<PAGE>
As filed with the Securities and Exchange Commission on October 22, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
____________________
VITESSE SEMICONDUCTOR CORPORATION
(Exact name of Registrant as specified in its charter)
____________________
Delaware 770138960
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
741 Calle Plano
Camarillo, California 93012
(805) 388-3700
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
____________________
Louis R. Tomasetta
President
Vitesse Semiconductor Corporation
741 Calle Plano
Camarillo, California 93012
(805) 388-3700
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
____________________
Copies to:
Gail C. Husick, Esq.
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304
(650) 493-9300
____________________
Approximate date of commencement of proposed sale to the public: From time
to time after the Effective Date of this Registration Statement.
[_] If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following
box.
[X] 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, other than securities offered only in connection with dividend or
interest reinvestment plans, 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, please 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, 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.
____________________
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Class Amount To Be Proposed Proposed Amount of
of Securities to Be Registered Maximum Offering Maximum Registration Fee
Registered Price Per Share(1) Aggregate Offering
Price(1)
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<S> <C> <C> <C> <C>
Common Stock 1,849,708 $36.8125 $68,092,375.75 $18,930.00
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</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee, pursuant to Rule 457(c) under the Securities Act, based
on the average of the high and low prices of the Common Stock on the Nasdaq
National Market on October 21, 1999.
<PAGE>
1,849,708 Shares
VITESSE SEMICONDUCTOR CORPORATION
Common Stock
____________
All of the shares of common stock offered by this Prospectus (the "Shares")
are being sold by the selling stockholders named under "Selling Stockholders"
(the "Selling Stockholders"). Vitesse Semiconductor Corporation will not
receive any of the proceeds from the sale of these shares.
Our shares are listed for trading on The Nasdaq Stock Market's National
Market under the symbol "VTSS". As of the close of business on October 20,
1999, the Company completed a two-for-one stock split of common stock effected
in the form of a stock dividend to stockholders of record as of September 30,
1999. Except as otherwise noted, all information in this Prospectus has been
adjusted to reflect the stock split. On October 21, 1999, the last reported
sales price of our common stock on the Nasdaq National Market was $39.125.
Investing in our common stock involves risks. See "Risk Factors" starting
on page 3.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
We originally issued all of the Shares in connection with our acquisition
of XaQti Corporation, a California corporation ("XaQti"). We are registering
the Shares pursuant to an agreement between us and the former stockholders of
XaQti.
The date of this Prospectus is October _____, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
The Company..................................................... 3
Risk Factors.................................................... 3
Use of Proceeds................................................. 8
Selected Consolidated Supplemental Financial Data............... 9
Management's Discussion and Analysis of
Supplemental Financial Condition and
Results of Operations...................................... 11
Plan of Distribution............................................ 26
Legal Matters................................................... 27
Experts......................................................... 27
Where You Can Find More Information............................. 28
Index to Supplemental Consolidated Financial Statements......... F-1
</TABLE>
___________________
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THE COMPANY
Vitesse is a leader in the design, development, manufacturing and marketing
of digital gallium arsenide integrated circuits which are high-performance
integrated circuits. Integrated circuits are components necessary to all
electronic systems. Our principal executive officers are located at 741 Calle
Plano, Camarillo, CA 93012 and our telephone number is (805) 388-3700.
References to Vitesse, the Company, "we", "us" and "our" in this Prospectus
refer to Vitesse Semiconductor Corporation and its subsidiaries unless the
context requires otherwise. All of the information in this Prospectus has been
adjusted to give effect to the two-for-one split of the Company's Common Stock,
which will be completed on October 20, 1999.
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. Our business, financial condition or results of
operations could be materially adversely affected by any of the following risks.
This Prospectus also contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of different
factors, including the risks faced by us described below and elsewhere in this
prospectus.
We Are Dependent on a Small Number of Customers in a Few Industries
We intend to continue focusing our sales effort on a small number of customers
in the communications and test equipment markets that require high-performance
integrated circuits. Some of these customers are also our competitors. In the
first nine month of fiscal 1999, our two largest customers accounted for 18% and
14% of our total revenues and no other customers accounted for more than 10% of
our total revenues. If any of our major customers delays orders of our products
or stops buying our products, our business and financial condition would be
severely affected.
Our Operating Results May Fluctuate
Our quarterly revenues and expenses may fluctuate in the future. These
variations may be due to a number of factors, many of which are outside our
control. Factors that could affect our future operating results include the
following:
. The loss of major customers
. Variations, delays or cancellations of orders and shipments of our products
. Reduction in the selling prices of our products
. Significant changes in the type and mix of products being sold
. Delays in introducing new products
. Design changes made by our customers
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. Our failure to manufacture and ship products on time
. Changes in manufacturing capacity, the utilization of this capacity and
manufacturing yields
. Variations in product and process development costs; and
. Changes in inventory levels
In the past, we have recorded significant new product and process development
costs because our policy is to expense these costs at the time that they are
incurred. We may incur these types of expenses in the future. The occurrence
of any of the above factors could have a material adverse effect on our business
and on our financial results.
We Have Limited Manufacturing Capacity and We Depend on a New Production
Facility
During 1998, we started producing high-performance integrated circuits at our
new six-inch wafer fabrication factory in Colorado Springs, Colorado. This
facility includes a 10,000 square-foot Class I clean room with capacity for
future expansion to 15,000 square feet. We are faced with several risks in the
successful operation of this facility as well as in our overall production
operations. We have only produced finished four-inch wafers in the past and we
have limited experience with the equipment and processes involved in producing
finished six-inch wafers. We do not have excess production capacity at our
Camarillo plant to offset failure of the new Colorado facility to meet
production goals. Consequently, our failure to successfully operate the new
facility could severely damage financial results.
We also must now effectively coordinate and manage two facilities. We have
limited experience in managing production facilities located at two different
sites, and our failure to successfully do so could have a material adverse
effect on our business and operating results.
There Are Risks Associated With Recent and Future Acquisitions
In fiscal 1999, we made three strategic acquisitions. These acquisitions may
result in the diversion of management's attention from the day-to-day operations
of the Company's business. Risks of making these acquisitions include
difficulties in the integration of acquired operations, products and personnel.
If we fail in our efforts to integrate recent and future acquisitions, our
business and operating results could be materially adversely affected. In
addition, acquisitions we have made or will make could result in dilutive
issuances of equity securities, substantial debt, and amortization expenses
related to goodwill and other intangible assets. We do not have any binding
obligations with respect to any particular acquisition; however our management
frequently evaluates strategic opportunities available. In the future we may
pursue additional acquisitions of complementary products, technologies or
businesses.
Our Industry is Highly Competitive
The high-performance semiconductor market is extremely competitive and is
characterized by rapid technological change, price-erosion and increased
international competition. The communications and test equipment industries,
which are our primary target markets, are also becoming intensely competitive
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<PAGE>
because of deregulation and international competition. We compete directly or
indirectly with the following categories of companies:
. Gallium Arsenide fabrication operations of systems companies such as Conexant
and Fujitsu
. Silicon high-performance integrated circuit manufacturers who use Emitter
Coupled Logic ("ECL") or Bipolar Complementary Metal-Oxide-Semiconductor
(BiCMOS) technologies such as Hewlett Packard, Fujitsu, Motorola, National
Semiconductor, Texas Instruments and Applied Micro Circuits Corporation
Additionally, in lower frequency applications we face increased competition with
Complementary Metal-Oxide-Semiconductor ("CMOS")-based products, particularly as
the performance of these products continues to improve. Our current and
prospective competitors include many large companies that have substantially
greater marketing, financial, technical and manufacturing resources than we
have.
Competition in the markets that we serve is primarily based on
price/performance, product quality and the ability to deliver products in a
timely fashion. Some prospective customers may be reluctant to adopt our
products because of perceived risks relating to H-GaAs ("High-integration
Gallium Arsenide") technology. Additionally, product qualification is typically
a lengthy process and some prospective customers may be unwilling to invest the
time or expense necessary to qualify suppliers such as Vitesse. Prospective
customers may also have concerns about the relative advantages of our products
compared to more familiar silicon-based semiconductors. Further, customers may
also be concerned about relying on a relatively small company for a critical
sole-sourced component. To the extent we fail to overcome these challenges,
there could be material and adverse effects on our business and financial
results.
We Must Keep Pace With Product and Process Development and Technological Change
The market for our products is characterized by rapid changes in both product
and process technologies. We believe that our success to a large extent depends
on our ability to continue to improve our product and process technologies and
to develop new products and technologies in order to maintain our competitive
position. Further, we must adapt our products and processes to technological
changes and adopt emerging industry standards. Our failure to accomplish any of
the above could have a negative impact on our business and financial results.
We Are Dependent on Key Suppliers
We manufacture our products using a variety of components procured from third-
party suppliers. Most of our high-performance integrated circuits are packaged
by third parties. Other components and materials used in our manufacturing
process are available from only a limited number of sources. Any difficulty in
obtaining sole- or limited-sourced parts or services from third parties could
affect our ability to meet scheduled product deliveries to customers. This in
turn could have a material adverse effect on our customer relationships,
business and financial results.
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<PAGE>
Our Manufacturing Yields Are Subject to Fluctuation
Semiconductor fabrication is a highly complex and precise process. Defects in
masks, impurities in the materials used, contamination of the manufacturing
environment and equipment failures can cause a large percentage of wafers or die
to be rejected. Manufacturing yields vary among products, depending on a
particular high-performance integrated circuit's complexity and on our
experience in manufacturing it. In the past, we have experienced difficulties
in achieving acceptable yields on some high-performance integrated circuits,
which has led to shipment delays. Our overall yields are lower than yields
obtained in a mature silicon process because we manufacture a large number of
different products in limited volume and because our process technology is less
developed. We anticipate that many of our current and future products may never
be produced in volume.
Since a majority of our manufacturing costs are relatively fixed, maintaining
the number of shippable die per wafer is critical to our operating results.
Yield decreases can result in higher unit costs and may lead to reduced gross
profit and net income. We use estimated yields for valuing work-in-process
inventory. If actual yields are materially different than these estimates, we
may need to revalue work-in-process inventory. Consequently, if any of our
current or future products experience yield problems, our financial results may
be adversely affected.
Our Business is Subject to Environmental Regulations
We are subject to various governmental regulations related to toxic, volatile
and other hazardous chemicals used in our manufacturing process. Our failure to
comply with these regulations could result in the imposition of fines or in the
suspension or cessation of our operations. Additionally, we may be restricted
in our ability to expand operations at our present locations or we may be
required to incur significant expenses to comply with these regulations.
Our Failure to Manage Growth May Adversely Affect Us
The management of our growth requires qualified personnel, systems and other
resources. In particular, the continued operation of the new facility in
Colorado Springs and its integration with the Camarillo facility will require
significant management, technical and administrative resources. Additionally,
we have recently established several product design centers worldwide. Finally,
we acquired Vermont Scientific Technologies, Inc. ("VTEK") in November 1998,
Serano Systems Corporation ("Serano") in January 1999 and XaQti Corporation
("XaQti") in July 1999, and we have only limited experience in integrating the
operations of acquired businesses. Failure to manage our growth or to
successfully integrate new and future facilities or newly acquired businesses
could have a material adverse effect on our business and financial results.
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<PAGE>
We Are Dependent on Key Personnel
Due to the specialized nature of our business, our success depends in part upon
attracting and retaining the services of qualified managerial and technical
personnel. The competition for qualified personnel is intense. The loss of any
our key employees or the failure to hire additional skilled technical personnel
could have a material adverse effect on our business and financial results.
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<PAGE>
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Shares. All proceeds from the sale of the Shares will be for the account of the
Selling Stockholders, as described below. See "Selling Stockholders" and "Plan
of Distribution" described below.
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SELECTED CONSOLIDATED SUPPLEMENTAL FINANCIAL DATA
The following tables sets forth selected supplemental consolidated
financial data for Vitesse Semiconductor Corporation and its subsidiaries
("Vitesse") for each of the years in the five year period ended September 30,
1998, and for the nine months ended June 30, 1998 and 1999, giving retroactive
effect to the acquisitions of Serano Systems Corporation ("Serano") and XaQti
Corporation ("XaQti"). As more fully described in Note 2 of the Supplemental
Consolidated Financial Statements, the Company's acquisitions of Serano on
January 21, 1999 and XaQti on July 16, 1999 were accounted for under the
pooling-of-interests method, and accordingly, the supplemental consolidated
financial statements for all periods presented have been restated to include the
accounts and results of operations of Serano and XaQti. Generally accepted
accounting principles proscribe giving effect to a consummated business
combination accounted for by the pooling-of-interests method in financial
statements that do not include the date of consummation. Portions of these
financial statements do not extend through the dates of consummation. However,
they will become the historical consolidated financial statements of Vitesse
after financial statements covering the dates of consummation of the business
combinations are issued. The information in the following tables should be read
in conjunction with "Management's Discussion and Analysis of Supplemental
Financial Condition and Results of Operations" and with the Supplemental
Consolidated Financial Statements and Notes thereto included herein.
Consolidated Statements of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, June 30,
---------------------------------------------------------- ----------------------
1998 1997 1996 1995 1994 1999 1998
-------- -------- -------- -------- ------- -------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $176,885 $105,413 $ 66,046 $ 42,882 $35,581 $200,907 $ 122,295
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Cost of revenues: 70,041 45,513 31,792 22,505 22,226 75,215 48,799
Engineering, research & development 33,012 19,108 11,149 8,689 8,794 36,160 23,102
Selling, general & administrative 23,638 15,659 9,993 8,900 7,794 26,056 16,497
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Total costs and expenses 126,691 80,280 52,934 40,094 38,814 137,431 88,398
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Income (loss) from operations 50,194 25,133 13,112 2,788 (3,233) 63,476 33,897
Other income (loss), net 9,385 8,036 613 (1,202) (891) 8,106 7,050
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Income (loss) before income taxes 59,579 33,169 13,725 1,586 (4,124) 71,582 40,948
Income taxes 9,079 3,652 1,405 79 17 23,348 6,237
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Net income (loss) $ 50,500 $ 29,517 $ 12,320 $ 1,507 $(4,141) $ 48,234 $ 34,710
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Net income (loss) per share:
Basic $ 0.34 $ 0.22 $ 0.12 $ 0.02 $ (0.05) $ 0.32 $ 0.24
Diluted $ 0.31 $ 0.19 $ 0.10 $ 0.01 $ (0.05) $ 0.29 $ 0.22
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Shares used in per share computations:
Basic 147,446 138,256 104,562 96,692 88,638 152,178 146,482
Diluted 160,500 152,888 119,486 103,842 88,638 165,242 159,110
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</TABLE>
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Selected Balance Sheet Data
(in thousands)
<TABLE>
<CAPTION>
As of
As of September 30, June 30,
----------------------------------------------------------- ----------------------
1998 1997 1996 1995 1994 1999 1998
-------- -------- -------- ------- ------- -------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and short-term investments $168,573 $158,461 $ 53,035 $ 6,315 $ 5,171 $201,324 $157,917
Working capital 225,025 179,564 70,606 17,889 14,644 300,031 203,221
Total assets 381,008 295,994 101,071 42,111 39,496 486,657 354,224
Long-term debt, less current portion 701 322 1,166 5,518 6,029 3,705 401
Net shareholders' equity 351,289 267,807 88,053 25,000 21,517 454,382 325,424
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</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
SUPPLEMENTAL FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Supplemental
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus. As more fully described in Note 2 of the Supplemental Consolidated
Financial Statements, the Company's acquisitions of Serano on January 21, 1999
and XaQti on July 16, 1999 were accounted for under the pooling-of-interests
method, and accordingly, the supplemental consolidated financial statements for
all periods presented have been restated to include the accounts and results of
operations of Serano and XaQti. Generally accepted accounting principles
proscribe giving effect to a consummated business combination accounted for by
the pooling-of-interests method in financial statements that do not include the
date of consummation. Portions of these financial statements do not extend
through the dates of consummation. However, they will become the historical
consolidated financial statements of Vitesse after financial statements covering
the dates of consummation of the business combinations are issued. The
information set forth in "Management's Discussion and Analysis of Supplemental
Financial Condition and Results of Operations" below includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 as
amended and Section 21E of the Exchange Act that involve risks and
uncertainties, including statements regarding revenues, tax loss carryforwards,
engineering, research and development expenses, effective tax rates, liquidity
and capital resources and year 2000 readiness. Factors that could cause results
to differ materially from those projected in the forward-looking statements are
set forth in "Risk Factors."
Overview
The Company is a leader in the design, development, manufacturing and
marketing of digital GaAs ICs. The Company's target customers are systems
manufacturers in the telecommunications, data communications and automatic test
equipment (ATE) markets. As a result of the deployment of communications
standards such as SONET/SDH, ATM, Fibre Channel and Gigabit Ethernet as well as
other advances, there has been growing demand for high-performance ICs to meet
the increasingly rigorous standards of the telecommunications and data
communications industries. The requirements for high-performance ICs in the ATE
industry have also become more stringent in order to meet testing requirements
of increasingly faster and more complex ICs. In fiscal 1998, sales of
telecommunications, data communications and ATE products represented 51%, 23%
and 26%, respectively, of the Company's total revenues.
