Table of ContentsUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Table of Contents
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 11, 2010
(PRELIMINARY COPY)TO OUR STOCKHOLDERS:
VITESSE SEMICONDUCTOR CORPORATION
741 Calle PlanoCamarillo, California 93012[ ], 2009
Dear Fellow Stockholders:
You are cordially invited to attend a SpecialNOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Vitesse Semiconductor CorporationVITESSE SEMICONDUCTOR CORPORATION, a Delaware corporation, will be held on [ ], [ ], 2009May 11, 2010 at [ ]9 a.m. local time at [ ].
This Special Meeting has been called for stockholders to consider and vote on, among other things, a crucial proposal to increase the number of authorized shares of our common stock. This increase is needed to complete our previously announced debt restructuring.
WE NEED YOUR VOTE TO APPROVE THIS PROPOSAL. IF THE MAJORITY OF OUR STOCKHOLDERS DO NOT VOTE IN FAVOR OF THIS PROPOSAL, VITESSE’S PROFITABILITY WILL BE MATERIALLY IMPACTED AND VITESSE MAY EVENTUALLY BE FORCED TO FILE FOR BANKRUPTCY UNDER CHAPTER 11, PUTTING ALL STOCKHOLDER VALUE AT RISK OF BEING LOST.
This proposal will allow us to complete the debt restructuring agreements we entered intoHyatt Westlake Plaza in October 2009 with our major creditors. Those agreements allowed us to satisfy our creditors by converting most of our debt into new common stock, preferred stock and new convertible debentures (New Debentures). We do not, however, currently have enough shares of authorized common stock to convert the New Debentures into shares of common stock. If stockholders do not approve this proposal to authorize the Company to issue more shares by February 15, 2010, Vitesse will face a 1% per month interest charge on the New Debentures (at a cost of about $500,000 per month) beginning on February 15, 2010 and continuing until the increase in the authorized shares is approved. In addition, if we have not received an approval for the increased shares by February 16, 2011, the holders of the New Debentures will have the right to demand repayment of the principal amount of the debt, plus potentially certain make-whole interest payments representing interest that would have been earned if the bonds had not been converted early. The terms of the New Debentures are disclosed in the accompanying proxy statement. As you review the details of our agreements, we believe you will agree that if we do not receive your approval for the increase in shares, the Company may face events that could potentially force it to file for protection from our creditors under Chapter 11 of the U.S. Bankruptcy Code.
We worked aggressively to avoid the level of dilution that will result from this action on your investment, and we have worked diligently to find other alternatives to these debt restructuring agreements. In November 2008, our Board of Directors formed a Strategic Development Committee (SDC)to thoroughly search for possible alternatives that would advance the interest of stockholders. To
assist with identifying and evaluating a spectrum of possible solutions, the Company, working in conjunction with the SDC, assembled a team of advisors, including investment bankers, financing specialists, and legal counsel. Together, we considered and evaluated a broad range of alternatives, including mergers of equals, a sale of the Company, restructuring the current debt, private equity investments, taking the Company private, and capital market transactions.
As part of that process, in the backdrop of a severely depressed economy and struggling financial markets, we entered into discussions with more than 30 parties, including strategic buyers and private equity investors as well as the holders of debt. Of these, seven submitted proposals to acquire or invest in Vitesse and five firms conducted due diligence with the intent of entering into a definitive agreement to refinance or acquire. In the end, our Board of Directors concluded that the only viable alternative for stockholders was the debt restructuring that was entered into on October 16, 2009.
We appreciate the support you have shown over the years and we understand that many investors have been disappointed by their investment in Vitesse. While the debt restructuring transaction was dilutive to our stockholders, it offered us a way to maintain value for our stockholders and to keep our commitments to our customers and employees.
YOUR VOTE IS IMPORTANT, NO MATTER HOW MANY OR FEW SHARES YOU OWN. PLEASE PROMPTLY VOTE YOUR PROXY AS SOON AS POSSIBLE BY MAIL USING THE ENCLOSED POSTAGE-PAID REPLY ENVELOPE.
Our board of directors recommends that stockholders vote FOR the following three proposals that will be considered and voted on during the Special Meeting of Stockholders:
·Amend our Amended and Restated Certificate of Incorporation to increase the number of authorized shares of our common stock from 500,000,000 shares to 5,000,000,000 shares to permit the conversion of the New Debentures into shares of common stock and provide available shares for other general corporate purposes;
·Amend our Amended and Restated Certificate of Incorporation to effect a reverse stock split of our common stock in a range of 1:20 to 1:50 with the exact reverse split ratio set by our Board; and
·Grant management the authority to adjourn, postpone, or continue the Special Meeting.
The second of these proposals is designed to address an issue that arises as a result of our common stock trading at historically low prices for more than a year. At these prices, the common stock is currently not eligible for re-listing on The NASDAQ Capital Market. The second proposal was developed as a key step toward allowing Vitesse to apply in the future to be listed on The NASDAQ Capital Market. Under this second proposal, stockholders would allow the Company to decrease the number of outstanding shares of the common stock without any material change in the proportionate economic interest by individual shareholdings. We believe this may result in an increase in the trading price of our shares to a
level that may permit relisting on The NASDAQ Capital Market, although there can be no assurance that this price increase will occur or that we will be successful in relisting on The NASDAQ Capital Market.
Please read the accompanying proxy statement carefully for information about the matters you are being asked to consider and vote upon. Your vote is important. Whether or not you attend the meeting in person, the Board urges you to promptly vote your proxy as soon as possible by mail using the enclosed postage-paid reply envelope. If you decide to attend the meeting and vote in person, you will, of course, have that opportunity.
Thank you for your continued support.
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VITESSE SEMICONDUCTOR CORPORATION
741 Calle Plano
Camarillo,Thousand Oaks, 880 S. Westlake Blvd., Westlake Village, California 93012
(805) 388-3700
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On [ ], 2009
To our Stockholders:
On behalf of the Board of Directors, you are cordially invited to attend a Special Meeting of Stockholders, which will be held at [ ], at [ ] a.m., local time, on [ ], [ ], 2009,91361 for the following purposes:
3.To grant management the authority to adjourn, postpone, or continue the Special Meeting.
TheseThe foregoing items of business are more fully described in the proxy statementProxy Statement accompanying this Notice. Please carefully read the accompanying proxy statement and other documents delivered with the proxy statement. Submission of Proposal 1 and Proposal 2 to our stockholders is required under Section 242 of the General Corporation Law of the State of Delaware.
The Board of Directors recommends stockholders vote FOR Proposals 1, 2, and 3 set forth above.
