<PAGE>
================================================================================
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Vitesse Semiconductor Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
VITESSE SEMICONDUCTOR CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 28, 1997
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Vitesse
Semiconductor Corporation, a Delaware corporation (the "Company"), will be
held on TUESDAY, JANUARY 28, 1997, AT 10:30 A.M., local time, at The Radisson
Hotel, 30100 Agoura Road, Agoura Hills, California 91301 for the following
purposes:
1. To elect directors to serve for the ensuing year and until their
successors are duly elected and qualified.
2. To approve a proposal to amend the Company's Restated Certificate of
Incorporation to authorize an increase in the authorized shares of
Common Stock, par value $.01 per share, of the Company from
25,000,000 to 50,000,000 shares.
3. To ratify the appointment of KPMG Peat Marwick LLP as independent
auditors for the Company for the 1997 fiscal year.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on NOVEMBER 29, 1996
are entitled to notice of and to vote at the meeting.
All shareholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to sign
and return the enclosed proxy as promptly as possible in the postage-paid
envelope enclosed for that purpose. Any shareholder attending the meeting may
vote in person even if he or she has returned a proxy.
THE BOARD OF DIRECTORS
Camarillo, California
December 13, 1996
IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO
COMPLETE AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED.
<PAGE>
VITESSE SEMICONDUCTOR CORPORATION
741 CALLE PLANO
CAMARILLO, CALIFORNIA 93012
----------------
PROXY STATEMENT FOR 1997
ANNUAL MEETING OF SHAREHOLDERS
----------------
The enclosed proxy is solicited on behalf of Vitesse Semiconductor
Corporation (the "Company") for use at the Annual Meeting of Shareholders to
be held on TUESDAY, JANUARY 28, 1997, AT 10:30 A.M., local time, and at any
adjournment thereof, for the purposes set forth herein and in the accompanying
Notice of Annual Meeting of Shareholders. The Annual Meeting will be held at
the Radisson Hotel, 30100 Agoura Road, Agoura Hills, California 91301. The
Companys principal executive office is located at 741 Calle Plano, Camarillo,
California 93012. The Companys telephone number at that address is (805) 388-
3700.
These proxy solicitation materials were mailed on or about December 10,
1996, to all shareholders entitled to vote at the meeting. A copy of the
Companys 1996 Annual Report to Shareholders accompanies this Proxy Statement.
INFORMATION CONCERNING SOLICITATION AND VOTING
RECORD DATE
Shareholders of record at the close of business on NOVEMBER 29, 1996 (the
"Record Date") are entitled to notice of the meeting and to vote at the
meeting. As of the Record Date, 22,901,406 shares of the Company's Common
Stock were issued and outstanding. There are no shares of Preferred Stock
outstanding.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a
later date or by attending the Annual Meeting and voting in person.
VOTING AND SOLICITATION
Each shareholder is entitled to one vote for each share of Common Stock on
all matters presented at the meeting.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the Inspector of Elections (the "Inspector") with the assistance of the
Company's transfer agent. The Inspector will also determine whether or not a
quorum is present. In general, the affirmative vote of a majority of shares
present in person or represented by proxy at a duly held meeting at which a
quorum is present is required under Delaware law for approval of proposals
presented to shareholders. Delaware law also provides that a quorum consists
of a majority of shares entitled to vote and present or represented by proxy
at the meeting. The Inspector will treat abstentions as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum, but will not treat abstentions as votes in favor of approving any
matter submitted to shareholders for a vote. Any proxy that is returned using
the form of proxy enclosed and that is not marked as to a particular item will
be voted for the election of directors, for the proposal to amend the Restated
Certificate of Incorporation to increase the authorized shares of Common
Stock, for ratification of the appointment of the designated independent
auditors and, as the proxy holders deem advisable, on other matters that may
come before the meeting, as the case may be with respect to the item not
marked. If a broker indicates on the enclosed proxy or its substitute that it
does not have discretionary authority as to certain shares to vote on a
particular matter ("broker non-votes"), those shares will not be considered as
present with respect to that matter. The Company believes that the tabulation
procedures to be followed by the Inspector are consistent with the general
statutory requirements in Delaware concerning voting of shares and
determination of a quorum.
