<PAGE>
===============================================================================
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Vitesse Semiconductor Corporation
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
<PAGE>
VITESSE SEMICONDUCTOR CORPORATION
741 Calle Plano
Camarillo, CA 93012
(805) 388-3700
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
On January 23, 2001
----------------
Dear Vitesse Stockholder:
On Tuesday, January 23, 2001, Vitesse Semiconductor Corporation, a Delaware
corporation, will hold its 2001 Annual Meeting of Stockholders at the Hyatt
Westlake Plaza Hotel located at 880 South Westlake Boulevard, Westlake Village,
California 91361. The meeting will begin at 10:30 a.m.
Only stockholders who owned stock at the close of business on November 30,
2000 can vote at this meeting or any adjournments that may take place. At the
meeting we will:
1. Elect a Board of Directors.
2. Approve the proposal to adopt the Vitesse Semiconductor Corporation
2001 Stock
Incentive Plan.
3. Approve the appointment of our independent auditors for 2001.
4. Attend to other business properly presented at the meeting.
Your Board of Directors recommends that you vote in favor of the three
proposals outlined in this Proxy Statement.
If your shares are held of record by a broker, bank or other nominee and you
wish to attend the Annual Meeting, you must notify your broker, bank or other
nominee and obtain the proper documentation to vote your shares at the Annual
Meeting.
At the meeting we will also report on Vitesse's 2000 business results and
other matters of interest to stockholders.
Vitesse recently mailed a copy of its 2000 Annual Report to all
stockholders. The approximate date of mailing for this notice, proxy statement
and proxy card is December 22, 2000.
THE BOARD OF DIRECTORS
December 22, 2000
Camarillo, California
<PAGE>
VITESSE SEMICONDUCTOR CORPORATION
PROXY STATEMENT
----------------
ANNUAL MEETING OF STOCKHOLDERS
January 23, 2001
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors (the "Board") of Vitesse Semiconductor Corporation
("Vitesse" or the "Company") of proxies to be voted at the Annual Meeting of
Stockholders to be held on Tuesday, January 23, 2001, at 10:30 a.m., and at any
adjournment that may take place.
The Annual Meeting will be held at the Hyatt Westlake Plaza Hotel located at
880 South Westlake Boulevard, Westlake Village, California 91361. Vitesse
anticipates sending the proxy materials to stockholders on or about December
22, 2000.
The following is important information in a question-and-answer format
regarding the Annual Meeting and this Proxy Statement.
Q: What may I vote on?
A: (1)The election of six nominees to serve on our Board of Directors.
(2) A proposal to approve the adoption of the Company's 2001 Stock
Incentive Plan ("the Plan"), including the reservation for issuance
under the Plan of an aggregate of 7,500,000 shares of common stock,
plus an additional number of shares equal to the lesser of 4% of the
outstanding shares of the Company on October 1 of each year and
17,500,000 shares.
(3) The approval of the appointment of our independent auditors for fiscal
2001.
(4) Any other business properly presented at the meeting.
Q: How does the Board recommend I vote on the proposals?
A: The Board recommends a vote FOR each of the director nominees, FOR the
proposal to adopt the Company's 2001 Stock Incentive Plan, and FOR the
appointment of KPMG LLP as independent auditors for 2001.
Q: Who is entitled to vote?
A: Stockholders as of the close of business on November 30, 2000 (the "Record
Date") are entitled to vote at the Annual Meeting. Each stockholder is
entitled to one vote for each share of common stock held on the Record Date.
As of the Record Date, 180,530,388 shares of the Company's common stock were
issued and outstanding.
Q:How do I vote?
A: There are three ways you can vote:
(1) Sign and date each proxy card you receive and return it in the prepaid
envelope.
(2) Vote through the Internet or telephone voting system more fully
described on your proxy card.
(3) Vote in person at the Annual Meeting. If your shares are held of record
by a broker, bank or other nominee and you wish to attend the Annual
Meeting, you must notify your broker, bank or other nominee and obtain
the proper documentation to vote your shares at the Annual Meeting.
<PAGE>
Q:How can I change my vote or revoke my proxy?
A: You have the right to revoke your proxy and change your vote at any time
before the meeting by notifying the Company's Secretary, or returning a
later-dated proxy card, or by Internet or telephone as more fully described
on your proxy card. You may also revoke your proxy and change your vote by
voting in person at the meeting.
Q: What does it mean if I get more than one proxy card?
A: It means you hold shares registered in more than one account. Sign and
return all proxies to ensure that all your shares are voted.
Q: Who will count the vote?
A: Representatives of EquiServe, the Company's transfer agent, will count the
votes and act as the Inspector of Election. The Company believes that the
procedures to be used by the Inspector to count the votes are consistent
with Delaware law concerning voting of shares and determination of a quorum.
Q: What is a "quorum"?
A: A "quorum" is a majority of the outstanding shares. They may be present at
the meeting or represented by proxy. There must be a quorum for the meeting
to be held and action to be validly taken. If you submit a properly executed
proxy card, even if you abstain from voting, then you will be considered
part of the quorum. Abstentions are not counted in the tally of votes FOR or
AGAINST a proposal. A withheld vote is the same as an abstention. If a
broker indicates on a proxy that it does not have discretionary authority as
to certain shares to vote on a particular matter (broker non-votes), those
shares will not be counted as present with respect to that matter for
purposes of establishing a quorum.
Q: Who can attend the Annual Meeting?
A: All stockholders as of the Record Date can attend. If your shares are held
of record by a broker, bank or other nominee and you wish to attend the
Annual Meeting, you must notify your broker, bank or other nominee and
obtain the proper documentation to vote your shares at the Annual Meeting.
Q: How will voting on any other business be conducted?
A: We do not know of any business to be considered at the 2001 Annual Meeting
other than the proposals described in this proxy statement. However, because
the Company did not receive notice of any other proposals to be brought
before the meeting by November 5, 2000 (45 days prior to the month and day
of last year when proxy materials for the 2000 Annual Meeting were mailed to
stockholders), if any other business is properly presented at the Annual
Meeting, your signed proxy card gives authority to Louis R. Tomasetta,
Vitesse's President and Chief Executive Officer, and Eugene F. Hovanec, Vice
President, Finance, and Chief Financial Officer, to vote on such matters at
their discretion.
Q: Who are the largest principal stockholders?
A: As of the Record Date, no person owned at least five percent of our
outstanding Common Stock.
Q: How and when may I submit proposals for the 2002 Annual Meeting?
A: To have your proposal included in the Company's Proxy Statement for the 2002
Annual Meeting, you must submit your proposal in writing by August 24, 2001,
to the Company's Secretary, c/o Vitesse Semiconductor Corporation, 741 Calle
Plano, Camarillo, California 93012.
If you submit a proposal for the 2002 Annual Meeting after November 7, 2001,
the proxy for the 2002 Annual Meeting may confer upon management
discretionary authority to vote on your proposal.
2
<PAGE>
You should also be aware of certain other requirements you must meet to have
your proposal included in the Company's Proxy Statement for the 2002 Annual
Meeting that are explained in Rule 14a-8 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934.
Q: How much did this proxy solicitation cost?
A: Corporate Investor Communications, Inc. was hired to assist in the
distribution of proxy materials and solicitation of votes for $6,000, plus
certain out-of-pocket expenses. We also reimburse brokerage houses and
persons representing beneficial owners of shares for their reasonable out-
of-pocket expenses in forwarding solicitation materials to such beneficial
owners. Certain of the Company's directors, officers or employees may also
solicit proxies in person or by telephone, but they will not receive any
additional compensation for doing so.
3
<PAGE>
PROPOSALS YOU MAY VOTE ON
1. Election of Directors.
The Company has nominated six (6) candidates for election to the Board this
year. Detailed information on each of the Company's nominees is provided on
page 10. All directors are elected annually and serve a one-year term until the
next Annual Meeting. If any director is unable to stand for re-election, the
Board may reduce the size of the Board, designate a substitute or leave a
vacancy unfilled. If a substitute is designated, proxies voting on the original
director candidate will be cast for the substituted candidate. We expect that
each nominee listed on page 10 will be able and will not decline to serve as a
director.
Vote Required; Recommendation of the Board of Directors
With respect to the election of directors, the six candidates receiving the
highest number of FOR votes shall be elected to the Company's Board of
Directors. An abstention will have the same effect as a vote withheld for the
election of directors, and, pursuant to Delaware law, a broker non-vote will
not be treated as voting in person or by proxy on the proposal.
YOUR BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" PROPOSAL 1.
2. Approval of Adoption of the Vitesse Semiconductor Corporation 2001 Stock
Incentive Plan
General
The Vitesse Semiconductor Corporation 2001 Stock Incentive Plan (the
"Incentive Plan") was approved by the Board of Directors on October 17, 2000.
The Incentive Plan provides for the grant to employees of the Company of
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), and for the grant to employees,
consultants and directors of nonstatutory stock options and for certain other
stock-based awards as determined by the Board or Compensation Committee from
time to time.
Proposal
On October 17, 2000, the Board of Directors approved the adoption of the
Incentive Plan which shareholders of the Company are hereby being asked to
approve. The current incentive plan covering employees, the Company's 1991
Stock Option Plan, is expiring August 2001, and the Incentive Plan is intended
to replace such plan, and provide stock-based incentives to employees,
consultants and directors of the Company going forward. The initial number of
shares authorized for issuance under the Incentive Plan is Seven Million Five
Hundred Thousand (7,500,000) shares. The Incentive Plan contains a provision to
automatically increase the number of shares authorized for issuance on the
first day of each fiscal year during the term of the Incentive Plan, beginning
fiscal year 2002, by the lesser of (i) a number of shares equal to 4.0% of the
Issued Shares (as defined below) on the last day of the fiscal year immediately
preceding the year in which such adjustment is made, and (ii) Seventeen Million
Five Hundred Thousand (17,500,000) shares. Additionally, any shares issued or
subject to issuance on exercise or settlement of awards pursuant to the
Incentive Plan that are forfeited to the Company under award terms or
conditions will become available for issuance. Any awards assumed by the
Company in connection with an acquisition will not be applied toward the pool
of available shares. As used herein, the term "Issued Shares" means, for any
fiscal year, the number of shares of the Company's Common Stock outstanding on
the last day of the fiscal year, plus any shares reacquired by the Company
during the preceding fiscal year.
Required Vote; Recommendation of the Board of Directors
Approval of the Incentive Plan requires the affirmative vote of a majority
of the shares represented in person or by proxy and voting at the Annual
Meeting, which shares voting affirmatively also constitute at least a majority
of the required quorum. Abstentions and withheld votes will be counted only for
purposes of establishing a quorum and will not be counted as votes cast on
Proposal 2. Pursuant to Delaware law, a broker non-vote will not be treated as
voting in person or by proxy on Proposal 2.
