S-1: General form for registration of securities under the Securities Act of 1933
Published on March 23, 2000
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
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MARVELL TECHNOLOGY GROUP LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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)
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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)
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COPIES TO:
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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. [ ]
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CALCULATION OF REGISTRATION FEE
(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.
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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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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
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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.
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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.
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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.
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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
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Prospectus dated , 2000.
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.
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;
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- 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
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
SUMMARY CONSOLIDATED FINANCIAL DATA
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.
6
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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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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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
10
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.
11
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
12
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.
13
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;
14
- 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
15
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
16
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
17
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
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
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
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
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
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.
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.
23
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.
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:
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
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.
25
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
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.
27
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.
28
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.
29
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.
30
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
31
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.
32
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.
33
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
34
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
35
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.
36
- 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,
37
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
38
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
39
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.
40
Our current read channel products are shown in the table below.
- ---------------
* 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.
41
Our current preamplifier products are shown in the table below.
- ---------------
* 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.
42
Our current Fast Ethernet products are listed in the table below.
- ---------------
* 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.
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
43
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
44
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.
45
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
46
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.
47
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
48
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.
49
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.
- ---------------
(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.
50
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
51
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.
52
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."
53
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
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(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.
54
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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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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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.
- ---------------
* 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.
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
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.
78
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.
79
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:
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
MARVELL TECHNOLOGY GROUP LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
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
MARVELL TECHNOLOGY GROUP LTD.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-3
MARVELL TECHNOLOGY GROUP LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-4
MARVELL TECHNOLOGY GROUP LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-5
MARVELL TECHNOLOGY GROUP LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-6
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
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:
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
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
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):
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):
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
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):
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
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):
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
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):
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
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
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Aggregate activity under both the Option Plan and the Directors' Plan was
as follows:
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
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:
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:
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
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:
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):
F-17
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred tax assets (liabilities) consists of the following (in thousands):
Reconciliation of the statutory federal income tax to the Company's
effective tax:
The U.S. and non-U.S. components of income (loss) before income taxes are:
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
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):
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):
F-19
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
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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.
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TABLE OF CONTENTS
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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.
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Shares
MARVELL TECHNOLOGY
GROUP LTD.
Common Stock
------------------------
LOGO
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GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
ROBERTSON STEPHENS
Representatives of the Underwriters
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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.
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
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
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following exhibits are filed herewith:
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* 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
(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
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
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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.
II-5
II-6
EXHIBIT INDEX
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* To be filed by amendment