<PAGE>
The cost of soliciting proxies will be borne by the Company. The Company has
retained the services of Corporate Investor Communications, Inc. ("CIC") to
aid in the solicitation of proxies from bankers, bank nominees and other
institutional owners (and beneficial owners of shares held by brokerage
firms). The Company estimates that it will pay CIC a fee not to exceed $4,000
for its services and will reimburse CIC for certain out-of-pocket expenses.
The Company may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
materials to such beneficial owners. Proxies may also be solicited by certain
of the Company's directors, officers and regular employees, without additional
compensation, personally or by telephone, telegram, letter or facsimile.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
The Company anticipates that the next Annual Meeting of Shareholders will be
held in January or February 1998. Therefore, proposals of shareholders of the
Company which are intended to be presented by such shareholders at the
Company's 1998 Annual Meeting of Shareholders must be received by the Company
no later than August 15, 1997, in order to be considered for inclusion in the
proxy statement and form of proxy relating to that meeting.
PRINCIPAL SHARE OWNERSHIP
The following table sets forth the beneficial ownership of the Company's
Common Stock as of October 31, 1996, by each director, by all directors and
officers of the Company as a group, and by all persons known to the Company to
be the beneficial owners of more than 5% of the Company's Common Stock:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES PERCENT OF TOTAL
---- ---------------- ----------------
<S> <C> <C>
Nicholas-Applegate Capital Management,
Inc. .................................. 1,407,241 7.24%
Louis R. Tomasetta(/1/)................. 329,352 1.69%
John C. Lewis(/2/)...................... 149,977 *
Thurman J. Rodgers(/3/)................. 149,866 *
Pierre R. Lamond(/4/)................... 111,484 *
Neil Rappaport(/5/)..................... 74,952 *
James A. Cole(/6/)...................... 58,817 *
Eugene Hovanec(/7/)..................... 53,031 *
Michael Millhollan(/8/)................. 27,790 *
Robert Nunn(/9/)........................ 11,410 *
All executive officers and directors as
a group (15 persons)(/10/)............. 1,315,746 6.77%
</TABLE>
- --------
* Less than 1%
(1) Includes options to purchase 171,551 shares of Common Stock exercisable
within 60 days of October 31, 1996. Also includes an aggregate of 51,500
shares held by Dr. Tomasetta as custodian for each of James L., Kathleen
A., and Susan A. Tomasetta, pursuant to the Transfers to Minors Act and as
to which Dr. Tomasetta has voting and investment power.
(2) Includes options to purchase 22,200 shares of Common Stock exercisable
within 60 days of October 31, 1996. Also includes 111,111 shares held by
Amdahl Corporation, of which Mr. Lewis disclaims beneficial ownership. Mr.
Lewis is the Chairman of the Board of Directors and Chief Executive
Officer of Amdahl Corporation and may be deemed to share voting and
investment power with respect to such shares.
(3) Includes options to purchase 66,532 shares of Common Stock exercisable
within 60 days of October 31, 1996. Also includes 83,334 shares held by
Cypress Semiconductor Corporation, of which Mr. Rodgers disclaims
beneficial ownership. Mr. Rodgers is the President and Chief Executive
Officer of Cypress Semiconductor Corporation and may be deemed to share
voting and investment power with respect to such shares.
2
<PAGE>
(4) Includes options to purchase 29,100 shares of Common Stock exercisable
within 60 days of October 31, 1996.
(5) Includes options to purchase 32,795 shares of Common Stock exercisable
within 60 days of October 31, 1996.
(6) Includes options to purchase 49,866 shares of Common Stock exercisable
within 60 days of October 31, 1996.