The Company generates both production revenues and development revenues.
Production revenues are generally recognized upon shipment of the product, and
costs associated with production are included in cost of revenues. Development
revenues are much less significant and are generally recognized upon attainment
of milestones established under customer contracts, such as the release or
shipment of the Company's cell library or design tools, the release by the
customer of a design net list or design tape and the Company's shipment of
prototype ICs. The majority of costs associated with development revenues,
including prototype fabrication costs, are included in cost of revenues, and the
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remaining portion is expensed as engineering, research and development expenses.
The Company believes such revenues will continue to decline as a percentage of
total revenues in the foreseeable future.
The Company has focused its sales efforts on a relatively small number of
systems manufacturers who require high-performance ICs. Sales to the Company's
10 largest customers represented approximately 69%, 77% and 75% of total
revenues in fiscal 1998, 1997 and 1996, respectively.
As of September 30, 1998, the Company had $32.3 million and $19.8 million
of federal and state net operating loss carryforwards, respectively, which will
be recoverable only if future taxable income is sufficient to utilize such tax
loss carryforwards. Based on historical results of operations, estimated future
taxable income and other factors, management believes that it is more likely
than not that the tax benefits associated with such loss carryforwards will be
realized, and therefore the Company has eliminated the valuation allowance for
all deductible differences. In 1997 and 1998, recognition of the Company's net
operating loss carryforward benefits resulted in relatively low effective income
tax rates for the Company. This reduction of the available future benefit
related to these net operating loss carryforwards will result in the Company
experiencing higher effective income tax rates in fiscal 1999 and thereafter.
See Note 8 of Notes to Supplemental Consolidated Financial Statements.
Results of Operations
The following table sets forth statements of operations data of the Company
expressed as a percentage of total revenues for the fiscal years indicated:
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended September 30, June 30,
------------------------- -----------------
1998 1997 1996 1999 1998
------ ------ ------ ------ ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0% 100.0%
- -------------------------------------------------------------------------------------------------------------------------
Cost of revenues: 39.6 43.2 48.1 37.4 40.0
Engineering, research & development 18.7 18.1 16.9 18.0 18.9
Selling, general & administrative 13.3 14.9 15.1 13.0 13.5
----------------------------------------------------------------------------------------------------------------------
Total costs and expenses 71.6 76.2 80.1 68.4 72.3
---------------------------------------------------------------------------------------------------------------
Income from operations 28.4 23.8 19.9 31.6 27.7
Other income, net 5.3 7.6 0.9 4.0 5.8
- -------------------------------------------------------------------------------------------------------------------------
Income before income taxes 33.7 31.4 20.8 35.6 33.5
Income taxes 5.1 3.4 2.1 11.6 5.1
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Net income 28.6% 28.0% 18.7% 24.0% 28.4%
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</TABLE>
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Nine Months Ended June 30, 1999, as Compared to the Nine Months Ended June
30, 1998
Revenues
Total revenues for the nine months ended June 30, 1999 were $200.9 million,
a 64% increase over the $122.3 million recorded in the nine months ended June
30, 1998. The increase in total revenues for the nine months ended June 30, 1999
was primarily due to an increase in the number of units shipped to customers in
the communications and ATE markets.
Cost of Revenues
Cost of revenues as a percentage of total revenues in the nine months ended
June 30, 1999 was 37.4% compared to 40.0% in the nine months ended June 30,
1998. The decrease in cost of revenues as a percentage of total revenues
resulted primarily from a reduction in per unit costs associated with increased
utilization of the Company's Camarillo and Colorado Springs wafer fabrication
facilities, as well as improved yields at both facilities.
The Company's manufacturing yields vary significantly among products,
depending on a particular IC's complexity and the Company's experience in
manufacturing it. Historically, the Company has experienced difficulties
achieving acceptable yields on some ICs, which has resulted in shipment delays.
The Company's overall yields are lower than yields experienced in a silicon
process because of the large number of different products manufactured in
limited volume and because the Company's H-GaAs process technology is
significantly less developed. The Company expects that many of its current and
future products may never be produced in volume.
Regardless of the process technology used, the fabrication of
semiconductors is a highly complex and precise process. Defects in masks,
impurities in the materials used, contamination of the manufacturing
environment, equipment failure and other difficulties in the fabrication process
can cause a substantial percentage of wafers to be rejected or numerous die on
each wafer to be nonfunctional.
Because the majority of the Company's costs of manufacturing are relatively
fixed, maintenance of the number of shippable die per wafer is critical to the
Company's results of operations. Yield decreases can result in substantially
higher unit costs and may result in reduced gross profit and net income. There
can be no assurance that the Company will not suffer periodic yield problems in
connection with new or existing products which could cause the Company's
business, operating results and financial condition to be materially adversely
affected.
Inventory is valued at the lower of cost or market. Because allocable
manufacturing costs can be high, new product inventory is often valued at
market. In addition, a portion of work-in-process inventory consists of wafers
in various stages of fabrication. Consequently, the Company estimates yields per
wafer in order to estimate the value of inventory. If yields are materially
different than projected, work-in-process inventory may need to be revalued.
There can be no assurance that such adjustments will not occur in the future and
have a material adverse effect on the Company's results of operations.
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Engineering, Research and Development Costs
Engineering, research and development expenses for the nine months ended
June 30, 1999 were $36.2 million compared to $23.1 million in the nine months
ended June 30, 1998. The increase was principally due to increased headcount and
higher costs to support the Company's continuing efforts to develop new
products. The Company intends to continue to increase the dollar amount of
engineering, research and development expenses in the future. As a percentage of
total revenues, engineering, research and development costs were 18.0% in the
nine months ended June 30, 1999 compared to 18.9% in the nine months ended June
30, 1998. The Company's engineering, research and development costs are expensed
as incurred.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (SG&A) for the nine months
ended June 30, 1999 increased to $26.1 million compared to $16.5 million in the
same period in 1998. The increase in SG&A expenses was due to increased
headcount, higher commissions earned by sales representatives resulting from
increased sales, and increased advertising costs. As a percentage of total
revenues, SG&A expenses for the nine-month periods ended June 30, 1999 and June
30, 1998, decreased to 13.0% from 13.5%, respectively.
Other Income, Net
Other income consists of interest income, net of interest and other
expenses. Other income for the nine months ended June 30, 1999, increased to
$8.1 million from $7.1 million in the comparable period a year ago. The
increase is due to higher average cash, short-term investments and long-term
deposit balances.
Income Taxes
The Company recorded a provision for income taxes in the amount of $23.3
million in the nine months ended June 30, 1999 and $6.2 million in the nine
months ended June 30, 1998, representing an effective rate of 33% and 15%
respectively. The increase in the effective tax rate is due to the full
utilization in previous years of available net operating loss carryforwards.
The Company expects the effective tax rate to be 33% for the full fiscal year
1999.
Year Ended September 30, 1998, as Compared to Year Ended September 30, 1997
Revenues
Revenues in fiscal 1998 were $176.9 million, a 68% increase over the $105.4
million recorded in fiscal 1997. The increase in total revenues was due to an
increase in production revenues as a result of the growth in shipments to
customers in the communications and ATE markets.
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<PAGE>
Cost of Revenues
Cost of revenues as a percentage of total revenues in fiscal 1998 was 39.6%
compared to 43.2% in fiscal 1997. The decrease in cost of revenues as a
percentage of total revenues resulted primarily from a reduction in per unit
costs associated with increased utilization of the Camarillo wafer fabrication
facility, as well as improved manufacturing yields, partially offset by an
increase in per unit costs associated with the Colorado facility which did not
start volume production until the third quarter of fiscal 1998.
Engineering, Research and Development
Engineering, research and development expenses were $33.0 million in fiscal
1998 compared to $19.1 million in fiscal 1997. The increase was principally due
to increased headcount and higher costs to support the Company's continuing
efforts to develop new products. The Company's engineering, research and
development costs are expensed as incurred. As a percentage of total revenues,
engineering, research and development expenses were 18.7% and 18.1% in fiscal
1998 and 1997, respectively.
Selling, General and Administrative
Selling, general and administrative expenses were $23.6 million in fiscal
1998 compared to $15.7 million in fiscal 1997. The increase was principally due
to increased headcount, higher commissions earned by sales representatives
resulting from increased sales, and increased advertising costs. As a
percentage of total revenues, selling, general and administrative expenses
declined to 13.3% in fiscal 1998 from 14.9% in fiscal 1997 primarily as a result
of the Company's revenues growing faster than these expenses.
Other Income, Net
Other income consists of interest income, net of interest and other
expenses. Other income increased to $9.4 million in fiscal 1998 from $8.0
million in fiscal 1997 due to a higher average cash, short-term investments and
long-term deposit balances in fiscal 1998 as compared to fiscal 1997 resulting
primarily from the Company's equity offering in November 1996.
Income Taxes
The Company recorded a provision for income taxes in the amount of $9.1
million in fiscal 1998 and $3.7 million in fiscal 1997, representing an
effective tax rate of 15% and 11%, respectively.
Net Operating Loss Carryforwards
As of September 30, 1998, the Company had federal net operating loss
carryforwards of approximately $32.3 million, state net operating loss
carryforwards of approximately $19.8 million and federal and state research and
development tax credits of approximately $3.6 million and $1.5 million,
-15-
<PAGE>
respectively. The Company accounts for income taxes pursuant to the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS No. 109).
Year Ended September 30, 1997, as Compared to Year Ended September 30, 1996
Revenues
Revenues in fiscal 1997 were $105.4 million, a 60% increase over the $66.0
million recorded in fiscal 1996. The increase in revenues was due to an increase
in production revenues as a result of the growth of shipments to customers in
the data communications, telecommunications and ATE markets.
Cost of Revenues
Cost of revenues as a percentage of total revenues in fiscal 1997 was 43.2%
compared to 48.1% in fiscal 1996. The decrease in cost of revenues as a
percentage of total revenues resulted from a reduction in per unit costs
associated with increased production as well as increased manufacturing yields
at the Camarillo manufacturing facility.
Engineering, Research and Development
Engineering, research and development expenses were $19.1 million in fiscal
1997 compared to $11.1 million in fiscal 1996. The increase was principally due
to increased headcount and higher costs to support the Company's continuing
efforts to develop new products. As a percentage of total revenues,
engineering, research and development expenses increased to 18.1% in fiscal 1997
from 16.9% in fiscal 1996 due to the Company investing more money in its
research and development efforts, and due to the consolidation of XaQti and
Serano which began incurring significant research and development expenses in
1997.
Selling, General and Administrative
Selling, general and administrative expenses were $15.7 million in fiscal
1997 compared to $10.0 million in fiscal 1996. This increase was principally
due to increased headcount, salary increases, higher commissions resulting from
increased sales and increased advertising costs. As a percentage of total
revenues, selling, general and administrative expenses declined to 14.9% in
fiscal 1997 from 15.1% in fiscal 1996 primarily as a result of the Company's
revenues growing faster than these expenses.
Other Income, Net
Other income consists of interest income, net of interest and other
expenses. Other income increased to $8.0 million in fiscal 1997 from $0.6
million in fiscal 1996 due to a higher average cash balance in fiscal 1997 as
compared to fiscal 1996 resulting primarily from the Company's equity offerings
in March 1996 and November 1996.
-16-
<PAGE>
Income Taxes
The Company recorded a provision for income taxes in the amount of $3.7
million in fiscal 1997 and $1.4 million in fiscal 1996.
Liquidity and Capital Resources
Operating Activities
The Company generated $59.2 million and $29.8 million from operating
activities in the nine month periods ended June 30, 1999 and 1998, respectively.
The Company generated $45.0 million, $52.1 million and $16.6 million from
operating activities in fiscal 1998, 1997 and 1996, respectively. The increase
in cash flow from operations was principally due to an improvement in
profitability.
Investing Activities
Capital expenditures, principally for manufacturing and test equipment,
were $33.8 million in the nine month period ended June 30, 1999 compared to
$24.0 million in the nine month period ended June 30, 1998. Additionally, the
Company paid $13.0 million in cash for the purchase of VTEK during the first
quarter of fiscal 1999. Capital expenditures, primarily for manufacturing and
test equipment, were $30.9 million, $31.7 million and $11.0 million in fiscal
1998, 1997 and 1996, respectively. The Company intends to continue investing in
manufacturing, test and engineering equipment.
As a result of increased demand for its products, the Company has been
increasing capacity at its Camarillo plant. Additionally, during fiscal 1998
and 1997 the Company purchased manufacturing equipment in order to begin volume
production of six-inch wafers at its wafer fabrication facility in Colorado
Springs. Consequently, the Company incurred a significant increase in capital
expenditures in fiscal 1998 and 1997. The majority of the costs associated with
the Colorado Springs facility was financed through three operating lease
transactions. See Note 12 of Notes to Supplemental Consolidated Financial
Statements. The Company intends to continue investing in new manufacturing,
test and engineering equipment.
Financing Activities
In the nine month period ended June 30, 1999, the Company generated $18.2
million of cash from financing activities primarily from the proceeds from
issuance of common stock pursuant to the Company's stock option and stock
purchase plans. In fiscal 1998, the Company generated $19.1 million of cash
from financing activities consisting of $18.8 million of proceeds from the
issuance of common stock pursuant to the Company's stock option and stock
purchase plans and $0.8 million in proceeds from long-term debt, partially
offset by $0.4 million in repayments of debt obligations. In fiscal 1997, the
Company generated $130.6 million of cash from financing activities consisting of
$131.8 million of proceeds from the issuance and sale of common stock in the
Company's public offering in November 1996 and proceeds from the issuance of
common stock pursuant to the Company's stock option and
-17-
<PAGE>
stock purchase plans and $0.5 million in proceeds from long-term debt, partially
offset by $1.7 million in repayments of debt obligations.
The Company has an agreement with a bank for a revolving line of credit
which expires on January 15, 2000. The maximum amount available under the
revolving line of credit is $12.5 million. The interest rate on borrowings
under this revolving line of credit is equal to the bank's prime rate. See Note
6 of Notes to Supplemental Consolidated Financial Statements.
XaQti had a $1 million revolving line of credit bearing interest at prime
plus 0.5% which expired on June 22, 1999. See Note 6 of Notes to Supplemental
Consolidated Financial Statements.
Management believes that the Company's cash and cash equivalents,
short-term investments, cash flow from operations and revolving line of credit
agreements are adequate to finance its planned growth and operating needs for
the next 12 months.
In 1998, the Company entered into an operating lease transaction providing
for the financing of $10 million for the acquisition of certain test equipment.
Payments under this lease began in fiscal 1998. If at the end of the lease term
the Company does not purchase the property, the Company would guarantee a
residual value to the lessor equal to a specified percentage of the lessor's
cost of the facility and equipment. See Note 12 of Notes to Supplemental
Consolidated Financial Statements.
Impact of Recent Accounting Pronouncements
In June 1998, Statement of Financial Accounting Standards No. 135,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 135") was
issued, which will require recognition of all derivatives as either assets or
liabilities on the balance sheet at fair value. The Company will adopt SFAS
135, as amended by SFAS No. 137, in the first fiscal quarter of its fiscal year
ending September 30, 2001. Management has not competed an evaluation of the
effects this standard will have on the Company's consolidated financial
statements.
Year 2000 Readiness Disclosure
The "Year 2000 Problem" is the result of computer programs being written
using two digits rather than four to define the applicable year. Computer
programs that contain date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This can affect both information
technology (IT) and non-IT systems such as manufacturing equipment, as the
latter may contain date-sensitive embedded devices such as microcontrollers.
We have formed an internal task force to evaluate Year 2000 issues
associated with both our IT and non-IT systems. Many of these systems are
already compliant. We intend to replace or upgrade other systems that have been
identified as non-compliant. We have completely evaluated all the manufacturing
equipment for Year 2000 compliance, and expect to substantially complete our
-18-
<PAGE>
remediation and testing procedures by October 1999. None of our products are
date-sensitive and will operate according to specifications through the Year
2000 and thereafter.
To date, we have not incurred incremental material costs associated with
our efforts to become Year 2000 compliant, as the majority of the costs have
occurred as a result of normal upgrade procedures. Furthermore, we believe that
future costs associated with these compliance efforts will not be material.
We may also be affected by Year 2000 compliance by our suppliers and
customers. We have contacted several critical and significant suppliers to
determine whether the products and services they provide are Year 2000 compliant
or to monitor their progress towards being fully compliant. Our business and
results of operations could experience material adverse effects if our key
suppliers were to experience Year 2000 issue that caused them to delay shipment
of critical components to us.
Based on our efforts to date, we do not believe that the Year 2000 Problem
will have a material impact on our business or financial results. The most
reasonably likely worst case would be minor delays in production and shipments.