4
<PAGE>
The continued success of the Company depends upon its ability to attract and
retain highly qualified and competent employees. The Incentive Plan enhances
that ability and provides additional incentive to such personnel to advance the
interests of the Company and its shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
The essential features of the Incentive Plan are summarized below.
2001 Stock Incentive Plan
The general purposes of the Incentive Plan are to attract and retain the
best available personnel for positions of substantial responsibility, to
provide additional incentive to employees, consultants and directors of the
Company and to promote the success of the Company's business. It is intended
that these purposes will be effected through the granting of stock awards,
which may be either "incentive stock options" as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), nonstatutory stock
options, or other stock-based awards.
The Incentive Plan provides that awards may be granted to employees
(including officers and directors who are employees), consultants and directors
of the Company, or of any parent or subsidiary of the Company. Incentive stock
options may be granted only to employees. An employee or consultant who has
been granted an award may, if otherwise eligible, be granted additional awards.
The Incentive Plan will be administered by the Compensation Committee of the
Board of Directors of the Company, or in the case of grants to outside
directors, the Board (the Committee or Board, as applicable, the
"Administrator"). Subject to the other provisions of the Incentive Plan, the
Administrator has the authority to determine the employees or consultants to
whom, and the time or times at which, awards are granted and the number of
shares to be represented by each award.
Awards
Outside Directors. The Incentive Plan provides that on each January 1 during
the term of the plan, each outside director will automatically be granted a
nonstatutory option to purchase 40,000 shares (except in the case of the
Chairman of the Board of the Company who will receive an option to purchase
60,000 shares) of Common Stock. Additionally, unless otherwise provided for by
the Board, each outside director who is nominated or elected to the Board
during the term of the plan shall receive an option to purchase 40,000 shares
(or 60,000 shares in the case of the Chairman of the Board of the Company) on
the date of such election or nomination (the "New Director Grant").
Notwithstanding the foregoing, the Board may determine that no New Director
Grant be made and shall have the authority to grant a pro rata portion of the
New Director Grant to reflect the portion of the year served by such director.
The options granted to the outside directors are for a ten-year term and vest
at the rate of two percent of the shares subject to the award at the end of
each month following the date of grant. The exercise price of the options may
not be less than 100% of the fair market value of the Common Stock as
determined by the closing price as reported by NASDAQ on the last business day
prior to the date of grant of the award. These options may be exercised only
while the holder is serving as a director on the Company's Board of Directors,
within six months after termination by death or disability or within three
months after termination as a director.
Employees and Consultants. Pursuant to the Incentive Plan, the Administrator
may award options and other stock-based awards to employees and consultants.
Each option is designated in a written award agreement as either an incentive
stock option or a nonstatutory stock option. However, notwithstanding such
designations, to the extent that the aggregate fair market value of the shares
with respect to which options designated as incentive stock options are
exercisable for the first time by any awardee during any calendar year (under
all plans of the Company) exceeds $100,000, such options will be treated as
nonstatutory stock awards.
5
<PAGE>
In the case of an incentive stock option granted to an employee who, at the
time of the grant of such incentive stock option, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any parent or subsidiary, the per share exercise price must be no
less than 110% of the fair market value per share on the date of grant. In the
case of an incentive stock option granted to any other employee, the per share
exercise price shall be 100% of the fair market value on the date of grant. In
the case of a nonstatutory stock option, the per share exercise price shall be
determined by the Administrator. The fair market value per share is the closing
price per share of the Common Stock as listed on the National Association of
Securities Dealers Automated Quotation ("NASDAQ") National Market System on the
last market trading day prior to the date of grant. In the absence of an
established market for the Common Stock, the fair market value per share would
be determined in the discretion of the Administrator. The fair market value of
the Company's Common Stock on December 7, 2000 was $58.125 per share.
The Administrator determines the acceptable form of consideration for
exercising an option, including the method of payment. Such consideration may
consist entirely of: (i) cash; (ii) check; (iii) promissory note; (iv) other
shares of Common Stock of the Company that, in the case of shares acquired upon
exercise of an option, have been owned by the optionee for more than six months
on the date of surrender, and have a fair market value on the date of surrender
equal to the aggregate exercise price of the shares as to which said option is
exercised; (v) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
require to effect an exercise of the option and delivery to the Company of the
sale or loan proceeds required to pay the exercise price; (vi) any combination
of the foregoing methods of payment; or (vii) such other consideration and
method of payment for the issuance of shares to the extent permitted by all
applicable federal and state securities laws, state corporate law and the Code.
Any option granted under the Incentive Plan other than the options to
outside directors is exercisable at such times and under such conditions as
determined by the Administrator and set forth in the written option agreement.
The term of each option is ten (10) years from the date of grant or such
shorter term as may be provided in the notice of grant. However, in the case of
an incentive stock option granted to an optionee who, at the time the option is
granted, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any parent or subsidiary, the
term of the option will be five (5) years from the date of grant thereof or
such shorter time as may be provided in the notice of grant.
In the event of an optionee's termination of employment or consulting
relationship (for a reason other than disability or death), such optionee may
exercise his or her option, but only within such period of time, not to exceed
six (6) months, as is determined by the Administrator, and only to the extent
that the optionee was entitled to exercise the option at the date of
termination (but in no event later than the expiration of the term of such
option as set forth in the notice of grant). In the case of an incentive stock
option, the Administrator shall determine such period of time (in no event to
exceed ninety (90) days from the date of termination) when the option is
granted. If, at the date of termination, the optionee is not entitled to
exercise his or her entire option, the shares of Common Stock covered by the
unexercisable portion of the option shall revert to the Incentive Plan. If,
after termination, the optionee does not exercise his or her option within the
time specified by the Administrator, the option shall terminate, and the shares
of Common Stock covered by such option shall revert to the Incentive Plan.
In the event of an optionee's termination of employment or consulting
relationship as a result of such optionee's total and permanent disability,
such optionee may exercise his or her option at any time within six (6) months
from the date of such termination, but only to the extent that the optionee was
entitled to exercise it at the date of such termination (but in no event later
than the expiration of the term of such option as set forth in the notice of
grant). If, at the date of termination, the optionee is not entitled to
exercise his or her entire option, the shares of Common Stock covered by the
unexercisable portion of the option shall revert to the Incentive Plan. If,
after termination, the optionee does not exercise his or her option within the
time specified in the Incentive Plan, the option shall terminate, and the
shares of Common Stock covered by such option shall revert to the Incentive
Plan.
6
<PAGE>
In the event of the death of an optionee, the option may be exercised at any
time within six (6) months following the date of death (but in no event later
than the expiration of the term of such option as set forth in the notice of
grant), by the optionee's estate or by a person who acquired the right to
exercise the option by bequest or inheritance, but only to the extent that the
optionee was entitled to exercise the option at the date of death. If, at the
time of death, the optionee was not entitled to exercise his or her entire
option, the shares of Common Stock covered by the unexercisable portion of the
option shall immediately revert to the Incentive Plan. If, after death, the
optionee's estate or a person who acquired the right to exercise the option by
bequest or inheritance does not exercise the option within the time specified
in the Incentive Plan, the option shall terminate, and the shares of Common
Stock covered by such option shall revert to the Incentive Plan. Option grants
may, but need not, include a early exercise provision to allow the optionee, at
any time before the optionee's continuous service terminates, to exercise the
option prior to full vesting. Any unvested shares of common stock so purchased
may be subject to a repurchase option in favor of the Company or any other
restriction deemed appropriate.
General Provisions
The options may not be sold, pledged, assigned, hypothecated, transferred,
or disposed of in any manner other than by will or by the laws of descent or
distribution or pursuant to a qualified domestic relations order as defined by
the Code or Title I of the Employee Retirement Income Security Act, or the
rules thereunder. The options may be exercised only by the optionee during the
lifetime of the optionee. However, nonstatutory stock options held by an
optionee may be transferred to such family members, trusts and charitable
institutions as the administrator shall approve, unless otherwise restricted.
Subject to any required action by the shareholders of the Company, the
number of shares of Common Stock covered by each outstanding option and the
number of shares of Common Stock available for issuance under the Incentive
Plan, as well as the price per share of Common Stock covered by each such
outstanding option will be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock of the Company, stock dividend or similar event.
In the event of the proposed dissolution or liquidation of the Company, to
the extent not previously exercised, options will terminate immediately prior
to the consummation of such proposed action. However, in such event, the Board
of Directors may, alternatively and in the exercise of its sole discretion,
declare that any option shall terminate as of a date fixed by the Board of
Directors and give each optionee the right to exercise his or her option as to
all or any part of the shares of Common Stock of the Company subject to the
option, including shares as to which the option would not otherwise be
exercisable. In the event of a merger of the Company with or into another
corporation or the sale of all or substantially all of the Company's assets,
options will be assumed or equivalent options will be substituted by such
successor corporation or a parent or subsidiary of such successor corporation.
In the event that such successor corporation does not agree to assume the
options or to substitute equivalent options, the Administrator will, in lieu of
such assumption or substitution, provide for the optionees to have the right to
exercise the options as to all of the optioned stock, including shares as to
which the options would not otherwise be exercisable. If the Administrator
makes the options fully exercisable in lieu of assumption or substitution in
the event of a merger, the Administrator will notify the optionees that the
options will be fully exercisable for a period of fifteen (15) days from the
date of such notice, and the options will terminate upon the expiration of such
period.
The Incentive Plan will continue in effect until January 23, 2011, unless
sooner terminated as described below. The Board of Directors may amend, alter,
suspend, or terminate the Incentive Plan provided that the Company shall obtain
shareholder approval of any Incentive Plan amendment to the extent necessary
and desirable to comply with Rule 16b-3 under the Exchange Act or with Section
422 of the Code (or any successor rule or statute or other applicable law, rule
or regulation, including the requirements of any exchange or quotation system
on which the Common Stock of the Company is listed or quoted). Such shareholder
7
<PAGE>
approval, if required, shall be obtained in such a manner and to such a degree
as is required by the applicable law, rule or regulation. No amendment,
alteration, suspension or termination of the Incentive Plan shall impair the
rights of any optionee, unless mutually agreed otherwise between the optionee
and the Administrator.
Certain Federal Income Tax Considerations
The following is a brief summary of the federal income tax consequences of
transactions under the Incentive Plan based on federal income tax laws in
effect as of the date hereof. This summary is not intended to be exhaustive and
does not discuss the tax consequences of an optionee's death or provisions of
the income tax laws of any municipality, state or foreign country in which an
optionee may reside. This summary does not purport to be complete. The Company
advises all optionees to consult their own tax advisors concerning tax
implications of option grants and exercises under the Incentive Plan.
Incentive Stock Options. If an option granted under the Incentive Plan is an
incentive stock option, the optionee will recognize no income upon grant of the
incentive stock option and incur no tax liability upon exercise unless the
alternative minimum tax rules apply. See "Alternative Minimum Tax" below.