Stockholders of record of our common stock at the close of business on [ ], 2009 will beMarch 26, 2010 are entitled to notice of and to vote at the Special Meetingmeeting.
All stockholders are cordially invited to attend the meeting. However, to assure your representation at the meeting, you are urged to mark, sign, date and any adjournmentsreturn the enclosed proxy card as promptly as possible in the postage-prepaid envelope enclosed for that purpose. Any stockholder of record attending the meeting may vote in person even if he or postponements thereof.
We have enclosedshe has returned a proxy. Please note, however, that if your shares are held of record by a broker, bank or other nominee and you wish to vote at the meeting, you must obtain a proxy statement, certain sections of the Company’s Annual Report on Form 10-K for the year ended September 30, 2008, and Quarterly Report on Form 10-Q for the quarter ended June 30, 2009,issued in your name from that are incorporated by reference into the accompanying proxy statement, a form of proxy and a postage-paid reply envelope.record holder.
Your vote is important; and the Company appreciates your cooperation in considering and acting on the matters presented.
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Camarillo, California[ ], 2009March 31, 2010
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE STOCKHOLDER MEETING TO BE HELD ON MAY 11, 2010
Important Notice Regarding the Availability of Proxy Materials
for the Stockholder Meeting to Be Held on [ ], 2009
The Company’s proxy statement and other proxy materialsannual report to stockholders are available at [ ].www.vitesse.com/2010-annual-proxy.
IMPORTANT
Whether or notIn order to assure your representation at the meeting, you expectare requested to attendcomplete, sign and date the Specialenclosed proxy card as promptly as possible and return it in the enclosed envelope. Any stockholder attending the Annual Meeting may vote in person we urge you to vote youreven if he or she returned a proxy at your earliest convenience by mail using the enclosed postage-paid reply envelope. This will ensure the presence of a quorum at the Special Meeting and will save us the expense of additional solicitation. Sending in your proxy will not prevent you from voting your shares in person at the Special Meeting if you desire to do so. Your proxy is revocable at your option in the manner described in the accompanying proxy statement.card.
VITESSE SEMICONDUCTOR CORPORATION
741 Calle Plano
Drive
Camarillo, California 93012
(805) 388-3700PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed Proxy Statement
Foris solicited on behalf of the Special Meeting of Stockholders
To Be Held On [ ], [ ], 2009
Our Board of Directors (“Board”(the "Board") is soliciting proxies to be votedof Vitesse Semiconductor Corporation ("Vitesse" or the "Company") for use at the SpecialAnnual Meeting of Stockholders (the "Annual Meeting") to be held at Hyatt Westlake Plaza in Thousand Oaks, 880 S. Westlake Blvd., Westlake Village, California 91361 on [ ], 2009May 11, 2010 at [ ]9:00 a.m., local time, and at any adjournments or postponementsadjournment(s) thereof, for the purposes set forth herein and in the attachedaccompanying Notice of SpecialAnnual Meeting of Stockholders. Stockholders may obtain directions to be able to attend the Special Meeting at [ ] and vote in person by contacting us atOur telephone number is (805) 388-3700, by visiting the [ ]’s website at [ ] and clicking on [ ] or contacting the [ ] via telephone at [ ].
The notice, this388-3700. These proxy statement and the form of proxy enclosed aresolicitation materials were first being sent to stockholdersmailed on or about [ ], 2009. As used in this proxy statement, the terms “Vitesse,” “Company,” “we,” “us” and “our” referApril 1, 2010 to Vitesse Semiconductor Corporation.
Question:Why am I receiving these materials?
Answer: Our Board is providing these proxy materials to you in connection with a Special Meeting of Stockholders of Vitesse, to be held on [ ], 2009. As a stockholder of record of our common stock, par value $0.01 per share (“Common Stock”), on [ ], 2009, you are invited to attend the Special Meeting, and areall stockholders entitled to and requested to vote on the proposals described in this proxy statement.
Question:Who is soliciting my vote pursuant to this proxy statement?
Answer: Our Board is soliciting your vote at the SpecialAnnual Meeting. In addition, certain of our officers
Record Date and employees may solicit, or be deemed to be soliciting, your vote. We have also retained D. F. King & Co., Inc. to assist in the solicitation.Share Ownership
Question:Who is entitled to vote?
Answer: Only stockholdersStockholders of record of our Common Stock at the close of business on [ ], 2009March 26, 2010 (the "Record Date") are entitled to notice of and to vote at the Special Meeting. If you holdmeeting and at any adjournment(s) thereof. On the Record Date, 404,841,802 shares of our Common Stockcommon stock, $0.01 par value, were issued and outstanding.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person giving it is registeredat any time before its use (i) by delivering to us at our principal offices (Attention: Tracy Kern, Corporate Controller) a written notice of revocation or a duly executed proxy bearing a later date, or (ii) by attending the meeting and voting in your name on the records of Vitesse maintained by Vitesse’s transfer agent, Computershare, these proxy materials are being sent to you directly. Ifperson. Please note, however, that if your shares are held in “street name,” meaning that they are registered in the name of record by a broker, nominee, fiduciarybank or other custodian, then generally only that broker, nominee fiduciary or other custodian may execute a proxy and vote your shares. If you hold shares in street
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name, these proxy materials are being sent to you by the broker, nominee, fiduciary or other custodian through which you hold your shares.
Holders of our Series B Participating Convertible Non-Cumulative Preferred Stock, par value $0.01 per share (the “Series B Preferred Stock”), are not entitledwish to vote at the Special Meeting.meeting, you must obtain a proxy issued in your name from that record holder, and you will need to provide a copy of such proxy at the meeting.
Attendance at the Annual Meeting
Question:How many shares are eligible to be voted?
Answer: As All stockholders of record as of the record date of [ ], 2009, we had [ ] shares of Common Stock outstanding. Each outstanding share of our Common Stock entitles its holder to one vote on each matter toRecord Date may attend the Annual Meeting. Please note that cameras, recording devices and other electronic devices will not be voted onpermitted at the SpecialAnnual Meeting. No items will be allowed into the Annual Meeting that might pose a concern for the safety of those attending. Additionally, to attend the meeting you will need to bring identification and proof sufficient to us that you were a stockholder of record as of the Record Date or that you are a representative of a stockholder of record as of the Record Date for a stockholder of record that is not a natural person. For directions to attend the Annual Meeting, please visit the Hyatt Westlake Plaza's website athttp://westlake.hyatt.com/hyatt/hotels/services/maps/index.jsp or contact the hotel via telephone at (805) 557-1234.