We have developed a contingency plan detailing actions that will be taken in the
event that our compliance efforts fail to fully remediate any risk to our
operations. The information in this risk factor is "Year 2000 Readiness
Disclosure" within the meaning of the Year 2000 Information and Readiness
Disclosure Act.
-19-
<PAGE>
SELLING STOCKHOLDERS
The Selling Stockholders acquired the Shares in connection with the
Company's acquisition of XaQti on July 16, 1999. The following is a list of
officers of XaQti prior to the acquisition who are Selling Stockholders:
<TABLE>
<CAPTION>
<S> <C>
Henry H. Wong - President, Chief Executive Officer and
David C. Newkirk - Vice President Finance, Chief Executive Officer and Assistant Secretary
Namakkal S. Vice President, Marketing and Business Development
Sambamurthy - and Director
Alak K. Deb - Vice President, Chief Technical Officer and Director
C. Michael Powell - Chief Operating Officer
</TABLE>
-20-
<PAGE>
The following table sets forth, as of the date of this Prospectus, the name
of each of the Selling Stockholders, the number of Shares that each such Selling
Stockholder owns as of such date, the number of Shares owned by each Selling
Stockholder that may be offered for sale from time to time by this Prospectus,
and the number of Shares to be held by each such Selling Stockholder assuming
the sale of all of the Shares offered hereby. Except as indicated, none of the
Selling Stockholders has held any position or office or had a material
relationship with the Company or any of its affiliates within the past three
years other than as a result of the ownership of the Company's Common Stock.
The Company may amend or supplement this Prospectus from time to time to update
the disclosure set forth herein.
<TABLE>
<CAPTION>
Shares
Beneficially
Owned Prior to Shares Shares Owned
Offering Percent Being Offered After Offering Percent
Name (1)(3) (1) (2)(3) (2) (2)
- --------------------------------- -------------- ---------- ------------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
Aventuras Partners (5) 972 * 972 0 *
The Batra Family Trust
Dated 11/7/91 (5) 7,376 * 7,376 0 *
Naresh Batra (5) 60,950 * 60,950 0 *
Bayview Investors, Ltd. (5) 13,296 * 13,296 0 *
David A. and Susan M.
Boudreau (5) 2,268 * 2,268 0 *
Hai-Hua Cheng (5) 2,184 * 2,184 0 *
Shabbir Chowdhury (5) 2,268 * 2,268 0 *
Chung Yung Venture Capital
Fund Ltd. (5) 79,368 * 79,368 0 *
Citicorp (5) 424,620 * 424,620 0 *
Michael J. Coren (5) 922 * 922 0 *
Alak K. Deb (5) 103,774 * 103,774 0 *
John Dunning (5) 22,684 * 22,684 0 *
ECICS Ventures 2 Ltd. (5) 12,840 * 12,840 0 *
David M. Foulds (5) 854 * 854 0 *
Jean Fuentes (5) 886 * 886 0 *
David Garcia (5) 452 * 452 0 *
Amarjit Gill (5) 2,268 * 2,268 0 *
David Hilf (5) 38 * 38 0 *
In Sik Hong (5) 4,536 * 4,536 0 *
</TABLE>
-21-
<PAGE>
<TABLE>
<CAPTION>
Shares
Beneficially
Owned Prior to Shares Shares Owned
Offering Percent Being Offered After Offering Percent
Name (1)(3) (1) (2)(3) (2) (2)
- ------------------------------------ -------------- ---------- ------------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
Hwa Chung Venture Capital
Co., Ltd. (5) 24,292 * 24,292 0 *
Hwa Hsin Venture Capital
Co., Ltd. (5) 23,014 * 23,014 0 *
Hwa Nan Venture Capital
Co., Ltd. (5) 16,620 * 16,620 0 *
H.Y. Associates Co., Ltd. (5) 9,106 * 9,106 0 *
IFS Management Services PTE Ltd. (5) 12,840 * 12,840 0 *
InveStar Burgeon Venture
Capital, Inc. (5) 45,370 * 45,370 0 *
InveStar Semiconductor 61,352 * 61,352 0 *
Development Fund, Inc. (5)
Itochu Corporation (5) 22,684 * 22,684 0 *
Itochu Technology, Inc. (5) 13,610 * 13,610 0 *
Michael L. and Diane E. Kelly (5) 3,176 * 3,176 0 *
Melissa W. King, Trustee,
Melissa W. King Revocable
Trust dtd 3/3/99 (5) 2,310 * 2,310 0 *
Julie Krebs (5) 590 * 590 0 *
Kenneth and Angela Lee (5) 4,536 * 4,536 0 *
Lance Lee (5) 1,478 * 1,478 0 *
Henry Liebman (5) 2,268 * 2,268 0 *
Bee Ngor Lim (5) 448 * 448 0 *
Ray Lin (5) 236 * 236 0 *
Linkmore Limited (5) 38,476 * 38,476 0 *
Merrill Lynch KECALP
International L.P. 1997 (5) 31,568 * 31,568 0 *
</TABLE>
-22-
<PAGE>
<TABLE>
<CAPTION>
Shares
Beneficially
Owned Shares
Prior to Being Shares Owned
Offering Percent Offered After Offering Percent
Name (1)(3) (1) (2)(3) (2) (2)
- -------------------------- ------------- ------- --------- --------------- --------
<S> <C> <C> <C> <C> <C>
(5)
Merrill Lynch KECALP L.P.
1997 (5) 94,706 * 94,706 0 *
ML IBK Positions, Inc. (5) 31,568 * 31,568 0 *
Moto Optical Ltd. (5) 2,282 * 2,282 0 *
New Asian Venture Ltd. (5) 79,138 * 79,138 0 *
David C. Newkirk (5) 27,862 * 27,862 0 *
Newkirk-Abad Family Trust
Dated 06/07/93 (5) 6,922 * 6,922 0 *
Gina K. Ngo (5) 2,940 * 2,940 0 *
Norman Family Foundation (5) 2,268 * 2,268 0 *
David Arthur Norman & Mamie
R. Norman TTEE,
Norman Family Revocable
Trust U/A Dtd 08/20/87 (5) 4,536 * 4,536 0 *
North America Venture Fund,
L.P. (5) 78,922 * 78,922 0 *
Pacific Advantage
Investments, Ltd. (5) 3,448 * 3,448 0 *
Christopher M. Parry (5) 4,360 * 4,360 0 *
Hasmukh M. Patel Family
Living Trust (5) 7,208 * 7,208 0 *
Jason H. Patel (5) 966 * 966 0 *
Raj H. Patel (5) 966 * 966 0 *
William R. & Sandra J. Peavey
Rev Trust No. 1 dtd 9/14/80 (5) 2,310 * 2,310 0 *
Viktor and Anupama 2,722 * 2,722 0 *
</TABLE>
-23-
<PAGE>
<TABLE>
<CAPTION>
Shares
Beneficially
Owned Shares
Prior to Being Shares Owned
Offering Percent Offered After Offering Percent
Name (1)(3) (1) (2)(3) (2) (2)
- -------------------------- ------------- --------- --------- --------------- --------
<S> <C> <C> <C> <C> <C>
Prasanna (5)
Raj Raghavan & Ragini
Raghavan, Family Trustees,
Raghavan Family Trust UA
dtd 03/12/97 (5) 9,074 * 9,074 0 *
Brian Ramsey (5) 24 * 24 0 *
N.S. Sambamurthy (5) 103,504 * 103,504 0 *
Jyn-Bang Shyu (5) 984 * 984 0 *
Strongbow Technologies
Corporation (5) 1,820 * 1,820 0 *
Sunrise Capital Fund I, LLC (5) 9,114 * 9,114 0 *
Jeffrey Suto (5) 180 * 180 0 *
Swiss Family Klein Limited 3,628 * 3,628 0 *
Symbon Research Co., Ltd. (5) 7,934 * 7,934 0 *
Devandra K. Tripathi (5) 4,336 * 4,336 0 *
TRS America Corporation (5) 7,284 * 7,284 0 *
Linh T. Truong (5) 9,240 * 9,240 0 *
Jeanine Valadez (5) 11,828 * 11,828 0 *
Anujan Varma (5) 368 * 368 0 *
Ramaswamy Vishwanath (5) 2,660 * 2,660 0 *
VLG Investments 1997 (5) 2,536 * 2,536 0 *
David Wang (5) 294 * 294 0 *
Henry H. Wong (5) 97,520 * 97,520 0 *
Susan SF Wang (5) 9,162 * 9,162 0 *
Henry H. Wong &
Sammie S.L. Wong,
Trust created on 2/18/97 (5) 11,850 * 11,850 0 *
U.S. Bank Trust (Escrow 146,714 * 146,714 0 *
</TABLE>
-24-
<PAGE>
<TABLE>
<CAPTION>
Shares
Beneficially
Owned Shares
Prior to Being Shares Owned
Offering Percent Offered After Offering Percent
Name (1)(3) (1) (2)(3) (2) (2)
- -------------------------- ------------- --------- --------- --------------- --------
<S> <C> <C> <C> <C> <C>
Agent) (4)
</TABLE>
_________________
*Represents less than 1% of the outstanding shares of Common Stock
(1) The number and percentage of shares beneficially owned is determined
in accordance with Rule 13d-3 of the Exchange Act, and the information
is not necessarily indicative of beneficial ownership for any other
purpose. Under such rule, beneficial ownership includes any shares as
to which the individual has sole or shared voting power or investment
power and also any shares which the individual has the right to
acquire within 60 days of the date of this Prospectus through the
exercise of any stock option or other right.
(2) Assumes the sale of all Shares offered hereby. Each Selling
Stockholder above is having all of the shares of the Company's Common
Stock owned by them registered hereon. The Company is unaware of
whether such Selling Stockholders intend to sell any, some or all of
such shares. None, some or all of such shares may be sold.
(3) The Company effected a two-for-one stock split by way of a stock
dividend as of the close of business on October 21, 1999. These
numbers have been adjusted to reflect the stock split.
(4) Includes an aggregate of 146,714 shares held on behalf of the Selling
Stockholders in escrow by the U.S. Bank Trust as "Escrow Agent,"
pursuant to the Agreement and Plan of Reorganization by and among the
Company, XaQti, the Escrow Agent and certain of the Selling
Stockholders. Shares held in escrow are for the account of each
Selling Stockholder in the same proportion that the aggregate number
of shares of Vitesse Common Stock issued to each Selling Stockholder
in the XaQti acquisition bears to the aggregate number of shares
issued in the XaQti acquisition. Unless subject to a claim for
indemnification by Vitesse, or reacquired by Vitesse as a result of
the resolution of such a claim, the shares held in escrow will be
released to the Selling Stockholders on the earlier of the date which
is ten days following delivery to the Company of the auditor's report
for the audit of the Company's financial statements for the fiscal
year ended September 30, 1999 or July 16, 2000.
(5) Does not include shares of Common Stock held in escrow on behalf of
the stockholder by U.S. Bank Trust (the "Escrow Agent"). See Note 4.
-25-
<PAGE>
PLAN OF DISTRIBUTION
In connection with the Company's acquisition of XaQti, the Company entered
into a Registration Rights Agreement with the Selling Stockholders (the
"Agreement"), a copy of which is attached as an Exhibit to the registration
statement of which this Prospectus is a part (the "Registration Statement").
The Registration Statement has been filed pursuant to the Agreement. To the
Company's knowledge, the Selling Stockholders have not entered into any
agreement, arrangement or understanding with any particular broker or market
maker with respect to the Shares, nor does the Company know the identity of the
brokers or market makers which will participate in the offering.
The Shares covered hereby may be offered and sold from time to time by the
Selling Stockholders. Subject to agreements between the Selling Stockholders
and the Company, the Selling Stockholders will act independently of the Company
in making decisions with respect to the timing, manner and size of each sale.
The Selling Stockholders plan to sell the Shares offered hereby only in brokers'
transactions, as defined in Rule 144 promulgated under the Securities Act. In
general, brokers' transactions are ones in which the broker merely executes the
sell order, receives no more than the customary commission and does not solicit
orders to buy the Shares. No assurances can be given that the Selling
Stockholders will sell any of the Shares subject to this Prospectus or that the
Selling Stockholders will not sell such Shares in a private transaction or other
transaction that is exempt from the registration requirements of the Securities
Act. In effecting sales, broker-dealers engaged by the Selling Stockholders may
arrange for other broker-dealers to participate. Broker-dealers will receive
commissions or discounts from the Selling Stockholders in amounts to be
negotiated immediately prior to the sale. The Selling Stockholders may also
loan or pledge the Shares registered hereunder to a broker-dealer and the
broker-dealer may sell the Shares so loaned or upon a default the broker-dealer
may effect sales of the pledged Shares pursuant to this Prospectus.
In offering the Shares, the Selling Stockholders and any broker-dealers who
execute sales for the Selling Stockholders may be deemed to be "underwriters"
within the meaning of the Securities Act in connection with such sales, and any
profits realized by the Selling Stockholders and the compensation of each
broker-dealer may be deemed to be underwriting discounts and commissions.
Rule 102 of Regulation M prohibits a Selling Stockholder in a distribution
from bidding for or purchasing, directly or indirectly, any of the securities
which are the subject to the distribution. Rule 104 under Regulation M governs
bids and purchases made to stabilize the price of a security in connection with
a distribution of the security.
The Selling Stockholders have agreed not to sell any of the Shares offered
hereby without first submitting a written notice to the Company (the "Notice of
Resale"). The Company has in turn agreed to notify the Selling Stockholders as
soon as practicable, but in no event more than ten business days after receipt
of the Notice of Resale, whether it believes this Prospectus is current (with
the Company using the ten business day period to supplement this Prospectus or
make an appropriate filing under the Exchange Act) or should be amended prior to
use in connection with such sale (with the Company amending the Registration
Statement as soon as practicable). Once the Company has notified the Selling
Stockholders that this Prospectus is available to use, the Selling Stockholders
will have up to 60 days
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<PAGE>
within which to sell Shares of Common Stock subject to compliance with the
Company's policies applicable to executive officers of the Company, including
trading windows.
This offering will terminate as to the Selling Stockholders on the earlier
of July 16, 1999, or the date on which all Shares offered hereby have been sold
by the Selling Stockholders. There can be no assurance that the Selling
Stockholders will sell any or all of the Shares offered hereby.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon by Wilson
Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California,
counsel to the Company.
EXPERTS
The consolidated financial statements and the related financial statement
schedule of Vitesse Semiconductor Corporation as of September 30, 1998 and 1997,
and for each of the years in the three-year period ended September 30, 1998,
have been incorporated by reference herein and in the Registration Statement in
reliance upon the report of KPMG LLP, independent certified public accountants,
and upon the authority of said firm as experts in accounting and auditing.
The supplemental consolidated financial statements of Vitesse Semiconductor
Corporation as of September 30, 1998 and 1997, and for each of the years in the
three-year period ended September 30, 1998, have been included herein and in the
Registration Statement in reliance upon the report of KPMG LLP, independent
certified public accountants, and upon the authority of said firm as experts in
accounting and auditing.
-27-
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected without
charge and copied at the public reference facilities of the Commission located
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the Commission's regional offices at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, IL 60661 and Seven World Trade Center, 13th
Floor, New York, NY 10048. Copies of such material also can be obtained from the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Information
regarding the operation of the Public Reference Room may be obtained by calling
the Commission at 1-800-SEC-0330. The Commission maintains a World Wide Web
site that contains reports, proxy and information statements and other
information regarding registrants filed electronically with the Commission. The
address of that site is http://www.sec.gov. The Company's common stock is
traded on the Nasdaq National Market. The foregoing materials are also
available for inspection at the National Association of Securities Dealers,
Inc., 9513 Key West Avenue, Rockville, MD 20850.
This Prospectus contains information concerning Vitesse Semiconductor
Corporation and the sale of its common stock by the Selling Stockholders, but
does not contain all the information set forth in the Registration Statement,
which the Company has filed with the Commission under the Securities Act. The
Registration Statement, including various exhibits, may be inspected at the
Commission's office in Washington, D.C.
The following documents filed with the Commission are incorporated herein by
reference:
(a) The Company's Quarterly Reports on Form 10-Q for the quarters
ended December 31, 1998, March 31, 1999 and June 30, 1999, filed
pursuant to Section 13(a) or 15(d) of the Exchange Act.
(b) The Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1998, filed pursuant to Section 13(a) or
15(d) of the Exchange Act.
(c) The description of the Company's common stock which is contained
in the Company's Registration Statement on Form 8-A filed with
the Commission on November 8, 1991, pursuant to Section 12 of the
Exchange Act, including any amendment or report filed for the
purpose of updating any such description.