Generally, the Company will not be allowed a deduction for federal income tax
purposes as a result of the exercise of an incentive stock option.
Upon the sale or exchange of such shares at least two years after grant of
the option and one year after exercise of the option, any gain will be taxed to
the optionee as capital gain. If these holding periods are not satisfied, the
optionee will recognize ordinary income at the time of such sale or exchange
equal to the difference between the exercise price and the lower of the fair
market value of the stock at the date of the option exercise or the sale price
of the stock. The Company will be entitled to a deduction in the same amount as
the ordinary income recognized by the optionee. Any gain recognized on such a
premature disposition of the shares in excess of the amount treated as ordinary
income will be characterized as long-term capital gain if the sale occurs more
than one year after exercise of the option or as short-term capital gain if the
sale is made earlier.
Nonstatutory Options. Generally, an optionee will not recognize any taxable
income at the time he or she is granted a nonstatutory option. However, upon
its exercise, generally the optionee will recognize ordinary income for tax
purposes measured by the excess of the then fair market value of the shares
over the option price. The optionee's holding period for capital gains purposes
commences as of the date he or she recognizes ordinary income with respect to
an option exercise. Upon resale of such shares by the optionee, any difference
between the sales price and the exercise price, to the extent not recognized as
ordinary income as provided above, will be treated as capital gain or loss, and
will qualify for long-term capital gain or loss treatment if the shares have
been held for more than one year.
The Company will be entitled to a tax deduction in the same amount as the
ordinary income recognized by the optionee with respect to the acquisition of
shares upon exercise of a nonstatutory option. In the case of any optionee who
was also an employee at the time of the option grant, income recognized upon
exercise of a nonstatutory option will be treated as wages and will be subject
to tax withholding by the Company.
Alternative Minimum Tax. The exercise of an incentive stock option may
subject the optionee to the alternative minimum tax ("AMT") under Section 55 of
the Code. The AMT is calculated by applying a tax rate of up to 28% to
alternative minimum taxable income, which is equal to (i) taxable income
adjusted for certain items, plus (ii) items of tax preference, less (iii) an
exclusion of $45,000 for joint returns and $33,750 for individual returns.
These exclusion amounts are reduced by an amount equal to 25% of the amount by
which the alternative minimum taxable income exceeds $150,000 and $112,500,
respectively.
In computing alternative minimum taxable income, shares purchased upon
exercise of an incentive stock option are treated as if they had been acquired
by the optionee pursuant to a nonstatutory option. This may be particularly
significant if shares subject to a repurchase option of the Company are
purchased upon exercise of an incentive stock option or if a sale of the shares
acquired upon exercise of an incentive stock option could
8
<PAGE>
subject an optionee to suit under Section 16(b) of the Exchange Act. Under
certain circumstances, an optionee may affect the timing and measurement of AMT
by filing an election with the Internal Revenue Service under Section 83(b) of
the Code within 30 days after the date of exercise of an incentive stock
option. Therefore, an optionee should consult his or her own tax advisor prior
to exercising an incentive stock option concerning the advisability of filing
an election under Section 83(b) of the Code.
If an optionee pays AMT in excess of his or her regular tax liability, the
amount of such AMT relating to incentive stock options may be carried forward
as a credit against any subsequent year's regular tax in excess of the AMT.
Payments in Respect to a Change of Control. The Incentive Plan authorizes
the Administrator to accelerate the vesting of options in the event of (i) any
dissolution or liquidation of the Company or (ii) a merger of the Company with
or into another corporation or the sale of all or substantially all of the
Company's assets. Such acceleration may cause part or all of the consideration
involved to be treated as a "parachute payment" under the Code, which may
subject the recipient thereof to a 20% excise tax and which may not be
deductible by the participant's employer.
3. Approval of the Appointment of KPMG LLP as Independent Auditors
The Audit Committee has recommended, and the Board has approved, the
appointment of KPMG LLP ("KPMG") as our independent auditors for fiscal 2001
subject to your approval. KPMG has served as our independent auditors since
1991. Representatives of KPMG will attend the Annual Meeting to answer
appropriate questions. They also may make a statement.
Audit services provided by KPMG during fiscal 2000 included an audit of the
Company's consolidated financial statements, a review of the Company's Annual
Report and certain other filings with the Securities and Exchange Commission
("SEC") and certain other governmental agencies. In addition, KPMG provided
various non-audit services to the Company during 2000.
Vote Required; Recommendation of the Board of Directors
The Board of Directors has conditioned its appointment of the Company's
independent auditors upon the receipt of the affirmative vote of a majority of
the shares represented, in person or by proxy, and voting at the Annual
Meeting, which shares voting affirmatively also constitute at least a majority
of the required quorum. In the event that the stockholders do not approve the
selection of KPMG, the appointment of the independent auditors will be
reconsidered by the Board of Directors.
YOUR BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" PROPOSAL 3.
9
<PAGE>
NOMINEES FOR THE BOARD OF DIRECTORS
Pierre R. Lamond, Age 70, Director since 1987--Mr. Lamond has been the
Chairman of the Board of Directors since the Company was founded in February
1987. Since August 1981, he has been a General Partner of Sequoia Capital, a
venture capital firm. Sequoia has financed companies such as Cypress
Semiconductor Corporation, Cisco Systems, Inc., and C-Cube Microsystems, Inc.
Mr. Lamond was founder and Vice President of National Semiconductor
Corporation. He is also a director of Redback Networks and a number of private
companies.
Vincent Chan, Ph.D., Age 52, Director since 2000--Dr. Chan serves on the
Massachusetts Institute of Technology's faculty as the Joan and Irwin Jacobs
Professor of Electrical Engineering and Computer Science and Aeronautics. He is
concurrently the Director of MIT's Laboratory for Information and Decision
Systems. Dr. Chan has over 25 years experience leading the development of
advanced communication systems.
James A. Cole, Age 58, Director since 1987--Mr. Cole has been a General
Partner of Spectra/New Enterprise Associates since 1986 and a General Partner
of Windward Ventures, L.P. since 1997. He was a founder and Executive Vice
President of Amplica, Inc., a GaAs microwave IC and sub-system company.
Mr. Cole also serves as a director of Giga-Tronics, Inc., Spectrian Corporation
and a number of private companies.
Alex Daly, Age 39, Director since 1998--Alex Daly is Chairman, President and
CEO of Wahoo Networks, a newly formed startup in the network security area. He
is also a founding partner in Octal Capital, a technology oriented venture
fund. From January 1998 through January 2000, he was President and CEO of
Cygnus Solutions. From 1995 through 1997, he served as Senior Vice President of
Marketing and then Sales at C-Cube Microsystems, a manufacturer of integrated
circuits for consumer electronics, communications and computer applications.
Prior to that, Mr. Daly served at Intel Corporation, a semiconductor company,
most recently as director of marketing for the mobile computing group.
John C. Lewis, Age 65, Director since 1990--Mr. Lewis served as Chairman of
the Board of Directors of Amdahl Corporation, a manufacturer of large, general
purpose computer storage systems and software products, from 1977 to 1999.
Before joining Amdahl in 1977, he was President of Xerox Business Systems. Mr.
Lewis also serves as a director of Cypress Semiconductor Corporation and
Pinnacle Systems.
Louis R. Tomasetta, Ph.D., Age 52, Director since 1987--Dr. Tomasetta, a co-
founder of the Company, has been President, Chief Executive Officer and a
Director since the Company's inception in February 1987. From 1984 to 1987, he
served as President of the integrated circuits division of Vitesse Electronics
Corporation. Prior to that he was the director of the Advanced Technology
Implementation department at Rockwell International Corporation. Dr. Tomasetta
has over 25 years experience in the management and development of GaAs based
businesses, products, and technology. Dr. Tomasetta also serves as a director
of a number of private companies.
BOARD MEETINGS AND COMMITTEES
The Company's Board usually meets five times a year in regularly scheduled
meetings, but will meet more often if necessary. The Board held five meetings
during fiscal 2000 and all of the directors attended at least 75% of the Board
meetings of which they were members.
The full Board considers all major decisions of the Company. However, the
Board has established the following two standing committees, each of which is
chaired by an outside director:
. Compensation Committee
The Compensation Committee reviews and approves officers' salaries and
employee compensation programs. During fiscal 2000, the Committee, which
currently consists of James A. Cole, Alex Daly and Pierre R. Lamond, met
six times and all members attended at least 75% of the meetings.
10
<PAGE>
. The Audit Committee
The Audit Committee reviews and evaluates the Company's accounting
principles and its system of internal accounting controls. It also
recommends the appointment of the Company's independent auditors and
approves the services performed by the auditors. The Committee, which
currently consists of James A. Cole, Pierre R. Lamond and John C. Lewis,
met four times during fiscal 2000 and all members attended at least 75%
of the meetings.
The Board currently has no nominating committee or committee performing a
similar function.
DIRECTOR COMPENSATION
Non-employee directors receive $2,000 for each Board meeting attended in
person and $1,000 for each meeting attended by telephone. Directors are also
reimbursed for customary and usual travel expenses.
All non-employee directors participate in the 1991 Directors' Stock Option
Plan (the "Directors' Plan"). Under the Directors' Plan, upon first becoming a
director, each non-employee director receives nonstatutory options to purchase
60,000 shares (except for the Chairman, who receives options to purchase 90,000
shares). Additionally, every year on January 1 each director receives options
to purchase 60,000 shares (except for the Chairman who receives options to
purchase 90,000 shares). On April 18, 2000, the Board unanimously approved a
resolution to amend the Directors' Plan so that effective January 1, 2001, each
non-employee director shall receive nonstatutory options to purchase 40,000
shares (except for the Chairman who shall receive options to purchase 60,000
shares). The size of the foregoing option grants are adjusted to reflect the
effects of stock splits, stock dividends, stock combinations and the like.
These options are for a ten-year term and become available for purchase in
installments of two percent of the total number of shares granted at the end of
each month beginning January 31 after the date of grant. The exercise price of
the options must be at least 100% of the fair market value of the common stock
on the Nasdaq National Market on the date of grant of the option. The options
may be exercised only (1) while the individual is serving as a director on the
Board, (2) within six months after termination by death or disability, or (3)
within three months after the individual's term as director ends.
During fiscal 2000, Mr. Lamond was granted an option to purchase 90,000
shares of common stock and Messrs. Chan, Cole, Daly and Lewis each were granted
an option to purchase 60,000 shares of common stock at an exercise price of
$52.438.