Voting and Costs of Solicitation
Question:What am I voting on?
Answer: You are voting onOn all matters, other than the following matters:
election of directors, each share has one vote.
·Approval of an amendment to the Company’s Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) to increase the number of authorized shares of Common Stock from 500,000,000 to 5,000,000,000;
·Approval of an amendment to the Certificate of Incorporation to (a) effect a reverse stock split of the Common Stock at a reverse split ratio between 1-for-20 and 1-for-50, which ratio will be selected by the Board, and (b) decrease the number of authorized shares of Common Stock on a basis proportional to the reverse split ratio approved by the Board (the “Reverse Stock Split”); and
·To grant management the authority to adjourn, postpone or continue the Special Meeting.
Question:How does our Board recommend that I vote?
Answer: Our Board recommends that you vote:
·“FOR” the proposal to amend the Certificate of Incorporation to increase the number of authorized shares of Common Stock from 500,000,000 to 5,000,000,000;
·“FOR” the proposal to amend the Certificate of Incorporation to effect the Reverse Stock Split; and
·“FOR” the proposal to grant management the authority to adjourn, postpone or continue the Special Meeting.
Question:Why does our Board recommend we vote FOR on all proposals?
Answer: Vote FOR Proposal 1.We do not currently have a sufficient amount of Common Stock authorized under the Certificate of Incorporation to permit the conversion of the 8.0% Convertible Second Lien Debentures Due 2014 (the “New Notes”) into shares of Common Stock. If we are unable to obtain stockholder approval of this increase on or prior to
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February 15, 2010, then we will face an additional monthly payment (the “Penalty Payment”) equal to 1% of the outstanding principal amount of the New Notes (approximately $500,000 per month), until the stockholder approval is obtained. If we are unable to obtain stockholder approval of this increase prior to February 15, 2011, the holders of the New Notes will have the right to convert the New Notes into cash. If we are forced to make Penalty Payments and convert the New Notes into cash, we may need to explore other available restructuring and reorganization alternatives, including a voluntary filing for reorganization under Chapter 11 of the U.S. Bankruptcy Code, and may not be able to continue as a going concern.
Vote FOR Proposal 2. The Board believes that the increase in the stock price that it expects to result from the Reverse Stock Split will, among other things, help us satisfy the minimum bid price requirement in order to re-list our Common Stock on The NASDAQ Capital Market and increase the pool of potential investors and broker interest in our Common Stock. There can be no assurance that our stock price will increase or that we will be successful in relisting on The NASDAQ Capital Market. In addition, we agreed in the indenture governing the New Notes that on or prior to February 15, 2010, we would hold a stockholder meeting to gain authorization for a reverse stock split of the Common Stock at a ratio to be determined by the Board (with a minimum ratio of 1-for-10).
Vote FOR Proposal 3. The Board believes the approval of the proposal to grant management the authority to adjourn, postpone, or continue the Special Meeting will give the Company the flexibility to use additional time to solicit additional proxies in favor of the other proposals, including the solicitation of proxies from stockholders that have previously voted against the other proposals.
Question:How may I cast my vote?
Answer: Stockholder of Record. If you are thea stockholder of record as of the Record Date, you may vote by one of the following two methods:
·in person at the Special Meeting;Annual Meeting or vote by proxy using the enclosed proxy card.Whether or not you plan to attend the Annual Meeting, we urge you to vote by proxy to ensure your vote is counted. As stated above, you may still attend the Annual Meeting and vote in person if you have already voted by proxy.
Whichever method Come to the Annual Meeting and we will give you use,a ballot at the proxies identified ontime of voting. If you have previously turned in a proxy card, please notify us at the Annual Meeting that you intend to cancel the proxy and vote by ballot.
Beneficial Owners of Shares Held in “Street Name.” as you direct. If you are a beneficial ownerstockholder of record, you willnot be able to cast your vote over the Internet or by telephone. If you hold your shares held in “street name” and do not provide"street name," the broker, nominee, fiduciary or other custodian through which you hold your shares with specific voting instructions, under the rules of various national and regional securities exchanges, the organization that holdswill instruct you as to how your shares may generally vote on routine matters but cannot vote on non-routine matters.be voted by proxy.
If the organization that holdsyou return a signed and dated proxy card without marking any voting directions, your shares does not receive instructions from youwill be voted:
If any other matter is properly presented at the Annual Meeting, your proxy holders (one of the individuals named on how toyour proxy card) will vote your shares on a non-routine matter, the organization that holds your shares will inform our inspector of election that it does not have the authority to vote on this matter with respect to your shares. This is generally referred to as a “broker non-vote.” When our inspector of election tabulates the votes for any particular matter, broker non-votes will be counted for purposes of determining whether a quorum is present, but will not otherwise be counted. Your broker or nominee will usually provide you with the appropriate instruction form at the time you receive this proxy statement. We encourage you to provide voting instructions to the organization that holds your shares by carefully following the instructions in the voting instruction form.their discretion.
We believe that Proposal 1 will be considered non-routine and, therefore, brokers will not have discretion to vote on Proposal 1. Accordingly, brokers will only vote on Proposal 1 at the direction of the underlying beneficial owners of the shares of Common Stock. If you do not instruct your broker to vote your shares for Proposal 1, we believe your broker will not have the discretion to vote your shares for this proposal. We believe brokers will have discretion to vote on Proposals 2 and 3. Accordingly, if you do not instruct your broker to vote your shares for Proposals 2 and 3, we believe your broker will have the discretion to vote your shares for these proposals.
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Question:What do I need to bring with me if I attend the Special Meeting?
Answer: If you plan on attending the Special Meeting, please remember to bring the Special Meeting admission ticket that is attached to your proxy card and photo identification with you, such as a driver’s license. In addition, if you hold shares in “street name” you should bring an account statement or other acceptable evidence of ownership of Common Stock as of the close of business on [ ], 2009, the record date for voting. In order to vote at the Special Meeting, you will also need a valid “legal proxy” issued in your name, which you can obtain by contacting your account representative at the broker, nominee, fiduciary or other custodian through which you hold your shares.
Question:How may I cast my vote by mail?
Answer: To vote by mail, you may complete the enclosed proxy card and then sign, date and return it in the postage-prepaid addressed envelope provided. Submitting a proxy now will not limit your right to vote at the Special Meeting if you decide to attend in person. To be valid, your proxy by mail must be received by 9:00 a.m., Eastern Time, on [ ], 2009.