(7) Includes options to purchase 45,000 shares of Common Stock exercisable
within 60 days of October 31, 1996.
(8) Includes options to purchase 25,928 shares of Common Stock exercisable
within 60 days of October 31, 1996.
(9) Includes options to purchase 6,300 shares of Common Stock exercisable
within 60 days of October 31, 1996.
(10) Includes options to purchase 693,119 shares of Common Stock exercisable
within 60 days of October 31, 1996.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers and the holders of 10% of the
Company's Common Stock to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of equity
securities of the Company. Based on the Company's review of copies of such
reports received by it, or written representations from reporting persons, the
Company believes that during the period from October 1, 1995 to September 30,
1996, its officers and directors filed all required reports on a timely basis
except that Ira Deyhimy, Vice President, Product Development, failed to file a
Form 4 report of an exempt transaction. The Company believes that this failure
to file a report on a timely basis was inadvertent and has implemented routine
procedures designed to periodically remind its officers and directors of the
filing requirements.
PROPOSAL ONE:
ELECTION OF DIRECTORS
NOMINEES
A board of five (5) directors is to be elected at the Annual Meeting of
Shareholders. Unless otherwise instructed, the proxy holders will vote the
proxies received by them for the Company's five nominees named below, all of
whom are presently directors of the Company. In the event that any nominee of
the Company is unable or declines to serve as a director at the time of the
Annual Meeting of Shareholders, the proxies will be voted for any nominee who
shall be designated by the present Board of Directors to fill the vacancy. It
is not expected that any nominee will be unable or will decline to serve as a
director. The term of office of each person elected as a director will
continue until the next Annual Meeting of Shareholders or until a successor
has been elected and qualified.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE PRINCIPAL OCCUPATION
---- --- -------- --------------------
<S> <C> <C> <C>
Pierre R. Lamond 66 1987 General Partner of Sequoia Capital and
Chairman of the Board of Directors of the Company
James A. Cole 54 1987 General Partner of Spectra Enterprise Associates and
a Partner of New Enterprise Associates
John C. Lewis 61 1990 Chairman of the Board of Directors of Amdahl Corporation
Thurman J. Rodgers 48 1987 President and Chief Executive Officer of Cypress
Semiconductor Corporation
Louis R. Tomasetta 47 1987 President, Chief Executive Officer and Director of the Company
</TABLE>
3
<PAGE>
PIERRE R. LAMOND has been the Chairman of the Board of Directors since the
Company's inception in February 1987. Since December 1981, he has been a
General Partner of Sequoia Capital, a venture capital firm. Sequoia has
financed companies such as Cypress Semiconductor Corporation, Cisco Systems,
Inc., and C-Cube Microsystems, Inc. Mr. Lamond was founder and Vice President
of National Semiconductor Corporation. He is also a Director of Cypress
Semiconductor Corporation and CKS Group.
JAMES A. COLE has served as a Director of the Company since February 1987.
Since October 1986, he has served as a General Partner of Spectra Enterprise
Associates and as a Partner of New Enterprise Associates. He was a founder and
Executive Vice President of Amplica, Inc., a GaAs microwave IC and sub-system
company. Mr. Cole also serves as a Director of Giga-Tronics, Inc. and
Spectrian Corporation.
JOHN C. LEWIS became a Director of the Company in January 1990. He is
currently Chairman of the Board of Directors and Chief Executive Officer of
Amdahl Corporation, a manufacturer of large general purpose computer storage
systems and software products where he has been since 1977. Before joining
Amdahl in 1977, he was President of Xerox Business Systems. Mr. Lewis also
serves as a Director of Cypress Semiconductor Corporation and Pinnacle
Systems.
THURMAN J. RODGERS has served as a Director of the Company since September
1987. He is the co-founder and since 1982 has been President and Chief
Executive Officer of Cypress Semiconductor Corporation. Prior to forming
Cypress Semiconductor, Dr. Rodgers managed the design, technical development,
and engineering for the static RAM business of AMD Corporation. He also serves
as a Director of C-Cube Microsystems, Inc.
