 1998
BASE RENT:
<TABLE>
<CAPTION>
Months Base Rent
------ ---------------------
(measured from Base Rent Commencement Date
as defined in Section 4)
<S> <C>
1-36 $ 97,500.00 per month
37-60 $109,200.00 per month
</TABLE>
ADVANCE RENT: $97,500
TENANT'S
PERCENTAGE SHARE: 100%
SECURITY DEPOSIT: NONE
BROKERS: Landlord's Broker: Cornish & Carey Commercial
Tenant's Broker: BT Commercial Real Estate
CONTRACT MANAGER: Voit Management Company, L.P.
ADDRESS FOR
NOTICES: LANDLORD: The Prudential Insurance Company
of America
Four Embarcadero Center, Suite 2700
San Francisco, CA 94111-4180
CONTRACT MANAGER: With a copy to:
Voit Management Company, LP.
1111 Broadway, Suite 1510
Oakland, CA 94607
TENANT: Netscape Communications Corporation
645 Almanor Avenue
Sunnyvale, CA 94086
With a copy to:
Legal Department
Netscape Communications Corp.
501 East Middlefield Road
Mountain View, CA 94043
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EXHIBITS AND ADDENDUM: Exhibit A - Site Plan of Premises
Exhibit B-1 - Commencement Date Memorandum
Exhibit B-2 - Base Rent Commencement Date Memorandum
Exhibit C - ADA and HVAC Improvements
Exhibit D - Rules and Regulations
Exhibit E - Environmental Reports
INITIALS: /s/[SIGNATURE ILLEGIBLE] /s/PKC
------------------------ --------------
Landlord Tenant
ii
<PAGE> 13
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Premises.............................................................. 1
2. Term.................................................................. 1
3. Rent.................................................................. 1
4. Base Rent............................................................. 1
5. Operating Expenses.................................................... 1
6. Proration of Rent..................................................... 4
7. Tenant Improvements................................................... 4
8. Uses of Premises...................................................... 4
9. Alterations........................................................... 7
10. Repairs............................................................... 8
11. Damage or Destruction................................................. 8
12. Eminent Domain........................................................ 9
13. Indemnity and Insurance............................................... 9
14. Assignment and Subletting............................................. 10
15. Default............................................................... 11
16. Landlord's Right to Perform Tenant's Covenants........................ 12
17. [Intentionally Omitted]............................................... 12
18. Surrender of Premises................................................. 12
19. Holding Over.......................................................... 12
20. Access to Premises.................................................... 12
21. Signs................................................................. 13
22. Waiver of Subrogation................................................. 13
23. Subordination......................................................... 13
24. Transfer of the Property.............................................. 13
25. Estoppel Certificates................................................. 13
26. Mortgagee Protection.................................................. 14
27. Attorneys' Fees....................................................... 14
28. Brokers............................................................... 14
29. Parking............................................................... 14
30. Utilities and Services................................................ 14
31. Modification for Lender............................................... 14
32. Acceptance............................................................ 14
33. Use of Names.......................................................... 14
34. Recording............................................................. 14
35. Quitclaim............................................................. 14
36. Notices............................................................... 14
37. Landlord's Exculpation................................................ 15
38. Additional Structures................................................. 15
39. General............................................................... 16
40. Option to Extend...................................................... 18
</TABLE>
<PAGE> 14
THIS LEASE, which is effective as of the date set forth in the Basic Lease
information, is entered into by Landlord and Tenant, as set forth in the Basic
Lease Information. Terms which are capitalized in this Lease and not expressly
defined herein shall have the meanings set forth in the Basic Lease Information.
1. PREMISES. Landlord leases to Tenant, and Tenant leases from Landlord, the
Premises described in the Basic Lease Information (as shown in Exhibit A),
together with all improvements located thereon.
2. TERM.
(a) Lease Term. The Term of this Lease shall commence on the later of
November 3, 1998 or the date Landlord tenders possession of the Premises
to Tenant (the "Commencement Date") and, unless terminated on an earlier
date in accordance with the terms of this Lease, shall expire on the date
which is the date before the fifth anniversary of the Base Rent
Commencement Date (the "Expiration Date"), as defined in Section 4
("Term").
(b) Premises Not Delivered. If, for any reason, Landlord cannot deliver
possession of the Premises to Tenant by the Estimated Commencement Date (as
set forth in the Basic Lease Information), (i) the Term shall not commence
until the Commencement Date; (ii) the failure shall not affect the
validity of this Lease, or the obligations of Tenant under this Lease; and
(iii) Landlord shall not be subject to any liability.
(c) Drop Deed Date. Notwithstanding anything to the contrary contained
herein, if Landlord has not delivered the Premises to Tenant on or before
January 1, 1997, Tenant shall have the right as its exclusive remedy
thereafter to cancel this Lease, and upon such cancellation, Landlord
shall return all sums theretofore deposited by Tenant with Landlord, and
neither party shall have further liability to the other.
(d) Commencement Date Memorandum. When the Commencement Date is
determined, the parties shall execute a Commencement Date Memorandum, in
the form attached hereto as Exhibit B-1, setting forth the Commencement
Date.
3. RENT. As used in this Lease, the term "Rent" shall include: (i) the Base
Rent; (ii) Tenant's Percentage Share of the Operating Expenses paid or
incurred by Landlord during the calendar year; and (iii) all other amounts
which Tenant is obligated to pay under the terms of this Lease. All amounts
of money payable by Tenant to Landlord shall be paid without prior notice
or demand, deduction or offset. This Lease is intended to be a triple net
lease, with all costs, expenses and charges (including the Operating
Expenses) paid by Tenant. Tenant hereby acknowledges that late payment by
Tenant to Landlord of Rent will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of which will be difficult to
ascertain. Such costs include, but are not limited to, processing and
accounting charges, and late charges which may be imposed on Landlord by
the terms of any trust deed covering the Premises. Accordingly, if any
installment of Rent or any other sums due from Tenant shall not be received
by Landlord when due, Tenant shall pay to Landlord a late charge equal to
six percent (6%) of such overdue amount. The parties hereby agree that such
late charge represents a fair and reasonable estimate of the costs Landlord
will incur by reason of late payment by Tenant. Acceptance of such late
charge by Landlord shall in no event constitute a waiver of Tenant's
default with respect to such overdue amount, nor prevent Landlord from
exercising any of the other rights and remedies granted hereunder. In
addition, any amount which is not paid when due shall bear interest from
the date due until the date paid at the rate ("Interest Rate") which is the
lesser of fifteen percent (15%) per annum or the maximum rate permitted by
law.
4. BASE RENT. Tenant shall pay Base Rent to Contract Manager (or other entity
designated by Landlord), in advance, on the first day of each calendar
month of the Term commencing as of the Base Rent Commencement Date, at
Contract Manager's address for notices (as set forth in the Basic Lease
Information) or at such other address as Landlord may designate. The Base
Rent shall be the amount set forth in the Basic Lease Information. As used
herein, the term "Base Rent Commencement Date" shall mean the date which
is the earlier of (a) ninety days after the Commencement Date, or (b) the
date that Tenant commences business operations on the Premises. When the
Base Rent Commencement Date is determined, the parties shall execute a
Base Rent Commencement Date Memorandum, in the form attached hereto as
Exhibit B-2, setting forth the Base Rent Commencement Date and the
expiration date ("Expiration Date") of this Lease.
5. OPERATING EXPENSES.
(a) Operating Expenses as Portion of Rent. Tenant shall pay as additional
Rent Tenant's Percentage Share of the Operating Expenses paid or incurred
by Landlord during the calendar year.
(b) Definition of Operating Expenses. The term "Operating Expenses" shall
mean (i) all of Landlord's direct costs and expenses of operation, repair
and maintenance of the Premises, as determined by Landlord
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in accordance with generally accepted accounting principles or other recognized
accounting principles consistently applied; (ii) a reasonably amortized portion
of the costs of any capital improvements made to the Premises by Landlord which
comprise labor-saving devices or other equipment intended to improve the
operating efficiency of any system within the Premises (such as an energy
management computer system) to the extent of cost savings in Operating Expenses
as a result of the device or equipment, as reasonably determined by Landlord;
and (iii) costs allocable to the Premises of any capital improvements made to
the Premises by Landlord that are required under any governmental law or
regulation that was not applicable to the Premises at the time they were
constructed, and/or that are reasonably required for the health and safety of
tenants in the Premises, and/or are installed to repair or replace property
located in the Premises as of the Commencement Date, the costs to be amortized
over such reasonable period as Landlord shall reasonably determine together with
interest on the unamortized balance at the Interest Rate or such higher rate as
may have been paid by Landlord on funds borrowed for the purpose of constructing
the capital improvements. The term "Operating Expense" shall include the cost of
all insurance which Landlord and Landlord's lender reasonably deems necessary
for the Premises; a reasonable management fee; dues imposed by any property
owner's association ("Association"); and the Real Property Taxes (as defined in
subsection 5(f)). If Landlord elects to self-insure or includes the Premises
under blanket insurance policies covering multiple properties, then the term
"Operating Expenses" shall include the portion of the cost of such
self-insurance or blanket insurance allocated by Landlord to this Premises. The
definition of Operating Expenses shall not be deemed to impose any obligations
on Landlord to perform any obligations under this Lease. Landlord's sole
obligations regarding maintenance, repair or otherwise related to the condition
of the Premises are specified in Section 7 and subsection 10(b) of the Lease.
(c) Exclusions from Operating Expenses: The term "Operating Expenses" shall not
include (i) Leasing commissions, attorneys' fees, costs, disbursements, and
other expenses incurred in connection with negotiations or disputes with
tenants, or in connection with leasing, renovating, or improving space for
tenants; (ii) the cost of any service sold to Tenant for which Landlord is
reimbursed as an additional charge or rental over and above the basic rent and
escalations payable under this Lease; (iii) any depreciation on the Premises;
(iv) increases in costs incurred due to Landlord's default of any terms or
conditions of this Lease (beyond applicable notice and cure periods); (v)
overhead profit increments paid to Landlord's subsidiaries or affiliates for
management or other services on or to the building or for supplies or other
materials to the extent that the cost of the services, supplies, or materials
exceeds the cost that would have been paid had the services, supplies or
materials been provided by unaffiliated unionized parties on a competitive
basis; (vi) all interest, loan fees, and other carrying costs related to any
mortgage or deed of trust and all rental and other amounts payable due under any
ground or underlying lease; (vii) any compensation paid to clerks, attendants,
or other persons in commercial concessions operated by Landlord on the Premises;
(viii) advertising and promotional expenditures; (ix) costs of repairs and other
work occasioned by fire, windstorm, or other casualty to the extent insured by
Landlord; provided, however, reasonable deductibles under any such policy may be
included in Operating Expenses; (x) any fines, or penalties incurred due to
violations by Landlord of any governmental rule or authority, which is not the
responsibility of Tenant under the Lease, or costs due to Landlord's gross
negligence or willful misconduct; (xi) management costs to the extent they
exceed 5% of Base Rent plus other Operating Expenses; (xii) costs for sculpture,
paintings, or other objects of art (nor insurance paid thereon or extraordinary
security in connection therewith); (xiii) wages, salaries, or other compensation
paid to any executive employes above the grade of building manager; (ix) the
cost of correcting any building code or other violations which were violations
prior to the Commencement Date, provided that a condition which was not
constructed in compliance with laws at the time of construction shall be deemed
to be in compliance with applicable law notwithstanding that such law has
thereafter been changed or amended; and (x) costs incurred to contain, remove or
remediate any contamination of the ground water under the Premises by Hazardous
Substances.
(d) Estimates of Operating Expenses: During December of each calendar year
during the Term, or as soon thereafter as practicable, Landlord shall give
Tenant written notice of Landlord's estimate of the amount of Operating Expenses
which will be payable for the ensuing calendar year. On or before the first day
of each month during the ensuing calendar year, Tenant shall pay to Landlord
one-twelfth (1/12) of the estimated amount; provided, however, that if notice is
not given in December, Tenant shall continue to pay on the basis of the then
applicable Rent until the month after the notice is given. If at any time it
reasonably appears to Landlord that the amount payable for the current calendar
year will vary from Landlord's estimate by more than five percent (5%), Landlord
may give notice to Tenant of Landlord's revised estimate for the year, and
subsequent payments by Tenant for the year shall be based on the revised
estimate; provided, however, that Landlord shall not give notice of a revised
estimate for any year more frequently than once a calendar quarter.
(e) Annual Adjustment. Within one hundred twenty (120) days after the close of
each calendar year of the Term, or as soon after the one hundred twenty (120)
day period as practicable, Landlord shall deliver
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to Tenant a statement of the actual Operating Expenses for the prior calendar
year. If, on the basis of the statement, Tenant owes an amount that is less than
the estimated payments for the calendar year previously made by Tenant, Landlord
shall apply the excess to the next payment of Operating Expenses due. If, on the
basis of the statement, Tenant owes an amount that is more than the estimated
payments for the calendar year previously made by the Tenant, Tenant shall pay
the deficiency to Landlord within thirty (30) days after delivery of the
statement. The statement of Operating Expenses shall be presumed correct and
shall be deemed final and binding upon Tenant unless (i) Tenant in good faith
objects in writing thereto within thirty (30) days after delivery of the
statement to Tenant (which writing shall state, in reasonable detail, all of the
reasonable detail, all of the reasons for the objection); and (ii) Tenant pays
in full, within thirty (30) days after delivery of the statement to Tenant, any
amount owed by Tenant with respect to the statement which is not in dispute.
Tenant's failure to pay the amount shown on Landlord's statement within thirty
(30) days after delivery thereof or Tenant's failure to pay in a timely manner
the revised estimate of Landlord's determination of Operating Expenses shall be
deemed an irrevocable waiver of Tenant's right to contest and/or receive any
credit or reimbursement for an overcharge of Operating Expenses shown on the
Landlord's statement under which payment is required at that time. If Tenant
objects to Landlord's allocation to the Premises of the cost of self-insurance
or blanket insurance, such allocation shall nonetheless be presumed correct and
shall be deemed final and binding upon Tenant unless Tenant's timely written
objection includes credible evidence that Landlord could have obtained
substantial comparable insurance coverage for this Premises alone at lower cost.
(f) Tenant's Right to Audit Landlord's Records. Within 90 days after timely
giving Landlord its notice of its objection to Landlord's statement of actual
Operating Expenses in accordance with Section 5(e), (the "Landlord's
Statement"), Tenant shall have the right to audit at Landlord's local offices,
at Tenant's expense, Landlord's accounts and records relating to Operating
Expenses and Real Property Taxes. Such audit shall be conducted by a certified
public accountant approved by Landlord, which approval shall not be unreasonably
withheld, and shall be completed within such ninety (90) day period. If such
audit reveals that Landlord has overcharged Tenant, the amount overcharged shall
be paid (or at Landlord's option credited toward amounts next payable by Tenant
under this Lease) to Tenant within 30 days after the audit is concluded. In
addition, if, following such audit, the parties agree that Landlord's Statement
of Operating Expenses exceeds the actual Operating Expenses which should have
been charged to Tenant by more than 15%, the cost of such audit shall be paid by
Landlord.
(g) Definition of Real Property Taxes. The term "Real Property Taxes" shall
mean any ordinary or extraordinary form of assessment or special assessment,
license fee, rent tax, levy, penalty (if a result of Tenant's delinquency), or
tax, other than net income, estate, succession, inheritance, transfer or
franchise taxes, imposed by any authority having the direct or indirect power to
tax, or by any city, county, state or federal government for any maintenance or
improvement or other district or division thereof. The term shall include all
transit charges, housing fund assessments, real estate taxes and all other taxes
relating to the Premises, all other taxes which may be levied in lieu of real
estate taxes, all assessments, assessment bonds, levies, fees and other
governmental charges (including, but not limited to, charges for traffic
facilities, improvements, child care, water services studies and improvements,
and fire services studies and improvements) for amounts necessary to be expended
because of governmental orders, whether general or special, ordinary or
extraordinary, unforeseen as well as foreseen, of any kind and nature for public
improvement, services, benefits or any other purposes which are assessed,
levied, confirmed, imposed or become a lien upon the Premises or become payable
during the Term.
(h) Acknowledgment of Parties. It is acknowledged by Landlord and Tenant that
Proposition 13 was adopted by the voters of the State of California in the June,
1978 election, and that assessments, taxes, fees, levies and charges may be
imposed by governmental agencies for such purposes as fire protection, street,
sidewalk, road, utility construction and maintenance, refuse removal and for
other governmental services which formerly may have been provided without charge
to property owners or occupants. It is the intention of the parties that all new
and increased assessments, taxes, fees, levies and charges due to Proposition 13
or any other cause are to be included within the definition of Real Property
Taxes for purposes of this Lease.
(i) Taxes on Tenant Improvement and Personal Property. Notwithstanding any
other provision hereof, Tenant shall pay the full amount of any Real Property
Taxes during the Term resulting from any and all alterations and tenant
improvement of any kind whatsoever placed in, on or about the Premises for the
benefit of, at the request of, or by Tenant. Tenant shall pay, prior to
delinquency, all taxes assessed or levied against Tenant's personal property in,
on or about the Premises. When possible, Tenant shall cause its personal
property to be assessed and billed separately from the real or personal property
of Landlord.