If your shares are held in “street"street name,”" meaning that they are registered in the name of a broker, nominee, fiduciary or other custodian, then generally only that broker, nominee, fiduciary or other custodian may execute a proxy and vote your shares. Your broker, nominee, fiduciary or other custodian should provide you with a voting instruction form for your use to provide them with instructions as to how to vote your shares at the SpecialAnnual Meeting. If your shares are held of record in “street name”"street name" by a broker, nominee, fiduciary or other custodian and you wish to vote in person at the SpecialAnnual Meeting, you must obtain from the record holder a “legal proxy”"legal proxy" issued in your name.
Stockholders that receive more than one proxy card or voting instruction form have shares registered in different forms or in more than one account. Stockholders that receive more than one proxy card are requested to please sign, date and return all proxy cards and provide instructions for all voting instruction forms received to ensure that all of your shares are voted.
Shares represented by a properly executed proxyThe cost of this solicitation will be voted atborne by us. Georgeson Inc. will distribute proxy materials to beneficial owners, may solicit proxies by personal interview, mail, telephone, and electronic communications, and will request brokerage houses and other custodians, nominees, and fiduciaries to forward soliciting material to the Special Meetingbeneficial owners of the common stock held on the record date by such persons. The Company will pay Georgeson Inc. $7,500 for its proxy solicitation services and when instructions have been givenwill reimburse Georgeson Inc. for payments made to brokers and other nominees for their expenses in forwarding solicitation materials. Solicitations also may be made by personal interview, telephone, and electronic communications by directors, officers and other employees of the stockholder, will be votedCompany without additional compensation. We may reimburse brokerage firms and other persons representing beneficial owners of shares for their expenses in accordance with those instructions. Properly executed proxies that do not contain voting instructions with regardforwarding solicitation material to a proposal will be voted “FOR” any such proposal.beneficial owners.
Question:May I cast my vote over the Internet or by telephone?
Answer: If you are a stockholder of record, you will not be able to cast your vote over the Internet or by telephone. See “How may I cast my vote?” above for information on how to vote.Quorum; Abstentions; Broker Non-Votes; Required Votes
If you hold your shares in street name, the broker, nominee, fiduciary or other custodian through which you hold your shares will instruct you as to how your shares may be voted by proxy, including whether telephone or Internet voting options are available.
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Question:How may I revoke or change my vote?
Answer: If you are the record owner of your shares, you may revoke your proxy at any time before it is voted at the Special Meeting by:
·submitting a new proxy card, dated later than the prior proxy card, that is received by our Secretary prior to [ ] a.m., Eastern Time, on [ ], 2009;
·delivering written notice to our Secretary at 741 Calle Plano, Camarillo, California 93012 prior to [ ], 2009 stating that you are revoking your proxy; or
·attending the Special Meeting and voting your shares in person.
Please note that attendance at the Special Meeting will not, by itself, constitute revocation of your proxy.
Question:How many votes are required to hold the Special Meeting and what are the voting requirements?
Answer: Quorum Requirement. Delaware law and our bylawsOur Bylaws provide that any stockholder action at a meeting requires that a quorum exist with respect to that action. A quorum for the actions to be taken at the Special Meeting will consist ofstockholders holding a majority of the shares of common stock issued and outstanding shares of Common Stock that areand entitled to vote on the Record Date constitute a quorum at the Special Meeting.meetings of stockholders. Therefore, at the SpecialAnnual Meeting, the presence, in person or by proxy, of the holders of at least [ ]202,420,902 shares of Common Stock will be required to establish a quorum. Proxies marked as abstaining, and any proxies returned by brokers as “non-votes” on behalf of shares held in “street name” because beneficial owners’ discretion has been withheld as to one or more matters on the agenda for the Special Meeting, will be treated as present and entitled to vote, and will count towards the establishment of a quorum.
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Required Votes. Each outstanding share of
our Common Stock is entitled to one vote on each proposal at the SpecialAnnual Meeting. Approval of the proposals requires the following affirmative vote:
·Approvalvotes: The five director nominees receiving the highest number of "For" votes will be elected as directors of the Company and each of Proposals 12 and 2 requires the affirmative vote of a majority of the outstanding shares of Common Stock entitled to vote at the Special Meeting. Any failure to vote, abstentions or broker non-votes will have the same effect as a vote against the proposals. Pursuant to the voting agreements discussed below under the heading “Background to the Proposals — Voting and Lock-Up Agreements,” each holder of the New Notes has agreed to vote all shares of Common Stock that it beneficially owns at the Special Meeting to approve Proposal 1. As of the record date for the Special Meeting, these holders held [ ]% of the outstanding shares of Common Stock.
·Approval of Proposal 3 requires the affirmative vote of a majority of the shares of Common Stock present in person or represented by proxy at the SpecialAnnual Meeting. Votes will be counted by the inspector of election appointed for the Annual Meeting, who will separately count "For" and entitled(with respect to vote. Any failure toproposals other than the election of directors) "Against" votes, abstentions and broker non-votes. Because directors are elected by a plurality vote, or broker non-votesabstentions in the election of directors will not affect whether thishave no impact once a quorum exists. Abstentions will be counted towards the vote total for each proposal, is approved, but abstentionsother than the election of directors, will have the same effect as a vote against the proposal. No proxy that is specifically marked against Proposal 1 or Proposal 2 will be voted in favor of Proposal 3, unless it is specifically marked for the discretionary authority to adjourn, postpone or continue the Special Meeting to a later date.
Question:What happens if the Special Meeting is postponed or adjourned?
Answer: If Proposal 3 is approved, any adjournment of the Special Meeting may generally be made without notice of the adjourned meeting. If the Special Meeting is adjourned to another time or place, notice is not required to be provided to the stockholders of the adjourned meeting if the time, place and means of any remote communications by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken and the adjournment is for no more than 30 days after the date of the original meeting. If we adjourn the Special Meeting to a later date, we will conduct the same business at the later meeting and, unless we set a new record date, only the stockholders who were eligible to vote at the original meeting will be permitted to vote at the adjourned meeting. Unless we set a new record date for an adjourned meeting and you are no longer a stockholder on the new record date, your proxy will still be effective and may be voted at the adjourned meeting. In that case, you will still be able to change or revoke your proxy until it is voted.
Question:Who is paying for the costs of this proxy solicitation?
Answer: Vitesse will bear the cost of this solicitation of proxies. In addition to mailing these proxy materials, our directors, officers and employees may, without being additionally compensated, solicit proxies personally and by mail, telephone, facsimile, or electronic communication. We will reimburse banks and brokers for their reasonable out-of-pocket expenses related to forwarding proxy materials to beneficial owners of stock or otherwise in connection with this solicitation.