The Directors' Plan will expire in 2001. If Proposal No. 2 is approved by
our stockholders, then each year beginning in 2002, under the 2001 Stock
Incentive Plan, each non-employee director shall receive nonstatutory options
to purchase 40,000 shares (except for the Chairman, who shall receive options
to purchase 60,000 shares). The size of the foregoing option grants are
adjusted to reflect the effects of stock splits, stock dividends, stock
combinations and the like. These options are for a ten-year term and become
available for purchase in installments of two percent of the total number of
shares granted at the end of each month beginning January 31 after the date of
grant. The exercise price of the options must be at least 100% of the fair
market value of the common stock on the Nasdaq National Market on the date of
grant of the option. The options may be exercised only (1) while the individual
is serving as a director on the Board, (2) within six months after termination
by death or disability, or (3) within three months after the individual's term
as director ends.
Employee directors receive no other compensation for serving on the Board.
11
<PAGE>
STOCK PERFORMANCE GRAPH
The following performance graph compares the cumulative total stockholder
return on the Company's common stock with the NASDAQ Stock market-U.S. Index
and the NASDAQ Electronic Components Index from market close on the last
trading day in September 1995 through September 30, 2000. The graph is based on
the assumption that $100 was invested in each of the Company's common stock,
the NASDAQ Stock Market-U.S. Index and the NASDAQ Electronic Components Index
on September 30, 1995.
The stock price performance graph depicted below shall not be deemed
incorporated by reference by any general statement incorporating by reference
this proxy statement into any filing under the Securities Act of 1933 or under
the Securities Exchange Act of 1934. The stock price performance on the graph
is not necessarily an indicator of future price performance.
Comparison of Five-Year Cumulative Total Return*
among Vitesse Semiconductor Corporation,
the NASDAQ Stock Market (U.S.) Index
and the NASDAQ Electronics Components Index
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Measurement Period VITESSE NASDAQ NASDAQ
SEMICONDUCTOR STOCK ELECTRONIC
(Fiscal Year Covered) CORPORATION MARKET (U.S.) COMPONENTS
------------------- ------------- ------------- ----------
<S> <C> <C> <C>
Measurement Pt- 9/95 $ 100 $100 $100
FYE 9/96 $ 271.05 $118.68 $118.98
FYE 9/97 $ 521.71 $162.92 $209.26
FYE 9/98 $ 497.37 $165.50 $166.59
FYE 9/99 $1797.37 $270.38 $338.55
FYE 9/00 $3744.76 $358.96 $591.38
</TABLE>
12
<PAGE>
PRINCIPAL OWNERSHIP
OF VITESSE SEMICONDUCTOR CORPORATION
COMMON STOCK
The following table shows the number of shares of Company Common Stock owned
as of September 30, 2000 by the directors, the Named Executive Officers listed
on page 14, all directors and officers as a group, and holders known to the
Company of at least 5% of the Company's Common Stock.
Principal Stock Ownership(/1/)
<TABLE>
<CAPTION>
Total Shares
Shares Beneficially Owned
Exercisable Plus Exercisable
Name of Individuals or Shares Owned Within 60 Days of Within 60 Days of Percent
Identity of Group Beneficially Sept. 30, 2000 Sept. 30, 2000 of Total
---------------------- ------------ ----------------- ------------------ --------
<S> <C> <C> <C> <C>
Louis R.
Tomasetta(/2/)......... 440,602 874,312 1,314,914 *
Neil J. Rappaport....... 100,812 355,000 455,812 *
Pierre R. Lamond........ 160,000 165,600 325,600 *
Christopher Gardner..... 50,774 250,800 301,574 *
James A. Cole........... 33,700 194,400 228,100 *
Eugene F. Hovanec....... 20,586 173,008 193,594 *
John C. Lewis........... 40,000 105,600 145,600 *
Michael Millhollan...... 27,240 110,120 137,360 *
Alex Daly............... 0 79,200 79,200 *
Vincent Chan............ 0 8,400 8,400 *
All executive officers
and directors as a
group (16 persons)..... 1,425,539 2,822,840 4,248,379 2.4%
</TABLE>
--------
* Less than 1%
(/1/All)share information has been adjusted to reflect a 3 for 2 stock split on
February 12, 1997, a 2 for 1 stock split on May 26, 1998, and a 2 for 1
stock split on October 20, 1999.
(/2/)Includes an aggregate of 63,000 shares held for each of Kathleen A. and
Susan A. Tomasetta, pursuant to the Transfer to Minors Act and as to which
Dr. Tomasetta has voting and investment power.
13
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following is a summary of information regarding compensation paid to the
Chief Executive Officer and the four most highly compensated executive officers
other than the Chief Executive Officer who were serving as executive officers
as of September 30, 2000. These five individuals are the "Named Executive
Officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
---------------------------------------- ------------
Number of
Securities
Other Annual Underlying
Name and Principal Position Year Salary Bonus Compensation(/1/) Options
--------------------------- ---- -------- -------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
LOUIS R. TOMASETTA...................... 2000 $275,000 $406,655(/2/) -- 600,000
President & Chief Executive Officer 1999 269,231 210,830(/2/) -- 760,000
1998 200,000 139,600(/2/) -- 900,000
EUGENE F. HOVANEC....................... 2000 180,000 296,937(/2/) -- 200,000
Vice President, Finance & Chief 1999 180,000 189,747(/2/) -- 160,000
Financial Officer 1998 180,000 111,694(/2/) -- 210,000
MICHAEL S. MILLHOLLAN................... 2000 150,000 189,456(/2/) -- 140,000
Vice President & General Manager, Data 1999 150,000 130,373(/2/) -- 120,000
Communications 1998 150,000 89,745(/2/) -- 180,000
CHRISTOPHER GARDNER..................... 2000 150,000 167,246(/2/) -- 120,000
Vice President & General Manager, 1999 148,846 114,647(/2/) -- 100,000
Telecommunications 1998 135,000 48,394(/2/) -- 180,000
NEIL J. RAPPAPORT....................... 2000 150,000 114,642(/3/) $6,739(/4/) 50,000
Vice President, European Sales 1999 150,000 190,658(/3/) 4,800(/4/) 150,000
1998 150,000 166,288(/3/) 28,615(/4/) 180,000
</TABLE>
--------
(/1/)Excludes certain expenses which, for any Named Executive Officer, did not
exceed the lesser of $50,000 or 10% of the compensation reported in the
above table, and which, for all Named Executive Officers as a group, did
not exceed the lesser of $50,000 times the number of Named Executive
Officers or 10% of all Named Executive Officers' annual salaries and
bonuses reported in the above table.
(/2/)Represents amounts paid under the Company's bonus plan.
(/3/)Represents bonuses paid to Mr. Rappaport under the Company's sales
commission plan.
(/4/)Primarily represents payment to Mr. Rappaport of accrued vacation and car
allowance.
14
<PAGE>
OPTION GRANT TABLE
The following table presents additional information concerning the option
awards shown in the Summary Compensation Table for fiscal year 2000. These
options to purchase common stock were granted to the Named Executive Officers
under the Company's 1991 Employee Stock Option Plan.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------
Potential Realizable
% of Total Value Assumed Annual
Options Exercise Rate of Stock Price
Number Granted to or Base Appreciation for Option
of Employees Price Term(/1/)
Options in Fiscal Per Expiration -----------------------
Name Granted Year Share Date 5% 10%
---- ------- ---------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Louis R. Tomasetta............ 600,000 11.49% $35.9063 10/19/09 $13,548,767 $34,335,237
Eugene F. Hovanec............. 200,000 3.83% 35.9063 10/19/09 4,516,256 11,445,079
Michael S. Millhollan......... 140,000 2.68% 35.9063 10/19/09 3,161,379 8,011,555
Christopher Gardner........... 120,000 2.30% 35.9063 10/19/09 2,709,754 6,867,047
Neil J. Rappaport............. 50,000 0.96% 35.9063 10/19/09 1,129,064 2,861,270
</TABLE>
--------
(/1/)These dollar amounts are not intended to forecast future appreciation of
the common stock price. Named Executive Officers will not benefit unless
the common stock price increases above the stock option exercise price.
Any gain to the Named Executive Officers resulting from common stock price
appreciation would benefit all stockholders.
AGGREGATED OPTION EXERCISES AND YEAR-END VALUES
The following table shows information for the Named Executive Officers
concerning stock options exercised during fiscal 2000 and stock options
unexercised at the end of fiscal year 2000.
Aggregated Option Exercises in Last Fiscal Year
And Fiscal Year-end Option Values
<TABLE>
<CAPTION>
Number of Value of Unexercised
Number of Unexercised In-the-Money
Shares Options at FY-End Options at FY-End
Acquired Value(/1/) ------------------------- -------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Louis R. Tomasetta...... 290,000 $15,295,069 602,312 1,918,000 $49,075,877 $137,418,565
Eugene F. Hovanec....... 89,320 4,991,614 101,008 498,000 8,410,071 34,463,609
Michael S. Millhollan... 155,000 8,547,409 58,120 386,000 4,715,853 27,134,738
Christopher Gardner..... 33,200 1,762,849 206,800 472,500 17,354,970 35,432,631
Neil J. Rappaport....... 100,000 5,000,436 315,000 320,000 27,459,463 24,279,679
</TABLE>
--------
(/1/)Value realized is the difference between the option exercise price and the
fair market value of the Company's common stock at the date of exercise
multiplied by the number of options exercised.
15
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors consists of three non-
employee directors. The Committee reviews and approves salaries, bonuses and
other benefits payable to the Company's executive officers. It also administers
the Company's employee stock option and employee stock purchase plans.
Compensation Goals
The Compensation Committee establishes compensation for executive officers
to align with business objectives and performance and to attract, retain and
reward executive officers who contribute to the long-term success of the
Company. The Company's compensation programs, including those for executive
officers, share these characteristics:
. The Company pays competitively. The Company offers a compensation
program, including competitive base salaries and, where appropriate,
relocation benefits, to attract and retain the best people in the
industry. To ensure that pay is competitive, the Company reviews the
compensation practices of other leading companies in the industry.
. The Company pays for relative sustained performance. Executive officers
are rewarded based upon corporate, departmental, and individual
performance. Corporate and departmental performance are evaluated by
reviewing whether strategic and business plan goals are met. Individual
performance is evaluated by measuring organizational progress against
set objectives.
. The Company strives for fairness to achieve a balance in compensation
paid to the executives within the Company and in comparable companies.
It believes that the contributions of each member of the executive staff
are vital to the success of the Company.
. The Company believes that employees should understand the performance
evaluation and compensation programs. At the beginning of the
performance cycle, key quarterly and annual objectives are set for each
officer. The chief executive officer gives ongoing feedback on
performance to each officer. At the end of the performance cycle, the
Compensation Committee evaluates the accomplishments of the key
objectives in making its decisions on merit increases and stock option
grants.
Compensation Components
The Company's compensation program, which consists of cash- and equity-based
compensation, allows the Company to attract and retain highly skilled officers,
provide useful products and services to customers, enhance stockholder value,
motivate technological innovation, and reward executive officers and other
employees. The components are:
Cash-Based Compensation:
. Salary The Committee sets base salary for officers by reviewing the
compensation levels for similar positions in comparable companies in the
industry.