LOUIS R. TOMASETTA, a co-founder of the Company, has been President, Chief
Executive Officer and a Director since the Company's inception in February
1987. From 1984 to 1987, Dr. Tomasetta served as President of the integrated
circuits division of Vitesse Electronics Corporation. Prior to that, Dr.
Tomasetta was the director of the Advanced Technology Implementation
department at Rockwell International Corporation. Dr. Tomasetta has over 20
years experience in the management and development of GaAs based businesses,
products, and technology. He received a B.S., M.S., and Ph.D. in electrical
engineering from the Massachusetts Institute of Technology.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of six (6) meetings
during the fiscal year ended September 30, 1996.
The Compensation Committee, which currently consists of James A. Cole,
Pierre R. Lamond and Thurman J. Rodgers, reviews and approves officers'
salaries and employee compensation programs. During fiscal year 1996, the
Compensation Committee met at the same times as the Board of Directors met as
a whole.
The Audit Committee, which currently consists of James A. Cole, Pierre R.
Lamond and John C. Lewis, met four (4) times during fiscal year 1996. The
purpose of the Audit Committee is to recommend engagement of the Company's
independent auditors and approve the services performed by such auditors. In
addition, the committee reviews and evaluates the Company's accounting
principles and its system of internal accounting controls.
The Board of Directors currently has no nominating committee or committee
performing a similar function.
Each director attended at least 75% of the aggregate of (i) the total number
of meetings of the Board of Directors held during fiscal year 1996 and (ii)
the total number of meetings held by all committees of the Board of Directors
during fiscal year 1996 on which such person served.
4
<PAGE>
COMPENSATION OF DIRECTORS
On September 14, 1995 the Board approved a cash compensation plan for non-
employee directors' attendance at Board meetings. Non-employee directors
receive $2,000 for meetings attended in person and $1,000 for participation in
Board meetings via telephone. They may also be reimbursed for certain expenses
in connection with attendance at Board and committee meetings.
Each of the directors has been granted options to purchase Common Stock
under the Company's 1987 and/or 1989 Stock Option Plans. Non-employee
directors also participate in the 1991 Director Stock Option Plan (the
"Directors' Plan") The Directors' Plan provides that each non-employee
director automatically will be granted a nonstatutory option to purchase
10,000 shares (except in the case of the Chairman of the Board who shall
receive an option to purchase 15,000 shares) of Common Stock upon first
becoming a director. In addition, under the Directors' Plan each director
serving on January 1, 1992 was automatically granted a nonstatutory option to
purchase 10,000 shares of Common Stock (except in the case of the Chairman of
the Board who received an option to purchase 15,000 shares) of Common Stock.
The options granted to the non-employee directors are for a ten-year term and
vest at the rate of two percent of the shares subject to the option at the end
of each month following the date of grant. The exercise price of the options
may not be less than 100% of the fair market value of the Common Stock as
determined by the closing price as quoted on the Nasdaq National Market on the
last business day prior to the date of grant of the option. Options granted
under the Directors' Plan may be exercised only while the optionee is serving
as a director on the Board, within six months after termination by death or
disability, or within three months after termination as a director. During
fiscal 1996, Mr. Lamond was granted an option to acquire 15,000 shares of
Common Stock at an exercise price of $11.25 under the Directors' Plan. During
fiscal 1996, Messrs. Cole, Lewis and Rodgers each were granted an option to
acquire 10,000 shares of common stock at an exercise price of $11.25 under the
Directors' Plan.
VOTE REQUIRED; RECOMMENDATION OF THE BOARD OF DIRECTORS
With respect to the election of directors, the five candidates receiving the
highest number of "for" votes shall be elected to the Company's Board of
Directors. An abstention will have the same effect as a vote withheld for the
election of directors, and, pursuant to Delaware law, a broker non-vote will
not be treated as voting in person or by proxy on the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES SET FORTH
HEREIN.