We have retained D. F. King & Co., Inc. to provide proxy solicitation services in connection with the Special Meeting and to contact and provide information to our stockholders"Against" votes with respect to the proposals to approve the 2010 Vitesse Semiconductor Corporation Incentive Plan and to ratify the appointment of BDO Seidman, LLP as our independent registered public accounting firm for the fiscal year ending September 30, 2010. A "broker non-vote" occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that proposal and has not received instructions with respect to that proposal from the beneficial owner. Broker non-votes represented by submitted proxies will not be taken into account in determining the outcome of the election of directors or the proposals to approve the 2010 Vitesse Semiconductor Corporation Incentive Plan and to ratify the appointment of BDO Seidman, LLP as our independent registered public accounting firm for the fiscal year ending September 30, 2010.
If you hold shares in your name, and you sign and return a proxy card without giving specific voting instructions, your shares will be voted as recommended by our Board on all matters and as the proxy holders may determine in their discretion with respect to any other matters that properly come before the meeting.
Effect of Not Casting Your Vote
If you hold your shares in street name it is critical that you cast your vote if you want it to count in the election of directors (Proposal One of this proxy statement). In the past, if you held your shares in street name and you did not indicate how you wanted your shares voted in the election of directors, your bank or broker was allowed to vote those shares on your behalf in the election of directors as they felt appropriate.
Recent changes in regulations were made to take away the ability of your bank or broker to vote your uninstructed shares in the election of directors on a discretionary basis. Thus, if you hold your shares in street name and you do not instruct your bank or broker how to vote in the election of directors, no vote will be cast on your behalf. Your bank or broker does not have discretion to vote any uninstructed shares in favor of the approval of the 2010 Incentive Plan (Proposal Two of this proxy statement), however your bank or broker will continue to have discretion to vote any uninstructed shares on the ratification of the appointment of the Company's independent registered public accounting firm (Proposal Three of this proxy statement).
Deadline for Receipt of Stockholder Proposals
Proposals of stockholders that are intended to be presented by such stockholders at the annual meeting of stockholders for the 2010 fiscal year must be received by us no later than the close of business on the 45th day, nor earlier than the close of business on the 75th day, prior to the one year anniversary of the date these proxy materials were first mailed by us unless the annual meeting of stockholders is held prior to April 11, 2011 or after July 10, 2011, in which case, the proposal must be received by us not earlier than the 120th day prior to the annual meeting and not later than the later of the 90th day prior to the annual meeting and the tenth day following public announcement of the date the annual meeting will be held and must otherwise be in compliance with applicable laws and regulations in order to be considered for inclusion in the proxy statement and form of proxy relating to that meeting. Under the federal securities laws, for such a matter to be included in the proxy materials
for the annual meeting of stockholders for the 2010 fiscal year, timely notice must be delivered to us at our principal executive offices to the Special Meeting. In exchange for these services, we will pay D. F. King & Co. a feeattention of $10,000 and an additional feeTracy Kern, our Corporate Controller, not less than 120 days before the date of $5.00 per incoming and outgoing telephone contact and telecom charges, plus reimburse all broker bills and all reasonable out-of-pocket expenses, costs and disbursements. We have also agreedour proxy statement released to indemnify D. F. King & Co. and certain of its affiliates against liabilities incurredstockholders in connection with the previous year's annual meeting, or December 2, 2010. Stockholder proposals must otherwise comply with the requirements of Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). If a stockholder who has notified us of his or her intention to present a proposal at an annual meeting does not appear to present his or her proposal at such meeting, we need not present the proposal for vote at such meeting.
However, if a stockholder wishes only to recommend a candidate for consideration by the Governance and Nominating Committee as a potential nominee for the Company's Board, see the procedures discussed in "Proposal One—Election of Directors—Process for Recommending Candidates for Election to the Board of Directors."
The attached proxy card grants to the proxyholders discretionary authority to vote on any matter raised at the Annual Meeting.
Delivery of Voting Materials to Stockholders Sharing an Address
To reduce the expense of delivering duplicate voting materials to our stockholders who may hold shares of Vitesse common stock in more than one stock account, we are delivering only one set of the proxy solicitation services provided, exceptmaterials to certain stockholders who share an address, unless otherwise requested. A separate proxy card is included in the voting materials for each of these stockholders. We will promptly deliver, upon written or oral request, a separate copy of the annual report or this proxy statement to a stockholder at a shared address to which a single copy of the documents was delivered. To obtain an additional copy, you may write us at 741 Calle Plano Drive, Camarillo, California 93012, Attn: Investor Relations, or contact us by telephone at (805) 388-3700 and request to be connected to our Investor Relations department. Similarly, if you share an address with another stockholder and have received multiple copies of our proxy materials, you may contact us at the address or telephone number specified above to request that only a single copy of these materials be delivered to your address in the future. Stockholders sharing a single address may revoke their consent to receive a single copy of our proxy materials in the future at any incurred as a resulttime by contacting our distribution agent, Broadridge, either by calling toll-free at 1-800-542-1061, or by writing to Broadridge, Householding Department, 51 Mercedes Way, Edgewood, NY 11717. Broadridge will remove such stockholder from the householding program within 30 days of D. F. King’s gross negligence or willful misconduct. D. F. King & Co. may solicit proxies by personal interview, mail and telephone.receipt of such written notice, after which each such stockholder will receive an individual copy of our proxy materials.
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Table of ContentsFurther Information
Question:WhoWe will count the votes?
Answer: Computershare, our transfer agent, will receive and tabulate the ballots and voting instruction forms and will act as the inspectorprovide without charge to each stockholder solicited by these proxy solicitation materials a copy of election at the Special Meeting.
Question:Whom should I call if I have questions regarding the Special Meeting?
Answer: If you have questions regarding the Special Meeting, please contact D. F. King & Co., our proxy solicitor, at 1-800-848-2998.
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This proxy statement, the information incorporated by reference, and some of our other public statements contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, without limitation, statements regarding the impacts on the Company if the amendments to our Certificate of Incorporation to increase the number of authorized shares of Common Stock and to effect the Reverse Stock Split are not approved and our ability to meet The NASDAQ Capital Market listing standards. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. Also, forward-looking statements can generally be identified by words such as “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “seek,” “expect,” “intend,” “plan” and similar expressions.