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6. PRORATION OF RENT. If the Commencement Date is not the first day of the
month, or if the end of the Term is not the last day of the month, Rent shall be
prorated on a monthly basis (based upon a thirty (30) day month) for the
fractional month during the month which this Lease commences or terminates. The
termination of this Lease shall not affect the obligations of Landlord and
Tenant pursuant to subsection 5(e) which are to be performed after the
termination.
7. TENANT IMPROVEMENTS.
(a) Landlord shall cause the electrical system, plumbing and roof to be
in good and operable condition and repair as of the Commencement Date.
However, Landlord shall not be obligated to make any alteration or repair
required as a result of improvements to be installed by Tenant in the
Premises. Landlord shall be conclusively deemed to have satisfied the
foregoing obligation unless Tenant identifies specific items of
noncompliance by delivery of written notice to Landlord within sixty (60)
days after the Commencement Date. Upon Landlord's correction of such
items, Landlord's obligations under this subsection (a) shall be deemed
fully satisfied.
(b) Tenant shall install the ADA Improvements and HVAC Improvements shown
on attached Exhibit C and Landlord shall reimburse Tenant up to $47,500
for costs incurred by Tenant in connection with the ADA Improvements and
up to $75,000 for costs incurred by Tenant in connection with the HVAC
Improvements in accordance with Exhibit C.
(c) Except as specified in subsections (a) above and (d) below, Tenant
shall accept the Premises "as-is" and with all faults and Landlord shall
have no obligations to improve or modify the Premises.
(d) Landlord covenants and represents that it has full and complete
authority to enter into this Lease under all of the terms, covenants and
provisions set forth herein and so long as Tenant performs each and every
term, provision and condition herein contained on the part of Tenant to be
performed, Tenant may peacefully and quietly enjoy the Premises in
accordance with the terms of this Lease.
8. USES OF PREMISES.
(a) Tenant shall use the Premises solely for the use set forth in the
Basic Lease Information, and Tenant shall not use the Premises for any
other purpose without obtaining the prior written consent of Landlord,
which consent shall not be unreasonably withheld. Tenant shall, at its own
cost and expense, comply with all laws, rules, regulations, orders,
permits, licenses and ordinances issued by any governmental authority
which relate to the condition, use or occupancy of the Premises during the
term of this Lease. Notwithstanding the foregoing or anything to the
contrary contained in this Lease, Tenant shall not be responsible for
compliance with any laws, codes, ordinances or other governmental
directives where such compliance is not related specifically to or required
as a result of Tenant's use, occupancy and/or alteration of the Premises.
For example, if any governmental authority should require the Premises to
be structurally strengthened against earthquake and such measures are
imposed as a general requirement applicable to all tenants rather than as
a condition of Tenant's specific use or occupancy of or alterations to the
Premises, such work shall be performed by Landlord and included in a
capital expense under Operating Expenses. Tenant shall not use the
Premises in any manner that will constitute waste or nuisance.
(b) "Hazardous Substance" shall mean the substances including within the
definitions of the term "Hazardous substance" under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended, 42 U.S.C. Section 9801 et seq., and the California
Carpenter-Presley-Tenner Hazardous Substance Account Act, California
Health & Safety Code Section 25300 et seq., and regulations promulgated
thereunder, as amended. "Hazardous Waste" shall mean (a) any waste listed
as or meeting the identified characteristics of a "Hazardous Waste" under
the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901
et seq., and regulations promulgated pursuant thereto, collectively
"RCRA", or (b) any waste meeting the identified characteristics of
"Hazardous Waste" under California Hazardous Waste Control Law, California
Health and Safety Code Section 25100 et. seq., and regulations promulgated
pursuant thereto, collectively "CHWCL". "Hazardous Waste Facility" shall
mean a hazardous waste facility as defined under CHWCL.
(c) Tenant covenants that, at its sole cost and expense, it will comply
with all applicable laws, rules, regulations, orders, permits, licenses
and operating plans of any governmental authority with respect to the use,
handling, generation, transportation, storage, treatment and/or disposal
of Hazardous Substances or Wastes brought on to the Premises by
Tenant and/or Tenant's agents, contractors, employees, invitees, licensees,
sublessees or other person on or about the Premises during the term, and
Tenant will provide
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Landlord with copies of all permits, registrations or other similar
documents that authorize Tenant to conduct any such activities in
connection with its authorized use of the Premises. Additionally, Tenant
agrees to comply with the Rules and Regulations attached hereto as Exhibit
D, the requirements of the Board of Fire Underwriters or Landlord's
insurance carrier, and to comply with covenants, conditions and
restrictions ("CC&R'S), if any, applicable to the Property.
(d) Tenant agrees that it shall not operate on the Premises any facility
required to be permitted or licensed as a Hazardous Waste Facility or for
which interim status as such is required. Nor shall Tenant store any
Hazardous Wastes on the Premises for ninety (90) days or more.
(e) No underground storage tanks shall be permitted on the Premises.
(f) If applicable, Tenant shall provide to Landlord in writing the
following information and/or documentation at the Commencement Date and
within sixty (60) days of any change in the required information and/or
documentation:
(i) A list of all Hazardous Substances and/or Wastes that Tenant
uses, handles, generates, transports, stores, treats or disposes
in connection with its operations on the Premises.
(ii) Copies of all Material Safety Data sheets ("MSDS's") required to
be completed with respect to operations of Tenant at the
Premises in accordance with Title 8, California Code of
Regulations Section 5194 or 42 U.S.C. Section 11021, or any
amendments thereto. In lieu of this requirement, Tenant may
provide a Hazardous Materials Inventory Sheet that details the
MSDS's.
(iii) Copies of all hazardous waste manifests, as defined in Title 26,
California Code of Regulations Section 22-66260.10, that Tenant
is required to complete in all connections with its operations
at the Premises.
(iv) A copy of any Hazardous Materials Management Plans required with
respect to Tenant's operations.
(v) Copies of any Contingency Plans and Emergency Procedures, if
any, required of Tenant due to its operations in accordance with
Title 26, Section 22-66260.10, of the California Code of
Regulations, and any amendments thereto.
(vi) Copies of any biennial reports to be furnished to California
Department of Health Services relating to Hazardous Substances
or Wastes.
(vii) Copies of all industrial waste water discharge permits.
(g) Tenant shall secure Landlord's prior written approval for any proposed
receipt, storage, possession, use, transfer or disposal of "Radioactive
Materials" or "Radiation", as such materials are defined in Title 28,
California Code of Regulations Sections 17-30100 or possessing the
characteristics of the materials so defined, which approval Landlord may
withhold in its sole and absolute discretion. The Tenant, in connection
with any authorized receipt, storage, possession, use, transfer or disposal
of radioactive materials or radiation shall:
(i) Comply with all federal, state and local laws, rules,
regulations, orders, licenses and permits;
(ii) Furnish Landlord with a list of all radioactive materials or
radiation received, stored, possessed, used, transferred or disposed;
and
(iii) Furnish Landlord with all licenses, registration materials,
inspection reports, orders and permits in connection with the receipt,
storage, possession, use, transfer or disposal or radioactive
materials or radiation.
(h) Tenant agrees to comply with any and all applicable laws, rules,
regulations, and orders with respect to the release into the environment of any
Hazardous Wastes or Substances or Radiation of Radioactive Materials brought on
to the Premises by Tenant and/or Tenant's agents, contractors, employees,
invitees, licensees, sublessees or other person on or about the Premises during
the Term. Tenant agrees to notify Landlord in writing of any unauthorized
release into the environment within twenty-four (24) hours of the time at which
Tenant becomes aware of such release.
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(i) Tenant shall indemnify, defend, and hold Landlord harmless from any and
all claims, losses (including, but not limited to, loss of rental income and
loss due to business interruption), damages (including diminution in value or
loss of rental value following expiration or earlier termination of the Term),
liabilities, costs, legal fees, and expenses of any sort arising out of or
relating to any unauthorized release into the environment of Hazardous
Substances or Wastes or Radiation or Radioactive Materials by Tenant or any of
Tenant's agents, contractors or invitees, or Tenant's failure to comply with
Subparagraphs (a)-(?) of this section of the Lease.
(j) Tenant agrees to cooperate with Landlord in furnishing Landlord with
complete information regarding Tenant's receipt, handling, use, storage,
transportation, generation, treatment and/or disposal of Hazardous Substances
or Wastes or Radiation or Radioactive Materials. Upon reasonable prior written
notice, Tenant agrees to grant Landlord reasonable access at reasonable times
to the Premises to inspect Tenant's receipt, handling, use, storage,
transportation, generation, treatment and/or disposal of Hazardous Substances
Wastes or Radiation or Radioactive Materials without being deemed guilty of any
disturbance of Tenant's use or possession and without being liable to Tenant in
any manner.
(k) Notwithstanding Landlord's rights of inspection and review under this
paragraph, Landlord shall have no obligation or duty to so inspect or review,
and no third party shall be entitled to rely on Landlord to conduct any sort of
inspection or review by reason of the provisions of this paragraph.
(l) The following provisions shall apply to any Existing Contamination (as
defined herein):
(i) Tenant acknowledges that (1) certain Hazardous Substances may be
located on, about, or under the Premises; (2) Landlord has made available
to Tenant the environmental reports referenced on attached Exhibit E
(collectively the "Environmental Reports"); (3) neither Landlord nor any
agent or contractor of Landlord has made any representation or warranty
concerning the environmental condition of the Premises; (iv) neither
Landlord nor any agent or contractor of Landlord has made any
representation or warranty concerning the accuracy or completeness of the
Environmental Reports; (v) Tenant shall make such additional assessments,
tests or inquiries regarding the environmental condition of the Premises
as Tenant may deem necessary or appropriate; provided that Tenant shall
not conduct any tests on or about the Premises unless Tenant has obtained
the prior written approval of Landlord regarding the nature and scope of
such testing; and (4) subject to Landlord's indemnity referenced below,
Tenant shall accept the Premises in its "AS IS" environmental condition.
As used herein, the term "Existing Contamination" shall mean the identity
of Hazardous Substances referenced in the Environmental Reports as being
located on, under or in the vicinity of the Premises as of the date of
this Lease or otherwise proven by Tenant to have been located on or under
the Premises as of the date of this Lease or to have migrated under the
Premises during the term of this Lease (other than a migration caused by
the acts or omissions of Tenant and or Tenant's agents, contractors,
licensees or invitees or other persons on the Premises during the term of
this Lease.
(ii) Subject to the provisions of this subsection, Landlord shall
indemnify, defend and hold harmless Tenant from and against any
Environmental Claim (as defined below) asserted against Tenant and,
subject to the limitations referenced in the following paragraph, any out
of pocket costs, fees and expenses, including attorneys' and consultants'
fees, paid by Tenant in connection with such Environmental Claim, provided
that the foregoing indemnity shall not apply to the extent, that any such
Environmental Claim arises out of or is caused or exacerbated by the
negligence or intentional act or intentional failure to act of Tenant or
any affiliate of Tenant and/or their respective agents, contractors,
employees, licensees, invitees, sublessees and/or assignees. As used in
this Lease, the term "Environmental Claim" shall mean any claim, demand,
loss, damage, and/or liability asserted against Tenant with respect to the
Existing Contamination (i) by a governmental authority for the
investigation, abatement, clean up or remediation of or other action
related to Existing Contamination on the Premises, or (ii) by any third
party who is not an affiliated subsidiary, partner, agent, employee or
invitee of Tenant. The parties acknowledge that the term "Environmental
Claim" shall not include under any circumstance (a) lost profits, business
interruption, whether in connection with a claim related to the Existing
Contamination or otherwise, or (b) any consequential damages suffered or
incurred by Tenant, or (c) any claim related to Hazardous Substances on the
Premises which are not included within the scope of the term "Existing
Contamination".
(iii) In the event an Environmental Claim is asserted against Tenant for
which Tenant intends to seek indemnification pursuant to the foregoing
paragraph, Tenant shall promptly deliver written notice to Landlord of
such Environmental Claim and Landlord shall have exclusive authority
related
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to the response to and defense of the Environmental Claim. No cost,
fee or expense paid or incurred by Tenant with respect to an
Environmental Claim shall be required to be reimbursed or indemnified
by Landlord unless Landlord has previously approved such expense in
writing or Landlord has denied approval of such expenses on the basis
that the foregoing indemnity does not cover the specific Environmental
Claim for which such expense was incurred and thereafter it is
determined pursuant to a final non-appealable judicial order that the
foregoing indemnity does cover the specific Environmental Claim for
which such expense was incurred. Tenant shall cooperate with Landlord
in connection with the response to and defense of any Environmental
Claim and shall make available to Landlord such information and
personnel as Landlord may reasonably request in order to respond to or
defend such Environmental Claim.
(m) This Section 8 of the Lease shall survive termination of the Lease.
9. ALTERATIONS.
(a) Initial Alterations.
(i) Preliminary Plans. Preliminary plans and specifications for
construction of the tenant improvements to be initially installed by
Tenant in the Premises ("Initial Alterations") shall be prepared by a
licensed architect as is proposed by Tenant and reasonably approved
by Landlord (the "Architect"). The preliminary plans and
specifications shall be submitted to Landlord for Landlord's approval
which approval shall not be unreasonably withheld, provided that
Landlord may withhold such consent, in Landlord's sole discretion, if
the construction contemplated by such preliminary plans will affect
the structure, roof, or the exterior appearance of the Premises, or
will have an adverse affect on the utility systems of the Premises.
The preliminary plans and specifications approved as set forth above
are referred to herein as the "Approved Preliminary Plans."
(ii) Working Drawings. Promptly following approval of the Approved
Preliminary Plans, Tenant shall instruct the Architect to produce,
and submit to Landlord for review and approval, which approval shall
not be unreasonably withheld, working drawings and specifications.
The working drawings and specifications which have been approved as
provided herein are hereinafter referred to as the "Approved Working
Drawings."
(iii) Selection of Contractor. Tenant shall engage a general
contractor as is proposed by Tenant and reasonably approved by
Landlord (the "Contractor") to construct the Initial Alterations.
(iv) Construction. Tenant shall cause construction of the Initial
Alterations to be completed in a good and workmanlike manner and in
compliance with all applicable laws, rules and regulations. Tenant
shall provide access to Landlord at all reasonable times for the
purpose of inspecting the construction of the Initial Alterations and
shall cooperate with Landlord and Landlord's agents during such
inspections and provide to Landlord and Landlord's agents such
information as Landlord or Landlord's agents may reasonably request.
(v) Change Requests. No changes to the Approved Working Drawings
requested by Tenant shall be made without Landlord's prior approval.
Any changes to the Approved Working Drawings shall be in writing and
shall be signed by both Landlord and Tenant prior to the change being
made.
(vi) Plans and Specifications. Upon completion, Tenant shall deliver
to Landlord a complete set of "as-built" plans and specifications for
the Initial Alterations.
(b) Additional Alterations. As used in this Section 9, the term
"alteration" shall include the Initial Alterations and any subsequent
alteration, addition or improvement. Tenant shall give Landlord not
less than ten (10) days' notice of any alteration Tenant desires to
make to the Premies. Except for the Initial Alterations, Tenant shall
not make any alteration in, or about the Premises without the prior
written consent of Landlord unless the alteration does not require a
building permit, affect the Building structure, the exterior
appearance of the Building, the roof or the Building systems (e.g.
electrical systems) and the cost of the alteration is not in excess of
Twenty Thousand Dollars ($20,000.00) in each particular instance or in
excess of Eighty Thousand Dollars ($80,000.00) in any calendar year.
Tenant shall comply with all rules, laws, ordinances and requirements
applicable at the time Tenant makes any alteration and shall
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deliver to Landlord a complete set of "as built" plans and specifications for
each alteration. Tenant shall be solely responsible for maintenance and repair
of all alterations made by Tenant.
(c) Liens. If, because of any act or omission of Tenant or anyone claiming by,
through, or under Tenant, any mechanics' lien or other lien is filed against the
Premises or against other property of Landlord (whether or not the lien is valid
or enforceable), Tenant, at its own expense, shall cause it to be discharged of
record within a reasonable time, not to exceed thirty (30) days, after the date
of the filing. In addition, Tenant shall defend and indemnify Landlord and hold
it harmless from any and all claims, losses, damages, judgments, settlements,
costs and expenses, including attorneys' fees, resulting from the lien.
(d) Ownership of Alterations. Any alteration made by Tenant immediately shall
become Landlord's property. Except as provided in subsection 9(d), Landlord may
require Tenant, at Tenant's sole expense and by the end of the Term, to remove
any alterations made by Tenant (including any alteration which so not require
Landlord's consent) and to restore the Premises to its condition prior to the
alteration, provided that Tenant shall not be required to remove such
alterations if, in response to Tenant's request pursuant to subsection (d)
below, Landlord has notified Tenant at the time Landlord consents to such
alteration that such removal will not be required.