. Bonus Under the Company's 2000 bonus plan, bonuses for eligible
executive officers are to be paid as a percentage of their base salary
and on the basis of the achievement of certain individual and corporate
financial goals. The bonuses actually earned by each individual during
fiscal 2000 are to be paid in fiscal 2001, 2002 and 2003.
. Commission The Vice President of Sales and the Vice President of
European Sales participate in the Company's sales commission plan along
with most of the Company's sales personnel. Under this plan,
participants receive commissions based on achieving certain billings
targets.
16
<PAGE>
Equity-Based Compensation:
Stock options provide additional incentives to officers to work to maximize
stockholder value. The options become available for purchase over a defined
period to encourage officers to continue their employment with the Company. In
line with its compensation philosophy, the Company grants stock options to
employees at all levels of the organization based on each individual's
contribution to the Company.
Chief Executive Officer Compensation
Louis R. Tomasetta has been President and Chief Executive Officer of the
Company since its incorporation in 1987. His total compensation consists of
base salary, bonus and employee stock options. In determining Mr. Tomasetta's
compensation, the Committee evaluates:
. Corporate performance
. His individual performance
. Compensation paid to other executive officers of the Company
. Compensation paid to chief executive officers of comparable companies
For fiscal year 2000, Mr. Tomasetta's salary was $275,000. He received
nonstatutory options to purchase 600,000 shares of common stock under the
Company's 1991 Stock Option Plan at an exercise price of $35.9063. These
options are for a ten-year term and become available to purchase in annual
installments of 20% of the total number of shares granted beginning on October
1, 2000. Mr. Tomasetta's equity ownership in the Company includes 440,602
shares of common stock and stock options to purchase an additional 2,520,312
shares. He shares significantly in the success of the Company's business with
the other stockholders.
COMPENSATION COMMITTEE OF THE BOARD
OF DIRECTORS
Pierre R. Lamond
James A. Cole
Alex Daly
OTHER MATTERS
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of non-employee directors only. Pierre
R. Lamond, Chairman of the Board of the Company, is a general partner of a
venture capital firm that invested in the Company prior to its initial public
offering in 1991.
Section 16(a) Beneficial Ownership Reporting Compliance
Based on a review of forms filed or written notice that no annual forms were
required, the Company believes that from October 1, 1999 to September 30, 2000,
all SEC filings of its officers, directors and ten percent stockholders
complied with the requirements of Section 16 of the Securities Exchange Act,
except that Barry Sandefur, Vice President and General Manager, ANP Division,
failed to file a Form 4 report of one exempt transaction on a timely basis. The
Company believes that this failure to file a report on a timely basis was
inadvertent and has implemented routine procedures designed to periodically
remind its officers and directors of the filing requirements.
17
<PAGE>
Audit Committee Report
In accordance with the written charter adopted by the Board of Directors,
the Audit Committee of the Board (the "Committee") reviews and evaluates the
Company's accounting principles and its system of internal accounting controls.
It also recommends the appointment of the Company's independent auditors and
approves the services performed by the auditors. The members of the Committee
have been determined to be independent pursuant to Rule 4200(a)(15) of the
National Association of Securities Dealers ("NASD") listing standards.
The Committee has received from the independent auditors a formal written
statement describing all relationships between the auditors and the Company
that might bear on the auditors' independence consistent with Independence
Standards Board Standard No. 1, "Independence Discussions with Audit
Committees," and has discussed with the auditors any relationships that may
impact their objectivity and independence, and satisfied itself as to the
auditors' independence. The Committee also discussed with management, the
internal auditors and the independent auditors the quality and adequacy of the
Company's internal controls and the internal audit function's organization,
responsibilities, budget and staffing. The Committee also reviewed with both
the independent and the internal auditors their audit plans, audit scope, and
identification of audit risks.
The Committee has discussed and reviewed with the independent auditors all
communications required by generally accepted accounting standards, including
those described in Statement on Auditing Standards No. 61, as amended,
"Communication with Audit Committees" and, with and without management present,
discussed and reviewed the results of the independent auditors' examination of
the financial statements. The Committee also discussed the results of the
internal audit examinations.
The Committee has reviewed and discussed the audited financial statements of
the Company as of and for the fiscal year ended September 30, 2000, with
management and the independent auditors. Management has the responsibility for
the preparation of the Company's financial statements and the independent
auditors have the responsibility for the examination of those statements.
Based on the above review and discussions with management and the
independent auditors, the Committee recommended to the Board of Directors that
the Company's audited financial statements be included in its Annual Report on
Form 10-K for the last fiscal year for filing with the Securities and Exchange
Commission. The Committee also recommended the reappointment, subject to
stockholder approval, of the independent auditors, and the Board concurred in
such recommendation.
Submitted by the Audit Committee of the Company's Board of Directors:
James A. Cole
Pierre R. Lamond
John C. Lewis
Other
The Company knows of no other matters to be presented for consideration at
the meeting. If any other matters properly come before the meeting, the persons
named in the enclosed proxy card intend to vote the shares they represent as
the Company may recommend.
THE BOARD OF DIRECTORS
Camarillo, California
December 22, 2000
18
<PAGE>
Charter of the Audit Committee of the Board of Directors
of
Vitesse Semiconductor Corporation
I. Audit Committee Purpose
The Audit Committee is appointed by the Board of Directors to assist the
Board in fulfilling its oversight responsibilities. The Audit Committee
reviews and evaluates the Company's accounting principles and its system
of internal accounting controls. It also recommends the appointment of the
Company's independent auditors and approves the services performed by the
auditors.
II. Audit Committee Composition and Meetings
The Audit Committee and its members shall meet the requirements of the
National Association of Securities Dealers as follows:
. The Audit Committee shall be comprised of a minimum of three directors
elected annually by the Board of Directors.
. Each member shall be an independent nonexecutive director, free from
any relationship that would interfere with the exercise of his or her
judgment. The following persons shall not be considered independent:
(a) A director that has been employed by the Company or any of its
affiliates for the current year or any of the past three years.
(b) A director that has accepted any compensation from the Company or
any of its affiliates in excess of $60,000 during the previous
fiscal year, other than compensation for board service, benefits
under a tax-qualified retirement plan, or non-discretionary
compensation.
(c) A director who is a member of the immediate family of an individual
who is, or has been in any of the past three years, employed by the
Company or any of its affiliates as an executive officer.
(d) A director who is a partner in, or a controlling shareholder or an
executive officer of, any for-profit business organization to which
the Company made, or from which the Company received, payments
(other than those arising solely from investments in the Company's
securities) that exceed 5% of the Company's consolidated gross
revenues for that year, or $200,000, whichever is more, in any of
the past three years.
<PAGE>
(e) A director who is employed as an executive of another entity where
any of the Company executives serve on that entity's compensation
committee.
. All members of the Committee shall have a basic understanding of
finance and accounting and be able to read and understand fundamental
financial statements.
. At least one member shall have accounting or related financial
management expertise. This member must have past employment experience
in finance or accounting, requisite professional certification in
accounting, or any other comparable experience or background which
results in the individual's financial sophistication, including being
or having been a chief executive officer, chief financial officer, or
other senior officer with financial oversight responsibilities.
. The Audit Committee shall meet on a quarterly basis, or more frequently
as circumstances dictate. In addition, the Committee should communicate
with management quarterly to review the Company's financial statements
and any significant findings based upon the auditors limited review
procedures.
III. Audit Committee Responsibilities and Duties
Review Procedures
-----------------
. Review and reassess the adequacy of this Charter at least annually.
Submit the Charter to the Board of Directors for approval and have the
document published at least every three years in accordance with SEC
regulations.
. Review the Company's annual audited financial statements prior to
filing or distribution. Review should include discussion with
management and independent auditors of significant issues regarding
accounting principles, practices, and judgments.
. Review with financial management the Company's quarterly financial
results prior to the filing of the Company's quarterly financial
statements. Discuss any significant changes to the Company's accounting
principles and any items required to be communicated by the independent
auditors in accordance with Statement of Auditing Standards (SAS) No.
61.
Independent Auditors
--------------------
. The independent auditors are ultimately accountable to the Audit
Committee and the Board of Directors as representatives of the
Company's stockholders. The Audit committee shall review the
independence and performance of the auditors and annually recommend to
the Board of Directors the appointment of the independent auditors or
approve any discharge of auditors when circumstances warrant.
<PAGE>
. Approve the fees and other significant compensation to be paid to the
independent auditors.
. On an annual basis, the Committee should review and discuss with the
independent auditors all significant relationships they have with the
Company that could impair the auditor's independence.
. Prior to filing the year-end financial statements, discuss the results
of the audit with the independent auditors. Discuss certain matters
required to be communicated to audit committees in accordance with
Statement of Auditing Standards (SAS) No. 61.
. Consider the independent auditor's judgments about the quality and
appropriateness of the Company's accounting principles as applied in
its financial reporting.
Other Audit Committee Responsibilities
--------------------------------------
. Annually prepare a report to shareholders as required by the Securities
and Exchange Commission (SEC). This report will state whether the Audit
Committee has performed the following:
(a) Reviewed and discussed the audited financial statements with
management;
(b) Discussed with the independent auditors the matters required to be
discussed by SAS 61; and
(b) Received certain disclosures from the auditors regarding their
independence as required by the Independence Standards Board (ISB)
Statement No. 1. The Audit Committee must also include a statement
if based on this review, the Audit Committee recommended to the
Board to include the audited financial statements in the annual
report filed with the SEC.
The report should be included in the Company's annual proxy statement.
. Maintain minutes of meetings.
<PAGE>
VITESSE SEMICONDUCTOR CORPORATION
2001 STOCK INCENTIVE PLAN
1. Purposes of Plan. The purposes of this 2001 Stock Incentive Plan are
----------------
to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Consultants and
Directors of the Company and its Subsidiaries and to promote the success of the
Company's business. Awards granted under the Plan may be incentive stock options
(as defined under Section 422 of the Code) or nonstatutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code and the regulations
promulgated thereunder, and any other awards selected by the Administrator to be
granted under the plan from time to time.
2. Definitions. As used herein, the following definitions shall apply:
-----------
"Administrator" means the Board or any Committee selected to administer the
-------------
Plan, in accordance with Section 4 of the Plan.
"Award" means an Option or any other award selected by the Committee to be
-----
granted under this Plan.
"Board" means the Board of Directors of the Company.
-----
"Code" means the Internal Revenue Code of 1986, as amended from time to
----
time, and any successor thereto.
"Committee" means a Committee, if any, appointed by the Board in accordance
---------
with paragraph (a) of Section 4 of the Plan.
"Common Stock" means the Common Stock, no par value per share, of the
------------
Company.
"Company" means Vitesse Semiconductor Corporation, a Delaware corporation.