All documents subsequently filed by the Company pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to the filing of a post-
effective amendment which indicates that all securities registered have been
sold or which deregisters all securities then remaining unsold, shall
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<PAGE>
be deemed to be incorporated by reference in this Registration Statement and to
be part hereof from the date of filing of such documents.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request of such person, a copy of any and all of the information that has been
or may be incorporated by reference in this Prospectus, other than exhibits to
such documents. Requests for such copies should be directed in writing to
Vitesse Semiconductor Corporation, 741 Calle Plano, Camarillo, CA 93012,
Attention: Investor Relations, by calling (805) 388-7401, or by e-mailing
[email protected].
No person is authorized in connection with any offering made by this
Prospectus to give any information or to make any representations not contained
in this Prospectus, and, if given or made, such information or representations
must not be relied upon as having been authorized by the Company, any Selling
Stockholder or by any other person. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any security other than the
Shares offered hereby, nor does it constitute an offer to sell or a solicitation
of an offer to buy any of the Shares offered hereby to any person in any
jurisdiction in which it is unlawful to make such an offer or solicitation.
Neither the delivery of this Prospectus nor any sale of or offer to sell the
Shares made hereunder shall under any circumstances create any implication that
there has been no change in the affairs of the Company since the date hereof or
that the information contained herein is correct as of any time subsequent to
the date hereof.
____________________
-29-
<PAGE>
VITESSE SEMICONDUCTOR CORPORATION
INDEX TO SUPPLEMENTAL
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Independent Auditors' Report F-2
Supplemental Consolidated Balance Sheets as of
September 30, 1998 and 1997................................................ F-3
Supplemental Consolidated Statements of Operations
for the years ended September 30, 1998, 1997 and 1996...................... F-4
Supplemental Consolidated Statements of Stockholders' Equity
for the years ended September 30, 1998, 1997 and 1996...................... F-5
Supplemental Consolidated Statements of Cash Flows for the
years ended September 30, 1998, 1997 and 1996.............................. F-6
Notes to Supplemental Consolidated Financial Statements......................... F-7
Supplemental Condensed Consolidated Balance Sheets as of
June 30, 1999 (unaudited) and September 30, 1998........................... F-21
Supplemental Condensed Consolidated Statements of
Operations for the nine months ended June 30, 1999 and 1998
(unaudited)................................................................ F-22
Supplemental Condensed Consolidated Statements of
Cash Flows for the nine months ended June 30, 1999 and 1998
(unaudited)................................................................ F-23
Notes to Supplemental Condensed Consolidated Financial
Statements for the nine months ended June 30, 1999 and 1998
(unaudited)................................................................ F-25
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Vitesse Semiconductor Corporation:
We have audited the accompanying supplemental consolidated balance sheets of
Vitesse Semiconductor Corporation and subsidiaries as of September 30, 1998 and
1997, and the related supplemental consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended September 30, 1998. These supplemental consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these supplemental consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The supplemental consolidated financial statements give retroactive effect to
the mergers of Vitesse Semiconductor Corporation and Serano Systems, Corporation
on January 21, 1999 and XaQti Corporation on July 16, 1999, which have been
accounted for as pooling-of-interests as described in Note 2 to the supplemental
consolidated financial statements. Generally accepted accounting principles
proscribe giving effect to a consummated business combination accounted for by
the pooling-of-interests method in financial statements that do not include the
date of consummation. These financial statements do not extend through the dates
of consummation. However, they will become the historical consolidated financial
statements of Vitesse Semiconductor Corporation and subsidiaries after financial
statements covering the dates of consummation of the business combinations are
issued.
In our opinion, the supplemental consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Vitesse Semiconductor Corporation and subsidiaries as of September 30, 1998 and
1997 and the results of their operations and their cash flows for each of the
years in the three-year period ended September 30, 1998 in conformity with
generally accepted accounting principles applicable after financial statements
are issued for a period which includes the dates of consummation of the business
combinations.
/S/ KPMG LLP
Los Angeles, California
October 8, 1999, except for
Note 13, which is as of
October 20, 1999
F-2
<PAGE>
VITESSE SEMICONDUCTOR CORPORATION
Supplemental Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, 1998 and 1997 September 30,
(in thousands, except share data) 1998 1997
- -------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 76,963 $ 99,975
Short-term investments 91,610 58,486
Accounts receivable, net of allowance for doubtful accounts
of $1,088 in 1998 and $1,000 in 1997 40,104 21,119
Inventories, net 17,208 11,831
Prepaid expenses 3,177 1,218
Deferred tax assets, net 24,981 14,800
------------------------------------------------------------------------------------------------------
Total current assets 254,043 207,429
- -------------------------------------------------------------------------------------------------------
Property and equipment, net 57,949 42,537
Restricted long-term deposits 68,704 45,556
Other assets 312 472
- -------------------------------------------------------------------------------------------------------
$ 381,008 $ 295,994
- -------------------------------------------------------------------------------------------------------
Liabilities And Stockholders' Equity
Current liabilities:
Accounts payable $ 14,256 $ 19,978
Accrued expenses and other current liabilities 14,245 7,346
Capital lease obligations and term loans 517 541
------------------------------------------------------------------------------------------------------
Total current liabilities 29,018 27,865
------------------------------------------------------------------------------------------------------
Capital lease obligations and term loans 701 322
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 10,000,000 shares; none issued
or outstanding - -
Common stock, $.01 par value. Authorized 250,000,000 shares; issued and
outstanding 150,037,680 and 145,195,958 shares at September 30, 1998
and 1997, respectively 1,500 1,452
Additional paid-in capital 315,411 282,477
Retained earnings (accumulated deficit) 34,378 (16,122)
- -------------------------------------------------------------------------------------------------------
Net stockholders' equity 351,289 267,807
----------------------------------------------------------------------------------------------------
$ 381,008 $ 295,994
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-3
<PAGE>
VITESSE SEMICONDUCTOR CORPORATION
Supplemental Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years ended September 30, 1998, 1997 and 1996 Years ended September 30,
(in thousands, except per share data) 1998 1997 1996
<S> <C> <C> <C>
Revenues $ 176,885 $ 105,413 $ 66,046
- --------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of revenues 70,041 45,513 31,792
Engineering, research & development 33,012 19,108 11,149
Selling, general & administrative 23,638 15,659 9,993
-------------------------------------------------------------------------------------------------------------------
Total costs and expenses 126,691 80,280 52,934
-----------------------------------------------------------------------------------------------------------------
Income from operations 50,194 25,133 13,112
Other income, net 9,385 8,036 613
- --------------------------------------------------------------------------------------------------------------------
Income before income taxes 59,579 33,169 13,725
Income taxes 9,079 3,652 1,405
- --------------------------------------------------------------------------------------------------------------------
Net income $ 50,500 $ 29,517 $ 12,320
- --------------------------------------------------------------------------------------------------------------------
Net income per share:
Basic $ 0.34 $ 0.21 $ 0.12
Diluted $ 0.31 $ 0.19 $ 0.10
-------------------------------------------------------------------------------------------------------------------
Shares used in per share computations:
Basic 147,446 138,256 104,562
Diluted 160,500 152,888 119,486
-------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-4
<PAGE>
VITESSE SEMICONDUCTOR CORPORATION
Supplemental Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Retained
Additional Earnings Net
Years ended September 30, 1998, 1997 and 1996 Common Stock Paid-in (Accumulated Stockholders'
(in thousands, except share data) Shares Amount Capital Deficit) Equity
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, October 1, 1995 93,058,548 $ 931 $ 82,028 $ (57,959) $ 25,000
Exercise of stock options 5,834,496 58 3,353 - 3,411
Exercise of warrants 341,660 4 11 - 15
Shares issued under Employee
Stock Purchase Plan 644,460 6 969 - 975
Issuance of common stock,
net of expenses 17,033,148 170 46,162 - 46,332
Net income - - - 12,320 12,320
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1996 116,912,312 1,169 132,523 (45,639) 88,053
Exercise of stock options 6,241,116 62 5,590 - 5,652
Shares issued under Employee
Stock Purchase Plan 284,832 3 1,594 - 1,597
Issuance of common stock,
net of expenses 21,808,492 218 124,374 - 124,592
Repurchase of common stock (40,634) - (1) - (1)
Repurchase of fractional shares
related to stock split (10,160) - (3) - (3)
Tax benefit of disqualifying
dispositions - - 18,400 - 18,400
Net income - - - 29,517 29,517
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1997 145,195,958 1,452 282,477 (16,122) 267,807
Exercise of stock options 3,690,370 37 6,249 - 6,286
Shares issued under Employee
Stock Purchase Plan 234,726 2 2,238 - 2,240
Issuance of common stock,
net of expenses 916,626 9 10,251 - 10,260
Tax benefit of disqualifying
dispositions - - 14,196 - 14,196
Net income - - - 50,500 50,500
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1998 150,037,680 $ 1,500 $ 315,411 $ 34,378 $ 351,289
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-5
<PAGE>
VITESSE SEMICONDUCTOR CORPORATION
Supplemental Consolidated Statements Of Cash Flows
<TABLE>
<CAPTION>
Years ended September 30, 1998, 1997 and 1996 Years ended September 30,
(in thousands) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 50,500 $ 29,517 $ 12,320
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 15,485 7,122 4,976
Deferred tax assets 4,011 3,600 -
Changes in assets and liabilities:
Receivables, net (18,985) (2,500) (5,889)
Inventories, net (5,377) (1,872) (64)
Prepaid expenses (1,959) (373) (303)
Other assets 160 197 98
Accounts payable (5,722) 13,035 3,390
Accrued expenses and other current liabilities 6,899 3,368 2,094
-------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 45,012 52,094 16,622
------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Short-term investments (33,124) (58,486) -
Restricted long-term deposits (23,148) (45,556) -
Capital expenditures (30,897) (31,714) (11,058)
-----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (87,169) (135,756) (11,058)
------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments under capital lease obligations and term loans (391) (934) (7,632)
Proceeds from term loans 750 461 1,005
Repayments of short-term borrowings - (761) (2,950)
Net proceeds from issuance of common stock 18,786 131,836 50,733
-----------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 19,145 130,602 41,156
------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (23,012) 46,940 46,720
Cash and cash equivalents at beginning of year 99,975 53,035 6,315
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 76,963 $ 99,975 $ 53,035
- ------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $ 85 $ 165 $ 656
---------------------------------------------------------------------------------------------------------------
Income taxes $ 1,704 $ 297 $ 348
---------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-6
<PAGE>
VITESSE SEMICONDUCTOR CORPORATION
Notes to Supplemental Consolidated Financial Statements
Note 1 - The Company and Its Significant Accounting Policies
Description of Business. Vitesse Semiconductor Corporation was incorporated
under the laws of Delaware on February 3, 1987. Vitesse Semiconductor
Corporation is a leader in the design, development, manufacturing and marketing
of digital GaAs ICs.
The supplemental consolidated financial statements include the accounts of
Vitesse Semiconductor Corporation and its wholly owned subsidiaries (the
"Company"). As more fully described in Note 2, the Company's acquisitions of
Serano Systems Corporation ("Serano") on January 21, 1999, and XaQti Corporation
("XaQti") on July 16, 1999 were accounted for under the pooling-of-interests
method and, accordingly, the supplemental consolidated financial statements
prior to the acquisitions have been restated to include the accounts and results
of operations of Serano and XaQti for all periods presented. All significant
intercompany balances and transactions have been eliminated.
Revenue Recognition. Production revenue is recognized when products are shipped
to customers. Revenue from development contracts is recognized upon attainment
of specific milestones established under customer contracts. Revenue from
products deliverable under development contracts, including design tools and
prototype products, is recognized upon delivery. Costs related to development
contracts are expensed as incurred.
Cash Equivalents and Short-term Investments. The Company considers all highly
liquid investments with original maturities of three months or less to be cash
equivalents. Cash equivalents and short-term investments are principally
composed of money market accounts and obligations of the U.S. government and its
agencies. Pursuant to Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS No.
115), the Company classifies its securities included under short-term
investments as held-to-maturity securities, which are recorded at amortized
cost, adjusted for the amortization or accretion of premiums or discounts. As of
September 30, 1998 and 1997, carrying value was substantially the same as market
value.
Inventories. Inventories are stated at the lower of cost (determined by the
first-in, first-out method) or market (net realizable value). Costs associated
with the manufacture of a new product are charged to engineering, research and
development expense as incurred until the product is proven through testing and
acceptance by the customer. Inventories are shown net of a valuation reserve of
$4,155,000 and $3,121,000 at September 30, 1998 and 1997, respectively.
Depreciation. Depreciation of property and equipment is provided on the
straight-line method over the estimated useful lives of the related assets as
follows:
Machinery and equipment 5 years
Furniture and fixtures 3-7 years
Computer equipment 3-5 years
Leasehold improvements Term of lease
F-7
<PAGE>
VITESSE SEMICONDUCTOR CORPORATION
Income Taxes. The Company accounts for income taxes pursuant to the provisions
of Financial Accounting Standards Board Statement No. 109. Under the asset and
liability method of Statement No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Research and Development Costs. The Company charges all research and development
costs to expense when incurred. Manufacturing costs associated with the
development of a new fabrication process or a new product are expensed until
such times as these processes or products are proven through final testing and
initial acceptance by the customer.
Costs related to revenues on nonrecurring engineering services billed to
customers are generally classified as cost of revenues; however, certain related
contract engineering and research costs are included in engineering, research
and development expense because these costs cannot be directly related to
individual contracts.
Computation of Net Income per Share. In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 128,
"Earnings per Share." SFAS No. 128 replaced the previously reported primary and
fully diluted earnings per share with basic and diluted earnings per share and
became effective for both interim and annual periods ending after December 15,
1997. Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods presented have been
restated to conform to the SFAS No. 128 requirements.
The reconciliation of shares used to calculate basic and diluted income per
share consists of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares used in basic per share computations -
weighted average shares outstanding 147,446 138,256 104,562
Net effect of dilutive common share equivalents
based on treasury stock method 13,054 14,632 14,924
- -----------------------------------------------------------------------------------------------------
Shares used in diluted per share computations 160,500 152,888 119,486
</TABLE>
Options to purchase 53,490 and 123,672 shares were outstanding at September 30,
1998 and 1997, respectively, but were not included in the computation of diluted
net income per share because the exercise price of the options was greater than
the average market price of the common shares, and therefore, the effect would
be antidilutive.
Financial Instruments. The Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments," defines fair value of a financial instrument as the
amount at which the instrument could be exchanged in a current transaction
between willing parties. The Company's carrying value of cash equivalents,
short-term investments, restricted long-term deposits, accounts receivable,
accounts payable, accrued expenses, capital lease obligations and term loans
approximates
F-8
<PAGE>
VITESSE SEMICONDUCTOR CORPORATION
fair value because the instrument has a short-term maturity or because the
applicable interest rates are comparable to current borrowing rates of those
instruments.
Long-Lived Assets. In 1997, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." This statement provides
guidelines for recognition of impairment of losses related to long-term assets.
The adoption of this new standard did not have a material effect on the
Company's financial statements.
Accounting for Stock Options. In October 1995, Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation," was issued. This
statement encourages, but does not require, a fair value based method of
accounting for employee stock options. The Company has elected to continue to
measure and to recognize compensation costs under APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and to adopt the disclosure-only
requirements of Statement No. 123.
Use of Estimates. Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
Reclassifications and Restatements. Certain reclassifications have been made to
the prior year financial statements to conform to the current year presentation.
On April 22, 1998, the Company's Board of Directors announced a 2 for 1 stock
split of the common stock effected in the form of a stock dividend to
stockholders of record as of May 4, 1998. On January 29, 1997, the Company's
Board of Directors announced a 3 for 2 stock split of the common stock effected
in the form of a stock dividend to stockholders of record as of February 12,
1997. Accordingly, historical share and per share amounts have been restated to
reflect retroactively the stock splits.
Note 2 - Pooling-of-Interest Business Combinations
On January 21, 1999 the Company issued 655,256 shares of its common stock in
exchange for all of the outstanding shares of Serano, a provider of enclosure
platform management solutions for Fibre Channel and SCSI server and storage
subsystems. This acquisition has been accounted for under the pooling-of-
interests method.
On July 16, 1999 the Company issued 1,892,300 shares of its common stock in
exchange for all of the outstanding shares of XaQti, a provider of integrated
circuits for the data communication industry. This acquisition has been
accounted for under the pooling-of-interests method.
F-9
<PAGE>
VITESSE SEMICONDUCTOR CORPORATION
The results of operations previously reported by the separate enterprises, and
combined amounts presented in the accompanying supplemental consolidated
financial statements, are summarized below (in thousands):
<TABLE>
<CAPTION>
The Company The Company
before acquisitions Serano XaQti Restated
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended
September 30,1998:
Revenues $ 175,082 $ 1,329 $ 474 $ 176,885
Net income (loss) 52,873 (273) (2,100) 50,500
Year ended
September 30,1997:
Revenues $ 104,850 $ 543 $ 20 $ 105,413
Net income (loss) 32,888 (160) (3,211) 29,517
Year ended
September 30,1996:
Revenues $ 66,046 $ - $ - $ 66,046
Net income (loss) 12,645 - ( 325) 12,320
</TABLE>
Additionally, the significant other changes to shareholders' equity for the
separate entities for the period before the combinations include XaQti's
issuance of 801,666 shares of common stock for $9,017,000 and Serano's issuance
of 117,786 shares of common stock for $1,207,000 in 1998, and XaQti's issuance
of 610,332 shares of common stock for $6,053,000 and Serano's issuance of
498,160 shares of common stock for $340,000 in 1997.