(d) Request Regarding Removal Obligation. At the time that Tenant requests
Landlord's consent of any alteration, Tenant may request that Landlord notify
Tenant if Landlord will require Tenant, at Tenant's sole expense, to remove any
or all of the alteration by the end of the Term, and to restore the Premises to
its condition prior to the alteration.
10. REPAIRS.
(a) Tenant's Obligation. Except as provided in subsection 10(b), Tenant, at all
times during the Term and at Tenant's sole cost and expense, shall keep the
Premises and every part thereof in good condition and repair, including without
limitation any replacement of any element of the Premises requiring replacement,
ordinary wear and tear, damage thereto not caused by Tenant, by fire,
earthquake, acts of God or the elements excepted. Tenant hereby waives all right
to make repairs at the expense of Landlord or in lieu thereof to vacate the
Premises as provided in California Civil Code Section 1942 or any other law
statute or ordinance now or hereafter in effect.
(b) Landlord's Obligations. Landlord, at Landlord's expense, shall repair and
maintain the structural portions of the roof (but not roof membrane or other
non-structural elements of the roof) and structural portions or the Building
unless and to the extent that the maintenance and repair are cause by the act,
neglect, fault or omission of any duty of Tenant, its agents, servants,
employees or invitees, in which case Tenant shall pay to Landlord the cost of
the maintenance and repairs caused in whole or in part by Tenant. There shall be
no abatement of Rent and no liability of Landlord by reason of any injury to or
interference with Tenant's business arising from the making of any repairs,
alterations or improvements in or to the fixtures, appurtenances and equipment
therein. Landlord's cost of performing the forgoing obligations shall be
included in Operating Expenses.
11. DAMAGE OR DESTRUCTION.
(a) Landlord's Obligation to Rebuild. If the Premises are damaged or destroyed,
Landlord promptly and diligently shall repair the Premises (subject to the
limitations specified in this Section 11) unless Landlord has the option to
terminate this Lease as provide herein, and Landlord elects to terminate.
(b) Right to Terminate. Landlord and Tenant each shall have the option to
terminate this Lease if the Premises is destroyed or damaged by fire or other
casualty, regardless of whether the casualty is insured against under this
Lease, if Landlord reasonably determines that Landlord's obligation to repair
the Premises cannot be completed within two hundred seventy (270) days after the
casualty. If a party desires to exercise the right to terminate this Lease as a
result of a casualty, the party shall exercise the right by giving the other
party written notice of its election to terminate within thirty (30) days after
the damage or destruction, in which event this Lease shall terminate fifteen
(15) days after the date of the notice. If neither Landlord nor Tenant exercises
the right to terminate this Lease, Landlord promptly shall commence the process
of obtaining necessary permits and approvals, and shall commence repair of the
Premises as soon as practicable and thereafter prosecute the repair diligently
to completion, in which event this Lease shall continue in full force and
effect.
(c) Limited Obligation to Repair. Landlord's obligation, should Landlord elect
or be obligated to repair or rebuild, shall be limited to the Building shell.
Tenant, at its option and expense, shall replace or fully
<PAGE> 22
repair all trade fixtures, equipment and any improvements installed by
Tenant and existing at the time of the damage or destruction.
(d) Abatement of Rent. In the event of any damage or destruction to the
Premises which does not result in termination of this Lease, the Base Rent
temporarily shall be abated proportionately to the degree the Premises are
untenantable as a result of the damage or destruction, commencing from the
date of the damage or destruction and continuing during the period required
by Landlord to substantially complete Landlord's repair and restoration of
the Premises; provided, however, that nothing herein shall preclude
Landlord from being entitled to collect the full amount of any rent loss
insurance proceeds. Tenant shall not be entitled to any compensation or
damages from Landlord for loss of the use of the Premises, damage to
Tenant's personal property or any inconvenience occasioned by any damage,
repair or restoration. Tenant hereby waives the provisions of Section 1932,
Subdivision 2, and Section 1933, Subdivision 4, of the California Civil
Code, and the provisions of any similar law hereafter enacted.
(e) Damage Near End of Term and Extensive Damage. In addition to the
rights to termination under subsection 11(b), either Landlord or Tenant
shall have the right to cancel and terminate this Lease as of the date of
the occurrence of destruction or damage if the Premises or the Building is
substantially destroyed or damaged (i.e., there is damage or destruction
which Landlord determines would require more than six (6) months to
repair) and made untenantable during the last twelve (12) months of the
Term. Landlord or Tenant shall give notice of its election to terminate
this Lease under this subsection 11(e) within thirty (30) days after
Landlord determines that the damage or destruction would require more than
six (6) months to repair. If neither Landlord nor Tenant elects to
terminate this Lease, the repair of the damage shall be governed by
subsection 11(a) or 11(b), as the case may be.
(f) Insurance Proceeds. If this Lease is terminated, Landlord may keep all
the insurance proceeds resulting from the damage, except for those
proceeds which specifically insured Tenant's personal property and trade
fixtures.
12. Eminent Domain. If all or any part of the Premises is taken for public or
quasi-public use by a governmental authority under the power of eminent
domain or is conveyed to a governmental authority in lieu of such taking,
and if the taking or conveyance causes the remaining part of the Premises
to be untenantable and inadequate for use by Tenant for the purpose for
which they were leased, then Tenant, at its option and by giving notice
within fifteen (15) days after the taking, may terminate this Lease as of
the date Tenant is required to surrender possession of the Premises. If a
part of the Premises is taken or conveyed but the remaining part is
tenantable and adequate for Tenant's use, then this Lease shall be
terminated as to the part taken or conveyed as of the date Tenant
surrenders possession; Landlord shall make such repairs, alterations and
improvements as may be necessary to render the part not taken or conveyed
tenantable; and the Rent shall be reduced in proportion to the part of the
Premises taken or conveyed. All compensation awarded for the taking or
conveyance shall be the property of Landlord without any deduction
therefrom for any estate of Tenant, and Tenant hereby assigns to Landlord
all its right, title and interest in and to the award. Tenant shall have
the right, however, to recover from the governmental authority, but not
from Landlord, such compensation as may be awarded to Tenant on account of
the interruption of Tenant's business, moving and relocation expenses; and
removal of Tenant's trade fixtures and personal property.
13. Indemnity and Insurance.
(a) Indemnity. Tenant shall be responsible for, shall insure against, and
shall indemnify Landlord and its constituent parts and hold them harmless
from, any and all liability for any claim, demand, liability, loss, damage
or injury to person or property occurring in, on or about the Premises, and
Tenant hereby releases Landlord and its constituent parts from any and all
liability for the same except arising from Landlord's gross negligence or
willful misconduct. Tenant's obligation to indemnify Landlord and its
constituent parts hereunder shall include the duty to defend against any
claims asserted by reason of any loss, damage or injury, and to pay any
judgments, settlements, costs, fees and expenses, including attorneys'
fees, incurred in connection therewith.
(b) Insurance. At all times during the term of this Lease, Tenant shall
carry, at its own expense, for the protection of Tenant, Landlord,
Landlord's constituent parts and Landlord's management agents, as their
interests may appear, one or more policies of comprehensive general public
liability and property damage insurance, issued by one or more insurance
companies acceptable to Landlord, with minimum coverages of One Million
Dollars ($1,000,000.00) for injury to one person in any one accident,
Three Million Dollars ($3,000,000.00) for injuries to more than one person
in any one accident and Two Million Dollars ($2,000,000.00) in property
damage per accident and insuring against any and all liability for which
Tenant is responsible under this Lease. The insurance policy or policies
shall name Landlord, Landlord's constituent parts and Landlord's
management agents as additional insureds, and shall provide that the
policy or policies
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may not be cancelled on less than thirty (30) days' prior written notice
to Landlord. Tenant shall furnish Landlord with certificates evidencing
the insurance. If Tenant fails to carry the insurance and furnish Landlord
with copies of all the policies after a request to do so, Landlord shall
have the right to obtain the insurance and collect the cost thereof from
Tenant as additional Rent.
(c) Property Insurance. Landlord shall maintain fire and all risk
insurance on the Building shell and may, but shall not be obligated to
maintain insurance on any improvements installed within the Premises.
Tenant shall separately insure all improvements made by Tenant to the
Premises.
14. ASSIGNMENT AND SUBLETTING.
(a) Landlord's Consent. Tenant shall not assign, sublet or otherwise
transfer all or any portion of Tenant's interest in this Lease
(collectively, "sublet") without Landlord's prior written consent, which
consent shall not be unreasonably withheld except as permitted under
Section 14(h), below. Consent by Landlord to one sublet shall not be
deemed to be a consent to any subsequent sublet.
(b) Effect of Sublet. Each sublet to which Landlord has consented shall
be by an instrument in writing, in a form satisfactory to Landlord as
evidenced by Landlord's written approval. Each sublessee shall agree in
writing, for the benefit of Landlord, to assume, to be bound by and to
perform the terms, conditions and covenants of this Lease to be performed
by Tenant. Tenant shall not be released from personal liability for the
performance of each term, condition and covenant of this Lease, and
Landlord shall have the right to proceed against Tenant without proceeding
against subtenant.
(c) Information to be Furnished. If Tenant desires at any time to sublet
the Premises, Tenant first shall notify Landlord of its desire to do so
and shall submit in writing to Landlord: (i) the name of the proposed
subtenant; (ii) the nature of the proposed subtenant's business to be
carried on in the Premises; (iii) the terms and provisions of the proposed
sublease and a copy of the proposed sublease form; and (iv) such financial
information, including financial statements, as Landlord reasonably may
request concerning the proposed subtenant.
(d) Landlord's Election. At any time within twenty (20) days after
Landlord's receipt of the information specified in subsection 14(c),
Landlord, by written notice to Tenant, may elect either (i) to consent to
the sublet by Tenant; or (ii) to refuse its consent to the sublet. If
Landlord fails to elect either of the alternatives within the twenty (20)
day period, it shall be deemed that Landlord has refused its consent to
the sublet. If Landlord refuses its consent, Landlord shall deliver to
Tenant a statement of the basis for its refusal. Any attempted sublet
without Landlord's consent shall not be effective.
(e) Payment Upon Sublet. If Landlord consents to the sublet, Tenant
thereafter may enter into a valid sublet of the Premises or portion
thereof, upon the terms and conditions set forth in the information
furnished by Tenant to Landlord pursuant to subsection 14(c), subject to
the condition that fifty percent (50%) of any excess of the monies due to
Tenant under the sublet ("subrent") over the Rent required to be paid by
Tenant plus the amortized cost incurred by Tenant for the Initial
Alterations constructed by Tenant within the Premises hereunder shall be
paid to Landlord. Any subrent to be paid to Landlord pursuant hereto shall
be payable to Landlord as and with the Base Rent payable to Landlord
hereunder pursuant to the terms of Section 4. The term "subrent" as used
herein shall include any consideration of any kind received, or to be
received, by Tenant from the subtenant, if the sums are related to
Tenant's interest in this Lease or in the Premises, including, without
limitation, bonus money, and payments (in excess of fair market value
thereof) for Tenant's assets, fixtures, inventory, accounts, goodwill,
equipment, furniture, general intangibles and any capital stock or other
equity ownership of Tenant. For purposes of the foregoing calculation, any
credit to Tenant for the Initial Alterations constructed by Tenant in the
Premises shall be amortized over a five (5) year period from the date such
cost is incurred with interest on the unamortized balance at the rate of
ten percent (10%) per year. Accordingly, for any subletting which occurs
beyond the initial sixty months of the Term, there shall be no deduction
from subrents for costs incurred by Tenant for the Initial Alterations.
(f) Executed Counterparts. No sublet shall be valid nor shall any
subtenant take possession of the Premises until an executed counterpart of
the sublease has been delivered to Landlord and approved in writing.
(g) Intentionally Omitted.
(h) Transfers to Affiliates. Tenant may assign this Lease or sublet the
Premises, without Landlord's consent, to any corporation which controls,
is controlled by or is under common control with Tenant, or to
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<PAGE> 24
any corporation resulting from the merger or consolidation with Tenant, or
to any person or entity which acquires all the assets of Tenant as a going
concern of the business that is being conducted on the Premises, provided
that the assignee assumes, in full, the obligations of Tenant under this
Lease.
(i) Costs. In the event Tenant shall assign or sublet the Premises or
request the consent of Landlord to any assignment, subletting
hypothecation or other action requiring Landlord's consent hereunder, then
Tenant shall pay a processing fee in the amount of $500 plus Landlord's
reasonable attorney's fees incurred in connection therewith.
15. DEFAULT.
(a) Tenant's Default. At the option of Landlord, a material breach of
this Lease by Tenant shall exist if any of the following events
(severally, "Event of Default"; collectively, "Events of Default") shall
occur: (i) if Tenant shall have failed to pay Rent, including Tenant's
Percentage Share of Operating Expenses, or any other sum required to be
paid hereunder, together with interest at the Interest Rate, from the date
the amount became due through the date of payment, inclusive; (ii) if
Tenant shall have failed to perform any term, covenant or condition of
this Lease except those requiring the payment of money, and Tenant shall
have failed to cure the breach within thirty (30) days after written
notice from Landlord if the breach could reasonably be cured within the
thirty (30) day period; provided, however, if the failure could not
reasonably be cured within the thirty (30) day period, then Tenant shall
not be in default unless it has failed to promptly commence and thereafter
continue to make diligent and reasonable efforts to cure the failure as
soon as practicable as reasonably determined by Landlord; (iii) if Tenant
shall have assigned its assets for the benefit of its creditors; (iv) if
the sequestration of, attachment of, or execution on, any material part of
the property of Tenant or on any property essential to the conduct of
Tenant's business shall have occurred, and Tenant shall have failed to
obtain a return or release of the property within thirty (30) days
thereafter, or prior to sale pursuant to any sequestration, attachment or
levy, whichever is earlier; (v) if a court shall have made or entered any
decree or order adjudging Tenant to be insolvent, or approving as properly
filed a petition seeking reorganization of Tenant, or directing the
winding up or liquidation of Tenant, and the decree or order shall have
continued for a period of thirty (30) days; (vi) if Tenant shall make or
suffer any transfer which constitutes a fraudulent or otherwise avoidable
transfer under any provision of the federal Bankruptcy Laws or any
applicable state law; or (vii) if Tenant shall have failed to comply with
the provisions of Section 23 or 25. An Event of Default shall constitute a
default under this Lease. Notwithstanding the foregoing, an Event of
Default shall not be deemed to have occurred with respect to the first two
failures to pay Rent when due during any twelve month period until three
(3) days after delivery of notice of nonpayment from Landlord to Tenant.
Any subsequent failure to pay Rent during such twelve month period shall
not require any such notice in order to establish an Event of Default. Any
notice delivered pursuant to this Section 15(a) shall be in lieu of and
not in addition to any notice required under California Code of Civil
Procedure Section 1161 et seq.
(b) Remedies Upon Tenant's Default. Upon an Event of Default, Landlord
shall have the following remedies, in addition to all other rights and
remedies provided by law, equity, statute or otherwise provided in this
Lease, to which Landlord may resort cumulatively or in the alternative:
(i) Landlord may continue this Lease in full force and effect, and
this Lease shall continue in full force and effect as long as
Landlord does not terminate Tenant's right to possession, and
Landlord shall have the right to collect Rent when due. During the
period Tenant is in default, Landlord may enter the Premises and
relet it, or any part of it, to third parties for Tenant's account,
provided that any Rent in excess of the Rent due hereunder shall be
payable to Landlord. Tenant shall be liable immediately to Landlord
for all costs Landlord incurs in reletting the Premises, including,
without limitation, brokers' commissions, expenses of cleaning and
redecorating the Premises required by the reletting and like costs.
Reletting may be for a period shorter or longer than the remaining
Term of this Lease. Tenant shall pay to Landlord the Rent and other
sums due under this Lease on the dates the Rent is due, less the
Rent and other sums Landlord receives from any reletting. No act by
Landlord allowed by this subsection (i) shall terminate this Lease
unless Landlord notifies Tenant in writing that Landlord elects to
terminate this Lease.
(iii) Landlord may terminate Tenant's right to possession of the
Premises at any time by giving written notice to that effect. No act
by Landlord other then giving written notice to Tenant shall
terminate this Lease. Acts of maintenance, efforts to relet the
Premises or the appointment of a receiver on Landlord's initiative
to protect Landlord's interest under this Lease shall not constitute
a termination of Tenant's right to possession. On termination,
Landlord shall have the right to remove all personal property of
Tenant and store it at Tenant's cost and to recover from Tenant as
damages; (a) the worth at the time of award of unpaid Rent and other
sums due and payable
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which had been earned at the time of termination; plus (b) the worth
at the time of award of the amount by which the unpaid Rent and other
sums due and payable which would have been payable after termination
until the time of award exceeds the amount of the Rent loss that
Tenant proves could have been reasonably avoided; plus (c) the worth
at the time of award of the amount by which the unpaid Rent and other
sums due and payable for the balance of the Term after the time of
award exceeds the amount of the Rent loss that Tenant proves could be
reasonably avoided; plus (d) any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure
to perform Tenant's obligations under this Lease, or which, in the
ordinary course of things, would be likely to result therefrom,
including, without limitation, any costs or expenses incurred by
Landlord: (1) in retaking possession of the premises, including
reasonable attorneys' fees and costs therefor; (2) maintaining or
preserving the premises for reletting to a new tenant, including
repairs or alterations to the Premises for the reletting; (3) leasing
commissions; (4) any other costs necessary or appropriate to relet
the Premises; and (5) at Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time
to time by the laws of the State of California.