Forward-looking statements provide management’s expectations or predictions of future conditions, events, or results. They are not guarantees of future performance. By their nature, forward-looking statements are subject to risks and uncertainties. These statements speak only as of the date they are made. Vitesse does not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the date the forward-looking statements were made. There are a number of factors, many of which are beyond Vitesse’s control, that could cause actual conditions, events or results to differ significantly from those described in the forward-looking statements. For a discussion of such factors, please see the section entitled “Risk Factors” in Vitesse’s Annual ReportVitesse's annual report on Form 10-K for the fiscal year ended September 30, 20082009 without exhibits and Quarterly Reportany amendments thereto on Form 10-Q for the quarter ended June 30, 2009.
Overview
The proposed increase10-K/A upon request of such stockholder made in the number of our authorized shares of Common Stock and Reverse Stock Split are an important part of the debt restructuring that we announced on October 19, 2009 and the Company’s strategywriting to improve stockholder value. The purpose of our debt restructuring was primarily to address existing defaults with respect to our 1.5% Convertible Subordinated Debentures due 2024 (the “2024 Debentures”) and a senior secured loan having a $30 million principal amount. The debt restructuring significantly reduced our outstanding debt and increased the number of shares of Common Stock outstanding. 0; The following section provides background information related to our debt restructuring.
2006 Delisting and Consent Solicitation
In 2006, in connection with an internal investigation regarding the backdating of stock options, we announced that our then published financial statements should no longer be relied upon and that we would delay the filing of periodic reports pending completion of the internal investigation. As a result of our failure to comply fully with our reporting requirements unde r the Securities Exchange Act of 1934 (the “Exchange Act”), our Common Stock was delisted from The NASDAQ Stock Market on June 28, 2006. Our Common Stock is currently quoted
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only by Pink Sheets, an electronic quotation service for securities traded over-the-counter. The delisting has resulted in significantly less liquidity in the market for our Common Stock, decreased the attractiveness of our Common Stock and caused the trading volume of our Common Stock to decline significantly, which we believe has contributedVitesse Semiconductor Corporation, 741 Calle Plano Drive, Camarillo, California 93012, Attn: Investor Relations. We will also furnish any exhibit to the significant decline in the market price of our Common Stock. In addition, our ability to raise additional capital through equity financing, and to attract and retain personnel by means of equity compensation, has been impaired.
Our failure to comply fully with our reporting requirements under the Exchange Act also caused an event of default with respect to our 2024 Debentures. A related consent solicitation of the holders of our 2024 Debentures resulted in amendments to the terms of the 2024 Debentures that included an increase in the repurchase price with respect to the October 1, 2009 repurchase right from 100% to 113.76% of the principal amount of the 2024 Debentures to be purchased, plus accrued and unpaid interest. As a result of this amendment, holders of the 2024 Debentures had the right to require us to repurchase the 2024 Debentures on October 1, 2009 for 113.76% of the principal amount to be purchased. This repurchase right would have resulted in an additional payment of $13.3 million added to the $96.7 million outstanding 2024 Debentures, or a total amount due of approximately $110.0 million.
Formation of the Strategic Development Committee and Evaluation of Solutions
In November 2008, the Board formed a Strategic Development Committee (the “SDC”) comprised of independent Board members. The SDC was responsible for assisting the Board in exploring potential alternative solutions to address the Company’s obligation to repay the principal and premium amount of the 2024 Debentures.
To assist with identifying and evaluating a spectrum of possible solutions, the Company, working in conjunction with the SDC, assembled a team of advisors including investment bankers, financing specialists and legal counsel. The Company and the SDC considered and evaluated a broad range of alternatives, including mergers of equals, sale of the Company, restructuring of the current debt, infusions of private equity investment, taking the Company private and capital market transactions. The Company entered into discussions with over 30 parties, including more than a dozen strategic buyers and over a dozen private equity investors. Of these, seven submitted proposals to acquire or to invest in Vitesse, and five firms conducted comprehensive diligence with the intent of consummating a definitive agreement to re-finance or acquire the Company. However, none of these proposed transactions proved viable prior to the October 1, 2009 repurchase date for the 2024 Debentures.
Exercise of Repurchase Rights
On October 1, 2009, U.S. Bank National Association, the trustee under the indenture governing the 2024 Debentures (the “Indenture”), provided a written notice to the Company that holders representing $95,749,000 of the principal amount of the 2024 Debentures had exercised their repurchase rights pursuant to the Indenture. The trustee instructed the Company to deposit the repurchase price of $108,942,062 with the trustee to effect the repurchase of convertible debentures from the exercising holders. Pursuant to the Indenture, the Company was required to pay this repurchase price in cash as promptly after October 1, 2009 as practicable. We had
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insufficient cash to repurchase all of the 2024 Debentures tendered for repurchase. This failure to repurchase such 2024 Debentures resulted in a default under the Indenture and a default under the Loan Agreement, pursuant to which we had borrowed a principal amount of $30 million pursuant to a senior secured loan. To obtain additional time to negotiate a restructuring of our indebtedness, we entered into forbearance agreements with the holders of more than 96.7% of the 2024 Debentures and with the Lenders and Agent under the Loan Agreement.
First Amendment to Loan Agreement
Effective October 16, 2009, the Company and the Lenders entered into the First Amendment to Loan Agreement (the “Loan Agreement Amendment”) with Whitebox VSC Ltd. as lender and agent (the “Agent”) under the Company’s senior secured loan agreement. The Loan Agreement that is amended by the Loan Agreement Amendment is described in the Company’s Current Reportannual report on Form 8-K filed with the10-K if specifically requested in writing. You can also access our Securities and Exchange Commission ("SEC") filings, including our annual reports on August 29, 2007. By entering intoForm 10-K, and all amendments thereto filed on Form 10 K/A, on the Loan Agreement Amendment, the Company obtained permission from the Agent to enter into the Conversion Agreement as described below and consummate the debt restructuring transaction contemplated by that agreement. So long as the Company consummated the debt restructuring on or before November 16, 2009 and satisfied certain other conditions, the Agent waived specified defaults under the Loan Agreement that resulted from the Company’s previously reported defaults under the Indenture.SEC website at www.sec.gov.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON MAY 11, 2010
The proxy statement and annual report to stockholders are available at www.vitesse.com/2010-annual-proxy.
Pursuant
PROPOSAL ONE
ELECTION OF DIRECTORS
Nominees
Five (5) members of our Board are to be elected at the Loan Agreement Amendment,Annual Meeting. Unless otherwise instructed, the Company agreedproxy holders will vote the proxies received by them for the nominees named below. Each nominee has consented to pay downbe named a nominee in the proxy statement and to continue to serve as a director if elected. If any nominee becomes unable or declines to serve as a director, if additional persons are nominated at least $5 millionthe meeting or if stockholders are entitled to cumulate votes, the proxy holders intend to vote all proxies received by them in such a manner (in accordance with cumulative voting) as will ensure the election of as many of the principal amount of its senior term loan undernominees listed below as possible, and the Loan Agreement in connection with the debt restructuring transaction contemplatedspecific nominees to be voted for will be determined by the Conversion Agreement. With each prepaymentproxy holders.