Certain reclassifications have been made to the financial statements of Serano
and XaQti to conform to the Company's financial presentation.
Prior to the combination, both Serano's and XaQti's fiscal years ended on
December 31. In recording the pooling-of-interests combination, Serano's
financial statements for the years ended December 31, 1998 and 1997 were
combined with the Company's financial statements for the years ended September
30, 1998 and 1997. Additionally, XaQti's financial statements for the years
ended December 31, 1998 and 1997 and the period from March 7, 1996 (inception)
through December 31, 1996, were combined with the Company's financial statements
for the years ended September 30, 1998, 1997 and 1996.
F-10
<PAGE>
VITESSE SEMICONDUCTOR CORPORATION
Note 3 - Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30,
1998 1997
- -------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Raw materials $ 2,961 $ 2,443
Work in process 10,561 6,762
Finished goods 3,686 2,626
- --------------------------------------------------------------------------------------
$17,208 $11,831
- --------------------------------------------------------------------------------------
</TABLE>
Note 4 - Property and Equipment
Property and equipment, stated at cost, are summarized as follows:
<TABLE>
<CAPTION>
September 30,
1998 1997
- --------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Machinery and equipment $71,358 $53,858
Furniture and fixtures 1,557 768
Computer equipment 16,444 11,619
Leasehold improvements 6,880 4,423
Land 1,039 -
- --------------------------------------------------------------------------------------
97,278 70,668
Less accumulated depreciation 39,329 28,131
- --------------------------------------------------------------------------------------
$57,949 $42,537
- --------------------------------------------------------------------------------------
</TABLE>
Included in property and equipment are items not yet placed in service of
$5,140,000 and $17,688,000 as of September 30, 1998 and 1997, respectively.
Note 5 - Capital Lease Obligations and Term Loans
The Company has various equipment term loans totaling $1,218,000 at September
30, 1998, bearing interest rates between 8.5% and 10% per annum payable in
monthly installments through June, 2001.
Two of the loans representing $750,000 and $323,000 of the total outstanding
principal at September 30, 1998 were repaid in July, 1999. The remaining
outstanding principal at September 30, 1998 of $145,000 is payable through
fiscal 1999.
F-11
<PAGE>
VITESSE SEMICONDUCTOR CORPORATION
Note 6 - Revolving Line of Credit
The Company has a $12,500,000 revolving line of credit agreement with a bank,
which expires in January 2000. The agreement provides for interest to be paid
monthly at the bank's prime rate (8.5% on September 30, 1998). The Company must
adhere to certain requirements and provisions to be in compliance with the terms
of the agreement and is prohibited from paying dividends without the consent of
the bank. As of September 30, 1998 and 1997, no amounts were outstanding under
the line of credit.
XaQti had a $1 million revolving line of credit with a bank bearing interest at
prime plus 0.5%, which expired on June 22, 1999.
Note 7 - Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
September 30,
1998 1997
- -------------------------------------------------------------
(in thousands)
<S> <C> <C>
Accrued vacation $ 1,231 $ 756
Accrued salaries, wages and bonuses 3,868 3,338
Accrued income taxes 4,199 825
Other 4,947 2,427
- -------------------------------------------------------------
$14,245 $7,346
- -------------------------------------------------------------
</TABLE>
Note 8 - Stockholders' Equity
Preferred Stock. In fiscal 1991, the Board of Directors authorized 10,000,000
shares of undesignated preferred stock. The Company has no present plans to
issue any of this preferred stock.
Common Stock. In 1998, the Company's stockholders approved an increase in the
number of authorized shares of common stock from 50,000,000 to 100,000,000.
Stock Option Plans. The Company currently has three stock option plans in
place: the 1987 Stock Option Plan, the 1989 Stock Option Plan and the 1991 Stock
Option Plan (collectively referred to as the "Plans"). The 1987 Stock Option
Plan expired in fiscal 1997 and consequently no additional options are available
for grant from this plan.
The 1989 Plan was adopted by the Board of Directors in April 1989 and approved
by the stockholders in April 1990. Pursuant to the 1989 Plan, 3,500,000 shares
of the Company's common stock were reserved for issuance.
The 1991 Plan was adopted by the Board of Directors and approved by the
stockholders in August 1991. Pursuant to the 1991 Plan the number of shares
reserved under the Plan automatically increases by a number of shares equal to
3.5% of the Company's common stock outstanding at the end of each fiscal year.
F-12
<PAGE>
VITESSE SEMICONDUCTOR CORPORATION
The Plans provide for the granting of incentive stock options to employees of
the Company and for the granting of nonstatutory stock options to employees and
consultants of the Company. Options granted under the Plans generally vest and
become exercisable at the rate of 25% per year; however, certain options granted
prior to June 30, 1992, under the 1991 Plan and all of the options under the
1987 and 1989 Plans vest and become exercisable at the rate of 24% at the end of
the first year, and thereafter at a rate of 2% of the shares subject to the
options per month.
The exercise price of all incentive and nonstatutory stock options granted under
the Plans must be at least equal to the fair market value of the shares of
common stock on the date of grant. With respect to any participant who owns
stock possessing more than 10% of the voting power of all classes of stock of
the Company, the exercise price of any incentive stock option granted must equal
at least 110% of the fair market value on the grant date and, in the case of the
1991 Plan, the maximum term of such options must not exceed five years. The term
of all other options under the 1991 Plan and all options under the 1987 Plan and
1989 Plan may not exceed 10 years.
Under the 1987 Plan, the 1989 Plan and the 1991 Plan, as of September 30, 1998,
options to purchase an aggregate of 20,460,526 shares had been exercised,
options to purchase an aggregate of 20,968,732 shares were outstanding at a
weighted average exercise price of $5.03 per share and 4,094 shares (which
increased to 5,169,262 effective October 1, 1998, pursuant to the terms of the
1991 Plan) remained available for future grant. Of the 20,968,732 options
outstanding, 5,556,762 options were vested and exercisable under the Plans
pursuant to incentive stock options and 1,979,812 options were vested and
exercisable pursuant to nonstatutory stock options.
1991 Directors' Stock Option Plan. The 1991 Directors' Stock Option Plan (the
Directors' Plan) was adopted by the Board of Directors and approved by the
stockholders in August 1991. Pursuant to the Directors' Plan, 2,400,000 shares
have been reserved for issuance. As of September 30, 1998, 2,010,000 options had
been granted under the Directors' Plan; 1,118,400 of such grants had been
exercised and 194,400 had been canceled. At September 30, 1998, 261,600 options
were exercisable.
The Directors' Plan provides that each non-employee director automatically will
be granted a nonstatutory option to purchase 30,000 shares (except in the case
of the Chairman of the Board of the Company who shall receive an option to
purchase 45,000 shares) of common stock upon first becoming a director. In
addition, the Directors' Plan provides that each director serving on January 1
of each calendar year will automatically be granted a nonstatutory option to
purchase 30,000 shares (except in the case of the Chairman of the Board of the
Company who shall receive an option to purchase 45,000 shares) of common stock.
The options granted to the non-employee directors are for a 10-year term and
vest at the rate of 2% 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 the fair market value of the common stock on the last business day
prior to the date of grant of the option.
F-13
<PAGE>
VITESSE SEMICONDUCTOR CORPORATION
Activity under the 1987, 1989 and 1991 Plans and the 1991 Directors' Stock
Option Plan is as follows:
<TABLE>
<CAPTION>
Number of Option Price
Shares Per Share Aggregate
- ----------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Options outstanding at October 1, 1995 19,094,140 $ .01- 1.95 $ 13,621
Options:
Granted 7,176,458 1.14- 5.96 15,384
Exercised (5,834,496) .01- 1.57 (3,411)
Canceled or expired (855,088) .61- 2.32 (1,057)
- ----------------------------------------------------------------------------------------------
Options outstanding at September 30, 1996 19,581,014 .01- 5.96 24,537
Options:
Granted 6,416,596 1.14-12.63 39,260
Exercised (6,241,116) .01- 7.04 (5,652)
Canceled or expired (343,478) .69- 7.23 (1,025)
- ----------------------------------------------------------------------------------------------
Options outstanding at September 30, 1997 19,413,016 .01-12.63 57,120
Options:
Granted 6,603,636 1.14-15.63 62,142
Exercised (3,690,370) .01- 9.44 (6,285)
Canceled or expired (660,350) .75-14.10 (3,882)
- ----------------------------------------------------------------------------------------------
Options outstanding at September 30, 1998 21,665,932 $ .03-15.63 $109,095
- ----------------------------------------------------------------------------------------------
</TABLE>
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation." The
Company used the Black-Scholes option pricing model to value stock options for
pro forma presentation. The assumptions used to estimate the value of options
under the various stock option plans and the shares under the Employee Stock
Purchase Plan are as follows:
<TABLE>
<CAPTION>
Employee
Stock Option Stock Purchase
Plan Shares Plan Shares
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average expected life (years) 5.39 5.45 0.50 0.50
Expected volatility 0.51 0.55 0.51 0.55
Risk-free interest rate 4.40% 5.81% 4.22% 5.50%
Dividends - - - -
Weighted average fair values $5.08 $3.54 $4.03 $2.57
</TABLE>
Pro forma compensation costs for fiscal 1998 and 1997 awards under the stock
option and stock purchase plans recognized in accordance with SFAS No. 123 would
reduce the Company's net income from $50.5 million (basic income per share of
$0.34 and diluted income per share of $0.31 per share) to $40.5 million (basic
income per share of $0.28 and diluted income per share of $0.25 per share) in
fiscal 1998, and from $29.5 million (basic income per share of $0.21 and diluted
income per share of $0.19) to $24.2 million (basic income per share of $0.18 per
share and diluted income per share of $0.16) in fiscal 1997. Pro forma net
income reflects only options
F-14
<PAGE>
VITESSE SEMICONDUCTOR CORPORATION
granted and shares issued in fiscal 1998 and fiscal 1997. Because the pro forma
compensation cost for the stock option program is recognized over the four-year
vesting period, the foregoing pro forma reductions in the Company's net income
are not representative of anticipated amounts in future years.
The following table summarizes information regarding options outstanding and
options exercisable at September 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices As of 9/30/98 Contractual Life Exercise Price As of 9/30/98 Exercise Price
<S> <C> <C> <C> <C> <C>
$0.03 - $ 1.88 9,325,106 6.65 $ 1.33 4,445,064 $ 1.13
$1.94 - $ 7.23 5,541,226 8.32 $ 5.47 2,224,760 $ 5.46
$7.88 - $ 9.44 5,661,600 9.22 $ 9.40 1,018,050 $ 9.40
$9.56 - $15.63 1,138,000 9.24 $11.62 110,300 $11.28
- ------------------------------------------------------------------------------------------------------------
$0.03 - $15.63 21,665,932 7.88 $ 5.04 7,798,174 $ 3.59
</TABLE>
1991 Employee Stock Purchase Plan. The Company's 1991 Employee Stock Purchase
Plan (the Purchase Plan) was adopted by the Board of Directors and approved by
the stockholders effective December 11, 1991. A total of 3,000,000 shares of
common stock has been reserved for issuance under the Purchase Plan. Under the
Purchase Plan, eligible employees may purchase shares of the Company's common
stock at six-month intervals at 85% of the lower of the fair market value on the
first or the last day of each six-month period. Employees may purchase shares
having a value not exceeding 20% of their compensation, including commissions
and overtime, but excluding bonuses. Employees may end their participation in
the offering at any time during the offering period, and participation ends
automatically on termination of employment with the Company. In fiscal 1998 and
1997, 234,726 and 284,832 shares, respectively, were issued under the Purchase
Plan at average prices of $9.55 and $5.61. At September 30, 1998, 1,542,154
shares were reserved for future issuance.
F-15
<PAGE>
VITESSE SEMICONDUCTOR CORPORATION
Note 9 - Income Taxes
Income tax expense consists of the following:
<TABLE>
<CAPTION>
September 30,
1998 1997 1996
- -------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Current:
Federal $ 9,775 $ - $ 300
State 6,563 101 755
Foreign - - 350
- --------------------------------------------------------------------------------
$16,338 $ 101 $1,405
- --------------------------------------------------------------------------------
Deferred:
Federal $(4,445) $3,018 $ -
State (2,814) 533 -
- --------------------------------------------------------------------------------
$(7,259) $3,551 $ -
- --------------------------------------------------------------------------------
Total:
Federal $ 5,330 $3,018 $ 300
State 3,749 634 755
Foreign - - 350
- --------------------------------------------------------------------------------
$ 9,079 $3,652 $1,405
- --------------------------------------------------------------------------------
</TABLE>
The actual income tax expense differs from the expected tax expense computed by
applying the federal corporate tax rate of 35% for the years ended September 30,
1998, 1997 and 1996, to income before income taxes as follows:
<TABLE>
<CAPTION>
September 30,
1998 1997 1996
- ----------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Federal income taxes at statutory rate $ 20,852 $11,609 $ 4,803
State income taxes, net of federal benefit 3,771 2,048 749
Alternative minimum taxes - - 300
Foreign income taxes - - 350
Research & development credits (595) (700) -
Adjustment for deferred tax assets for
enacted changes in tax laws and rates - (479) -
Reduction in valuation allowance (net of valuation
allowance of $2,923 in 1998 credited to stockholders' equity) (15,524) (8,826) (4,797)
Other 575 - -
- ----------------------------------------------------------------------------------------------------
$ 9,079 $ 3,652 $ 1,405
- ----------------------------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to a significant portion
of the deferred tax assets are summarized as follows (in thousands):
F-16
<PAGE>
VITESSE SEMICONDUCTOR CORPORATION
<TABLE>
<CAPTION>
September 30,
1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $12,422 $ 23,514
Research & development tax credits 4,582 3,995
Allowances and reserves 4,256 2,981
Accumulated depreciation & amortization 510 1,620
Federal AMT and foreign tax credits 851 18
California manufacturers' investment credit 1,144 491
State taxes 812 -
Other 404 628
- -------------------------------------------------------------------------------
Total gross deferred tax assets 24,981 33,247
Less valuation allowance - (18,447)
- -------------------------------------------------------------------------------
Net deferred tax assets $24,981 $ 14,800
- -------------------------------------------------------------------------------
</TABLE>
In assessing the realizability of deferred tax assets, management considered
whether it is more likely than not that some portions or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent on the generation of future taxable income during the periods in which
those temporary differences become deductible. Management considers the
projected future taxable income and tax-planning strategies in making this
assessment. Based on the level of historical taxable income and projections for
future taxable income over the periods in which the deferred tax assets are
deductible, the Company has eliminated the valuation allowance for all
deductible differences. Management believes that it is more likely than not that
the results of future operations will generate sufficient taxable income to
realize the net deferred tax assets.
During fiscal 1998, the Company recognized tax benefits associated with employee
stock options aggregating $11,273,000. Such benefits have been recorded directly
to stockholders' equity.
The change in the valuation allowance for the year ended September 30, 1998 was
$18,447,000, of which $15,524,000 reduced income tax expense for the year. The
remaining $2,923,000 was credited to additional paid-in capital which was the
amount attributable to net operating losses created by the exercise of stock
options previously unrecognized.
As of September 30, 1998, the Company had net operating loss carryforwards for
federal and state income tax purposes of $32,326,000 and $19,789,000,
respectively, which are available to offset future taxable income through 2012
and 2003, respectively. Additionally, the Company had research and development
tax credit carryforwards for federal and state income tax purposes of $3,623,000
and $1,477,000, respectively, which are available to offset future income taxes,
if any, through 2013.
Note 10 - Significant Customers, Concentration of Credit Risk and Segment
Information
In fiscal 1998, two customers accounted for 23% and 15% of total revenues. In
fiscal 1997, three customers accounted for 22%, 20% and 12% of total revenues.
In fiscal 1996, two customers accounted for 25% and 11% of total revenues.
F-17
<PAGE>
VITESSE SEMICONDUCTOR CORPORATION
The Company generally sells its products to customers engaged in the design
and/or manufacture of high technology products either recently introduced or not
yet introduced to the marketplace. Substantially all the Company's trade
accounts receivable are due from such sources. The Company's major customers who
account for more than 10% of total revenues aggregated 41% and 44% of total
trade receivables at September 30, 1998 and 1997, respectively.
Export revenues are summarized by geographic areas as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------
<S> <C> <C> <C>
Europe $18,197 $ 6,452 $ 6,505
Japan 13,603 24,102 7,972
Other 12,052 4,849 1,147
- --------------------------------------------------------------
$43,852 $35,403 $15,624
- --------------------------------------------------------------
</TABLE>
Note 11 - Retirement Savings Plan
The Company has a qualified retirement plan under the provisions of Section
401(k) of the Internal Revenue Code covering substantially all employees.