5
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF CASH AND OTHER COMPENSATION
The following table sets forth certain summary information regarding
compensation paid, with respect to the three most recent fiscal years, to the
Chief Executive Officer and the four most highly compensated executive
officers other than the Chief Executive Officer who were serving as executive
officers at the end of fiscal year 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
---------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($)(/3/) OPTIONS (#)
- --------------------------- ---- ---------- --------- --------------------- ------------
<S> <C> <C> <C> <C> <C>
Louis R. Tomasetta................. 1996 160,000 2,168(/1/) 36,923(/4/) 50,000
President & Chief Executive Officer 1995 161,385 -- -- 100,000
1994 151,346 -- -- 50,500
Eugene F. Hovanec.................. 1996 150,000 2,019(/1/) -- 30,000
Vice President, Finance & 1995 150,000 -- -- 40,000
Chief Financial Officer 1994 112,500 -- -- 100,500
Robert R. Nunn..................... 1996 140,000 1,897(/1/) -- 25,000
Vice President & General Mgr., 1995 141,212 -- -- 60,000
Telecommunications 1994 107,308 -- -- 25,500
Michael S. Millhollan.............. 1996 140,000 1,885(/1/) -- 25,000
Vice President & General Mgr., 1995 140,000 -- -- 60,000
Data Communications 1994 115,698 -- -- 25,500
Neil J. Rappaport.................. 1996 125,000 115,235(/2/) 9,985(/4/) 30,000
Vice President, Sales 1995 130,923 72,112(/2/) -- 40,000
1994 121,281 70,849(/2/) -- 30,500
</TABLE>
- --------
(1) Represents amounts paid under the Company's bonus plan.
(2) Represents bonuses paid to Mr. Rappaport pursuant to the Company's sales
commission plan.
(3) Excludes certain expenses which, for any executive officer, did not exceed
the lesser of $50,000 or 10% of the compensation reported in the above
table, and which, for all executive officers as a group, did not exceed
the lesser of $50,000 times the number of executive officers or 10% of all
executive officers' annual salaries and bonuses reported in the above
table.
(4) Represents payment of accrued vacation to Mr. Rappaport and Mr. Tomasetta.
6
<PAGE>
The following tables set forth, as to the executive officers, certain
information relating to options for the purchase of Common Stock granted and
exercised during fiscal year 1996 and held at the end of fiscal year 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
ASSUMED ANNUAL RATE OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
- ------------------------------------------------------------------- ---------------------------
% OF TOTAL
OPTIONS
GRANTED TO EXERCISE
EMPLOYEES OR BASE
OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED (#) YEAR ($/SH) DATE 5% ($) 10% ($)
---- ----------- ---------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Louis R. Tomasetta...... 50,000 4.36% 11.25 01/23/06 353,753 896,480
Eugene F. Hovanec....... 30,000 2.62% 11.25 01/23/06 212,252 537,888
Robert R. Nunn.......... 25,000 2.18% 11.25 01/23/06 176,877 448,240
Michael S. Millhollan... 25,000 2.18% 11.25 01/23/06 176,877 448,240
Neil J. Rappaport....... 30,000 2.62% 11.25 01/23/06 212,252 537,888
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT FY-END OPTIONS AT FY-END
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Louis R. Tomasetta...... 85,500 2,440,918 174,885 172,500 $6,006,847 $5,551,675
Eugene F. Hovanec....... 35,000 978,305 20,000 115,000 693,435 3,757,170
Robert R. Nunn.......... 31,288 758,780 50 93,750 1,725 3,035,130
Michael S. Millhollan... 44,608 1,385,874 19,678 90,000 675,606 2,903,880
Neil J. Rappaport....... 75,900 2,001,153 25,295 83,750 887,405 2,658,420
</TABLE>
CERTAIN TRANSACTIONS
In August 1994, the Company approved a loan of $100,000 to Mr. Michael
Millhollan, Vice President & General Manager, Data Communications. Mr.