We are not aware of the senior term loan, the Company is required to pay the Agent a non-refundable prepayment fee equal to 1% of the aggregate principal amountany reason that is prepaid. In addition, the Loan Agreement Amendment increased the Company’s effective rate of interest under the senior term loan. From October 1, 2009 until October 16, 2009, the effective rate was 10.5% per annum in cash. From and after October 16, 2009, the effective rateany nominee will be 8.5% per annum in cash, plus 2.0% payment-in-kind interest, plus an additional 0.3% payment-in-kind interest for every $1 million below $15 millionunable or will decline to serve as a director. The term of office of each person elected as a director will continue until the senior term loan under the Loan Agreement that is not paid down by the Company. After the required pay-downnext Annual Meeting of the senior term loan, the CompanyStockholders or until a successor has the right to reduce the effective rate of interest by 0.3% for every $1 million of additional prepayment.
Additionally, pursuant to the Loan Agreement Amendment, the Company has agreed to use the proceeds ofbeen elected and qualified or until his or her earlier resignation or removal. There are no arrangements or understandings between any saledirector or disposition of property to reduce the senior term loan. The Loan Agreement Amendment also limits the Company’s ability to transfer or maintain fundsexecutive officer and any other than in deposit accounts over which the Agent has control. Furthermore, the Loan Agreement Amendment provides for an additional event of default under the Loan Agreement if an event of default occurs under the Indenture or under a new indentureperson pursuant to which New Notes wouldhe or she is or was to be issuedselected as a director or officer.
The names of the nominees, all of whom are currently directors standing for re-election, and certain information about them as of March 26, 2010 are set forth below. All of the nominees have been recommended for nomination by a majority of the Board acting on the recommendation of the Governance and Nominating Committee of the Board, which was approved by a majority vote of the members of such committee. The committee consists solely of independent members of the Board. There are no family relationships among directors or executive officers of Vitesse.
Name | Age | Director Since | Principal Occupation | |||||
---|---|---|---|---|---|---|---|---|
Christopher R. Gardner | 49 | 2006 | President and Chief Executive Officer | |||||
Steven P. Hanson(1)(2) | 61 | 2007 | Senior Partner at Southwest Value Acquisitions LLC | |||||
James H. Hugar(1)(2) | 63 | 2009 | Retired Partner at Deloitte & Touche, LLP | |||||
G. Grant Lyon(3) | 46 | 2009 | President of Odyssey Capital Group, LLC | |||||
Edward Rogas, Jr.(1)(3) | 69 | 2006 | Chairman of the Board of Vitesse, Retired Senior Vice President at Teradyne, Inc. |
Except as set forth below, each of our directors has been engaged in connection withhis principal occupation set forth above during the debt restructuring transaction.past five years.
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TableChristopher R. Gardner, age 49, has been a director since October 26, 2006. Mr. Gardner has been our Chief Executive Officer since 2006. He served as Vice President and Chief Operating Officer from 2000 to 2002. From 2002 until he was appointed Chief Executive Officer in 2006, he served as Vice President and General Manager of Contentsthe Network Products Division. Mr. Gardner served as a member of the Technical Staff at Bell Laboratories from 1982 to 1986. Mr. Gardner received his BSEE from Cornell University and his MSEE from the University of California at Berkeley.
Debt Conversion AgreementSteven P. Hanson
Effective October, age 61, has been a director since August 16, 2007. Mr. Hanson has been a senior partner at Southwest Value Acquisitions LLC, a private equity firm, since 2004. In addition Mr. Hanson serves on the Board of Deca Technologies Inc., a chip scale packaging company and subsidiary of
Cypress Semiconductor Corp. From 2007 to 2009, we entered intohe served as the Chairman of InPlay Technologies Inc., a Debt Conversion Agreement (the “Conversion Agreement”) with the beneficial ownershigh-technology firm delivering human input device technologies and products. From 1999 to 2003, Mr. Hanson was President and Chief Executive Officer of ON Semiconductor. He has served for more than 96.7%32 years in senior executive roles at technology companies, including 28 years at Motorola in various engineering management and leadership positions. Mr. Hanson has served Arizona State University as a member of the 2024 Debentures (the “Noteholders”). The Noteholders include AQR Absolute Return Master Account, L.P.Dean's Advisory Council, W.P. Carey School of Business and the Dean's Advisory Council for the Ira A. Fulton School of Engineering. Mr. Hanson holds a BSEE from the College of Engineering at Arizona State University.
James H. Hugar, Aristeia Master, L.P., Aristeia Partners, L.P., CNH Master Account, L.P., Linden Capital L.P., Whitebox Advisors, LLC, Tonga Partners, L.P., Tonga Partners QP, L.P., Anegada Master Fund, LTD., Cuttyhunk Master Portfolio and ABN AMRO Bank N.V. Underage 63, was appointed to the termsBoard of Directors on October 30, 2009. Mr. Hugar recently retired from Deloitte & Touche, LLP, a public accounting firm, where he was an audit partner from 1982 to 2008, specializing in the financial services industry. Prior to his retirement, he also served as the partner-in-charge of the Conversion Agreement, subjectSouthern California Investment Companies Industry and Broker/Dealer Practice Unit. Mr. Hugar currently expects to specified closing conditions,join the Noteholders agreed to exchange their 2024 Debentures for a combinationboard of cash, sharesdirectors of Common Stock, new convertible debentures and, in some cases, shares of preferred stock. On October 30, 2009, we closed the debt restructuring transaction contemplated by the Conversion Agreement.
The Company used $10,126,806 of cashImperial Capital Group, Inc. in connection with the closing of Imperial Capital Group, Inc.'s initial public offering. Mr. Hugar holds a bachelor's degree in Accounting (cum laude) from Pennsylvania State University and an MSBA degree from the debt restructuring transaction contemplated under the Conversion Agreement (the “Closing”), $3,586,853University of which was used to settle the Company’s obligations with respect to the 2024 Debentures of holders that are not parties to the Conversion Agreement, $6,423,107 of which was paid to parties to the Conversion Agreement in partial repayment of the 2024 DebenturesCalifornia, Los Angeles and $116,846 of which was paid to all beneficial owners of the 2024 Debentures as of October 30, 2009 in payment of accrued interest. In connection with the Closing, the Company issued the following securities in exchange for the remaining $100,005,920 in aggregate principal amount and premium of 2024 Debentures:
·172,936,222 shares of Common Stock;is a Certified Public Accountant.