The "worth at the time of award" of the amounts referred to in subsections
(ii)(a) and (ii)(b) is computed by allowing interest at the Interest Rate, on
the unpaid Rent and other sums due and payable from the termination date
through the date of award. The "worth at the time of award" of the amount
referred to in subsection (ii)(c) is computed by discounting the amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award,
plus one percent (1%). Tenant waives redemption or relief from forfeiture under
California Code of Civil Procedure Sections 1174 and 1179, under any other
present or future law, if Tenant is evicted or Landlord takes possession of the
Premises by reason of any default of Tenant hereunder.
(c) Landlord's Default. Landlord shall not be deemed to be in default in
the performance of any obligation required to be performed by Landlord
hereunder unless and until Landlord has failed to perform the obligation
within thirty (30) days after receipt of written notice by Tenant to
Landlord specifying wherein Landlord has failed to perform the obligation;
provided, however, that if the nature of Landlord's obligation is such
that more than thirty (30) days are required for its performance, then
Landlord shall not be deemed to be in default if Landlord shall commence
the performance within the thirty (30) day period and thereafter shall
diligently prosecute the same to completion.
16. LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS. If Tenant shall at any
time fail to make any payment or perform any other act on its part to be made
or performed under this Lease, Landlord may, but shall not be obligated to, make
the payment or perform any other act to the extent Landlord may deem desirable
and, in connection therewith, pay expenses and employ counsel. Any payment or
performance by Landlord shall not waive or release Tenant from any obligations
of Tenant under this Lease. All sums so paid by Landlord, and all penalties,
interest and costs in connection therewith, shall be due and payable by Tenant
on the next day after any payment by Landlord, together with interest thereon
at the Interest Rate, from that date to the date of payment thereof by Tenant to
Landlord, plus collection costs and attorneys' fees. Landlord shall have the
same rights and remedies for the nonpayment thereof as in the case of default in
the payment of Rent.
17. [Intentionally Omitted]
18. SURRENDER OF PREMISES. By taking possession of the Premises, except as
provided in Section 7, Tenant shall be deemed to have accepted the Premises in
good, clean and completed condition and repair, subject to all applicable laws,
codes and ordinances. On the expiration or early termination of this Lease,
except as provided in Section 9, Tenant shall surrender the Premises to
Landlord in its condition as of the Commencement Date, normal wear and tear
excepted. Tenant shall remove from the Premises all of Tenant's personal
property, trade fixtures and any alterations required to be removed pursuant to
Section 9. Tenant shall repair damage or perform any restoration work required
by the removal. If Tenant fails to remove any personal property, trade fixtures
or alterations after the end of the Term, Landlord may remove the property and
store it at Tenant's expense, including interest at the Interest Rate. If the
Premises are not so surrendered at the termination of this Lease, Tenant shall
indemnify Landlord against all loss or liability resulting from delay by
Tenant. In so surrendering the Premises, including, without limitation, any
claims made by any succeeding tenant, losses to Landlord due to lost
opportunities to lease to succeeding tenants, and reasonable attorneys' fees
and costs.
19. HOLDING OVER. If Tenant remains in possession of all or any part of the
Premises after the expiration of the Term or the termination of this Lease, the
tenancy shall be month-to-month only and shall not constitute a renewal or
extension for any further term. In such event, Base Rent shall be increased in
an amount equal to one hundred fifty percent (150%) of the Base Rent during the
last month of the Term (including any extensions), and any other sums due under
this Lease shall be payable in the amount, and at the times, specified in this
Lease. The month-to-
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month tenancy shall be subject to every other term, condition, covenant and
agreement contained in this Lease and Tenant shall vacate the Premises
immediately upon Landlord's request.
20. ACCESS TO PREMISES. Tenant shall permit Landlord and its agents to enter
the Premises at all reasonable times upon reasonable notice, except in the case
of an emergency (in which event no notice shall be necessary), to inspect the
Premises; to post Notices of Nonresponsibility and similar notices and to show
the Premises to interested parties such as prospective mortgagors, purchasers
and tenants; to make necessary alterations, additions, improvements or repairs
either to the Premises, the Building or other premises within the Building; and
to discharge Tenant's obligations hereunder when Tenant has failed to do so
within a reasonable time after written notice from Landlord. The above rights
are subject to reasonable security regulations of Tenant, and to the
requirement that Landlord shall at all times act in a manner to cause the least
possible interference with Tenant's operations.
21. SIGNS. The size, design, color, location and other physical aspects of any
sign in or on the Building shall be subject to the CC&R's, if any, Rules and
Landlord's approval prior to installation, and to any appropriate municipal or
other governmental approvals. The costs of any permitted sign, and the costs of
its installation, maintenance and removal, shall be at Tenant's sole expense
and shall be paid within ten (10) days of Tenant's receipt of a bill from
Landlord for the costs.
22. WAIVER OF SUBROGATION. Anything in this Lease to the contrary
notwithstanding, Landlord and Tenant each hereby waives and releases the other
of and from any and all rights of recovery, claim, action or cause of action
against the other, its subsidiaries, directors, agents, officers and employees,
for any loss or damage that may occur in the Premises; to Improvements to the
Premises or personal property (building contents) within the Premises; or to
any furniture, equipment, machinery, goods and supplies not covered by this
Lease which Tenant may bring or obtain upon the Premises or any additional
improvements which Tenant may construct on the Premises by reason of fire, the
elements or any other cause which is required to be insured against under this
Lease, regardless of cause or origin, including negligence of Landlord or
Tenant and their agents, subsidiaries, directors, officers and employees, to
the extent insured against under the terms of any insurance policies carried by
Landlord or Tenant and in force at the time of any such damage, but only if the
insurance in question permits such a partial release in connection with
obtaining a waiver of subrogation from the insurer. Because this Section 22 will
preclude the assignment of any claim mentioned in it by way of subrogation or
otherwise to an insurance company or any other person, each party to this Lease
agrees immediately to give to each insurance company written notice of the
terms of the mutual waivers contained in this Section and to have the insurance
policies properly endorsed, if necessary, to prevent the invalidation of the
insurance coverages by reason of the mutual waivers contained in this Section.
23. SUBORDINATION.
(a) Subordinate Nature. Except as provided in subsection 23(b), this Lease
is subject and subordinate to all ground and underlying leases, mortgages
and deeds of trust which now or may hereafter affect the Premises, the
CC&R's, if any, and to all renewals, modifications, consolidations,
replacements and extensions thereof. Subject to subsection (c) below,
within ten (10) days after Landlord's written request therefor, Tenant
shall execute any and all documents required by Landlord, the lessor under
any ground or underlying lease ("Lessor"), or the holder or holders of any
mortgage or deed of trust ("Holder") to make this Lease subordinate to the
lien of any lease, mortgage or deed of trust, as the case may be.
(b) Possible Priority of Lease. If a Lessor or a Holder advises Landlord
that it desires or requires this Lease to be prior and superior to a
lease, mortgage or deed of trust, Landlord may notify Tenant. Within seven
(7) days of Landlord's notice, Tenant shall execute, have acknowledged and
deliver to Landlord any and all documents or instruments, in the form
presented to Tenant, which Landlord, Lessor or Holder deems necessary or
desirable to make this Lease prior and superior to the lease, mortgage or
deed of trust.
(c) Recognition or Attornment Agreement. If Landlord or Holder requests
Tenant to execute a document subordinating this Lease, the document shall
provide that, so long as Tenant is not in default, Lessor or Holder shall
agree to enter into either a recognition or attornment agreement with
Tenant, or a new lease with Tenant upon the same terms and conditions as
to possession of the Premises, which shall provide that Tenant may
continue to occupy the Premises so long as Tenant shall pay the Rent and
observe and perform all the provisions of this Lease to be observed and
performed by Tenant.
24. TRANSFER OF THE PROPERTY. Upon transfer of the Property and assignment of
this Lease, Landlord shall be entirely freed and relieved of all liability
under any and all of its covenants and obligations contained in or derived from
this Lease occurring after the consummation of the transfer and assignment.
Tenant shall attorn to any entity purchasing or otherwise acquiring the
Premises at any sale or other proceeding.
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25. ESTOPPEL CERTIFICATES. Within ten (10) days following written request by
Landlord, Tenant shall execute and deliver to Landlord an estoppel certificate,
in the form prepared by Landlord. The certificate shall: (1) certify that this
Lease is unmodified and in full force and effect or, if modified, state the
nature of the modification and certify that this Lease, as so modified, is in
full force and effect, and the date to which the Rent and other charges are paid
in advance, if any; (ii) acknowledge that there are not, to Tenant's knowledge,
any uncured defaults on the part of Landlord hereunder, or if there are uncured
defaults on the part of the Landlord, state the nature of the uncured defaults;
and (iii) evidence the status of the Lease as may be required either by a lender
making a loan to Landlord to be secured by deed of trust or mortgage covering
the Premises or a purchaser of the Property from Landlord.
26. MORTGAGEE PROTECTION. In the event of any default on the part of
Landlord, Tenant will give notice by registered or certified mail to any
beneficiary of a deed of trust or mortgagee of a mortgage covering the Premises
and shall offer the beneficiary or mortgagee a reasonable opportunity to cure
the default, including time to obtain possession of the Premises by power of
sale or a judicial foreclosure, if such should prove necessary to effect a cure.
27. ATTORNEYS' FEES. If either party shall bring any action or legal
proceeding for damages for an alleged breach of any provision of this Lease, to
recover rent or other sums due, to terminate the tenancy of the Premises or to
enforce, protect or establish any term, condition or covenant of this Lease or
right of either party, the prevailing party shall be entitled to recover, as a
part of the action or proceedings, or in a separate action brought for that
purpose, such attorneys' fees and court costs as may be fixed by the court or
jury. The prevailing party shall be the party which secures a final judgment in
its favor.
28. BROKERS. Each party warrants and represents to the other that it has had
no dealings with any real estate broker or agent in connection with the
negotiation of this Lease, except for any broker(s) specified in the Basic
Lease information, and that it knows of no other real estate broker or agent who
is or might be entitled to a commission in connection with this Lease. The
representing party shall indemnify and hold harmless the other from and against
any and all liabilities or expenses arising out of claims made by any other
broker or individual for commissions or fees resulting from this Lease arising
out of the action of such party.
29. PARKING. Tenant shall have the right to park in the parking facilities
located on the Premises. Landlord shall not be liable to Tenant, nor shall this
lease be affected, if any parking is impaired by moratorium, initiative,
referendum, law, ordinance, regulation or order passed, issued or made by any
governmental or quasi-governmental body. Tenant acknowledges that the area shown
as "SFWD Property" on Exhibit A is not included as part of the Premises, except
that the Premises does include the right to cross the SFWD Property to park
vehicles on the northwest portion of the Premises.
30. UTILITIES AND SERVICES. Tenant shall be solely responsible for obtaining
and paying for all utilities and services, including heating, air conditioning,
ventilation (i.e., HVAC service contracts, janitorial and security) in
connection with the Premises. Landlord shall not be liable for, and Tenant shall
not be entitled to any abatement or reduction of Rent by reason of, no eviction
of Tenant shall result from and, further, Tenant shall not be relieved from the
performance of any covenant or agreement in this Lease because of, Landlord's
failure to furnish or Tenant's failure to obtain any such utility or service any
of the foregoing.
31. MODIFICATION FOR LENDER. If, in connection with obtaining financing for
the Premises or any portion thereof Landlord's lender shall request reasonable
modification to this Lease as a condition to such financing (which shall not
materially change Tenant's rights or obligations hereunder), Tenant shall not
unreasonably withhold, delay or defer its consent thereto, provided such
modifications do not materially affect Tenant's rights hereunder.
32. ACCEPTANCE. Delivery of this Lease, duly executed by Tenant, constitutes
an offer to lease the Premises as set forth herein, and under no circumstances
shall such delivery be deemed to create an option or reservation to lease the
Premises for the benefit of Tenant. This Lease shall become effective and
binding only upon execution hereof by Landlord and delivery of a signed copy to
Tenant. Upon acceptance of Tenant's offer to lease under the terms hereof and
receipt by Landlord of the Rent for the first month of the Term and the Security
Deposit in connection with Tenant's submission of the offer, Landlord shall be
entitled to retain the sums and apply them to damages, costs and expenses
incurred by Landlord if Tenant fails to occupy the Premises. If Landlord rejects
the offer, the sums shall be returned to Tenant.
33. USE OF NAMES. Tenant shall not use the name of the Building or the name
of the business park in which the Building is located in the name or title of
its business or occupation without Landlord's prior written consent, which
consent Landlord may withhold in its sole discretion. Landlord reserves the
right to change the name of the Building without Tenant's consent and without
any liability to Landlord.
14
<PAGE> 28
34. RECORDING. Neither Landlord nor Tenant shall record this Lease, nor a
short form memorandum of this Lease, without the prior written consent of the
other.
35. QUITCLAIM. Upon any termination of this Lease pursuant to its terms,
Tenant, at Landlord's request, shall execute, have acknowledged and deliver to
Landlord a quitclaim deed of all Tenant's interest in the Premises, Building and
Property created by this Lease.
36. NOTICES. Any notice or demand required or desired to be given under this
Lease shall be in writing and shall be given by hand deliver, telecopy or the
United States mail. Notices which are sent by telecopy shall be deemed to have
been given upon receipt. Notices which are mailed shall be deemed to have been
given when seventy-two (72) hours have elapsed after the notice was deposited
in the United States mail, registered or certified, the postage prepaid,
addressed to the party to be served. As of the date of execution of this Lease,
the addresses of Landlord and Tenant are as specified in the Basic Lease
Information. Either party may change its address by giving notice of the change
in accordance with this Section.
37. LANDLORD'S EXCULPATION. In the event of default, breach or violation by
Landlord (which term includes Landlord's partners, co-venturers and co-tenants,
and officers, directors, employees, agents and representatives of Landlord and
Landlord's partners, co-venturers and co-tenants) of any of Landlord's
obligations under this Lease, Landlord's liability to Tenant shall be limited to
its ownership interest in the Building and Property or the proceeds of a public
sale of the ownership interest pursuant to the foreclosure of a judgment against
Landlord. Landlord shall not be personally liable, or liable in any event, for
any deficiency beyond its ownership interest in the Building and Property.
38. ADDITIONAL STRUCTURES. Any diminution or interference with light, air or
view by any structure which may be erected on land adjacent to the Building
shall in no way alter this Lease or impose any liability on Landlord.
39. GENERAL.
(a) Captions. The captions and headings used in this Lease are for the
purpose of convenience only and shall not be construed to limit or
extend the meaning of any part of this Lease.
(b) Time. Time is of the essence for the performance of each term,
condition and covenant of this Lease.
(c) Severability. If any provision of this Lease is held to be invalid,
illegal or unenforceable, the invalidity, illegality, or
unenforceability shall not affect any other provision of this Lease,
but this Lease shall be construed as if the invalid, illegal or
unenforceable provision had not been contained herein.
(d) Choice of Law; Construction. This Lease shall be construed and
enforced in accordance with the laws of the State of California. The
language in all parts of this Lease shall in all cases be construed
as a whole according to its fair meaning and not strictly for or
against either Landlord or Tenant.
(e) Gender; Singular, Plural. When the context of this Lease requires,
the neuter gender includes the masculine, the feminine, a
partnership or corporation or joint venture, and the singular
includes the plural.
(f) Binding Effect. The covenants and agreements contained in this Lease
shall be binding on the parties hereto and on their respective
successors and assigns (to the extent this Lease is assignable).
(g) Waiver. The waiver of Landlord of any breach of any term, condition
or covenant of this Lease shall not be deemed to be a waiver of the
provision or any subsequent breach of the same or any other term,
condition or covenant of this Lease. The subsequent acceptance of
Rent hereunder by Landlord shall not be deemed to be a waiver of any
preceding breach at the time of acceptance of the payment. No
covenant, term or condition of this Lease shall be deemed to have
been waived by Landlord unless the waiver is in writing signed by
Landlord.
(h) Entire Agreement. This Lease is the entire agreement between the
parties, and there are no agreements or representations between the
parties except as expressed herein. Except as otherwise provided
herein, no subsequent change or addition to this Lease shall be
binding unless in writing and signed by the parties hereto.
(i) Waiver of Jury. To the extent permitted by law, Tenant hereby waives
any right it may have to a jury trial in the event of litigation
between Tenant and Landlord pertaining to this Lease.
15
<PAGE> 29
(j) Counterparts. This Lease may be executed in counterparts, each of
which shall be an original, but all counterparts shall constitute one (1)
instrument.
(k) Exhibits. The Basic Lease Information and all exhibits attached
hereto are hereby incorporated herein and made an integral part hereof.