Millhollan paid the loan in full in fiscal 1996. The loan bore interest equal
to the prime rate in effect at the end of the quarter (not to exceed 10%) and
was secured by a second deed of trust.
The Company believes that the transaction set forth above was made on terms
no less favorable to the Company than could have been obtained with
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors, principal shareholders and their
affiliates will be approved by a majority of the Board of Directors, including
a majority of the independent and disinterested outside directors on the Board
of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee was or is an officer or employee of
the Company. Pierre R. Lamond, Chairman of the Board of the Company, is
Chairman of the Board of Directors and a member of the Compensation Committee
of the Board of Directors of Cypress Semiconductor Corporation ("Cypress").
Neither the Company nor Cypress treats Chairman of the Board as an officer of
the corporation for compensation purposes. Mr. Lamond is a general partner of
a venture capital firm that invested in the Company prior to its initial
public offering in 1991.
7
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors reviews and approves
salaries, bonuses and other benefits payable to the Company's executive
officers and administers the Company's employee stock option plans. The
Compensation Committee is composed of three non-employee directors.
COMPENSATION GOALS
The goals of the Compensation Committee in establishing compensation for
executive officers are to align executive compensation with business
objectives and performance and to enable the Company to attract, retain and
reward executive officers who contribute to the long-term success of the
Company. The Company's compensation program for executive officers is based on
the same four principles applicable to compensation decisions for all
employees of the Company:
. The Company pays competitively. The Company is committed to providing a
compensation program, including competitive base salaries and, where
appropriate, relocation benefits, to attract and retain the best people
in the industry. To ensure that pay is competitive, the Company reviews
the compensation practices of other leading companies in the industry.
. The Company pays for relative sustained performance. Executive officers
are rewarded based upon corporate performance, departmental performance,
and individual performance. Corporate performance and departmental
performance are evaluated by reviewing the extent to which strategic and
business plan goals are met, including such factors as revenues,
operating profit, performance relative to goals, and timely new product
introductions. Individual performance is evaluated by measuring
organizational progress against set objectives.
. The Company strives for fairness in the administration of compensation.
The Company strives to achieve a balance with respect to compensation
paid to the executives within the Company and in comparable companies.
The Company believes that the contributions of each member of the
executive staff are vital to the success of the Company.
. The Company believes that employees should understand the performance
evaluation and compensation administration process. At the beginning of
the performance cycle, key quarterly and annual objectives are set for
each officer. The chief executive officer gives ongoing feedback on
performance to each officer. At the end of the performance cycle, the
Compensation Committee evaluates the accomplishments of the key
objectives in making its decisions on merit increases and stock option
grants.
COMPENSATION COMPONENTS
The Company's compensation program, which consists of cash- and equity-based
compensation, allows the Company to attract and retain highly skilled
officers, provide useful products and services to customers, enhance
shareholder value, motivate technological innovation, and reward executive
officers and other employees. The components are:
Cash-Based Compensation:
Salary. The Committee sets base salary for officers by reviewing the
compensation levels for competitive positions in the market.
Bonus. The Company's 1996 bonus plan provided for bonuses to be paid to
eligible executive officers as a percentage of their base salary and on the
basis of the achievement of certain corporate financial goals. The bonuses
actually earned by each individual for fiscal 1996 are to be paid in fiscal
1997.
8
<PAGE>
The Vice President of Sales is eligible for participation in the Company's
sales commission plan which covers substantially all of the Company's sales
personnel. Under this plan, participants receive commissions based on
achieving certain bookings and billings targets.
Equity-Based Compensation:
Stock options provide additional incentives to officers to work to maximize
shareholder value. The options vest over a defined period to encourage
officers to continue their employment with the Company. In line with its
compensation philosophy, the Company grants stock options to all employees,
commensurate with their potential contributions to the Company.