Participants in this plan may defer up to the maximum annual amount allowable
under IRS regulations. The contributions are fully vested and nonforfeitable at
all times. The Company does not make matching contributions under the plan.
Note 12 - Commitments and Contingencies
The Company leases facilities under noncancelable operating leases that expire
through 2003. The Company also leases certain machinery and equipment under
noncancelable operating leases that expire through 2003.
Approximate minimum rental commitments under these operating leases as of
September 30, 1998, were as follows (in thousands):
<TABLE>
<CAPTION>
Year ending September 30:
--------------------------------------------
<S> <C>
1999 $1,648
2000 1,294
2001 1,024
2002 897
2003 787
------
$5,650
======
--------------------------------------------
</TABLE>
Rent expense under operating leases was approximately $2,046,000, $2,182,000 and
$2,507,000 for the years ended September 30, 1998, 1997 and 1996, respectively.
In October 1996, the Company entered into a five-year operating lease agreement
with a bank providing for $27.5 million of financing for the acquisition and
construction of a wafer fabrication facility in Colorado Springs, Colorado.
Payments under this lease commenced in fiscal 1998 and are based on LIBOR rates
plus a spread of 1.75%. The Company has the option to renew the lease for an
additional three-year term. The
F-18
<PAGE>
VITESSE SEMICONDUCTOR CORPORATION
The Company has the option of purchasing the property at the end of the initial
lease term, and at the end of each renewal period for the lessor's original
cost, which is not less than the fair market value at each option date. If at
the end of the lease term the Company does not purchase the property, the
Company would guarantee a residual value to the lessor equal to 84% of the
lessor's cost of the facility, equal to $23,100,000. As of September 30, 1998,
the lessor had advanced a total of $26,987,000 under this lease and had held
$22,669,000 as cash collateral, which amount is included in restricted long-term
deposits.
In August 1997, the Company entered into a three-year operating lease
arrangement with the same bank providing for $45 million of financing for the
acquisition of capital equipment for the Colorado Springs wafer fabrication
facility. The Company has the option to renew the lease for up to two one-year
extensions. Payments under this lease commenced in fiscal 1998 and are based on
LIBOR rates plus a spread of 1.50%. The Company has the option of purchasing the
property at the end of the initial lease term, and at the end of each renewal
period for the lessor's original cost, which is not less than the fair market
value at each option date. If at the end of the lease term the Company does not
purchase the equipment, the Company would guarantee a residual value to the
lessor equal to 86% of the lessor's cost of the equipment, equal to $38,700,000.
As of September 30, 1998, the lessor had advanced a total of $45,000,000 under
this lease and had held $36,000,000 as cash collateral, which amount is included
in restricted long-term deposits.
In July 1998, the Company entered into a four-year operating lease arrangement
with a bank providing for $10 million of financing for the acquisition of
certain test equipment. The Company has the option to renew the lease for one
year. Payments under this lease began in fiscal 1998 and are based on the 30-Day
Commercial Paper rate plus a spread of 1.5%. The Company has the option of
purchasing the property at the end of the initial lease term, and at the end of
each renewal period for the lessor's original cost, which is not less than the
fair market value at each option date. If at the end of the lease term the
Company does not purchase the equipment, the Company would guarantee a residual
value to the lessor equal to 86% of the lessor's cost of the equipment, equal to
$8,600,000. As of September 30, 1998, the lessor had advanced a total of
$3,258,000 under this lease and had held $2,607,000 as cash collateral, which
amount is included in restricted long-term deposits.
The $27.5 million and the $45 million operating leases require the Company to
meet certain financial and other covenants, including a restriction on the
payment of cash dividends to its stockholders. As of September 30, 1998, the
Company was in compliance with all covenants.
The Company is a party to various investigations, lawsuits and claims arising in
the normal course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
F-19
<PAGE>
VITESSE SEMICONDUCTOR CORPORATION
Note 13 - Subsequent Events
On November 25, 1998 the Company acquired all of the equity interests of Vermont
Scientific Technologies, Inc. (VTEK) for $13.0 million cash and $2.7 million in
notes payable. VTEK provides integrated circuits design services primarily in
the telecommunications industry. In conjunction with the transaction, the
Company recorded goodwill and other identifiable intangibles amounting to $9.9
million and $5.9 million, respectively, with useful lives ranging from 5 to 15
years. The transaction is being accounted for as a purchase.
On September 9, 1999 the Company's shareholders approved an increase in the
number of authorized shares of common stock from 100,000,000 to 250,000,000.
On October 20, 1999 the Company completed a two-for-one stock split of common
stock effected in the form of a stock dividend to shareholders of record as of
September 30, 1999. Accordingly, historical share and per share amounts have
been restated to retroactively reflect the stock split.
Note 14 - Quarterly Results and Stock Market Data (unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
- -------------------------------------------------------------------------------------------------------------
(in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Fiscal Year 1998
Revenues $35,013 $40,695 $46,587 $54,590 $176,885
Net income 10,000 11,468 13,242 15,790 50,500
Net income per share - diluted (A) 0.06 0.07 0.08 0.10 0.31
Fiscal Year 1997
Revenues $21,841 $24,617 $27,859 $31,096 $105,413
Net income 5,418 6,944 8,182 8,973 29,517
Net income per share - diluted (A) 0.04 0.04 0.05 0.06 0.19
</TABLE>
(A) Net income per share computations for each quarter are independent and
may not add to the net income per share computation for the year. All share and
per share data for all periods presented have been adjusted to reflect a 2 for 1
stock split of the common stock that was effected on May 26, 1998, and a 3 for 2
stock split of the common stock that was effected on February 28, 1997.
F-20
<PAGE>
VITESSE SEMICONDUCTOR CORPORATION
<TABLE>
<CAPTION>
Supplemental Condensed Consolidated Balance Sheets
(in thousands, except share data)
June 30, 1999 Sept. 30, 1998
------------- --------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 72,684 $ 76,963
Short-term investments 128,640 91,610
Accounts receivable, net 65,070 40,104
Inventories, net 22,935 17,208
Prepaid expenses 4,046 3,177
Deferred tax asset 35,226 24,981
-------- --------
Total current assets 328,601 254,043
-------- --------
Property and equipment, net 75,874 57,949
Restricted long-term deposits 67,007 68,704
Intangible assets 14,961 ---
Other assets 214 312
-------- --------
$486,657 $381,008
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 11,085 $ 14,256
Accrued expenses and other current liabilities 14,748 10,046
Income taxes payable 2,708 4,199
Capital lease obligations 29 517
-------- --------
Total current liabilities 28,570 29,018
Long-term debt 3,705 701
Stockholders' equity:
Common stock, $.01 par value. Authorized 250,000,000
shares; issued and outstanding 155,361,602 shares on
June 30, 1999, and 150,037,680 shares on Sept. 30, 1998 1,554 1,500
Additional paid-in capital 369,038 315,411
Retained earnings 83,790 34,378
-------- --------
Total stockholders' equity 454,382 351,289
-------- --------
$486,657 $381,008
======== ========
</TABLE>
See accompanying Notes to Supplemental Condensed Consolidated Financial
Statements.
F-21
<PAGE>
VITESSE SEMICONDUCTOR CORPORATION
Supplemental Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------------- ---------------------------
June 30, 1999 June 30, 1998 Mar. 31, 1999 June 30, 1999 June 30,1998
------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues, net $ 73,262 $ 46,587 $ 66,937 $200,907 $122,295
Costs and expenses:
Cost of revenues 26,981 18,394 25,009 75,215 48,799
Engineering, research & development 12,998 8,884 12,210 36,160 23,102
Selling, general & administrative 9,108 6,300 9,100 26,056 16,497
-------- -------- -------- -------- --------
Total costs & expenses 49,087 33,578 46,319 137,431 88,398
Income from operations 24,175 13,009 20,618 63,476 33,897
Other income, net 2,857 2,548 2,768 8,106 7,050
-------- -------- -------- -------- --------
Income before income taxes 27,032 15,557 23,386 71,582 40,948
Income taxes 8,920 2,315 7,868 23,235 6,237
-------- -------- -------- -------- --------
Net income $ 18,112 $ 13,242 $ 15,518 $ 48,239 $ 34,710
======== ======== ======== ======== ========
Net income per share
Basic $ 0.12 $ 0.09 $ 0.10 $ 0.32 $ 0.24
======== ======== ======== ======== ========
Diluted $ 0.11 $ 0.08 $ 0.09 $ 0.29 $ 0.22
======== ======== ======== ======== ========
Shares used in per share computations:
Basic 154,540 148,332 151,918 152,178 146,482
======== ======== ======== ======== ========
Diluted 166,902 161,178 165,880 165,242 159,110
======== ======== ======== ======== ========
</TABLE>
See accompanying Notes to Supplemental Condensed Consolidated Financial
Statements.
F-22
<PAGE>
VITESSE SEMICONDUCTOR CORPORATION
Supplemental Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------------
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 48,234 $ 34,710
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 16,608 9,879
Change in assets and liabilities:
(Increase) decrease in, net of effects of acquisition:
Accounts receivable, net (24,966) (13,876)
Inventories, net (5,727) (3,293)
Prepaid expenses (869) (1,825)
Other assets 98 231
Increase (decrease) in:
Accounts payable (3,171) (4,518)
Accrued expenses and other current liabilities 4,702 (2,632)
Income taxes payable 24,293 8,077
-------- --------
Net cash provided by operating activities 59,202 29,753
-------- --------
Cash flows from investing activities:
Maturities of short-term investments (37,030) (34,268)
Capital expenditures (33,808) (23,969)
Restricted long-term deposits 1,697 (20,180)
Payment for purchase of company (13,040) ---
-------- --------
Net cash used in investing activities (82,181) (78,417)
-------- --------
Cash flows from financing activities:
Principal payments for long-term debt (209) (314)
Proceeds from issuance of common stock, net 18,909 17,166
-------- --------
Net cash provided by financing activities 18,700 16,852
-------- --------
Net (decrease) in cash and cash equivalents (4,279) (34,812)
Cash and cash equivalents at beginning of period 76,963 99,975
-------- --------
Cash and cash equivalents at end of period $ 72,684 $ 65,163
======== ========
</TABLE>
See accompanying Notes to Supplemental Condensed Consolidated Financial
Statements.
F-23
<PAGE>
VITESSE SEMICONDUCTOR CORPORATION
Supplemental Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------------
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 10 $ 30
======= ======
Income taxes $ 1,670 $1,001
======= ======
Supplemental disclosures of non-cash transactions:
Issuance of stock options in purchase acquisition $ 300 $ ---
======= ======
Issuance of notes payable in acquisition $ 2,725 $ ---
======= ======
Increase in equity associated with tax benefit from exercise
of stock options $34,573 $ ---
======= ======
</TABLE>
See accompanying Notes to Supplemental Condensed Consolidated Financial
Statements.
F-24
<PAGE>
VITESSE SEMICONDUCTOR CORPORATION
Notes to Unaudited Supplemental Condensed Consolidated Financial Statements
Note 1. Basis of Presentation and Significant Accounting Policies
The accompanying supplemental condensed consolidated financial statements
are unaudited and include the accounts of Vitesse Semiconductor Corporation and
its subsidiaries (the "Company"). As more fully described in Note 2 of the
supplemental condensed consolidated financial statements, the Company's
acquisitions of Serano Systems, Inc. ("Serano") on January 21, 1999 and XaQti
Corporation ("XaQti") on July 16, 1999 were accounted for under the pooling-of-
interests method, and accordingly, the supplemental condensed consolidated
financial statements for all periods presented have been restated to include the
accounts and results of operations of Serano and XaQti. Additionally, as more
fully described in Note 3, on November 25, 1998 the Company acquired all of the
equity interests of Vermont Scientific Technologies, Inc. ("VTEK") for $13
million cash and $2.5 million notes payable. This transaction has been accounted
for as a purchase and therefore the operations of VTEK are included from the
date of acquisition. All intercompany accounts and transactions have been
eliminated. In management's opinion, all adjustments (consisting only of normal
recurring accruals) which are necessary for a fair presentation of financial
condition and results of operations are reflected in the attached interim
financial statements. These financial statements should be read in conjunction
with the audited financial statements presented in the 1998 Annual Report and
the supplemental condensed consolidated financial statements for the years ended
September 30, 1998, 1997 and 1996, included herein. Footnotes and other
disclosures which would substantially duplicate the disclosures in the Company's
audited financial statements for fiscal year 1998 have been omitted. The interim
financial information herein is not necessarily representative of the results to
be expected for any subsequent period.
Computation of Net Income per Share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share." SFAS No. 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share and became effective for both interim
and annual periods ending after December 15, 1997. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options and
convertible securities. Diluted earnings per share is very similar to
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods presented have been restated to conform to SFAS No. 128
requirements.
The reconciliation of shares used to calculate basic and diluted income per
share consists of the following (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
- -------------------------------------------------------------------------------------------------------------
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares used in basic per share computations-
weighted average shares outstanding 154,540 148,332 152,178 146,482
Net effect of dilutive common share equivalents
based on treasury stock method 12,362 12,846 13,064 12,628
------- ------- ------- -------
Shares used in diluted per share computations 166,902 161,178 165,242 159,110
======= ======= ======= =======
</TABLE>
F-25
<PAGE>
VITESSE SEMICONDUCTOR CORPORATION
Options to purchase 235,726 shares and 145,472 were outstanding at June 30,
1999 and 1998, respectively, but were not included in the computation of diluted
net income per share because the exercise price of the options was greater than
the average market price of the common shares, and therefore the effect would be
antidilutive.
Comprehensive Income
On October 1, 1998 the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." This statement establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. The Company has no
components of other comprehensive income. Therefore comprehensive income is the
same as the reported net income.
Segment Reporting
On October 1, 1998 the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information." This statement establishes standards for reporting operating
segment information in annual financial statements and interim reports issued to
stockholders. Disclosure will be included in the Company's annual financial
statements.
Reclassifications and Restatements
Where necessary, prior periods' information has been reclassified to
conform to the current period Supplemental Condensed Consolidated financial
statement presentation.
On April 21, 1998, the Board of Directors approved a 2 for 1 stock split of
the Company's Common Stock that was effected on May 26, 1998. All references to
the number of common shares, weighted average number of common shares and per
share data for all periods presented have been adjusted to reflect the stock
split.
Note 2. Pooling of Interest Business Combinations
On January 21, 1999 the Company issued 655,256 shares of its common stock
in exchange for all of the outstanding shares of Serano, a provider of enclosure
platform management solutions of Fibre Channel and SCSI server and storage
subsystems. This acquisition has been retroactively accounted for under the
pooling-of-interests method of accounting in these supplemental condensed
consolidated financial statements.
On July 16, 1999 the Company issued 1,892,300 shares of its common stock in
exchange for all of the outstanding shares of XaQti, a provider of integrated
circuits for the data communications industry. This acquisition has been
retroactively accounted for under the pooling-of-interests method of accounting
in these supplemental condensed consolidated financial statements.
F-26
<PAGE>
VITESSE SEMICONDUCTOR CORPORATION
The results of operations previously reported by the separate entities, and
combined amounts presented in the accompanying supplemental condensed
consolidated financial statements, are summarized below (in thousands):
<TABLE>
<CAPTION>
The
Company Serano XaQti Combined
- ---------------------------------------------------------------------------------------------------------------
Three months ended
June 30, 1999:
<S> <C> <C> <C> <C>
Revenues $ 73,044 $ - $ 218 $ 73,262
Net income (loss) 19,404 - (1,292) 18,112
Three months ended
December 31,1998:
Revenues $ 60,179 $ 346 $ 183 $ 60,708
Net income (loss) 15,438 (135) (699) 14,604
Three months ended
June 30, 1998:
Revenues $ 46,108 $ 373 $ 106 $ 46,587
Net income (loss) 13,927 (78) (607) 13,242
Nine months ended
June 30, 1999:
Revenues $200,086 $ 346 $ 475 $200,907
Net income (loss) 52,028 (135) (3,659) 48,234
Nine months ended
June 30, 1998:
Revenues $121,021 $ 983 $ 291 $122,295
Net income (loss) 36,362 (138) (1,514) 34,710
</TABLE>
Certain reclassifications have been made to the financial statements of
Serano and XaQti to conform to the Company's financial presentation.
F-27
<PAGE>
VITESSE SEMICONDUCTOR CORPORATION
Note 3. Purchase Accounting Business Combinations
On November 25, 1998 the Company acquired all of the equity interests of
Vermont Scientific Technologies, Inc. (VTEK) for $13.0 million cash and $2.7
million in notes payable. VTEK provides integrated circuit design services
primarily in the telecommunications industry. In conjunction with the
transaction, the Company recorded goodwill and other identifiable intangibles
amounting to $9.9 million and $5.9 million, respectively, with useful lives
ranging from 5 to 15 years. The transaction is being accounted for as a
purchase. Accordingly, the operations of VTEK are included from the date of
acquisition. VTEK is not a significant subsidiary, and therefore proforma data
is not presented herein.