(l) Addendum. The Addendum, if any, attached hereto is hereby
incorporated herein and made an integral part hereof.
40. OPTION TO EXTEND.
(a) Terms of Option. Provided that an Event of Default does not exist
under this Lease either at the time of exercise of the right to extend or
on the Expiration Date, Tenant shall have the non-assignable (except to an
affiliate of Tenant pursuant to Subsection 14(h)) right, at its option, to
extend this Lease for one (1) period of five (5) years (the "Extension
Term") commencing on the Expiration Date. For purposes of this Section 40,
the term Expiration Date shall be deemed to be the last day of the
original term. If Tenant elects to extend this Lease for the Extension
Term, Tenant shall give unequivocal written notice ("Exercise Notice") of
its exercise to Landlord not less than six (6) months, nor more than nine
(9) months prior to the Expiration Date. Tenant's failure to give the
Exercise Notice in a timely manner shall be deemed a waiver of all of
Tenant's rights to extend unless this Section 40. The terms, covenants and
conditions applicable to the Extension Term shall be the same terms,
covenants and conditions of this Lease except that (i) Tenant shall not be
entitled to any further option to extend under this Section 40, and (ii)
the Base Rent for the Premises during the Extension Term shall be
determined as provided in subsection 40(b) below, and (iii) Landlord shall
have no obligation to improve or otherwise modify the Premises.
(b) Determination of Base Rent During Extension Term.
(i) Agreement on Rent. Subject to the limitations of this
Section, Landlord and Tenant agree that the Base Rent during
each Extension Term shall be equal to ninety five percent (95%)
of the fair market rental value of the Premises at the time
Tenant exercises its option to extend the Term. Landlord and
Tenant shall have thirty (30) days after Landlord receives the
Exercise Notice with respect to such Extension Term in which to
agree on the Base Rent during the Extension Term. In determining
the fair market rental value of the Premises during the
Extension Term, consideration shall be given to the uses of the
Premises permitted under this Lease, the quality, size design
and location of the Premises, and the rental value of comparable
space located in the proximity of the Premises. In no event
shall the Base Rent for the Extension Term be less than the Base
Rent last payable under this Lease during the last full month
prior to the commencement of the Extension Term. If Landlord and
Tenant agree on the Base Rent for the Extension Term during the
thirty (30) day period, they shall immediately execute an
amendment to this Lease stating the Base Rent.
(ii) Selection of Appraisers. If Landlord and Tenant are unable
to agree on the Base Rent for the Extension Term within the
thirty (30) day period, then within fifteen (15) days after the
expiration of the thirty (30) day period, Landlord and Tenant
each, at its cost and by giving notice to the other party, shall
appoint a competent and disinterested real estate appraiser with
at least five (5) years full-time commercial appraisal
experience in area in which the Premises is located to appraise
and set the Base Rent during the Extension Term. If either
Landlord or Tenant does not appoint an appraiser within ten (10)
days after the other party has given notice of the name of its
appraiser, the single appraiser appointed shall be the sole
appraiser and shall set the Base Rent during the Extension Term.
If two (2) appraisers are appointed by Landlord and Tenant as
stated in this section, they shall meet promptly and attempt to
set the Base Rent for the Extension Term. If the two (2)
appraisers are unable to agree within thirty (30) days after the
second appraiser has been appointed, they shall attempt to
select a third appraiser meeting the qualifications stated in
this section within ten (10) days after the last day the two (2)
appraisers are given to set the Base Rent. If they are unable to
agree on the third appraiser, either Landlord or Tenant, by
giving ten (10) days' notice to the other party, can apply to
the then president of the real estate board of Santa Clara
County, or to the Presiding Judge of the Superior Court of Santa
Clara County for, the selection of a third appraiser who meets
the qualifications stated in this section. Landlord and tenant
each shall bear one-half (1/2) of the cost of appointing the
third appraiser and of paying the third appraiser's fee. The
third appraiser, however selected, shall be a person who has not
previously acted in any capacity for either Landlord or Tenant.
16
<PAGE> 30
(iii) Value Determined By Three (3) Appraisers. Within thirty (30)
days after the selection of the third appraiser, a majority of the
appraisers shall set the Base Rent for the Extension Term. If a
majority of the appraisers is unable to set the Base Rent for within
the stipulated period of time, Landlord's appraiser shall arrange for
simultaneous exchange of written appraisals of the fair market rental
value of the Premises from each of the appraisers and three (3)
appraisals shall be added together and their total divided by three
(3); ninety five percent (95%) of the resulting quotient shall be the
Base Rent for the Premises during the Extension Term. If, however, the
low appraisal and/or the high appraisal are/is more than ten percent
(10%) lower and/or higher than the middle appraisal, the low appraisal
and/or the high appraisal shall be disregarded. If only one (1)
appraisal is disregarded, the remaining two (2) appraisals shall be
added together and their total divided by two (2); ninety five percent
(95%) of the resulting quotient shall be the Base Rent for the
Premises during the Extension Term. If both the low appraisal and the
high appraisal are disregarded as stated in this Paragraph, ninety
five percent (95%) of the middle appraisal shall be the Base Rent for
the Premises during the Extension Term.
(iv) Notice to Landlord and Tenant. After the Base Rent for the
Extension Term has been set, the appraisers shall immediately notify
Landlord and Tenant, and Landlord and Tenant shall immediately execute
an amendment to this Lease stating the Base Rent.
[Remainder of page intentionally left blank]
17
<PAGE> 31
IN WITNESS WHEREOF, the parties have executed this Lease effective as of the
date first above written.
"LANDLORD"
VOIT MANAGEMENT COMPANY, L.P., as Agent for
THE PRUDENTIAL INSURANCE OF AMERICA
a New Jersey Corporation
By /s/ MARY E. DAVIS
---------------------------------------
Name Mary E. Davis
-------------------------------------
Title Vice President
------------------------------------
"TENANT"
NETSCAPE COMMUNICATIONS CORPORATION,
a Delaware corporation
By /s/ PETER CURRIE
---------------------------------------
Name Peter Currie
-------------------------------------
Title E.V.P., C.F.O.
------------------------------------
18
<PAGE> 32
EXISTING SITE PLAN
SFWD Property
[DIAGRAM OF PREMISES]
645 Almanor Ave.
Sunnyvale, California
Exhibit A
<PAGE> 33
EXHIBIT B-1
COMMENCEMENT DATE MEMORANDUM
LANDLORD: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA,
a New Jersey corporation
TENANT: NETSCAPE COMMUNICATIONS CORPORATION, a Delaware corporation
LEASE DATE: November 1, 1996
PREMISES: 645 Almanor Avenue, Sunnyvale, California 94086
Pursuant to Section __ of the above-referenced Lease, the Commencement Date
hereby is established as ______________________ .
TENANT: LANDLORD:
NETSCAPE COMMUNICATIONS VOIT MANAGEMENT COMPANY, L.P., as
CORPORATION, Agent for THE PRUDENTIAL INSURANCE
a Delaware corporation OF AMERICA, a New Jersey corporation
By By
------------------------------- ---------------------------------
Name Name
----------------------------- -------------------------------
Title Title
---------------------------- ------------------------------
<PAGE> 34
EXHIBIT B-2
BASE RENT COMMENCEMENT DATE MEMORANDUM
LANDLORD: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA,
a New Jersey corporation
TENANT: NETSCAPE COMMUNICATIONS CORPORATION, a Delaware corporation
LEASE DATE: November 1, 1996
PREMISES: 645 Almanor Avenue, Sunnyvale, California 94086
Pursuant to Section 4 of the above-referenced Lease, the Base Rent Commencement
Date hereby is established as ______________________, and the Expiration Date is
hereby established as ______________________ .
TENANT: LANDLORD:
NETSCAPE COMMUNICATIONS VOIT MANAGEMENT COMPANY, L.P., as
CORPORATION, Agent for THE PRUDENTIAL INSURANCE
a Delaware corporation OF AMERICA, a New Jersey corporation
By By
------------------------------- ---------------------------------
Name Name
----------------------------- -------------------------------
Title Title
---------------------------- ------------------------------
<PAGE> 35
EXHIBIT C
ADA and HVAC Improvements
Within ninety (90) days after the Commencement Date, Tenant shall cause certain
improvements shown on the report included as part of this Exhibit C as Schedule
C-1 (the "ADA Improvements") and also certain improvements to be made to the
heating, ventilation and air conditioning system servicing the Premises (the
"HVAC Improvements") to be installed on the Premises in a good and workmanlike
manner and in compliance with all laws. Landlord shall reimburse Tenant up to
$47,500 for costs incurred by Tenant in installing the ADA Improvements and up
to $75,000 for costs incurred by Tenant in installing the HVAC Improvements as
follows. Upon completion of the ADA Improvements or the HVAC Improvements, as
the case may be, Tenant shall submit to Landlord invoices and other reasonable
substantiating documentation with respect to the cost of the completed
improvements, and, within forty-five (45) days after Landlord's receipt
thereof, Landlord shall pay to Tenant the amounts requested in the submitted
invoices up to $47,500 with respect to the ADA Improvements and up to $75,000
with respect to the HVAC Improvements, provided that the following conditions
have been satisfied: (1) on the date of such request, Tenant is not in default
(beyond the applicable cure period specified in the Lease) of Tenant's
obligations under the Lease; (2) the work and/or materials for which
reimbursement is requested has been completed in a good and workmanlike manner
and in compliance with all laws; (3) Tenant shall have delivered to Landlord
such mechanic's lien waivers as Landlord may reasonably request to assure
lien-free construction and completion of such improvements; and (4) there shall
have been no mechanic's liens, recorded against the Premises in connection with
such improvements. Notwithstanding that the actual cost of designing and
installing the ADA Improvements and/or the HVAC Improvements may exceed the
$47,500 or $75,000 amounts specified above, Landlord shall have no obligation
to provide any additional funds for such excess costs or any other improvements
related thereto or to otherwise make any improvements or modifications required
under laws related to access for disabled persons or the heating, ventilation
and air conditioning system.
<PAGE> 36
SCHEDULE C-1
[DENNIS KOBZA & ASSOCIATES, INC. LETTERHEAD]
645 ALMANOR H/C UPGRADES ESTIMATES
The following is a cost estimate by our office to correct the noted
non-compliance items in the enclosed ADA Compliance Survey.
<TABLE>
<S> <C>
1. Site Signs $ 800.00
2. H/C Stall Restripping $ 600.00
3. New H/C Stall Walkways $ 3,200.00
4. Overlay Pavement at North Exit $ 800.00
5. Storefront Doors $ 3,000.00
6. Add Ramp East Exit $ 2,000.00
7. Door Closer Adjustment $ 500.00
8. Lever Door Hardware $ 6,000.00
9. Stair Handrails $ 7,500.00
10. Restroom Doors (Walls) $ 3,500.00
11. H/C Toilet Stalls $ 6,000.00
12. Restroom Fixture & Accessories
at Lobby $ 1,500.00
13. Wrap Drains and Hotwater Supply $ 200.00
14. Coffee Bars $ 3,600.00
15. Lower Light Switch $ 5,000.00
16. Ramp Railings $ 1,000.00
17. Stair Door at 2nd Floor $ 1,200.00
18. Remove Interior Door at East Exit $ 100.00
19. Restroom Signage $ 1,000.00
----------
ESTIMATE $47,500.00
</TABLE>
If you have any questions, please contact me.
Sincerely,
DENNIS KOBZA & ASSOCIATES, INC.
/s/ DONATO "VINCE" VINCENT
- -----------------------------------
Donato "Vince" Vincent
Project Architect
<PAGE> 37
EXHIBIT D
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be installed
or displayed on any part of the outside or inside of the Building without
the prior written consent of Landlord. Landlord shall have the right to
remove, at Tenant's expense and without notice, any sign installed or
displayed in violation of this rule.
2. Except as consented to in writing by Landlord or in accordance with
Building standard improvements, no draperies, curtains, blinds, shades,
screens or other devices shall be hung at or used in connection with any
window or exterior door or doors of the Premises. No awning shall be
permitted on any part of the Premises. Tenant shall not place anything
against or near glass partitions or doors or windows which may appear
unsightly from outside the Premises.
3. Tenant shall not obstruct any sidewalks, halls, lobbies, passages, exits,
entrances, elevators or stairways of the Building. No tenant and no
employee or invitee of any tenant shall go upon the roof the Building or
make any roof or terrace penetrations.
4. If Tenant requires a burglar alarm, it shall first obtain, and comply with,
Landlord's instructions for its installation.
5. Tenant shall not place a load upon any floor of the Premises which exceeds
the maximum load per square foot which the floor was designed to carry and
which is allowed by law. Tenant's business machines and mechanical
equipment which cause noise or vibration which may be transmitted to the
structure of the Building or to any space therein, and which is
objectionable to Landlord or to any tenants in the Building, shall be
placed and maintained by Tenant, at Tenant's expense, on vibration
eliminators or other devices sufficient to eliminate noise or vibration.
6. Tenant shall not permit or allow the Premises to be occupied or used in a
manner offensive or objectionable to Landlord or other occupants of the
Building by reason of noise, odors, or vibrations. No animal, except seeing
eye dogs when in the company of their masters, may be brought into or kept
in the Building.
7. Tenant shall cooperate fully with Landlord to assure the most effective
operation of the Building's heating and air-conditioning and to comply with
any governmental energy-saving rules, laws or regulations.
8. Landlord reserves the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building.
9. Tenant shall close and lock the doors of its Premises, shut off all water
faucets or other water apparatus and turn off all lights and other
equipment which is not required to be continuously run. Tenant shall be
responsible for any damage or injuries sustained by other tenants or
occupants of the Building or Landlord for noncompliance with this Rule.
10. The toilet rooms, toilet, urinals, wash bowls and other apparatus shall not
be used for any purpose other than that for which they were constructed,
and no foreign substance of any kind whatsoever shall be placed therein.
The expense of any breakage, stoppage or damage resulting from any
violation of this rule shall be borne by the tenant who, or whose employees
or invitees, shall have caused it.
11. Tenant shall not install any radio or television antenna, loudspeaker or
other device on the roof or exterior walls of the Building. Tenant shall
not interfere with radio or television broadcasting or reception from or
in the Building or elsewhere.
12. Tenant shall not affix any floor covering to the floor of the Premises in
any manner except as approved by Landlord. Tenant shall repair, or be
responsible for the cost of repair of any damage resulting from
non-compliance with this Rule.
13. Canvassing, soliciting and distributing handbills or any other written
material and peddling in the Building are prohibited, and each tenant shall
cooperate to prevent these activities.
14. Tenant shall store all its trash and garbage in a separate designated area.
Tenant shall not place in any trash box or receptacle any material which
cannot be disposed of in the ordinary customary manner
1
<PAGE> 38
of trash and garbage disposal. All garbage and refuse disposal shall be
made in accordance with directions issued from time to time by Landlord.
15. Use by Tenant of Underwriters' Laboratory approved equipment for brewing
coffee, tea, hot chocolate and similar beverages and microwaving food shall
be permitted, provided that the equipment and use is in accordance with all
applicable federal, state, county and city laws, codes, ordinances, rules
and regulations.
16. Tenant shall not use the name of the Building in connection with or in
promoting or advertising the business of Tenant, except as Tenant's
address, without the written consent of Landlord.
17. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental
agency. Tenant shall be responsible for any increased insurance premiums
attributable to Tenant's use of the Premises, Building or Property.
18. Tenant assumes any and all responsibility for protecting its Premises from
theft and robbery, which responsibility includes keeping doors locked and
other means of entry to the Premises closed.
19. Tenant shall not use the Premises, or suffer or permit anything to be done
on, in or about the Premises, which may result in an increase to Landlord
in the cost of insurance maintained by Landlord on the Building and Common
Areas.
20. Tenant shall not park its vehicles in any parking areas designated by
Landlord as areas for parking by visitors to the Building or other reserved
parking spaces. Tenant shall not leave vehicles in the Building parking
areas overnight, nor park any vehicles in the Building parking areas other
than automobiles, motorcycles, motor driven or non-motor driven bicycles or
four-wheeled trucks. Tenant, its agents, employees and invitees shall not
park any one (1) vehicle in more than one (1) parking space.
21. Landlord may waive any one or more of these Rules and Regulations for the
benefit of Tenant or any other tenant, but no waiver by Landlord shall be
construed as a waiver of the Rules and Regulations in favor of Tenant or
any other tenant, nor prevent Landlord from thereafter enforcing the Rules
and Regulations against any or all of the tenants of the Building.
22. These Rules and Regulations are in addition to, and shall not be construed
to in any way modify or amend, in whole or in part, the terms, covenants,
agreements and conditions of any lease of premises in the Building.
23. Landlord reserves the right to make other reasonable Rules and Regulations
as, in its judgment, may from time to time be needed for safety and
security, for care and cleanliness of the Building and for the preservation
of good order therein. Tenant agrees to abide by all Rules and Regulations
hereinabove stated and any additional rules and regulations which are
adopted.
24. Tenant shall be responsible for the observance of all of the foregoing
rules by Tenant's employees, agents, clients, customers, invitees, and
guests.