CEO COMPENSATION
Louis R. Tomasetta has been President and Chief Executive Officer of the
Company since its incorporation in 1987. In determining Mr. Tomasetta's
compensation, the Committee evaluates corporate performance, individual
performance, compensation paid to other executive officers of the Company, and
compensation paid to chief executive officers of comparable companies. Through
his equity ownership in the Company, consisting of 141,967 shares of Common
Stock and options to purchase 347,385 shares of Common Stock, Mr. Tomasetta
shares with the other shareholders of the Company a significant stake in the
success of the Companys business. For fiscal year 1996, Mr. Tomasetta's salary
was $160,000. His total compensation consists of base salary, bonus and
employee stock options.
COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS
Pierre R. Lamond
James A. Cole
Thurman J. Rodgers
9
<PAGE>
COMPANY STOCK PRICE PERFORMANCE
The stock price performance graph depicted below shall not be deemed
incorporated by reference by any general statement incorporating by reference
this proxy statement into any filing under the Securities Act of 1933 or under
the Securities Exchange Act of 1934. The stock price performance on the graph
is not necessarily an indicator of future price performance.
The graph shows a comparison of cumulative total return for the Company's
stock, the NASDAQ Stock Market-U.S. Index, and the NASDAQ Electronic Components
Index. The two NASDAQ indices were prepared for NASDAQ by the Center for
Research Studies in Securities Prices at the University of Chicago.
COMPARISON OF 57 MONTH CUMULATIVE TOTAL RETURN*
AMONG VITESSE SEMICONDUCTOR CORPORATION, THE NASDAQ STOCK MARKET-US
INDEX AND THE NASDAQ ELECTRONIC COMPONENTS INDEX
<TABLE>
<CAPTION>
VITESSE NASDAQ
MEASUREMENT PERIOD SEMICONDUCTOR NASDAQ STOCK ELECTRONIC
(FISCAL YEAR COVERED) CORP. MARKET-US COMPONENTS
- --------------------- ------------- ------------ ----------
<S> <C> <C> <C>
Measurement Pt- December 11, 1991 $100 $100 $100
FYE September 1992 $ 46 $110 $137
FYE September 1993 $ 41 $145 $264
FYE September 1994 $ 51 $146 $257
FYE September 1995 $139 $201 $513
FYE September 1996 $377 $239 $610
</TABLE>
* $100 invested on December 11, 1991 in stock or index, including reinvestment
of dividends. Fiscal year ended September 30.
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PROPOSAL TWO:
PROPOSAL TO AMEND THE RESTATED CERTIFICATE OF INCORPORATION
The Company's Certificate of Incorporation, as currently in effect (the
"Certificate"), provides that the Company is authorized to issue two classes
of stock consisting of 25,000,000 shares of Common Stock and 5,000,000 shares
of Preferred Stock. In October 1996, the Board of Directors authorized an
amendment to the Certificate to increase the authorized number of shares of
Common Stock to 50,000,000 shares (the "Amendment"). The shareholders are
being asked to approve the Amendment at the Annual Meeting.
As of the Record Date, 22,901,406 shares of Common Stock were issued and
outstanding and 2,008,892 shares were reserved for issuance upon the exercise
of outstanding options under the Company's stock option plans. In addition, an
aggregate of 1,282,255 shares of Common Stock, which were reserved for
issuance pursuant to outstanding options, were de-reserved in November 1996.
The shares were de-reserved to enable the Company to authorize and reserve a
sufficient number of shares of Common Stock to complete a public offering
which occurred in November 1996. In the event the shareholders approve this
Proposal Two to increase the Company's authorized shares of Common Stock, the
Company will re-reserve 1,282,255 shares of Common Stock for issuance upon
exercise of these options.