-------
"Consultant" means any person, including an advisor, who is engaged by the
----------
Company or any Parent or Subsidiary to render services and is compensated for
such services, provided the term Consultant shall not include Directors who are
not compensated for their services or are paid only a Director's fee by the
Company.
"Continuous Status as an Employee or Consultant" means the absence of any
----------------------------------------------
interruption or termination of service as an Employee or Consultant. Continuous
Status as an Employee or Consultant shall not be considered interrupted in the
case of: (i) any leave of absence approved by the Administrator, including sick
leave, military leave, or any other personal leave; provided, however, that for
purposes of Incentive Stock Options any such leave may not exceed ninety (90)
days, unless reemployment upon the expiration of such leave is guaranteed by
contract (including certain Company policies) or statute; or (ii) transfers
between locations of the Company or between the Company, its Parent, its
Subsidiaries, or its successor.
1
<PAGE>
"Director" shall mean a member of the Board.
--------
"Disability" means total and permanent disability, as defined in Section
----------
22(e)(3) of the Code.
"Employee" means any person, including Officers and Directors, employed by
--------
the Company, Parent or any Subsidiary. The payment of Directors' fees by the
Company shall not be sufficient to constitute "employment" by the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Fair Market Value" means, as of any date the value of Common Stock
-----------------
determined as follows:
(a) If the Common Stock is listed on any established stock exchange or a
national market system, including without limitation the National Market System
of the National Association of Securities Dealers, Inc. Automated Quotation
("NASDAQ") System, the Fair Market Value of a Share of Common Stock shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange (or, if listed on more than one exchange,
the exchange with the greatest volume of trading in Common Stock) or system on
the last market trading day prior to the day of determination, as reported in
the Wall Street Journal or such other source as the Administrator deems
reliable;
(b) If the Common Stock is quoted on the NASDAQ System (but not on the
National market System thereof) or regularly quoted by a recognized securities
dealer but selling prices are not reported, the Fair Market Value of a Share of
Common Stock shall be the mean between the bid and asked prices for the Common
Stock on the last market trading day prior to the day of determination, as
reported in the Wall Street Journal or such other source as the Administrator
deems reliable;
(c) In the absence of an established market for the Common Stock, the Fair
Market Value thereof shall be determined in good faith by the Administrator.
"Incentive Stock Option" means an Option that satisfies the provisions of
----------------------
Section 422 of the Code.
"Issued Shares" means, for any fiscal year, the number of shares of the
-------------
Company's Common Stock outstanding on the last day of the fiscal year, plus any
shares reacquired by the Company during the preceding fiscal year.
"Nonstatutory Stock Option" means an Option that is not an Incentive Stock
-------------------------
Option.
"Officer" means an officer of the Company within the meaning of Section 16
-------
of the Exchange Act and the rules and regulations promulgated thereunder.
"Option" means a stock option granted pursuant to the Plan.
------
"Optioned Stock" means the Common Stock subject to an Option.
--------------
2
<PAGE>
"Optionee" means an Employee, Director or Consultant who holds an Option.
--------
"Outside Director" means a Director who is not an Employee.
----------------
"Parent" corporation shall have the meaning defined in Section 424(e) of the
------
Code.
"Participant" means a holder of an Award under this Plan.
-----------
"Plan" means this 2001 Stock Option Plan.
----
"Share" means a share of the Common Stock, as adjusted in accordance with
-----
Section 10 of the Plan.
"Substitute Awards" shall mean awards granted in assumption of, or in
-----------------
substitution for, outstanding awards previously granted by a company acquired by
the Company or with which the Company combines.
"Subsidiary" corporation shall have the meaning defined in Section 424(f) of
----------
the Code.
In addition, the terms "Rule 16b-3" and "Applicable Laws," the term "10%
Stockholder," and the term "Tax Date" shall have the meanings set forth,
respectively, in Sections 4, 7 and 8 below.
3. Stock Subject to the Plan.
-------------------------
(a) Subject to the provisions of Section 10 of the Plan, the maximum
aggregate number of Shares which may be subject to Awards under the Plan is
Seven Million Five Hundred Thousand (7,500,000) shares, plus an annual increase
to be added on the first day of the Company's fiscal year beginning in 2002 by
the lesser of (i) a number of shares equal to 4.0% of the Issued Shares on the
last day of the fiscal year immediately preceding the year in which such
adjustment is made, and (ii) Seventeen Million Five Hundred Thousand
(17,500,000) shares, plus shares issued or subject to issuance on exercise or
settlement of Awards pursuant to the Incentive Plan that are forfeited to the
Company under award terms or conditions.
(b) The Shares may be authorized, but unissued, or reacquired Common
Stock.
(c) If an Award should expire or become unexercisable or otherwise
forfeited for any reason without having been exercised in full or settled in
stock, the unpurchased Shares which were subject thereto shall, unless the Plan
shall have been terminated, become available for other Awards under the Plan.
If the Company reacquires Shares which were issued pursuant to the exercise of
an Option, such Shares shall not become available for future grant under the
Plan; provided, however, that if Shares of restricted stock issued pursuant to
Section 7(d) hereof are repurchased by the Company at their original purchase
price, such Shares shall become available for future grant under the Plan.
(e) Shares underlying Substitute Awards shall not reduce the number
of Shares remaining available for issuance under the Plan.
3
<PAGE>
4. Administration of the Plan.
--------------------------
(a) Composition of Administrator.
----------------------------
(i) Administration With Respect to Directors. With respect to
----------------------------------------
grants of Awards to Outside Directors of the Company, the Plan shall be
administered by the Board.
(ii) Administration With Respect to Consultants and Other
----------------------------------------------------
Employees. With respect to grants of Awards to Employees or Consultants of the
---------
Company, the Plan shall be administered by (A) the Board or (B) a Committee
designated by the Board intended to satisfy the requirements of Rule 16b-3 of
the Exchange Act and Section 162(m) of the Code, which Committee shall be
constituted in such a manner as to satisfy the Applicable Laws.
(iii) Multiple Administrative Bodies. If permitted by Rule 16b-3
------------------------------
and by the Applicable Laws, the Plan may (but need not) be administered by
different administrative bodies with respect to Directors, non-Director
Officers, and Employees and Consultants who are neither Directors nor Officers.
(iv) General. Once a Committee has been appointed pursuant to
-------
subsection (i) or (ii) of this Section 4(a), such Committee shall continue to
serve in its designated capacity until otherwise directed by the Board. From
time to time the Board may increase the size of any Committee and appoint
additional members thereof, remove members (with or without cause) and appoint
new members in substitution therefore, fill vacancies (however caused) or remove
all members of the Committee and thereafter directly administer the Plan, all to
the extent permitted by the Applicable Laws, and, in the case of a Committee
appointed under subsection (i) hereof, to the extent permitted by Rule 16b-3 as
it applies to a plan intended to qualify thereunder as a discretionary plan.
(b) Powers of the Administrator with respect to Employees and
---------------------------------------------------------
Consultants. Subject to the provisions of the Plan, and, in the case of a
-----------
Committee, subject to the specific duties delegated by the Board to such
Committee, the Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(m) of the Plan;
(ii) to select the Officers, Consultant and Employees to whom
Awards may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such Option granted hereunder;
(v) to approve forms of agreement for use under the Plan;
4
<PAGE>
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Award granted hereunder (including, but not
limited to, whether such Option is an Incentive Stock Option or a Nonstatutory
Stock Option, the exercise price and any restriction or limitation, or any
vesting acceleration or waiver of forfeiture restrictions regarding any Option
or other award and/or the shares of Common Stock relating thereto, based in each
case on such factors as the Administrator shall determine, in its sole
discretion) and to provide for the grant of Awards other than Options on terms
determined in their discretion; provided, however, that in the event of a merger
or asset sale, the applicable provisions of Section 10 of the Plan shall govern
vesting acceleration;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under subsection 7(a)(vii) instead of Common
Stock;
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
(ix) to interpret the Plan;
(x) to prescribe, amend and rescind rules and regulations
relating to the Plan;
(xi) with the consent of the holder thereof, to modify or amend
each Option; and
(xii) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(c) Powers of the Board with respect to Directors. Subject to the
---------------------------------------------
provisions and restrictions of the Plan, the Board shall have the authority, in
its discretion: (i) to determine, upon review of relevant information and in
accordance with Section 2(m) of the Plan, the Fair Market Value of the Common
Stock; (ii) to interpret the Plan; (iii) to prescribe, amend and rescind rules
and regulations relating to the Plan; (iv) to authorize any person to execute on
behalf of the Company any instrument required to effectuate the grant of an
Award previously granted hereunder; and (v) to make all other determinations
deemed necessary or advisable for the administration of the Board.
(d) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
Optionees.
5. Eligibility.
-----------
(a) Eligibility for Employees and Consultants. Nonstatutory Stock
-----------------------------------------
Options and other Awards may be granted to Employees and Consultants. Incentive
Stock Options may be granted only to Employees. An Optionee who has been
granted an Option may, if he or she is otherwise eligible, be granted additional
Options.
5
<PAGE>
(b) Eligibility for Outside Directors. Awards may be granted to
---------------------------------
Outside Directors. All Options shall be automatically granted in accordance
with the terms set forth in Section 7 hereof. An Outside Director who has been
granted an Option may, if he or she is otherwise eligible, be granted an
additional Option or Options in accordance with such provisions.
(c) No Employment Agreement. Neither the Plan nor any Option
-----------------------
agreement shall confer upon any Optionee any right with respect to continuation
of employment by or service as a Director or Consultant to the Company, no shall
it interfere in any way with the Optionee's right or the Company's right to
terminate the Optionee's employment or other relationship at any time.
(d) Limitation on Grants. No Employee shall be granted, in any fiscal
--------------------
year of the Company, Options to purchase more than 2,500,000 Shares.
6. Term of Plan. Subject to Section 15 of the Plan, the Plan shall
------------
become effective upon the earlier to occur of its adoption by the Board or its
approval by the stockholders of the Company as described in Section 15. It
shall continue in effect for a term of ten (10) years unless sooner terminated
under Section 12 of the Plan.
7. Options.
-------
(a) Grants with respect to Outside Directors. All grants of Options
----------------------------------------
to Outside Directors hereunder shall be automatic and non-discretionary and
shall be made strictly in accordance with the following provisions:
(i) No person shall have any discretion to select which
Outside Directors shall be granted Options or to determine the number of Shares
to be covered by Options granted to Outside Directors.
(ii) During the term of the Plan, each Outside Director shall
automatically receive an Option to purchase 40,000 Shares (except in the case of
the Chairman of the Board, who shall receive an Option to purchase 60,000
shares) (the "Annual Option") on each January 1 following the approval of this
Plan.