2
<PAGE> 39
EXHIBIT E
Final Report Asbestos Removal Project. 9/28 - 11/15/87
Gisson Technical Services
Result of Soil and Groundwater Sampling. 1/6/96
645 & 675 Almanor Ave. Sunnyvale, CA
Geraghty & Miller Inc.
Combined Quarterly Extraction and Treatment System Monitoring Report. 6/1/91 -
8/31/91
Levine & Fricke
Quarterly Report of Hydrogeologic Investigations. 1/31/89
Levine & Fricke
Quarterly Monitoring Report Extraction and Treatment System. 6/1 - 8/31/88
Levine & Fricke
Combined Monthly Extraction and Treatment System Report on Effectiveness of the
Extraction and Treatment System. 1/29/88
Levine & Fricke
Joint Quarterly Groundwater Monitoring Report. 3/88
Sampling Program, North Pastoria/Almanor Ave.
Brown & Caldwell
Litronix/Micreal Site Investigation, Results of phase IV. 4/1/87
Extended Offsite Hydrogeologic Investigation and Proposed Groundwater
Extraction System.
Levine & Fricke
Letter from Litton Applied Technology to Ron Starichs,
Fire Prevention Bureau dated September 2, 1987
<PAGE> 40
October 31, 1996
Netscape Communications Corporation
501 East Middlefield Road
Mountain View, CA 94043
Re: Lease Between The Prudential Insurance Company of America
("Landlord") and Netscape Communications Corporation ("Tenant")
Dated October 11, 1996 (the "Lease")
Ladies and Gentlemen:
Landlord and Tenant are parties to the Lease referenced above for the Premises
located at 645 Almanor Avenue, Sunnyvale, California. Capitalized terms are
used in this letter as such terms are defined in the Lease. This letter shall
be deemed an addendum to the Lease and the Lease is incorporated herein by this
reference.
Tenant intends to install a passenger elevator (the "Elevator") in the
Premises. The design and installation of the Elevator shall be considered an
alteration under the Lease, except that Tenant shall not be required to remove
the Elevator upon the expiration or earlier termination of the Lease. Subject
to the conditions specified below, Landlord has agreed to reimburse Tenant for
fifty percent (50%) of the Approved Elevator Cost. As used herein, the term
"Approved Elevator Cost" shall mean the cost of the design, purchase, and
installation of the Elevator which has been approved in writing by Landlord.
Tenant shall obtain at least two (2) competitive bids for the design and
installation of the Elevator and shall submit such bids to Landlord for
approval. Landlord shall reimburse Tenant for fifty percent (50%) of the
Approved Elevator Cost, upon (i) completion of the Installation of the Elevator
in accordance with the design, plans, and specifications approved by Landlord,
and (ii) delivery to Landlord of such lien releases as Landlord may reasonably
request to assure that all contractors, subcontractors, and materialmen with
rights to record a lien against the Building have released such lien rights.
Tenant shall maintain and repair the Elevator in good condition and repair at
Tenant's sole cost and expense.
As modified by this letter, the Lease is hereby ratified and shall remain in
full force and effect.
<PAGE> 41
Please confirm your agreement with this letter by signing as indicated below.
Very truly yours,
VOIT MANAGEMENT COMPANY, L.P.,
as Agent for PRUDENTIAL INSURANCE COMPANY
OF AMERICA, a New Jersey corporation
By /s/ MARY E. DAVIS
-------------------------------
Name Mary E. Davis
-----------------------------
Title Vice President
----------------------------
Accepted and Agreed:
NETSCAPE COMMUNICATIONS CORPORATION,
a Delaware corporation
By /s/ PETER CURRIE
------------------------------
Name Peter Currie
----------------------------
Title E.V.P., CFO
---------------------------
<PAGE> 42
EXHIBIT B
SUBLEASED PREMISES
11
<PAGE> 1
EXHIBIT 10.5
FIRST AMENDMENT TO SUBLEASE
THIS FIRST AMENDMENT (this "Amendment"), is entered into this __ day of
October, 1999, by and between Netscape Communications, Inc. ("Netscape") and
Marvell Semiconductor, Inc. ("Subtenant").
Recitals
WHEREAS, Netscape currently leases certain premises consisting of
approximately 132,000 square feet of space located at 645 Almanor, Sunnyvale,
California (the "Premises"), pursuant to that certain Lease dated November 1,
1996, between Netscape and The Prudential Insurance Company of America
("Landlord");
WHEREAS, Netscape and Subtenant entered into that certain Sublease dated
as of October 1998 (the "Sublease"), which provided for Netscape leasing
approximately 35,842 rentable square feet of the Premises to Subtenant; and
WHEREAS, Subtenant desires to lease additional space of the Premises from
Netscape and Netscape has agreed to lease such space to Subtenant; pursuant to
the terms and conditions hereof, as well as to correct the legal name of
Netscape.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, Netscape and Subtenant covenant and agree as follows:
1. In the introduction paragraph of the Sublease, delete "Netscape
Communications, Inc.," and replace it with "Netscape Communications
Corporation," the correct legal name of Netscape.
2. Additional Subleased Premises. Section 1 of the Sublease is hereby
amended by adding the following language to the end of the Section:
On and subject to the terms and conditions contained herein, as amended,
Netscape hereby agrees to lease to Subtenant, and Subtenant hereby agrees
to lease from Netscape, an additional 30,607 rentable square feet of space
in the Premises, as indicated on Exhibit C attached hereto and incorporated
herein by this reference (the "Additional Subleased Premises").
3. Additional Rent. As of the date hereof, Subtenant's pro rata share of
Building Operating Expenses (as defined in the Sublease) shall be 50.3%.
Additional Rent shall be paid by Subtenant in accordance with the terms and
provisions of Section 4(ii) of the Sublease, as amended.
<PAGE> 2
4. Term. Section 2 of the Sublease is hereby amended by adding the
following language to the end of the Section:
The term for the Additional Subleased Premises shall commence on November
1, 1999 (the "Additional Subleased Premises Commencement Date"), provided
Netscape has obtained the consent of the Landlord, and shall expire on
February 15, 2002, unless sooner terminated pursuant to any provisions
hereof.
5. Rent.
(a) The first sentence of Section 4(a)(i) of the Sublease is hereby
amended by adding "for the Subleased Premises" after "Monthly base rent," and
changing ("Base Rent") to ("Subleased Premises Base Rent").
(b) Section 4(a) is hereby amended by adding the following subsection
(iii):
(iii) Base Rent for Additional Subleased Premises: Subtenant shall pay
Netscape monthly base rent for the Additional Subleased Premises (the
"Additional Subleased Premises Base Rent") in the following amounts:
Month Monthly Base Rent
01-12 $1.45/rentable square foot
13-24 $1.50/rentable square foot
25-end $1.55/rentable square foot
6. Condition of Additional Subleased Premises. Section 6 of the Sublease
is hereby amended by adding the following language to the end of the Section:
Subtenant has used due diligence in inspecting the Additional
Subleased Premises and agrees to accept the Additional Subleased
Premises in "as-is" condition and with all faults as of the
Additional Subleased Premises Commencement Date, without any
representation or warranty of any kind or nature whatsoever, or any
obligation on the part of Netscape to modify, improve or otherwise
prepare the Additional Subleased Premises for Subtenant's occupancy,
and by entry hereunder, Subtenant accepts the Additional Subleased
premises in their present condition and without representation or
warranty of any kind by Netscape. Subtenant hereby expressly waives
the provisions of Section 1 of Section 1932 and Sections 1941 and
1942 of the California Civil Code and all rights to make repairs at
the expense of Netscape as provided in Section 1942 of said civil
code.
<PAGE> 3
7. First Right to Negotiate. In the event that any space on the first
floor of the Premises becomes or is reasonably anticipated to become vacant
during the Term of this Sublease, Netscape shall notify Subtenant of the
availability of such space. Provided that (i) a default does not exist under
this Sublease, (ii) no event has occurred which with the passage of time or the
giving of notice (or both) would be deemed a default if not cured in the
applicable cure period, and (iii) Subtenant provides written notice to
Netscape, within ten (10) days after receipt of Netscape's notice, of
Subtenant's election to expand the Subleased Premises in the available space,
Subtenant shall have the first right to negotiate for such space for a period
of twenty (20) days after Netscape's notice. If Netscape and Subtenant do not
agree on the terms for the sublease of such space within such twenty (20) day
period, Subtenants's right to first negotiate with respect to such space shall
terminate and Netscape shall have the right to sublease such space to any other
person or entity upon any terms and conditions which Netscape desires, in its
sole discretion. Notwithstanding anything to the contrary contained in this
Lease, Tenant shall not have any such first right to negotiate a lease of any
space that is currently vacant ("Initial Space") until after such Initial Space
becomes available for lease following the expiration or earlier termination of
an initial lease of such Initial Space.
8. Demising Wall. Subject to Landlord's consent to the removal of such
demising wall, Netscape hereby agrees to pay one-half of the cost of removing
the demising wall in the Additional Subleased Premises, as shown on Exhibit D
attached hereto and incorporated herein by this reference, with Subtenant.
Notwithstanding the foregoing, in no event shall Netscape's share of such costs
exceed $6,425.00. Upon completion of such work, Subtenant shall submit a proper
invoice to Netscape for payment of Netscape's share of such work, which invoice
shall include documentation providing Netscape with the names and addresses of
all contractors, subcontractors and materialmen who provided labor and
materials in connection with this work, final lien waivers from all such
contractors, subcontractors and materialmen covering all work and materials in
connection with this work, and proof of all required inspections and issuance
of any required approvals and sign-offs by public authorities, if necessary.
9. During the term hereof, Subtenant shall have the right to use the
elevator located in the Subleased Premises. Netscape shall be responsible for
the repair and maintenance of the elevator. Subtenant shall be responsible for
all costs and expenses incurred by Netscape in connection with the repair and
maintenance of the elevator. Such expenses shall be billed by Netscape to
Subtenant and paid by Subtenant as Additional Rent, in accordance with Section
4(a)(ii) of the Sublease.
10. Netscape shall have the right to enter into the Subleased Premises
for any reason whatsoever, upon reasonable notice to Subtenant. In the event of
an
<PAGE> 4
emergency, Netscape shall immediately be permitted to enter into the Subleased
Premises.
11. Except as provided for in this Amendment, all references in the
Sublease to Subleased Premises, shall include both the Subleased Premises and
the Additional Subleased Premises.
12. Except as modified hereby, all terms and conditions of the Sublease
remain in full force and effect.
13. No Broker. Netscape and Subtenant each represent and warrant that
they have dealt with no broker in connection with this Amendment and the
transactions contemplated hereby, except Cornish & Carney Commercial. Each
party shall indemnify, protect and hold the other party harmless from all costs
and expenses (including reasonable attorneys' fees) arising from or relating to
a breach of the foregoing representation and warranty.
IN WITNESS WHEREOF, the parties have executed this Amendment as the date
first written above.
NETSCAPE: SUBTENANT:
NETSCAPE COMMUNICATIONS MARVELL SEMICONDUCTOR,
CORPORATION INC.
By: By: /s/ GORDON M. STEEL
--------------------------- ---------------------------
Name: Name: Gordon M. Steel
Title: Title: Vice President
<PAGE> 1
EXHIBIT 10.6
MARVELL TECHNOLOGY GROUP, LTD.
INVESTORS RIGHTS AGREEMENT
This Investors Rights Agreement (the "Agreement") is made as of September
10, 1999 by and among Marvell Technology Group, Ltd., a Bermuda corporation (the
"Company"), the undersigned purchasers of Series A Preferred Stock of the
Company (the "Series A Purchasers"), the undersigned purchasers of Series B
Preferred Stock of the Company (the "Series B Purchasers"), the undersigned
purchasers of Series C Preferred Stock of the Company (the "Series C
Purchasers"), the undersigned Purchasers of the Series D Preferred Stock (the
"Series D Purchasers") and the undersigned Purchasers of the Series E Preferred
Stock (the "Series E Purchasers") (the Series A Purchasers, the Series B
Purchasers, the Series C Purchasers, the Series D Purchasers, the Series E
Purchasers and GBC Venture Capital, Inc. ("GBC"), an affiliate of General Bank,
being hereinafter referred to individually as a "Purchaser" and together, along
with such additional parties as are hereafter deemed Purchasers pursuant to
Section 8 hereof, as the "Purchasers"), and Weili Dai, Pantas Sutardja and Sehat
Sutardja (individually, a "Founder" and collectively, the "Founders").
RECITALS
A. The Company and the Series A Purchasers, the Series B Purchasers, the
Series C Purchasers and the Series D Purchasers are parties to the certain
Registration and Information Rights Agreement, dated as of December 10, 1997
(the "Prior Agreement") pursuant to which the Company granted certain
registration and other rights to the Series A Purchasers, the Series B
Purchasers, the Series C Purchasers and the Series D Purchasers;
B. The Company, the Founders, the Series A Purchasers, the Series B
Purchasers, the Series C Purchasers and the Series D Purchasers are parties to
that certain Shareholders Agreement, dated December 10, 1997 (the "Prior
Shareholders Agreement") pursuant to which the Company granted certain rights
of first refusal to the Series A Purchasers, the Series B Purchasers, the
Series C Purchasers and the Series D Purchasers;
C. The Series E Purchasers and the Company have entered into or
concurrently herewith are entering into a Series E Preferred Stock Purchase
Agreement (the "Series E Purchase Agreement"), pursuant to which such Series E
Purchasers are purchasing from the Company shares of the Series E Preferred
Stock;
D. The obligations of the Company and such Series E Purchasers under the
Series E Purchase Agreement are conditioned, among other things, upon the
execution and delivery of this Agreement by the Company, the Founders, the
Series A Purchasers, the Series B Purchasers, the Series C Purchasers, the
Series D Purchasers and the Series E Purchasers; and
E. The Company and GBC entered in to that certain Loan and Security
Agreement, dated May 21, 1998, as amended by the First Amendment to Loan and
Security Agreement,
<PAGE> 2
dated June __, 1999 (the "General Bank Agreement"), pursuant to which the
Company issued to GBC a warrant to purchase up to 45,000 shares of Series D
Preferred Stock (the "General Bank Series D Warrants") and to GBC a warrant to
purchase up to 15,000 shares of Common Stock (the "General Bank Common
Warrants");
F. The Series E Purchasers and GBC desire to be granted the rights set
forth herein relating to registration rights and the Company, the Founders, the
Series A Purchasers, the Series B Purchasers, the Series C Purchasers, the
Series D Purchasers desire that this Agreement supersede and cancel the Prior
Agreement relating to registration and information rights and the Prior
Shareholders Agreement relating to the right of first refusal on new issuances
by the Company;
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the Company, the Founders, the Series A Purchasers, the
Series B Purchasers, the Series C Purchasers, the Series D Purchasers, the
Series E Purchasers and GBC agree as follows:
SECTION 1. CERTAIN DEFINITIONS.
As used in this Agreement, the following terms shall
have the following respective meanings:
"Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
"Conversion Stock" means the Series A Preferred, the
Series B Preferred, the Series C Preferred, the Series D Preferred (including
the Series C Preferred and Series D Preferred issuable upon exercise of
outstanding warrants to purchase Series C Preferred and Series D Preferred) and
the Common Stock issued or issuable pursuant to the conversion of the Series A
Preferred, Series B Preferred, Series C Preferred, or Series D Preferred.
"General Meeting" shall mean any general meeting of the
shareholders of the Company.
"Holders" shall mean (i) the Purchasers for so long as
Purchasers hold Conversion Stock or Registrable Securities, (ii) the Founders
for so long as the Founders hold Registrable Securities, (iii) GBC, and (iv)
any person holding Registrable Securities to whom the rights under this
Agreement have been transferred in accordance with Section 5.9 hereof.
"Initiating Holders" shall mean any holder or holders
of more than 25% of the Series A Preferred, Series B Preferred, the Series C
Preferred and Series D Preferred (and Registrable Securities issued upon
conversion thereof) voting as a single class.
"Series A Preferred" shall mean the Series A Preferred
Stock of the Company issued pursuant to the Series A Preferred Stock Purchase
Agreement, dated April 26, 1995.
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<PAGE> 3
"Series B Preferred" shall mean the Series B Preferred Stock of the
Company issued pursuant to the Series B Preferred Stock Purchase Agreement,
dated October 19, 1995.
"Series C Preferred" shall mean the Series C Preferred Stock of the
Company issued pursuant to the Series C Preferred Stock Purchase Agreement,
dated September 12, 1996 and the Series C Preferred Stock Purchase Agreement,
dated November 4, 1996.
"Series D Preferred" shall mean the Series D Preferred Stock of the
Company issued pursuant to the Series D Preferred Stock Purchase Agreement and
the General Bank Series D Warrant.
"Series E Preferred" shall mean the Series E Preferred Stock of the
Company issued pursuant to the Series E Preferred Stock Purchase Agreement.