Note 4. Inventories, net
Inventories consist of the following (in thousands):
June 30, 1999 Sept. 30, 1998
--------------------------------------------------------------------
Raw Materials $ 4,100 $ 2,961
Work in process and finished goods 18,835 14,247
------- -------
$22,935 $17,208
======= =======
Note 5. Subsequent Events
On September 9, 1999 the Company's shareholders approved an increase in
the number of authorized shares of common stock from 100,000,000 to 250,000,000.
On October 20, 1999 the Company completed a two-for-one stock split of
common stock effected in the form of a stock dividend to shareholders of record
as of September 30, 1999. Accordingly, historical share and per share amounts
have been restated to retroactively reflect the stock split.
F-28
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Company will pay all expenses incident to the offering and sale to the
public of the shares being registered other than any commissions and discounts
of underwriters, dealers or agents and any transfer taxes. Such expenses are
set forth in the following table. All of the amounts shown are estimates except
the Securities and Exchange Commission ("SEC") registration fee.
SEC registration fee........................................... $ 18,930
--------
Legal fees and expenses........................................ $ 10,000
Accounting fees and expenses................................... $ 7,500
--------
Miscellaneous expenses......................................... $ 2,000
--------
Total..................................................... $ 38,430
========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to award,
or a corporation's Board of Directors to grant, indemnity to directors and
officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act. Paragraph 9 of the Registrant's
Amended Certificate of Incorporation and Article 6 of the Registrant's Bylaws
provide for indemnification of the Registrant's directors and officers to the
maximum extent permitted by the Delaware General Corporation Law. The Registrant
also maintains, and intends to continue to maintain, insurance for the benefit
of its directors and officers to insure such persons against certain
liabilities, including liabilities under the Securities laws. Reference is also
made to Section 8 of the Registration Rights Agreement (Exhibit 4.1 hereof)
indemnifying officers and directors of the Registration against certain
liabilities.
ITEM 16. EXHIBITS
3.1 Restated Certificate of Incorporation reflecting all amendments filed
with the Delaware Secretary of State through September 16, 1999.
4.1 Form of the Registration Rights Agreement by and among Vitesse
Semiconductor Corporation, the Selling Stockholders and XaQti.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
23.1 Consent of KPMG LLP, Independent Accountants.
II-1
<PAGE>
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (included on page II-4).
___________________________
ITEM 17. UNDERTAKINGS
A. UNDERTAKING PURSUANT TO RULE 415
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement to include any
material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of this offering.
B. UNDERTAKING REGARDING FILINGS INCORPORATING SUBSEQUENT
EXCHANGE ACT DOCUMENTS BY REFERENCE
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
C. UNDERTAKING IN RESPECT OF INDEMNIFICATION
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 foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC 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
II-2
<PAGE>
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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Camarillo, State of California, on this 22/nd/ day of
October, 1999.
VITESSE SEMICONDUCTOR CORPORATION
By: /s/ Louis R. Tomasetta
----------------------------------------
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons on the
22/nd/ day of October 1999 in the capacities indicated.
Signature Title
--------- -----
/s/ Louis R. Tomasetta President, Chief Executive Officer, and
- ----------------------
Louis R. Tomasetta Director
(principal executive officer)
/s/ Eugene F. Hovanec Vice President, Finance and Chief
- ---------------------
Eugene F. Hovanec Financial Officer (principal financial
and accounting officer)
/s/ James A. Cole
- --------------------- Director
James A. Cole
/s/ Pierre R. Lamond Chairman of the Board of Directors
- --------------------
Pierre R. Lamond
/s/ John C. Lewis Director
- -----------------
John C. Lewis
/s/ Alex Daly Director
- -------------
Alex Daly
II-4
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
3.1 Restated Certificate of Incorporation reflecting all amendments
filed with the Delaware Secretary of State through September 16,
1999.
4.1 Form of the Registration Rights Agreement by and among Vitesse
Semiconductor Corporation, the Selling Stockholders and XaQti.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
23.1 Consent of KPMG LLP, Independent Accountants.
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (included on page II-4).
II-5
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
-------------------------------------------------
OF
--
VITESSE SEMICONDUCTOR CORPORATION
---------------------------------
The undersigned Eugene F. Hovanec does hereby verify that:
1. He is the duly elected Vice President, Finance, Chief Financial
Officer
and Secretary of Vitesse Semiconductor Corporation, a Delaware corporation.
2. The Certificate of Incorporation of this corporation is amended and
restated to read in its entirety as follows:
1. The name of the corporation is Vitesse Semiconductor Corporation (the
"Corporation").
2. The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, zip code 19801. The name of its registered
agent at such address is The Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which
Corporations may be organized under the General Corporation Law of Delaware.
4. This Corporation is authorized to issue two classes of shares to be
designated respectively Preferred Stock ("Preferred") and Common Stock
("Common"). The total number of shares of Preferred this Corporation shall have
authority to issue shall be 10,000,000, $0.01 par value, and the total number of
Common this Corporation shall have authority to issue shall be 250,000,000,
$0.01 par value.
The Preferred Stock may be issued from time to time in one or more series
pursuant to a resolution or resolutions providing for such issue duly adopted by
the Board of Directors (authority to do so being hereby expressly vested in the
Board). The Board of Directors is further authorized to determine or alter the
rights, preferences, privileges and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock and, to fix the number of shares of
any series of Preferred Stock and the designation of any such series of
Preferred Stock. The Board of Directors, within the limits and restrictions
stated in any resolution or resolutions of the Board of Directors originally
fixing
1 of EX 3.1
<PAGE>
the number of shares constituting any series, may increase or decrease (but not
below the number of shares in any such series then outstanding) the number of
shares of any series subsequent to the issue of shares of that series.
5. The Corporation is to have perpetual existence.
6. Elections of directors need not be by written ballot unless a
stockholder demands election by written ballot at the meeting and before voting
begins or unless the Bylaws of the Corporation shall so provide.
7. The number of directors which constitute the whole Board of Directors
of the Corporation shall be designated in the Bylaws of the Corporation.
8. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend or
repeal the Bylaws of the Corporation.
9. (a) To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or as may hereafter be amended, a director of
the Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
(b) The Corporation shall indemnify to the fullest extent permitted by
law any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director, officer or employee of
the Corporation or any predecessor of the Corporation or serves or served at any
other enterprise as a director, officer or employee at the request of the
Corporation or any predecessor to the Corporation.
(c) Neither any amendment nor repeal of this Article 9, nor the
adoption of any provision of this Corporation's Certificate of Incorporation
inconsistent with this Article 9, shall eliminate or reduce the effect of this
Article 9 in respect of any matter occurring, or any action or proceeding
accruing or arising or that, but for this Article 9, would accrue or arise,
prior to such amendment, repeal or adoption of an inconsistent provision.
10. Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
11. Following the effectiveness of the registration of any class of
securities of the Corporation pursuant to the requirements of the Securities
Exchange Act of 1934, as amended, no action shall be taken by the stockholders
of the Corporation except at an annual or special meeting of the stockholders
call in accordance with the Bylaws and no action shall be taken by the
stockholders by written consent.
2 of EX 3.1
<PAGE>
3. The foregoing amendment and restatement of the Certificate of
Incorporation has been duly approved by the Board of Directors.
4. The foregoing amendment and restatement of the Certificate of
Incorporation has been duly approved by the required vote of stockholders in
accordance with Section 242 of the General Corporation Law of the State of
Delaware. The total number of outstanding shares of Common Stock of the
Corporation is 78,036,697 and there are no shares of Preferred Stock
outstanding. The number of shares voting in favor of the Amended and Restated
Certificate of Incorporation equalled or exceeded the vote required. The
percentage vote required was more than 50% of the Common voting as a class.
Notice has been given to any non-consenting stockholders in accordance with the
provisions of Section 228(c) of the General Corporation Law of the State of
Delaware.
The undersigned declares under penalty of perjury under the laws of the
State of Delaware that the matters set forth in this certificate are true,
correct and of his own knowledge.
Executed at Camarillo, California on September 16, 1999.
/s/ Eugene F. Hovanec
---------------------
Eugene F. Hovanec
Vice President, Finance &
Chief Financial Officer and
Secretary
3 of EX 3.1
<PAGE>
Exhibit 4.1
Form of the Registration Rights Agreement
<PAGE>
VITESSE SEMICONDUCTOR CORPORATION
---------------------------------
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made effective as
of May ___, 1999 (the "Effective Date"), by and among Vitesse Semiconductor
Corporation, a Delaware corporation (the "Parent"), XaQti Corporation, a
California corporation (the "Company") and the shareholders and warrant holders
of the Company listed on Exhibit A hereto (collectively, the "Shareholders").
---------
RECITALS
--------
A. The Company, Parent, Power Acquisition Corp., a Delaware corporation
("Sub") and certain others, are parties to the Agreement and Plan of
Reorganization dated May 21, 1999 (together with the exhibits and schedules
thereto, the "Merger Agreement"), pursuant to which Sub shall be merged with and
into the Company, the separate corporate existence of Sub shall cease and the
Company shall continue as the surviving corporation and as a wholly-owned
subsidiary of Parent.
B. Pursuant to the Merger Agreement, among other things, the Shareholders
shall have the right to receive the shares of common stock of Parent (the
"Shares") as set forth opposite each Shareholders name on Exhibit A in exchange
---------
for outstanding shares of Company capital stock or upon the exercise or
conversion of warrants therefor.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, all parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:
"Black-Out Period" means any period during which executive officers and
----------------
directors of Parent are generally prohibited from engaging in trades in Parent's
securities pursuant to Parent's Insider Trading Policy.
"Commission" means the Securities and Exchange Commission or any other
----------
Federal agency at the time administering the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
------------
any similar Federal rule or statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
1 of Ex 4.1
<PAGE>
"Holder" means any of the Shareholders, for so long as such person holds
------
any Registrable Securities, or any person holding Registrable Securities to whom
the rights under this Agreement have been transferred in accordance with Section
11 hereof.
"Insider Trading Policy" means the policy adopted by Parent's Board of
----------------------
Directors, as such may be amended from time to time, relating to transactions in
Parent's securities by Parent's executive officers and directors.
"Permitted Window" means the period during which a Holder entitled to sell
----------------
Registrable Securities pursuant to a registration statement under Section 5(a)
of this Agreement shall be permitted to sell Registrable Securities pursuant to
such a registration. Except as otherwise set forth in this Agreement, a
Permitted Window shall (i) commence upon the tenth business day following
receipt by Parent of a written notice from a Holder to Parent that such Holder
intends to sell Shares pursuant to such registration statement, or such earlier
date as Parent may agree to, and shall (ii) terminate upon the commencement of a
Black-Out Period.
"Registrable Securities" means the Shares and any Common Stock of Parent
----------------------
issued or issuable in respect thereof upon any conversion, stock split, stock
dividend, recapitalization, merger or other reorganization; provided, however,
-------- -------
that securities shall only be treated as Registrable Securities if and so long
as they have not been registered or sold to or through a broker or dealer or
underwriter in a public distribution or a public securities transaction; and
provided, further that the Company shall have no obligation hereunder to
- -------- -------
register any warrants exercisable for or convertible into Shares.
"Register," "registered" and "registration" refer to a registration
-------- ---------- ------------
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" means all expenses, except Selling Expenses,
---------------------
incurred by Parent in complying with Section 5 hereof, including without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for Parent, blue sky fees and
expenses, the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of Parent
which shall be paid in any event by Parent).
"Restricted Securities" means the securities of Parent required to bear a
---------------------
legend as described in Section 3 hereof.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
similar Federal rule or statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" means all underwriting discounts, selling commissions
----------------
and stock transfer taxes applicable to the securities registered by the Holders
and all fees and disbursements of counsel for any Holder.
2 of EX 4.1
<PAGE>
2. Restrictions on Transferability. The Restricted Securities and
-------------------------------
any other securities issued in respect of such securities upon any stock split,
stock dividend, recapitalization, merger or other reorganization, shall not be
sold, assigned, transferred or pledged except upon the conditions specified in
this Agreement, which conditions are intended to ensure compliance with the
provisions of the Securities Act. Each Holder or transferee will cause any
proposed purchaser, assignee, transferee, or pledgee of any such securities held
by the Holder or transferee to agree to take and hold such securities subject to
the restrictions and upon the conditions specified in this Agreement, including
without limitation the restrictions set forth in Section 4.
3. Restrictive Legend. Each certificate representing the Shares or
------------------
any other securities issued in respect of such securities upon any stock split,
stock dividend, recapitalization, merger or other reorganization shall be
stamped or otherwise imprinted with the following legends:
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. SUCH SECURITIES MAY NOT
BE TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER SAID
ACT IS IN EFFECT AS TO SUCH TRANSFER OR, IN THE OPINION OF
COUNSEL SATISFACTORY TO THE ISSUER, SUCH TRANSFER MAY BE
MADE WITHOUT REGISTRATION UNDER SAID ACT
Each Holder consents to Parent making a notation on its records and giving
instructions to any transfer agent of its capital stock in order to implement
the restrictions on transfer established in this Agreement and the Purchase
Agreement.
4. Notice of Proposed Transfers. The holder of each certificate
----------------------------
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 4. Without in any way limiting the
immediately preceding sentence or the provisions of Section 2, no sale,
assignment, transfer or pledge (other than (i) a sale made pursuant to a
registration statement filed under the Securities Act and declared effective by
the Commission or (ii) a sale made in accordance with the applicable provisions
of Rule 144) of Restricted Securities shall be made by any holder thereof to any
person unless such person shall first agree in writing to be bound by the
restrictions of this Agreement, including without limitation this Section 4.
Prior to any proposed sale, assignment, transfer or pledge of any Restricted
Securities, unless there is in effect a registration statement under the
Securities Act covering the proposed transfer, the holder thereof shall give
written notice to Parent of such holder's intention to effect such transfer,
sale, assignment or pledge. Each such notice shall describe the manner and
circumstances of the proposed transfer, sale, assignment or pledge in sufficient
detail, and, if requested by Parent, the holder shall also provide, at such
holder's expense, a written opinion of legal counsel (who shall be, and whose
legal opinion shall be, reasonably satisfactory to Parent) addressed to Parent,
to the effect that the proposed transfer of the Restricted Securities may be
effected without registration under the Securities Act and under applicable
state securities laws and regulations. Upon delivery to Parent of such notice
and, if required, such opinion, the holder of such Restricted Securities shall
be entitled to transfer such Restricted Securities in accordance with the terms
of such notice.
3 of EX 4.1
<PAGE>
Parent agrees that it shall not request such an opinion of counsel with respect
to (i) a transfer not involving a change in beneficial ownership, (ii) a
transaction involving the transfer without consideration of Restricted
Securities by an individual holder during such holder's lifetime by way of gift
or on death by will or intestacy. Each certificate evidencing the Restricted
Securities transferred as above provided shall bear, except if such transfer is
made pursuant to Rule 144, the appropriate restrictive legend set forth in
Section 3 above, except that such certificate shall not bear such restrictive
legend if, in the opinion of counsel for such holder and counsel for Parent,
such legend is not required in order to establish or ensure compliance with any
provision of the Securities Act.
5. Registration on Form S-3.
------------------------
(a) Registration. Parent shall use its commercial best efforts to
------------
cause a registration statement on Form S-3 (or any successor form, collectively,
a "Form S-3") covering all Registrable Securities to be filed and declared
effective no later than the second day after the day that Parent publicly
announces financial results covering at least thirty (30) days of combined
operations of Parent and Company. Parent shall use its commercially reasonable
efforts to keep such registration statement effective until the first
anniversary of the date of this Agreement, or such earlier date upon which no
Holder holds any Registrable Securities. Upon receipt of a notice from any
Holder that such Holder intends to sell Registrable Securities during a
Permitted Window, Parent shall, prior to the commencement of the Permitted
Window, inform the other Holders of the commencement of the Permitted Window.
Parent shall notify each of the Holders of the termination of a Permitted Window
no later than the time Parent notifies its executive officers and directors of
the corresponding Black-Out Period; provided, however, that Parent need not
-------- -------
notify the Holders of regularly scheduled Black-Out Periods relating to the
closing of Parent's fiscal quarters, which periods commence on the fifteenth day
prior to the end of the last month of each fiscal quarter and terminate twenty-
four hours after Parent publicly announces its results for such quarters.
(b) Limitations on Registration and Sale of Registrable Securities.
--------------------------------------------------------------
Notwithstanding anything in this Agreement to the contrary, Parent's obligations
and the Holders' rights under this Section 5 are subject to the limitations and
qualifications set forth below, which may be waived in writing by Parent.
(i) Parent shall have no obligation to keep effective a
registration statement hereunder following such time as each Holder is eligible
to sell all of its Registrable Securities in a three month period under the
applicable provisions of Rule 144.