(iii) Unless otherwise provided for by the Board, each Outside
Director who is nominated or elected to the Board during the term of the Plan
shall receive an Option to purchase 40,000 Shares (except in the case of the
Chairman of the Board, who shall receive an Option to purchase 60,000 Shares) on
the date of such election or nomination (the "New Director Grant").
Notwithstanding the foregoing, the Board shall have the authority to grant a pro
rata portion of the New Director Grant to reflect the portion of the year served
or to determine that the New Director Grant is not necessary.
(iv) The terms of each Option granted hereunder shall be as
follows:
(A) the term of the Option shall be ten (10) years; and
6
<PAGE>
(B) the Option shall be exercisable only while the Outside
Director remains a Director of the Company, except as set forth in Section 7(c)
hereof; and
(C) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Option; and
(D) the Option shall be exercisable in installments
cumulatively as to 2% of the Optioned Stock for each full month that expires
following the date of grant that the Optionee remains a Director.
(v) In the event that any Option granted under the Plan would
cause the number of Shares subject to outstanding Options plus the number of
Shares previously purchased upon exercise of Options to exceed the number of
authorized Shares under Section 3 hereof, then each such automatic grant shall
be for that number of Shares determined by dividing the total number of Shares
remaining available for grant by the number of Outside Directors on the
automatic grant date. No further grants shall be made until such time, if any,
as additional Shares become available for grant under the Plan through action of
the stockholders to increase the number of Shares which may be issued under the
Plan or through cancellation or expiration of Options previously granted
hereunder.
(b) Grants with respect to Employees and Consultants. The
------------------------------------------------
Administrator, in its discretion, may grant Options to eligible participants and
shall determine whether such Options shall be Incentive Stock Options or
Nonstatutory Stock Options. Each Option shall be evidenced by a written Option
agreement which shall expressly identify the Options as Incentive Stock Options
or as Nonstatutory Stock Options, and be in such form and contain such
provisions as the Administrator shall from time to time deem appropriate.
Without limiting the foregoing, the Administrator may, at any time, or from time
to time, authorize the Company, with the consent of the respective recipients,
to issue Options in exchange for the surrender and cancellation of any or all
outstanding Options. Option agreements shall contain the following terms and
conditions:
(i) Exercise Price; Number of Shares. The per Share exercise
--------------------------------
price for the Shares issuable upon exercise of an Option shall be such price as
is determined by the Administrator. The Option agreement shall specify the
number of Shares to which it pertains.
(ii) Waiting Period; Exercisability; Term. At the time an
------------------------------------
Option is granted, the Administrator will determine the terms and conditions to
be satisfied before Shares may be purchased, including the dates on which Shares
subject to the Option may first be purchased or the conditions which must be
satisfied prior to the purchase. The Administrator may specify that an Option
may not be exercised until the completion of the service period specified at the
time of grant. (Any such period is referred to herein as the "waiting period.")
At the time an Option is granted, the Administrator shall fix the period within
which the Option may be exercised, which shall not be less than the waiting
period, if any, nor more than ten (10) years from the date of grant.
(iii) Form of Payment. The consideration to be paid for the
---------------
Shares to be issued upon exercise of an Option, including the method of payment,
shall be determined by
7
<PAGE>
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender and (y) have a Fair Market Value on the
date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised, (5) delivery of a properly executed
exercise notice together with irrevocable instructions to a broker to promptly
deliver to the Company the amount of sale or loan proceeds required to pay the
exercise price, (6) any combination of the foregoing methods of payment, or (7)
such other consideration and method of payment for the issuance of Shares to the
extent permitted under Applicable Laws.
(iv) Special Incentive Stock Option Provisions. In addition to the
-----------------------------------------
foregoing, Options granted under the Plan which are intended to be Incentive
Stock Options under Section 422 of the Code shall be subject to the following
terms and conditions:
(A) Exercise Price. The per share exercise price for the Shares
--------------
issuable upon exercise of the Option shall be no less than 100% of the Fair
Market Value of Common Stock, determined as of the date of the grant of the
Option.
(B) Dollar Limitation. To the extent that the aggregate Fair
-----------------
Market Value of (i) the Shares with respect to which Options designated as
Incentive Stock Options plus (ii) the shares of stock of the Company, Parent and
any Subsidiary with respect to which other incentive stock options are
exercisable for the first time by an Optionee during any calendar year under all
plans of the Company and any Parent and Subsidiary exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of the
preceding sentence, (i) Options shall be taken into account in the order in
which they were granted, and (ii) the Fair Market Value of the Shares shall be
determined as of the time the Option or other incentive stock option is granted.
(C) General. Except as modified by the preceding provisions of
-------
this subsection 7(a)(iv) and except as otherwise limited by Section 422 of the
Code, all of the provisions of the Plan shall be applicable to the Incentive
Stock Options granted hereunder.
(v) 10% Stockholder. If any Optionee to whom an Incentive Stock
---------------
Option is to be granted pursuant to the provisions of the Plan is, on the date
of grant, the owner of Common Stock (as determined under Section 424(d) of the
Code) possessing more than 10% of the total combined voting power of all classes
of stock of the Company or any Subsidiary (a "10% Stockholder"), then the
following special provisions shall be applicable to the Option granted to such
individual:
(A) The per Share Option price of Shares subject to such
Incentive Stock Option shall not be less than 110% of the Fair Market Value of
Common Stock on the date of grant; and
(B) The Option shall not have a term in excess of five (5) years
from the date of grant.
8
<PAGE>
(vi) Rule 16b-3. Grants of options to Directors, Officers and 10%
----------
Stockholders must comply with the applicable provisions of Rule 16b-3 and such
Options shall contain such additional conditions or restrictions, if any, as may
be required by Rule 16b-3 to be in the written Option Agreement in order to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
(vii) Other Provisions. Each Option granted under the Plan may
----------------
contain such other terms, provisions, and conditions not inconsistent with the
Plan as may be determined by the Administrator.
(viii) Buyout Provisions. The Administrator may at any time offer
-----------------
to buy out, for a payment in cash or Shares, an Option previously granted, based
on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made. Any such cash
offer made to an Officer or Director shall comply with the provisions of Rule
16b-3 relating to cash settlement of stock appreciation rights. This provision
is intended only to clarify the powers of the Administrator and shall not in any
way be deemed to create any rights on the part of Optionees to buyout offers or
payments.
(c) Method of Exercise.
------------------
(i) Exercisability. Any Option granted hereunder shall be
--------------
exercisable at such times and under such conditions as determined by the
Administrator and as shall be permissible under the terms of the Plan.
(ii) No Fractional Shares. An Option may not be exercised for a
--------------------
fraction of a Share.
(iii) Procedure for Exercise; Rights as a Stockholder. An Option
-----------------------------------------------
shall be deemed to be exercised when the Company receives: (i) written notice
of such exercise in accordance with the terms of the Option from the person
entitled to exercise the Option and (ii) full payment for the Shares with
respect to which the Option is exercised. Full payment may consist of any
consideration and method of payment allowable under subsection 7(a)(iii) of the
Plan, as authorized by the Administrator (and, in the case of an Incentive Stock
Option, determined at the time of grant) and permitted by the Option Agreement.
Shares issued upon exercise of an Option shall be issued in the name of the
Optionee or, if requested by the Optionee, in the name of the Optionee and his
or her spouse. Until the issuance (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company) of
the stock certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option. No adjustment will
be made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 10 of the
Plan.
(iv) Effect of Exercise. Exercise of an Option in any manner shall
------------------
result in a decrease in the number of Shares which thereafter shall be
available, both for purposes of the Plan and for sale under the Option, by the
number of Shares as to which the Option is exercised.
9
<PAGE>
(d) Effect of Termination.
---------------------
(i) Termination of Status as a Director. If an Outside Director
-----------------------------------
ceases to serve as a Director, he or she may, but only within three (3) months
after the date he or she ceases to be a Director of the Company, exercise his or
her Option to the extent that he or she was entitled to exercise it at the date
of such termination. Notwithstanding the foregoing, in no event may the Option
be exercised after its ten year term has expired. To the extent that he or she
was not entitled to exercise an Option at the date of such termination, of if he
or she does not exercise such Option (which he or she was entitled to exercise)
within the time specified herein, the Option shall terminate.
(ii) Termination of Employment or Consulting Relationship. In the
----------------------------------------------------
event an Optionee's Continuous Status as an Employee or Consultant terminates
(other than upon the Optionee's death or disability), the Optionee may exercise
his or her Option, but only within such period of time not to exceed six months
as is determined by the Administrator (with such determination being made at the
time of grant and not exceeding ninety (90) days in the case of an Incentive
Stock Option) from the date of such termination, and only to the extent that the
Optionee was entitled to exercise it at the date of such termination (but in no
event later than the expiration of the term of such Option as set forth in the
Option Agreement). If, at the date of termination, the Optionee is not entitled
to exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall be returned to the Plan as of the termination date.
If, after termination, the Optionee does not exercise his or her Option within
the time specified herein, the Option shall terminate, and all remaining Shares
covered by such Option shall be returned to the Plan at the end of such period.
(iii) Disability of Optionee. In the event an Optionee's Continuous
----------------------
Status as an Employee or Consultant terminates as a result of the Optionee's
Disability, the Optionee may exercise his or her Option, but only within six
months from the date of such termination, and only to the extent that the
Optionee was entitled to exercise it at the date of such termination (but in no
event later than the expiration of the term of such Option as set forth in the
Option Agreement). If, at the date of termination due to Disability, the
Optionee is not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall be returned to the Plan
as of the date of Disability. If, after such termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and all remaining Shares covered by such Option shall be returned to
the Plan at the end of such period.
(iv) Death of Optionee. In the event of an Optionee's death, the
-----------------
Optionee's estate or a person who acquired the right to exercise the deceased
Optionee's Option by bequest or inheritance may exercise the Option, but only
within six months following the date of death, and only to the extent that the
Optionee was entitled to exercise it at the date of death (but in no event later
than the expiration of the term of such Option as set forth in the Option
Agreement). If, at the time of death, the Optionee was not entitled to exercise
his or her entire Option, the Shares covered by the unexercisable portion of the
Option shall be returned to the Plan as of the date of death. If, after death,
the Optionee's estate or a person who acquired the right to exercise the Option
by bequest or inheritance does not exercise the Option within the
10
<PAGE>
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall be returned to the Plan at the end of such period.
(d) Early Exercise. Options may, but need not, include a provision
--------------
whereby the Optionee may elect at any time before the Optionee's Continuous
Service terminates to exercise the Option as to any part of all of the shares of
Common Stock subject to the Option prior to the full vesting of the Option. Any
unvested shares of Common Stock so purchased may be subject to a repurchase
option in favor of the Company or to any other restriction the Board determines
to be appropriate.