"Registrable Securities" means (i) shares of Common Stock of the
Company issued or issuable in respect of the Conversion Stock upon any stock
split, stock dividend, recapitalization, or similar event, or any Common Stock
otherwise issuable with respect to the Conversion Stock, (ii) shares of Common
Stock which are Conversion Stock, (iii) shares of Common Stock issuable upon
exercise of the General Bank Common Warrant and (iv) shares of Common Stock
which are held by the Founders; provided, however, that shares of Conversion
Stock or other securities shall only be treated as Registrable Securities if
and so long as they have not been sold to or through a broker or dealer or
underwriter in a public distribution or a public securities transaction.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses, except as otherwise
stated below, incurred by the Company in complying with Sections 5.1, 5.2 and
5.3 hereof, including, without limitation, all registration, qualification and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company, blue sky fees and expenses, the expenses of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company which shall be paid in any event by the
Company) and the reasonable fees and disbursements of one counsel for all
Holders as appointed by the Holders (other than the Founders).
"Restricted Securities" shall mean the securities of the Company
required to bear the legend set forth in Section 3 hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended,
or any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
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<PAGE> 4
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders and, except as set forth under "Registration Expenses", all
reasonable fees and disbursements of counsel for any Holder.
SECTION 2. RESTRICTIONS ON TRANSFERABILITY. The Conversion Stock and any
other securities issued in respect of the Conversion Stock upon any stock
split, stock dividend, recapitalization, merger, consolidation or similar
event, shall not be sold, assigned, transferred or pledged except upon the
conditions specified in this Agreement, which conditions are intended to ensure
compliance with the provisions of the Securities Act. Each Purchaser will cause
any proposed purchaser, assignee, transferee, or pledgee of any such shares
held by such Purchaser to agree to take and hold such securities subject to the
provisions and upon the conditions specified in this Agreement.
SECTION 3. RESTRICTIVE LEGEND. Each certificate representing (i) the
Conversion Stock and (ii) any other securities issued in respect of the
Conversion Stock upon any stock split, stock dividend, recapitalization,
merger, consolidation or similar event, shall (unless otherwise permitted by
the provisions of Section 4 below) be stamped or otherwise imprinted with a
legend in substantially the following form (in addition to any legend required
under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE
OR DISTRIBUTION THEREOF. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION UNLESS THE COMPANY RECEIVES AN
OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE
OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SAID ACT. COPIES OF THE AGREEMENTS COVERING THE
PURCHASE OF THESE SHARES AND RESTRICTING THEIR TRANSFER MAY BE
OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD
OF THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE
PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION.
Each Purchaser and each Holder consents to the Company making a notation
on its records and giving instructions to any transfer agent of the Preferred
Stock or the Common Stock in order to implement the restrictions on transfer
established in this Agreement.
SECTION 4. NOTICE OF PROPOSED TRANSFERS. The holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in
all respects with the provisions of this Section 4. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities (other than (i) a
transfer not involving a change in beneficial ownership,
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<PAGE> 5
(ii) in transactions involving the distribution without consideration of
Restricted Securities by any Purchaser to any of its partners, or retired
partners, or to the estate of any of its partners or retired partners,
(iii) in transactions involving the transfer without consideration of
Restricted Securities by a Purchaser during his or her lifetime by way of gift
or on death by will or intestacy, or (iv) in transactions in compliance with
Rule 144), unless there is in effect a registration statement under the
Securities Act covering the proposed transfer, the holder thereof shall give
written notice to the Company of such holder's intention to effect such
transfer, sale, assignment or pledge. Each such notice shall describe the
manner and circumstances of the proposed transfer, sale, assignment or pledge
in sufficient detail, and shall be accompanied, at such holder's expense, by
either (i) an unqualified written opinion of legal counsel who shall be, and
whose legal opinion shall be, reasonably satisfactory to the Company addressed
to the Company, to the effect that the proposed transfer of the Restricted
Securities may be effected without registration under the Securities Act, or
(ii) a "no action" letter from the Commission to the effect that the transfer
of such securities without registration will not result in a recommendation by
the staff of the Commission that action be taken with respect thereto,
whereupon the holder of such Restricted Securities shall be entitled to
transfer such Restricted Securities in accordance with the terms of the notice
delivered by the holder to the Company. Each certificate evidencing the
Restricted Securities transferred as above provided shall bear, except if such
transfer is made pursuant to Rule 144, the appropriate restrictive legend set
forth in Section 3 above, except that such certificate shall not bear such
restrictive legend if, in the opinion of counsel for such holder and the
Company, such legend is not required in order to establish compliance with any
provision of the Securities Act.
SECTION 5. REGISTRATION.
5.1 REQUESTED REGISTRATION.
(a) In case the Company shall receive from Initiating
Holders a written request that the Company effect any registration,
qualification or compliance with respect to shares of Registrable Securities
with an anticipated aggregate offering price, net of underwriting discounts and
commissions, of ten million dollars ($10,000,000), the Company will:
(i) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders, except for the
Founders, who shall not be entitled to registration in this Section 5.1; and
(ii) as soon as practicable, use its best efforts
to effect such registration, qualification or compliance (including, without
limitation, appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations issued
under the Securities Act and any other governmental requirements or
regulations) as may be so requested and as would permit or facilitate the sale
and distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in
-5-
<PAGE> 6
such request as are specified in a written request received by the Company
within 20 days after receipt of such written notice from the Company.
(b) Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this Section 5.1:
(i) In any particular jurisdiction in which the Company would
be required to execute a general consent to service of process in effecting
such registration, qualification or compliance, unless the Company is already
subject to service in such jurisdiction and except as may be required by the
Securities Act;
(ii) Prior to the earlier to occur of: (x) July 31, 1991 and (y)
six months after the effective date of the Company's first registered public
offering of shares of its Common Stock;
(iii) During the period starting with the date sixty (60) days
prior to the Company's estimated date of filing of, and ending on the date six
(6) months immediately following the effective date of, any registration
statement pertaining to securities of the Company (other than a registration of
securities in a Rule 145 transaction or with respect to an employee benefit
plan), provided that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective;
(iv) After the Company has effected two such registrations
pursuant to this subparagraph 5.1(a), and such registrations have been declared
or ordered effective and remains effective until the earlier to occur of (x) 90
days or (y) the sale all the securities offered pursuant to each such
registration;
(v) If the Company shall furnish to such Initiating Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its shareholders for a registration statement to be filed in the
near future, then the Company's obligation to use its best efforts to register,
qualify or comply under this Section 5.1 shall be deferred for a period not to
exceed 90 days from the date of receipt of written request from the Initiating
Holders, provided that the Company may not exercise this deferral right for more
than 90 days in any one year period.
(vi) If such registration, qualification or compliance is
proposed to be part of a firm commitment underwritten public offering with
underwriters not reasonably acceptable to the Company.
Subject to the foregoing clauses (i) through (vi), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable after receipt of the request or
requests of the Initiating Holders.
(c) Underwriting. In the event of a registration statement pursuant
to Section 5.1, the Company shall advise the Holders as part of the notice
given pursuant to Section
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<PAGE> 7
5.1(a)(i) that the right of any Holder to registration pursuant to Section 5.1
shall be conditioned upon such Holder's participation in the underwriting
arrangements required by this Section 5.1, and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent requested shall be
limited to the extent provided herein.
The Company shall (together with all
Holders proposing to distribute their securities through such underwriting)
enter into an underwriting agreement in customary form with the managing
underwriter selected for such underwriting by a majority in interest of the
Initiating Holders, but subject to the Company's reasonable approval.
Notwithstanding any other provision of this Section 5.1, if the managing
underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Company shall so advise all holders of Registrable Securities and the number of
shares of Registrable Securities that may be included in the registration and
underwriting shall be allocated among all Holders in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities held by such
Holders at the time of filing the registration statement. No Registrable
Securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration. To facilitate the
allocation of shares in accordance with the above provisions, the Company or the
underwriters may round the number of shares allocated to any Holder to the
nearest 100 shares.
If any Holder of Registrable Securities
disapproves of the terms of the underwriting, such person may elect to withdraw
therefrom by written notice to the Company, the managing underwriter and the
Initiating Holders. The Registrable Securities and/or other securities so
withdrawn shall also be withdrawn from registration, and such Registrable
Securities shall not be transferred in a public distribution prior to 180 days
after the effective date of such registration, or such other shorter period of
time as the underwriters may require.
5.2 COMPANY REGISTRATION.
(a) Notice of Registration. If at any time or
from time to time the Company shall determine to register any of its equity
securities, either for its own account or the account of a security holder or
holders, other than (i) a registration relating solely to employee benefit
plans, (ii) a registration relating solely to a Rule 145 transaction, or (iii)
a registration in which the only equity security being registered is capital
stock issuable upon conversion of convertible (or exchange of exchangeable)
debt securities which are also being registered, the Company will:
(i) promptly give to each Holder
written notice thereof; and
(ii) include in such registration
(and any related qualification under blue sky laws or other compliance), and in
any underwriting involved therein, all the Registrable Securities specified in
a written request or requests, made within twenty (20) days after receipt of
such written notice from the Company, by any Holder.
-7-
<PAGE> 8
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 5.2(a)(i). In such event, the right of any Holder to
registration pursuant to Section 5.2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable Securities
in the underwriting shall be limited to the extent provided herein.
All Holders proposing to distribute their securities through such
underwriting shall (together with the Company and the other holders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by the Company. Notwithstanding any other provision of
this Section 5.2, if the managing underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the managing
underwriter may limit the Registrable Securities to be included in such
registration (i) in the case of the Company's initial public offering, to zero,
and (ii) in the case of any other offering, to an amount no less than 25% of
the Registrable Securities then held by each such Holder provided that in each
such case, no shares held by any Holder other than the Founder shall be so
excluded from such registration until all shares held by the Founders are
excluded from such registration. The Company shall so advise all Holders and
other holders distributing their securities through such underwriting and the
number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all the Holders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by such Holders at the time of filing the Registration
Statement. To facilitate the allocation of shares in accordance with the above
provisions, the Company may round the number of shares allocated to any Holder
or holder to the nearest 100 shares.
If any of the Holders disapproves of the terms of any such
underwriting, such Holder may elect to withdraw therefrom by written notice to
the Company and the managing underwriter. Any securities excluded or withdrawn
from such underwriting shall be withdrawn from such registration.
(c) Right to Terminate Registration. The Company shall have the right
to terminate or withdraw any registration initiated by it under this Section
5.2 prior to the effectiveness of such registration whether or not any Holder
has elected to include securities in such registration.
5.3 REGISTRATION ON FORM S-3
(a) If any of the Holders (excluding the Founders) request that the
Company file a registration statement on Form S-3 (or any successor form to
Form S-3) for a public offering of shares of the Registrable Securities the
reasonably anticipated aggregate price to the public of which, net of
underwriting discounts and commissions, would exceed $1,000,000, and the
Company is a registrant entitled to use Form S-3 to register the Registrable
Securities for such an offering, the Company shall use its best efforts to
cause such Registrable Securities to be registered for the offering on such
form and to cause such Registrable Securities
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<PAGE> 9
to be qualified in such jurisdictions as such Holder or Holders may reasonably
request; provided, however, that the Company shall not be required to effect
more than one registration pursuant to this Section 5.3 in any six (6) month
period. The Company shall inform other Holders (excluding the Founders) of the
proposed registration and offer them the opportunity to participate. In the
event the registration is proposed to be part of a firm commitment underwritten
public offering, the substantive provisions of Section 5.1(c) shall be
applicable to each such registration initiated under this Section 5.3.
(b) Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this Section 5.3:
(i) in any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, qualification or compliance, unless the Company is already
subject to service in such jurisdiction and except as may be required by the
Securities Act;
(ii) if the Company, within ten (10) days of the receipt of the
request of the Holders, gives notice of its bona fide intention to effect the
filing of a registration statement with the Commission within ninety (90) days
of receipt of such request (other than with respect to a registration statement
relating to a Rule 145 transaction, an offering solely to employees, or any
other registration which is not appropriate for the registration of Registrable
Securities);
(iii) during the period starting with the date sixty (60) days
prior to the Company's estimated date of filing of, and ending on the date six
(6) months immediately following, the effective date of any registration
statement pertaining to securities of the Company (other than a registration of
securities in a Rule 145 transaction or with respect to an offering solely to
employees, or any other registration which is not appropriate for the
registration of Registrable Securities), provided that the Company is actively
employing in good faith all reasonable efforts to cause such registration
statement to become effective; or
(iv) if the Company shall furnish to such Holder or Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its shareholders for registration statements to be filed in the
near future, then the Company's obligation to use its best efforts to file a
registration statement shall be deferred for a period not to exceed 90 days
from the receipt of the request to file such registration by such Holder or
Holders, provided that the Company may not exercise this deferral right for
more than 150 days in any one year period.
5.4 EXPENSES OF REGISTRATION. All registration Expenses incurred in
connection with (i) the two registrations pursuant to Section 5.1, (ii) all
registrations pursuant to Section 5.2, and (iii) three registrations pursuant
to Section 5.3 shall be borne by the Company
-9-
<PAGE> 10
Unless otherwise stated, all Selling Expenses relating to securities
registered on behalf of the Holders and all other registration expenses shall
be borne by the Holders of such securities pro rata on the basis of the number
of shares so registered.
5.5 REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Agreement,
the Company will keep each of the Holders advised in writing as to the
initiation of each registration, qualification and compliance and as to the
completion thereof. At its expense the Company will:
(a) prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for at least one hundred
twenty (120) days or until the distribution described in the registration
statement has been completed, whichever first occurs;
(b) furnish to the Holders participating in such registration and to
the underwriters of the securities being registered such reasonable number of
copies of the registration statement, preliminary prospectus, final prospectus
and such other documents as such underwriters may reasonably request in order
to facilitate the public offering of such securities.
5.6 INDEMNIFICATION.
(a) The Company will indemnify each Holder of securities, each of its
officers, directors and partners, and each person controlling such Holder
within the meaning of Section 15 of the Securities Act, with respect to which
registration, qualification or compliance has been effected pursuant to this
Agreement, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages and liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, (commenced or threatened), arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, and will reimburse each such Holder, each of its
officers, directors, general partners and each person controlling such Holder,
each such underwriter and each person who controls any such underwriter, for
any legal and any other expenses reasonably incurred, as such expenses are
incurred, in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by such Holder,
controlling person or underwriter specifically for use therein; provided,
however, that the foregoing indemnity agreement is subject to the condition
that, insofar as it relates to any such untrue statement, alleged untrue
statement, omission or alleged omission made in a preliminary prospectus on
file with the Commission at
-10-
<PAGE> 11
the time the registration statement becomes effective or the amended prospectus
filed with the Commission pursuant to Rule 424(b) (the "Final Prospectus"),
such indemnity agreement shall not inure to the benefit of: (1) any Holder, (i)
if there is no underwriter, and a copy of the Final Prospectus was not
furnished to the person asserting the loss, liability, claim or damage at or
prior to the time such action is required by the Securities Act and the Final
Prospectus would have cured the defect giving rise to the loss, liability,
claim or damage (to the extent that such Holder was obligated by law to provide
a copy of the Final Prospectus to such person), or (ii) to the extent that such
untrue statement, alleged untrue statement, omission or alleged omission is
made in reliance upon and in conformity with written information furnished to
the Company by an instrument duly executed by such Holder and stated to be
specifically for use therein; or (2) any underwriter, (i) if a copy of the
Final Prospectus was not furnished to the person asserting the loss, liability,
claim or damage at or prior to the time such action is required by the
Securities Act and the Final Prospectus would have cured the defect giving rise
to the loss, liability, claim or damage, or (ii) to the extent that such untrue
statement, alleged untrue statement, omission or alleged omission is made in
reliance on and in conformity with written information furnished to the Company
by an instrument duly executed by such underwriter and stated to be
specifically for use therein.
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered by such
a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, and each
other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all expenses, claims, losses, damages and liabilities (or actions in
respect thereof), including any of the foregoing incurred in settlement of any
litigation (commenced or threatened), arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
such registration statement, prospectus, offering circular or other document,
or any amendment or supplement thereto, incident to such registration,
qualification or compliance, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and will reimburse the Company, such Holders, such
directors, officers, persons, underwriters or control persons for any legal and
any other expenses reasonably incurred, as such expenses are incurred, in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by such Holder specifically for use therein.
Notwithstanding the foregoing, the liability of each Holder under this
subsection 5.6(b) shall be limited in an amount equal to the net proceeds
received by such Holder from the sale of shares in such registration, unless
such liability arises out of or is based on willful misconduct by such Holder.
-11-
<PAGE> 12
(c) Each party entitled to indemnification under this Section
5.6 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may
be sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement, unless the failure
to give such notice is materially prejudicial to an Indemnifying Party's
ability to defend such action, and provided further that the Indemnifying Party
shall not assume the defense for matters as to which there is a conflict of
interest or separate and different defenses. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation.
5.7 INFORMATION BY HOLDERS. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held
by them and the distribution proposed by such Holder or Holders as the Company
may request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Agreement.