(ii) The Holders will sell Registrable Securities pursuant to a
registration effected hereunder only during a Permitted Window.
(iii) If Parent furnishes to the Holders a certificate signed by
the President or Chief Financial Officer of Parent stating that, in the good
faith judgment of the Board of Directors of Parent, it would be seriously
detrimental to Parent for a Form S-3 registration to be effected, or a Permitted
Window to be in effect, due to (A) the existence of a material development or
potential material development involving Parent which Parent would be obligated
to disclose in the prospectus
4 of EX 4.1
<PAGE>
contained in the Form S-3 registration statement, which disclosure would in the
good faith judgment of the Board of Directors be premature or otherwise
inadvisable, (B) the existence of other facts or circumstances as a result of
which the prospectus contained or to be contained in the Form S-3 registration
statement includes or would include an untrue statement of a material fact or
omits or would omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances under which they were made or then existing or (C) Parent's bona
fide intention to effect the filing of a registration statement with the
Commission within sixty (60) days of the receipt of a notice from a Holder that
it intends to sell Registrable Securities during a Permitted Window, Parent may
defer the filing of the Form S-3 registration statement or delay the
commencement of a Permitted Window or may effect an early termination of a
Permitted Window that has commenced, as the case may be. Parent may elect to so
defer, delay or terminate under clause (A) above only to the extent that the
event described in clause (A) also gives rise to a Black-Out Period applicable
to all of Parent's executive officers and directors under Parent's Insider
Trading Policy. If Parent elects to so defer, delay or terminate under clause
(B) above, Parent shall use its commercially reasonable efforts to amend the
registration statement or take such other action as may be necessary to
eliminate the situation described in clause (B) as soon as practicable. Any
Holder receiving any notice from Parent with respect to the matters covered by
this Section 5(b)(iii) shall keep the fact and content of such notice, and the
event or circumstances giving rise to such notice, confidential.
(iv) The obligations of Parent hereunder are conditioned upon
its being eligible to register its securities on Form S-3 or at the time any
such registration is otherwise required hereunder;
(v) At any time that Parent is obligated under this Agreement
to permit the Holders to sell Registrable Securities pursuant to a registration
statement on Form S-3, Parent may, instead of maintaining an effective
registration statement on Form S-3 for the benefit of the Holders, include such
Registrable Securities in a registration effected for the benefit of Parent
and/or other selling stockholders. In the event that such registration is in
connection with an underwritten offering, the Holders participating in such
registration shall enter into an underwriting agreement in customary form with
the managing underwriter selected by Parent, notwithstanding the provisions of
Section 5(c).
(vi) Notwithstanding anything to the contrary in this Agreement,
Parent shall have no obligation to effect a registration hereunder, and no
Permitted Window will exist, with respect to Registrable Securities that are
subject to the escrow provisions of the Merger Agreement (including any
agreement which is an exhibit thereto) during the time that such Registrable
Securities are subject to such provisions and no Holder shall sell any such
Registrable Securities pursuant to a registration hereunder, or pursuant to Rule
144, during any such period.
(c) Underwriting. At the election of the Holders representing a
------------
majority of the Registrable Securities that are proposed to be sold during a
Permitted Window (the "Deciding Holders"), all sales of Registrable Securities
under this Section 5 during such Permitted Window shall be made through an
underwriting managed by an underwriter selected by Parent and acceptable to
Deciding Holders (the "Managing Underwriter"). Parent shall, together with all
Holders proposing to distribute their Registrable Securities though such
underwriting, enter into an underwriting agreement in customary form with the
Managing Underwriter. If any Holder of Registrable Securities disapproves
5 of EX 4.1
<PAGE>
of the terms of the underwriting, such person may elect to withdraw therefrom by
written notice to Parent. Any Holder so withdrawing shall not sell any
Registrable Securities pursuant to a registration effected under this Agreement
until after the completion of such underwritten distribution. Nothing in this
section shall require the holders to select and sell any of the Shares through a
Managing Underwriter.
(d) Registration Procedures. In connection with any registration
-----------------------
required under this Agreement, Parent shall take the actions set forth below.
(i) Prior to filing any registration statement, prospectus,
amendment or supplement with the Commission in connection with any registration
hereunder, Parent shall furnish to one counsel selected by the Holders of a
majority of the Registrable Securities copies of such documents.
(ii) Parent shall notify each Holder of any stop order issued or
threatened by the Commission and will take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered.
(iii) Parent shall comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by a registration
statement filed pursuant to this Agreement with respect to the disposition of
all Registrable Securities covered by such registration statement in accordance
with the intended methods of disposition by the Holders as set forth in such
registration statement.
(iv) Parent shall furnish to each Holder and each underwriter,
if any, of Registrable Securities covered by a registration statement filed
pursuant to this Agreement such number of copies of such registration statement,
each amendment and supplement thereto (in each case including all exhibits
thereto), and the prospectus included in such registration statement (including
each preliminary prospectus), in conformity with the requirements of the
Securities Act, and such other documents as a selling Holder may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Holder. Such delivery of documents shall be made by Parent within
two (2) trading days of receipt of a request therefor from a Holder.
(v) Parent shall use its best efforts to register or qualify
the Registrable Securities under the securities or "blue sky" laws of each State
of the United States of America as any of the Holders or underwriters, if any,
of the Registrable Securities covered by a registration statement filed
hereunder reasonably requests, and shall do any and all other acts and things
which may be reasonably necessary or advisable to enable each selling Holder and
each underwriter, if any, to consummate the disposition in such States of the
Registrable Securities owned by such selling Holders; provided that Parent shall
--------
not be required to (A) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this subsection (v),
(B) subject itself to taxation in any such jurisdiction or (C) consent to
general service of process in any such jurisdiction.
6 of EX 4.1
<PAGE>
(vi) Parent shall immediately notify each Holder entitled to
sell Registrable Securities during a Permitted Window of the happening of any
event which comes to Parent's attention if, as a result of such event, the
prospectus included in the registration statement filed under this Agreement
contains any untrue statement of a material fact or omits to state any material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, and Parent shall promptly prepare
and furnish to each Holder and file with the Commission a supplement or
amendment to such prospectus so that such prospectus will no longer contain any
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
(vii) Parent shall take all such other reasonable and customary
actions as each Holder or the underwriters, if any, may reasonably request in
order to expedite or facilitate the disposition of the Registrable Securities in
accordance with the terms of this Agreement.
(viii) Parent shall make available for inspection by the Holders,
any underwriter participating in any disposition pursuant to a registration
statement filed under this Agreement, and any attorney, accountant or other
agent retained by such Holders or underwriters, all financial and other records,
pertinent corporate documents and properties of Parent and its subsidiaries, as
such person may reasonably request for the purpose of confirming that such
registration statement does not contain any untrue statement of a material fact
or omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, provided
that Parent obtains reasonably satisfactory assurances that such information
will be used solely for such purpose and will be held in confidence (except to
the extent that it is included in the registration statement). Parent shall
cause the officers, directors and employees of Parent and each of its
subsidiaries to supply such information and respond to such inquiries as any
Holder or underwriter may reasonably request or make for the purpose of
confirming that such registration statement does not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, provided that Parent obtains reasonably satisfactory
assurances that such information will be used solely for such purpose and will
be held in confidence (except to the extent that it is included in the
registration statement).
6. Other Registration Rights. The Holders acknowledge that certain other
-------------------------
stockholders of Parent may now or hereafter have registration rights, and that
such other stockholders may be entitled to sell their securities at the same
time, or pursuant to the same registration and underwriting, as the Holders
hereunder.
7. Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with Parent's obligations hereunder shall be borne by Parent. All
Selling Expenses relating to securities proposed to be registered hereunder and
all other registration expenses shall be borne by the Holders of such securities
pro rata on the basis of the number of shares proposed to be sold by each of
them during the applicable Permitted Window.
8. Indemnification.
---------------
7 of EX 4.1
<PAGE>
(a) Parent will indemnify each Holder, each of its officers and
directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which registration
has been effected pursuant to this Agreement, against all expenses, claims,
losses, damages or liabilities (or actions in respect thereof), including any of
the foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration, or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading and Parent will reimburse each such Holder, each of its officers,
directors and partners, and each person controlling such Holder, for any legal
and any other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action,
provided that Parent will not be liable in any such case to the extent that any
- --------
such claim, loss, damage, liability or expense arises out of or is based on any
untrue statement or omission or alleged untrue statement or omission, made in
reliance upon and in conformity with written information furnished to Parent by
an instrument duly executed by such Holder or controlling person, and stated to
be specifically for use therein; and provided, further, that the foregoing
-------- -------
indemnity Agreement is subject to the condition that, insofar as it relates to
any such untrue statement, alleged untrue statement, omission or alleged
omission made in a preliminary prospectus, such indemnity agreement shall not
inure to the benefit of any person, if a copy of the final prospectus or an
amended or supplemented prospectus, as applicable, was not furnished to the
person asserting the loss, liability, claim or damage at or prior to the time
such action is required by the Securities Act, and if the final prospectus or
the amended or supplemented prospectus, as applicable, would have cured the
defect giving rise to the loss, liability, claim or damage. In no event,
however, shall Parent have any indemnification obligation to the extent that the
expenses, claims, losses, damages or liabilities as to which indemnification is
sought are in connection with an offer or sale made by a person other than
Parent in violation of the terms of this Agreement (a "Violation").
(b) Each Holder will, severally and not jointly and severally, if
Registrable Securities held by such Holder are included in the securities as to
which a registration hereunder is effected, indemnify Parent, each of its
directors and officers, each person who controls Parent within the meaning of
Section 15 of the Securities Act, and each other such Holder, each of its
officers and directors and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on (i) a
Violation by such Holder or (ii) any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse
Parent, such Holders, such directors, officers or control persons for any legal
or any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, but, in the case of
clause (ii) above, only to the extent that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with information furnished to Parent by such Holder.
Notwithstanding
8 of EX 4.1
<PAGE>
the foregoing, the liability of each Holder under this subsection 8.7(b) shall
be limited in an amount equal to the initial public offering price of the shares
sold by such Holder, unless such liability arises out of or is based on a
Violation or willful misconduct by such Holder.
(c) Each party entitled to indemnification under this Section 8 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that (i) counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, (ii) that the failure of any Indemnified Party to give notice
as provided herein shall not relieve the Indemnifying Party of its obligations
under Section 8 of this Agreement unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action,
and then only to the extent that such Indemnifying Party is materially
prejudiced, and (iii) that the Indemnifying Party shall not assume the defense
for matters as to which there is a conflict of interest or there are separate
and different defenses. No Indemnifying Party, in the defense of any such claim
or litigation, shall, except with the consent of each Indemnified Party (whose
consent shall not be unreasonably withheld), consent to entry of any judgment or
enter into any settlement which (i) does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect to such claim or litigation or (ii)
includes admission of fault by the Indemnified Party. Notwithstanding the
foregoing, the liability of each Holder under this subsection 8.7(c) shall be
limited in an amount equal to the initial public offering price of the shares
sold by such Holder, unless such liability arises out of or is based on a
Violation or willful misconduct by such Holder.
9. Information by Holder. The Holder or Holders of Registrable
---------------------
Securities included in any registration hereunder shall furnish to Parent such
information regarding such Holder or Holders, the Registrable Securities held by
them and the distribution proposed by such Holder or Holders as Parent may
request in writing and as shall be required in connection with any registration
referred to in this Agreement.
10. Rule 144 Reporting. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission which may permit the sale of
the Restricted Securities to the public without registration Parent agrees to
use all reasonable efforts, at any time after the first anniversary of the
Effective Date, to:
(1) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act; and
(2) File with the Commission in a timely manner all reports and other
documents required of Parent under the Securities Act and the Exchange Act.
9 of EX 4.1
<PAGE>
11. Transfer of Registration Rights. The rights to cause Parent to
-------------------------------
register securities granted to Holders under Section 5 may be assigned to a
transferee or assignee reasonably acceptable to Parent in connection with any
transfer or assignment of Registrable Securities by the Holder, provided that
(i) such transfer is otherwise effected in accordance with applicable securities
laws and the terms of this Agreement, (ii) such assignee or transferee acquires
at least 10,000 shares of Registrable Securities (as adjusted for stock splits,
stock dividends, stock combinations and the like), (iii) written notice is
promptly given to Parent and (iv) such transferee agrees in writing to be bound
by the provisions of this Agreement. Notwithstanding the foregoing, the rights
to cause Parent to register securities may be assigned without compliance with
item (ii) above to a family member or trust for the benefit of a Holder who is
an individual, or a trust for the benefit of a family member of such a Holder.
In addition, a distribution of Shares issued in the Merger without additional
consideration to underlying beneficial owners in proportion to the beneficial
ownership interests (such as the general and limited partners, shareholders and
trust beneficiaries of a Holder) shall not be deemed to be an "assignment" or
"transfer" for purposes of the Section 11 and such underlying beneficial owners
shall be entitled to the same rights and subject to the same restrictions under
this Agreement as the initial Holder from which the Registrable Securities were
received without any additional action on the part of any party to this
Agreement other than reasonable notice to Parent of such distribution.
12. Amendment. Except as otherwise provided above, any provision of this
---------
Agreement may be amended or the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of Parent and Holders of a
majority of the Registrable Securities remaining at the time such amendment or
waiver is made.
13. Governing Law. This Agreement shall be governed in all respects by
-------------
the laws of the State of California, without regard to conflict of laws
provisions.
14. Entire Agreement. This Agreement constitutes the full and entire
----------------
understanding and Agreement among the parties regarding the matters set forth
herein. Except as otherwise expressly provided herein, all other agreements
regarding the registration rights of the Company's shareholders shall hereby
expire. The provisions hereof shall inure to the benefit of, and be binding
upon the successors, assigns, heirs, executors and administrators of the parties
hereto.
15. Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by facsimile
transmission, by hand or by messenger, addressed:
(a) if to a Holder, at such Holder's address as set forth below such
Holder's signature on this Agreement, or at such other address as such Holder
shall have furnished to Parent.
(b) if to Parent, to:
Vitesse Semiconductor Corporation
741 Calle Plano
Camarillo, California 93012
10 of EX 4.1
<PAGE>
Fax: (805) 388-7565
Attn: Yatin Mody
or at such other address as Parent shall have furnished to the
Holders, with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304-1050
Attn: Francis S. Currie, Esq.
Fax: (650) 493-6811
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally or by facsimile transmission, or, if sent by mail, at the
earlier of its receipt or 72 hours after the same has been deposited in a
regularly maintained receptacle for the deposit of the United States mail,
addressed and mailed as aforesaid.
16. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
11 of EX 4.1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
"PARENT"
Vitesse Semiconductor Corporation
a Delaware corporation
By:_____________________________________
Title:__________________________________
"THE HOLDERS"
________________________________________
By:_____________________________________
Its:____________________________________
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
12 of EX 4.1
<PAGE>
EXHIBIT A
---------
Number of Shares Held
Shareholder or Issuable Pursuant to Warrants
- ----------- --------------------------------
EX-A of EX 4.1
<PAGE>
Exhibit 5.1
October 22, 1999
Vitesse Semiconductor Corporation
741 Calle Plano
Camarillo, California 93012
RE: Registration Statement on Form S-3
Gentlemen:
We have examined the Registration Statement on Form S-3 to be filed by you
with the Securities and Exchange Commission on or about the date hereof (the
"Registration Statement"), in connection with the registration under the
Securities Act of 1933, as amended, of 1,849,708 post split shares of your
Common Stock (the "Shares"), all of which will be sold by certain selling
stockholders. The Shares are to be resold to the public as described in the
Registration Statement. As your counsel, we have examined the proceedings taken
by you in connection with the issuance of the Shares.
Based upon and subject to the foregoing, it is our opinion that the Shares
have been validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and any amendments thereto.
Sincerely,
/s/ Wilson Sonsini Goodrich & Rosati
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE>
Exhibit 23.1
------------
Consent of Independent Accountants
The Board of Directors
Vitesse Semiconductor Corporation:
We consent to the incorporation by reference in the registration statement
of Form S-3 of our reports dated October 14, 1998, relating to the consolidated
balance sheets of Vitesse Semiconductor Corporation and subsidiaries as of
September 30, 1998 and 1997, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the years in the
three year period ended September 30, 1998 and related schedule, which reports
appear in the September 30, 1998 annual report on Form 10-K of Vitesse
Semiconductor Corporation, and to reference to our firm under the heading
"Experts" in the registration statement.
We consent to the use of our report dated October 8, 1999, included herein,
with respect to the supplemental consolidated balance sheets of Vitesse
Semiconductor Corporation and subsidiaries as of September 30, 1998 and 1997,
and the related supplemental consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three year
period ended September 30, 1998, and the reference to our firm under the heading
"Experts" in the registration statement.
/s/ KPMG LLP
Los Angeles, California
October 21, 1999