8. Stock Withholding to Satisfy Withholding Tax Obligations.
--------------------------------------------------------
(a) Ability to Use Stock for Withholding. At the discretion of the
------------------------------------
Administrator, Optionees may satisfy withholding obligations as provided in this
Section 8. When an Optionee incurs tax liability in connection with the
exercise of an Option, which tax liability is subject to tax withholding under
applicable tax laws, and the Optionee is obligated to pay the Company an amount
required to be withheld under applicable tax laws, the Optionee may satisfy the
withholding tax obligation by electing to have the Company withhold from the
Shares to be issued upon exercise of the Option that number of Shares having a
Fair Market Value equal to the amount required to be withheld. The Fair Market
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined ("Tax Date").
(b) Election to Have Stock Withheld. All elections by an Optionee to
-------------------------------
have Shares withheld for this purpose shall be made in writing in a form
acceptable to the Administrator and shall be subject to the following
restrictions:
(i) the election must be made on or prior to the applicable Tax
Date;
(ii) once made, the election shall be irrevocable as to the
particular Shares of the Option as to which the election is made (unless
otherwise permitted by applicable tax regulations under the Code);
(iii) all elections shall be subject to the consent or
disapproval of the Administrator; and
(iv) if the Optionee is a Director, Officer or 10% Stockholder,
the election must comply with the applicable provisions of Rule 16b-3 and shall
be subject to such additional conditions or restrictions as may be required
thereunder to qualify for the maximum exemption from Section 16 of the Exchange
Act with respect to Plan transactions.
(c) Section 83(b) Election. In the event the election to have Shares
----------------------
withheld is made by an Optionee, no election is filed under Section 83(b) of the
Code and the Tax Date is deferred under Section 83 of the Code, the Optionee
shall receive the full number of Shares with respect to which the Option is
exercised but such Optionee shall be unconditionally obligated to tender back to
the Company the proper number of Shares on the Tax Date.
11
<PAGE>
9. Limitations on Transfer. Options granted under this Plan, and any
-----------------------
interest therein, shall not be transferable or assignable by the Optionee, and
may not be subject to execution, attachment or similar process, otherwise than
by will or by the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined by the Code or Title I of the Employee
Retirement Income Security Act, or the rules thereunder. The designation of a
beneficiary by an Optionee does not constitute a transfer. An Option shall be
exercisable during the lifetime of the Optionee only by the Optionee; provided,
however, that Nonstatutory Stock Options held by an Optionee may be transferred
to such family members, trusts and charitable institutions as the Administrator,
in its sole discretion, shall approve, unless otherwise restricted from such
transfer under the terms of the grant.
10. Adjustments Upon Changes in Capitalization or Merger.
----------------------------------------------------
(a) Stock Splits and Similar Events. Subject to any required action
-------------------------------
by the stockholders of the Company, the number of Shares covered by each
outstanding Award, and the number of Shares which have been authorized for
issuance under the Plan but as to which no Awards have yet been granted or which
have been returned to the Plan upon cancellation or expiration of an Option, as
well as the price per Share covered by each outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the aggregate number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed for this purpose to
have been "effected without receipt of consideration". Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, all outstanding Awards will terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board. The Board may, in the exercise of its sole discretion in
such instances, declare that any Award shall terminate as of a date fixed by the
Board and give each Optionee the right to exercise his or her Award as to all or
any part of the Optioned Stock, including Shares as to which the Option would
not otherwise be exercisable.
(c) Sale of Assets or Merger. In the event of a merger of the Company
------------------------
with or into another corporation, the Award shall be assumed or an equivalent
option or award shall be substituted by the successor corporation or a Parent or
Subsidiary of such successor corporation. In the event that such successor
corporation does not agree to assume the Award or to substitute an equivalent
option or award, the Board shall, in lieu of such assumption or substitution,
provide for the Optionee to have the right to exercise the Award as to all of
the Optioned Stock, including Shares as to which the Option or Stock Purchase
Right would not otherwise be exercisable. If the Board makes an Award fully
exercisable (or vested) in lieu of assumption or substitution in the event of a
merger, the Board shall notify the Participant that the Option shall be fully
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option will terminate upon the expiration of such period. For the purposes
of this paragraph, the Option shall be considered assumed if, following the
merger or sale of assets, the assumed option confers the right to purchase, for
each Share of Optioned Stock subject to the
12
<PAGE>
Option immediately prior to the merger or sale of assets, the consideration
(whether stock, cash, or other securities or property) received in the merger or
sale of assets by holders of Common Stock for each Share held on the effective
date of the transaction (and if holders were offered a choice of consideration,
the type of consideration chosen by the holders of a majority of the outstanding
Shares); provided, however, that if such consideration received in the merger or
sale of assets was not solely common stock of the successor corporation or its
Parent, the Board may, with the consent of the successor corporation and the
participant, provide for the consideration to be received upon the exercise of
the Option, for each Share of Optioned Stock subject to the Option, to be solely
common stock of the successor corporation or its Parent equal in Fair Market
Value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
(d) No Other Adjustments. Except as expressly provided herein, no
--------------------
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
subject to an Award.
11. Time of Granting Options. The date of grant of an Award shall, for
------------------------
all purposes, be the date on which the Administrator makes the determination
granting such Award, or such other later date as is determined by the
Administrator. Notice of the determination shall be given to each Employee or
Consultant to whom an Award is so granted within a reasonable time after the
date of such grant.
12. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend, or terminate the Plan. The Company shall obtain stockholder
approval of any Plan amendment in such a manner and to such a degree as is to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or Section 422 of the Code (or any other applicable law or regulation,
including the requirements of any exchange or quotation system on which the
Common Stock is) in such a manner and to such a degree as is listed or quoted in
such a manner and to such a degree as is required by such law or regulation.
(b) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Participant
with respect to Awards already granted unless mutually agreed otherwise between
the Participant and the Administrator, which agreement must be in writing signed
by the Participant and the Company.
13. Conditions Upon Issuance of Shares.
----------------------------------
(a) Compliance with Laws. Shares shall not be issued upon exercise of
--------------------
an Option or the vesting of an Award unless such exercise and the issuance and
delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder,
state securities laws and the requirements of any stock exchange or quotation
system upon which the Shares may then be listed or quoted, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
13
<PAGE>
(b) Investment Intent. As a condition to the exercise of an Option or
-----------------
the issuance of Shares upon exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required.
(c) No Company Liability. Inability of the Company to obtain
--------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the non-issuance or sale of such Shares as to which such requisite authority
shall not have been obtained.
(d) Grants Exceeding Allotted Shares. If the Stock covered by an
--------------------------------
Award exceeds, as of the date of grant, the number of Shares which may be issued
under the Plan without additional stockholder approval, such Option shall be
void with respect to such excess stock, unless stockholder approval of an
amendment sufficiently increasing the number of Shares subject to the Plan to
permit full exercise or settlement of the Award is timely obtained in accordance
with Section 15 of the Plan.
14. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan and the Awards granted
hereunder.
15. Stockholder Approval.
--------------------
(a) Requirement. Continuance of the Plan shall be subject to approval
-----------
by the stockholders of the Company within twelve (12) months before or after the
date the Plan is adopted as provided in Section 6 and at or prior to the first
annual meeting of stockholders held subsequent to the first granting of an
Option hereunder. Such stockholder approval shall be obtained in the manner and
to the degree that is required under applicable federal and state laws.
(b) Manner of Solicitation. Approval of the Plan by the stockholders
----------------------
of the Company shall be solicited substantially in accordance with Section 14(a)
of the Exchange Act and the rules and regulation promulgated thereunder.
14
<PAGE>
PROXY
VITESSE SEMICONDUCTOR CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 23, 2001
The undersigned stockholder of Vitesse Semiconductor Corporation, a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated December 22, 2000, and hereby
appoints Louis R. Tomasetta and Eugene F. Hovanec, and each of them, with full
power of substitution, as Proxy or Proxies, to vote all shares of the Common
Stock of the undersigned at the Annual Meeting of Stockholders of Vitesse
Semiconductor Corporation to be held on January 23, 2001, and at any
adjournments thereof, upon the proposals set forth on this form of proxy and
described in the Proxy Statement, and in their discretion with respect to such
other matters as may be properly brought before the meeting or any adjournments
thereof.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR THE
NOMINEES NAMED IN PROPOSAL 1 AND FOR PROPOSALS 2 AND 3, AS MORE SPECIFICALLY
DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS
PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
----------- ------------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
----------- ------------
<PAGE>
----------------- ----------------
Vote by Telephone Vote by Internet
----------------- ----------------
It's fast, convenient, and Immediate! It's fast, convenient, and your
Call Toll-Free on a Touch-Tone Phone vote is immediately confirmed
1-877-PRX-VOTE (1-877-779-8683) and posted.
-------------------------------------- ------------------------------------
Follow these four easy steps: Follow these four easy steps:
1. Read the accompanying Proxy 1. Read the accompanying Proxy
Statement/Prospectus and Statement/Prospectus and Proxy
Proxy card. Card.
2. Call the toll-free number 2. Go to the Website
1-877-PRX-VOTE (1-877-779-8683). http://www.eproxyvote.com/vtss
3. Enter your 14-digit Voter Control 3. Enter your 14-digit Voter
Number located on your Proxy Card Control Number located on your
above your name. Proxy Card above your name.
4. Follow the recorded instructions. 4. Follow the instructions
provided.
-------------------------------------- -----------------------------------
Your vote is important! Your vote is important!
Call 1-877-PRX-VOTE anytime! Go to http://www.eproxyvote.com/vtss
anytime!
Do not return your Proxy Card if you are voting by Telephone or Internet
DETACH HERE
[X] Please mark
votes as in
this example.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR NAMED BELOW AND A
VOTE FOR PROPOSALS 2 AND 3.
1. To elect six directors of the Company to serve for the ensuing one year until
the Company's 2002 Annual Meeting of Stockholders and until their successors
are elected.
Nominees: (01) Pierre R. Lamond, (02) Vincent Chan, (03) James A. Cole,
(04) Alex Daly, (05) John C. Lewis, (06) Louis R. Tomasetta
FOR [_] [_] WITHHELD
[_] ______________________________________
For all nominees except as noted above
2. To approve a proposal to adopt the Company's 2001 Stock Incentive Plan.
FOR AGAINST ABSTAIN
[_] [_] [_]
3. To ratify the selection of KPMG LLP as the Company's independent auditors for
the fiscal year ending September 30, 2001.
FOR AGAINST ABSTAIN
[_] [_] [_]
Please vote, date and promptly return this proxy in the enclosed return envelope
which is postage prepaid if mailed in the United States.
Please sign exactly as your name appears hereon. If the stock is registered in
the names of two or more persons, each should sign. Executors, administrators,
trustees, guardians and attorneys-in-fact should add their titles. If the signer
is a corporation, please give full corporate name and have a duly authorized
officer sign stating title. If the signer is a partnership, please sign in
partnership name by authorized person.