5.8 RULE 144 REPORTING. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted Securities to the public without registration, after
such time as public market exists for the Common stock of the Company, the
Company agrees to use all reasonable efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended;
(b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Securities Exchange Act of 1934, as amended (at any time after it has become
subject to such reporting requirements); and
(c) So long as any of the Holders own any Restricted
Securities, to furnish to such Holders forthwith upon request a written
statement by the Company as to its compliance with the reporting requirements
of said Rule 144 (at any time after 90 days after the effective date of the
first registration statement filed by the Company for an offering of its
securities to the general public), and of the Securities Act and the Securities
Exchange Act of 1934 (at any time after it has become subject to such reporting
requirements), a copy of the most
-12-
<PAGE> 13
recent annual or quarterly report of the Company, and such other reports and
documents of the Company and other information in the possession of or
reasonably obtainable by the Company as such Holders may reasonably request in
availing itself of any rule or regulation of the Commission allowing the
Holders to sell any such securities without registration.
5.9 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company
to register securities granted to the Holders under Sections 5.1, 5.2 and 5.3
may be assigned to a transferee or assignee in connection with any transfer or
assignment of Registrable Securities by a Purchaser or Founder only if such
transferee or assignee, as appropriate, acquires at least 50,000 shares (as
adjusted for stock splits, stock dividends, recapitalizations and the like) of
the Company's Common Stock or Conversion Stock, provided written notice thereof
is promptly given to the Company and the transferee agrees to be bound by the
provisions of this Agreement. Notwithstanding the foregoing, the rights to
cause the Company to register securities may be assigned to any constituent
partner or retired partner of a Holder which is a partnership, or an affiliate
of a Holder which is a corporation, or a family member or trust for the benefit
of a Holder who is an individual, provided written notice thereof is promptly
given to the Company and the transferee agrees to be bound by the provisions of
this Agreement.
5.10 TERMINATION OF REGISTRATION RIGHTS. The rights granted pursuant
to Sections 5.1, 5.2 and 5.3 of this Agreement shall terminate on the five year
anniversary of the Company's initial public offering pursuant to an effective
registration statement under the Securities Act, or as to any Holder at such
time as the Company has registered its shares of Common Stock under the
Securities Exchange Act of 1934, as amended, and such Holder is able to sell
all such Registrable Securities as are held by such Holder under Rule 144
promulgated under the Securities Act within a 90-day period.
SECTION 6. FINANCIAL INFORMATION AND INSPECTION RIGHTS.
(a) The Company will provide the following reports and rights to
each Purchaser for so long as such Purchaser continues to hold at least
75,000 shares of Conversion Stock (as adjusted for stock splits, stock
dividends, recapitalizations and the like):
(i) As soon as practicable after the end of each fiscal year,
and in any event within 120 days thereafter and at least seven days prior to any
to any General Meeting at which the Financial Information (as defined below) is
to be considered, consolidated balance sheets of the Company and its
subsidiaries, if any, as of the end of such fiscal year, and consolidated
statements of operations and consolidated statements of cash flows and
shareholders' equity of the Company and its subsidiaries, if any, for such year,
prepared in accordance with generally accepted accounting principles and setting
forth in each case in comparative form the figures for the previous fiscal year,
all in reasonable detail and audited by independent public accountants of
national standing selected by the Company (the "Financial Information"), and a
capitalization table in reasonable detail for such fiscal year;
(ii) As soon as practicable after the end of the first, second,
and third quarterly accounting periods in each fiscal year of the Company and
in any event within 60 days thereafter, a consolidated balance sheet of the
Company and its subsidiaries, if any, as of the
-13-
<PAGE> 14
end of each such quarterly period, and consolidated statements of operations
and, to the extent prepared for the Board of Directors of the Company,
consolidated statements of cash flows of the Company and its subsidiaries for
such period and for the current fiscal year to date, prepared in accordance
with generally accepted accounting principles (other than for accompanying
notes), subject to changes resulting from year-end audit adjustments, in
reasonable detail and signed by the principal financial or accounting officer
of the Company;
(iii) The Company shall permit each Purchaser, at such
Purchaser's expense, to visit and inspect the Company's properties, to examine
its books of account and records, and to discuss the Company's affairs,
finances and accounts with its officers, all at such reasonable times as may be
requested by such Purchaser; provided, however, that the Company shall not be
obligated pursuant to this clause (iii) to provide access to any information
that it reasonably considers to be a trade secret or similar confidential
information.
(b) The rights granted pursuant to Section 6 may be assigned to a
transferee or assignee in connection with any transfer or assignment of
Registrable Securities by a Purchaser only if such transferee or assignee, as
appropriate, acquires at least 50,000 shares (as adjusted for stock splits,
stock dividends, recapitalizations and the like) of the Company's Conversion
Stock, provided written notice thereof is promptly given to the Company.
Notwithstanding the foregoing, the rights to cause the Company to register
securities may be assigned to any constituent partner or retired partner of a
Holder which is a partnership, or an affiliate of a Holder which is a
corporation, or a family member or trust for the benefit of a Holder who is an
individual, provided written notice thereof is promptly given to the Company.
(c) Each of the Purchasers acknowledge and agree that any
information obtained pursuant to this Section 6 which may be considered
"inside" non-public information will not be utilized by any Purchaser in
connection with purchases or sales of the Company's securities except in
compliance with applicable state and federal securities laws.
(d) The covenants set forth in this Section 6 shall terminate and be
of no further force or effect upon the consummation of a firm commitment
underwritten public offering or at such time as the Company is required to file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934,
as amended, whichever shall occur first.
SECTION 7. RIGHT OF FIRST REFUSAL ON COMPANY ISSUANCES
7.1 RIGHT OF FIRST REFUSAL. The Company hereby grants to each Purchaser
who continues to hold not less than 150,000 shares of Preferred Stock (or
shares of Common Stock issued upon conversion of such Preferred Stock, the
"Conversion Stock") of the Company a right of first refusal ("Right of First
Refusal") to purchase such Shareholder's Pro Rata Share (as defined in Section
7.2 hereof) of any New Securities (as defined in Section 7.3 hereof) which the
Company may, from time to time, propose to issue and sell.
7.2 PRO RATA SHARE. Each Shareholder's "Pro Rata Share", for purposes of
this Article 1, is equal to the fraction obtained by dividing (a) the sum of
the total number of shares of any (i) Common Stock, (ii) Common Stock issuable
upon conversion of any Preferred Stock and
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<PAGE> 15
(iii) Common Stock issuable upon exercise of any options or warrants then held
by such Purchaser by (b) the sum of the total number of shares of (i) Common
Stock, (ii) Common Stock issuable upon the conversion of Preferred Stock and
(iii) Common Stock issuable upon any exercise of any options or warrants of the
Company then outstanding.
7.3 "NEW SECURITIES". Except as set forth below, "New Securities"
shall mean any shares of capital stock of the Company, including Common Stock
and Preferred Stock, whether or not now authorized, and rights, options or
warrants to purchase said shares of Common Stock or Preferred Stock and
securities of any type whatsoever that are, or may by their terms become,
convertible into said shares of Common Stock or Preferred Stock.
Notwithstanding the foregoing, "New Securities" do not include securities
issued or issuable (i) upon the conversion of Preferred Stock, (ii) to
employees, officers, directors and consultants of the Company pursuant to any
one or more employee stock incentive plans or agreements approved by the
Company's Board of Directors up to 6,475,000 shares (as appropriately adjusted
for any recapitalizations, combinations, stock dividends, subdivisions or
split-ups), (iii) pursuant to commercial transactions approved by the Company's
Board of Directors including, but not limited to, equipment leases or bank
lines of credit, provided that the specific issuance is approved by the Board
and do not exceed in the aggregate 150,000 shares of capital stock (as
appropriately adjusted for any recapitalizations, combinations, stock
dividends, subdivisions or split-ups), (iv) as a dividend or distribution on,
or in connection with a split of, any of the capital stock or the Company, (v)
in connection with a recapitalization or reorganization of the Company,
relating to the Company's merger with or acquisition of another corporation or
other entity or (vi) pursuant to a registered public offering of shares of the
Company's Common Stock pursuant to an effective registrations statement under
the Securities Act of 1933, as amended, with an aggregate offering price to the
public of not less than $10,000,000 and a per share public offering price of
not less than $13.00 (as appropriately adjusted for any recapitalizations,
combinations, stock dividends, subdivisions or split-ups) (a "Qualifying
Offering").
7.4 PROCEDURE.
(a) In the event the Company proposes to undertake an issuance
of New Securities, it shall give each Purchaser written notice (the "Company
Notice") of its intention, describing the amount and type of New Securities to
be issued, and the price and terms upon which the Company proposes to issue the
same. Each Purchaser shall have fifteen (15) days from the date of receipt of
the Company Notice to exercise such Purchaser's Right of First Refusal to
purchase up to such Purchaser's respective Pro Rata Share of such New
Securities for the price and upon the terms specified in the Company Notice by
delivering written notice (the "Right of First Refusal Election Notice") to the
Company and stating therein the quantity of New Securities to be purchased.
(b) Settlement for the New Securities to be purchased by the
Purchasers pursuant to this Section 7.4 shall be made in cash within twenty
(20) days from the Purchasers' deemed date of receipt of the Company Notice;
provided, however, that if the terms of payment for the New Securities
specified in the Company Notice were for other than cash against delivery or
promissory notes payable over time, each Purchaser shall pay in cash to the
Company the fair
-15-
<PAGE> 16
market value of such consideration as mutually agreed upon the Company and a
majority of the Purchasers who elect to purchase New Securities or, if no such
agreement is reached, as determined by an investment banking firm mutually
acceptable to the Company and a majority of the Purchasers who elect to
purchase New Securities, which appraisal shall be final, within five (5) days
of such determination if such determination is made after fifteen (15) days
following receipt of the Company Notice.
(c) In the event that the Purchasers have not elected to
purchase all of the New Securities within the applicable period of either
fifteen (15) days after the deemed receipt of Company Notice pursuant to clause
(a) above or within five (5) days after such determination of fair market value
pursuant to clause (b) above, the Company shall have ninety (90) days
thereafter to sell the New Securities not elected to be purchased by a
Purchaser at the price and upon the terms no more favorable to the purchasers
of such securities than specified in the Company Notice. In the event the
Company has not sold some or all of the New Securities within said ninety (90)
day period, the Company shall not thereafter issue or sell any unsold New
Securities without first offering such securities to the Purchasers in the
manner provided above.
(d) If any Purchaser shall have failed to deliver to the
Company its Right of First Refusal Election Notice within the time period
described in this Section 7.4, such Shareholder shall be deemed to have waived
its Right of First Refusal.
7.5 WAIVER OF RIGHT OF FIRST REFUSAL. The Right of First Refusal may
be waived as to any given issuance of New Securities on behalf of all
Purchasers, by Purchasers holding not less than a majority of the shares of
Common Stock and Preferred Stock then held by all Purchasers or their permitted
assignees or transferees.
7.6 FEES AND EXPENSES OF VALUATION OF NEW SECURITIES. The fees and
expenses of any investment banking firm retained in connection with the
determination of the fair market value of the consideration to be paid for the
New Securities pursuant to Section 7.4(a) shall be borne proportionately by the
Company and each Purchaser who exercises such Purchaser's Right of First
Refusal to purchase New Securities according to the relative number of the New
Securities, if any, actually (i) sold by the Company to a third party and (ii)
purchased by such Purchaser from the Company.
7.7 COMPANY RIGHT TO TERMINATE ISSUANCE OF NEW SECURITIES.
Notwithstanding the foregoing, the Company may in its sole discretion terminate
any proposed issuance of New Securities in respect of which the Company has
given Company Notice, at any time prior to the consummation thereof. The
foregoing provision shall apply even in the event one or more Purchasers shall
have exercised their Rights of First Refusal hereunder; provided, however, that
no New Securities shall then have been issued.
7.8 RIGHT OF FIRST REFUSAL PROVISIONS OF PRIOR SHAREHOLDERS AGREEMENT
SUPERSEDED AND CANCELED. The Company, the Founders and each of the Series A
Purchasers, the Series B Purchasers, the Series C Purchasers and the Series D
Purchasers who are parties to this Agreement and to the Prior Shareholders
Agreement hereby agree that the provisions of this
-16-
<PAGE> 17
Section 7 supersede and cancel the right of the first refusal provisions of
Article I of the Prior Shareholders Agreement.
SECTION 8. STANDOFF AGREEMENT. In connection with any public offering
of the Company's securities in connection with an effective registration
statement under the Securities Act, each Holder agrees, upon the request of the
Company or the underwriters managing any underwritten offering of the Company's
securities, not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any securities of the Company (other than
those included in the registration) without the prior written consent of the
Company or such underwriters, as the case may be, for such period of time, not
to exceed one hundred eighty (180) days for the Company's initial public
offering registration and not to exceed ninety (90) days, in the case of any
subsequent registration (or such lesser period as officers, directors or 1%
shareholders of the voting power of the Company are so restricted with respect
to the transfer of shares of capital stock of the Company held by them) after
the effective date of the registration statement relating thereto provided
that, should the underwriters release from such transfer restriction shares
held by any officer, director or 1% shareholder, then such Holder shall
similarly be released from such restriction. Each of the Purchasers and each
Holder agrees that the Company may instruct its transfer agent to place
stop-transfer notations in its records to enforce the provisions of this
Section 8.
SECTION 9. ADDITIONAL PARTIES. The parties hereto agree that
additional holders of Series E Preferred Stock of the Company may, with the
consent only of the Company, be added as parties to this Agreement with respect
to any or all securities of the Company held by them, and shall thereupon be
deemed for all purposes "Purchasers" hereunder; provided, however, that from
and after the date of this Agreement, the Company shall not without the prior
written consent of each Purchaser, enter into any agreement with any holder or
prospective holder of any securities of the Company providing for the grant to
such holder of rights superior to those granted herein. Any such additional
party shall execute a counter-part of this Agreement, and upon execution by
such additional party and by the Company, shall be considered a Purchaser for
purposes of this Agreement.
SECTION 10. AMENDMENT. Any provision of this Agreement may be amended
or the observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the Holders of a majority of each of: (i) the
Founders and (ii) the Holders of Series A Preferred, Series B Preferred, Series
C Preferred, Series D Preferred and Series E Preferred, voting together as a
single class; provided that, subject to the provisions of Section 8 hereof, no
such amendment shall impose or increase any liability or obligation or impair
any right of a Holder without the consent of such holder. Any amendment or
waiver effected in accordance with this Section 9 shall be binding upon each
Holder of Registrable Securities at the time outstanding (including securities
into which such securities are convertible), each future holder of all such
securities, and the Company.
-17-
<PAGE> 18
SECTION 11. GOVERNING LAW. This Agreement and the legal relations
between the parties arising hereunder shall be governed by and interpreted in
accordance with the internal laws of Bermuda.
SECTION 12. ENTIRE AGREEMENT. This Agreement constitutes the full and
entire understanding and agreement between the parties hereto regarding the
matters set forth herein, and supersedes in their entirety all prior agreements
and understandings among the parties relative to the subject matter hereof.
Upon execution of this Agreement by the parties required to amend the Prior
Agreement, the Prior Agreement shall be rendered null and void and be of no
further force or effect. Except as otherwise expressly provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon the
successors, assigns, heirs, executors and administrators of the parties hereto.
SECTION 13. NOTICES, ETC. All notices and other communications required
or permitted hereunder shall be in writing and shall be deemed effectively
given upon personal delivery to the party to be notified or three (3) days
after deposit with the United State mail, by registered or certified mail,
postage prepaid, addressed (a) if to a Purchaser, at the address of such
Purchaser set forth on Exhibit A hereto, as it may be amended from time to
time, or at such other address as the Purchasers shall have furnished to the
Company in writing in accordance with this Section 13, if to General Bank or
GBC, at the address set forth on the General Bank Agreement, (b) if to a
Founder, at the address of such Founder set forth on Exhibit A to the Prior,
(c) if to any other holder of Conversion Stock, at such address as such holder
shall have furnished the Company in writing in accordance with this Section 13,
or, until any such holder so furnishes an address to the Company, then to and
at the address of the last holder thereof who has so furnished an address to
the Company, or (d) if to the Company, at its principal office, or that of
Marvell Semiconductor, Inc., its subsidiary, with a copy addressed to Venture
Law Group, Professional Corporation, 2775 Sand Hill Road, Menlo Park,
California, 94025, to the attention of Tae Hea Nahm, Esq.
SECTION 14. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
[Signature pages follow]
-18-
<PAGE> 19
The foregoing agreement is hereby executed as of the date first above
written.
"COMPANY"
MARVELL TECHNOLOGY GROUP, LTD.
a Bermuda corporation
By:
----------------------------------
Sehat Sutardja, President
and Chief Executive Officer
SIGNATURE PAGE TO REGISTRATION AND INFORMATION RIGHTS AGREEMENT
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
Marvell Asia Pte Ltd Singapore
Marvell Japan KK Japan
Marvell Semiconductor, Inc. California
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated March 3, 2000 except for Note 11, which is as of March 21,
2000, relating to the financial statements of Marvell Technology Group Ltd.,
which appears in such Registration Statement. We also consent to the reference
to us under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 23, 2000
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<PERIOD-END> JAN-31-2000
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<PP&E> 10,189
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22,353
0
<COMMON> 98
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