If the Amendment is approved, the Board of Directors will have the authority
to issue 27,098,594 (as of the Record Date) shares of Common Stock without
further shareholder approval. The Board of Directors of the Company believes
that the increase in the number of authorized shares of Common Stock is in the
best interests of the Company and its shareholders. The principal purpose of
the Amendment to increase the authorized number of shares of Common Stock, in
addition to enabling the Company to reserve the aforementioned 1,282,255
shares for the issuance of outstanding stock options, is to provide sufficient
shares for such corporate purposes as may be determined by the Board of
Directors to be necessary or desirable, which may include, without limitation,
facilitating broader ownership of the Company's Common Stock by effecting a
stock split or issuing a stock dividend, raising capital or acquiring
property, technologies or companies through merger or the sale of stock, or
attracting or retaining valuable employees by the issuance of stock options.
Under Delaware law, the Board of Directors generally may issue authorized
but unissued shares of Common Stock without shareholder approval. The Board of
Directors does not currently intend to seek shareholder approval prior to any
future issuance of additional shares of Common Stock, unless shareholder
action is required in a specific case by applicable law, the rules of any
exchange or market on which the Company's securities may then be listed, or
the certificate of incorporation or by-laws of the Company then in effect.
Frequently, opportunities arise that require prompt action, and the Company
believes that the delay necessitated for shareholder approval of a specific
issuance could be to the detriment of the Company and its shareholders.
The additional shares of Common Stock authorized pursuant to the Amendment
will have all the rights and privileges which the presently outstanding shares
of Common Stock possess. The increase in authorized shares would not
immediately affect the terms or rights of holders of existing shares of Common
Stock. All outstanding shares would continue to have one vote per share on all
matters to be voted on by the shareholders, including the election of
directors. However, to the extent that the additional authorized shares are
issued in the future, except in the case of a stock-split or stock dividend,
such issuances will decrease existing shareholders percentage equity ownership
and could have the effect of diluting the earnings per share and book value
per share of outstanding stock ownership. The holders of Common Stock have no
pre-emptive rights.
The authorized but unissued shares of Common Stock could be used to make a
change in control of the Company more difficult. For example, such shares
could be sold to purchasers who might side with the Board of Directors in
opposing a takeover bid that the Board determines not to be in the best
interests of the Company and its shareholders. Such a sale could have the
effect of discouraging an attempt by another person or entity,
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through the acquisition of a substantial number of shares of the Company's
Common Stock, to acquire control of the Company, since the issuance of new
shares could be used to dilute the stock ownership of such person or entity.
The Company is not aware, however, of any pending or threatened efforts to
obtain control of the Company.
VOTE REQUIRED; RECOMMENDATION OF THE BOARD OF DIRECTORS
Approval of the Amendment to increase the number of authorized shares of
Common Stock will require the affirmative vote of at least a majority of all
outstanding shares of the Company's Common Stock as of the Record Date.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS AMENDMENT.
PROPOSAL THREE:
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Upon the recommendation of the Audit Committee, the Board of Directors has
selected KPMG Peat Marwick LLP, independent auditors, to audit the financial
statements of the Company for the 1997 fiscal year. KPMG Peat Marwick LLP (or
its predecessor firm) has audited the Company's financial statements since the
Company's inception. A representative of KPMG Peat Marwick LLP is expected to
be present at the meeting, will have the opportunity to make a statement, and
is expected to be available to respond to appropriate questions.
VOTE REQUIRED; RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors has conditioned its appointment of the Company's
independent auditors upon the receipt of the affirmative vote of a majority of
the shares represented, in person or by proxy, and voting at the Annual
Meeting, which shares voting affirmatively also constitute at least a majority
of the required quorum. In the event that the shareholders do not approve the
selection of KPMG Peat Marwick LLP, the appointment of the independent
auditors will be reconsidered by the Board of Directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the enclosed proxy card to vote the shares they represent as
the Company may recommend.
THE BOARD OF DIRECTORS
Camarillo, California
December 10, 1995
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