·G. Grant Lyon$49,993,000 aggregate principal amount of the New Notes; and
·770,785.65 shares of Series B Preferred Stock (collectively with the Common Stock and the New Notes, the “New Securities”), each share of which is convertible into 100 shares of Common Stock for an aggregate of 77,078,565 shares of Common Stock.
Immediately prior to the Closing, 230,905,580 shares of Common Stock were outstanding, none of which were held by Noteholders that are parties to the Conversion Agreement. On November 2, 2009, 403,841,802 shares of Common Stock were outstanding, 172,936,222, or approximately 42.8%, of which were held by Noteholders that are parties to the Conversion Agreement. Based on the shares outstanding on November 2, 2009, if all shares of Series B Preferred Stock are converted into Common Stock, 480,920,402 shares of Common Stock would be outstanding. If the Company’s stockholders approve the authorization of additional shares of Common Stock pursuant to Proposal 1 below, additional shares of Common Stock may be issued in connection with conversions of the New Notes. See “The New Notes” below. As noted below under “Changesage 46, was appointed to the Board of Directors” our Board appointed two new directors to our Board who were appointed by the Noteholders. These new directors represent one-third of our Board.
Exchange for the 2024 Debentures
The Noteholders exchanged approximately 50% of their 2024 Debentures (after the partial repurchase for cash described above) for shares of Common Stock at $0.20 per share subject to a limitation on beneficial ownership of 9.9% of the outstanding shares of Common Stock. Noteholders that would otherwise beneficially own more than 9.9% of the outstanding Common Stock following the debt restructuring transaction received a combination of Common Stock and Series B Preferred Stock. These Noteholders received one share of Series B Preferred Stock for every 100 shares of Common Stock that they would have otherwise received in the debt restructuring transaction in excess of the number
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of shares of Common Stock that equals 9.9% of the outstanding shares of Common Stock. The Series B Preferred Stock is non-voting and has a dividend preference equal to $0.001 per share of Series B Preferred Stock, which amount is payable when, and if, dividends are declared and payable with respect to the Common Stock. The Noteholders exchanged approximately 50% of their 2024 Debentures (after the partial repurchase for cash described above) for the New Notes. All of the 2024 Debentures acquired by the Company as a result of the debt restructuring transaction contemplated by the Conversion Agreement were cancelled. The Company also paid the principal amount, premium and accrued interest on all remaining 2024 Debentures immediately after the Closing. As a result of these transactions and payments, no 2024 Debentures remain outstanding.
The New Notes
The New Notes bear cash interest at 8.0% per annum, which will accrue interest beginning on October 30, 2009. Interest will be payableMr. Lyon is the president of Odyssey Capital Group, LLC, a financial advisory and management consulting firm, which he founded in 1998. In 2005, he served as interim Chief Financial Officer of Hypercom Corporation. Before 2005, Mr. Lyon held positions as managing director at Ernst & Young Corporate Finance, LLC, a managing member of Golf Equity, LLC, vice president, Capital Markets at Evans Withycombe Residential, Inc. He began his career at Arthur Andersen LLP, where he worked from 1987 to 1997. Mr. Lyon has been involved in corporate initiatives that have included capital acquisition, business and securities valuation, acquisitions and mergers, and bankruptcy reorganizations. Mr. Lyon is a director of Fairfield Residential LLC and Chairman of the Board of Three Five Systems, Inc. He has also served as a director of Tickets.com, Inc. Mr. Lyon holds a bachelor's degree (magna cum laude) and an MBA degree (with high distinction) from Brigham Young University. He is a Certified Public Accountant and a published author and speaker.
Edward Rogas, Jr., age 69, has been a director since January 24, 2006 and the Chairman of the Board of Directors since December 2006. Mr. Rogas is currently retired. He served as a Senior Vice President at Teradyne, Inc., an automated test equipment manufacturer, from 2000 through 2005. From 1976 to 2000, he held various management positions in the semiconductor ATE portion of Teradyne's business, including Vice President from 1984 to 2000. Prior to that, from 1973 to 1976, he served as a Vice President at American Research and Development. Mr. Rogas is currently on the New Notes semiannually in arrears on April 1Board of Vignani Technologies Pvt Ltd. (a private Indian company). Mr. Rogas holds a bachelor's degree from the United States Naval Academy and October 1an MBA (with distinction) from Harvard Business School.
The authorized number of each year, commencing April 1, 2010. The New Notes will mature on October 30, 2014 unless earlier converted or repurchased. The New Notes are guaranteeddirectors under our bylaws is a minimum of five and a maximum of nine, with the exact number set by Vitesse Manufacturing & Development Corporation and Vitesse Semiconductor Sales Corporation and are secured by second priority security interests on substantially allthe Board. Currently the authorized number of the assetsdirectors of the Company and its subsidiaries. This second priority security interest is subordinated to the lien created under the Loan Agreement.five.
The New Notes are convertible into shares of Common Stock at a conversion price of $0.225 per share (equivalent to an initial conversion rate of approximately 4,444 shares per $1,000 principal amount of New Notes), subject to customary adjustments. Full conversion of the $49,993,000 aggregate principal amount of New Notes would result in the issuance of up to 222,191,111 shares of Common Stock. We may elect to deliver cash in lieu of shares of Common Stock if the New Notes are converted. The Noteholders may have the right to receive additional shares of Common Stock upon conversion in connection with certain change of control events, depending upon the timing of the change of control event and the trading price of the Common Stock at the time of such change of control event. The maximum number of shares of Common Stock issuable upon such an event would be approximately 125 million shares if the change of control event occurred on or about November 15, 2009 and the Company’s stock price was $0.16 per share. The holders of the New Notes have the right to receive cash in lieu of shares of Common Stock if we do not have sufficient authorized shares to permit conversion of the New Notes according to the terms of the indenture governing the New Notes. The New Notes may not be redeemed by us unless, beginning two years following their issuance, the trading price of the Common Stock is at least 130% of the conversion price.
The indenture that governs the New Notes and that contains the conversion terms of the New Notes is attached as Annex B to this proxy statement.
Changes to the Board of Directors
As a condition to the Closing,closing of our recently announced debt restructuring transaction, the Company was obligated to set the size of the Board at six directors and to appoint two qualified new directors prior to November 2, 2009 from a list of at least four persons identified by the Noteholders prior to November 2, 2009. In order forholders of our convertible debentures. The Company received a list of eight director candidates from the Company to satisfy this requirement, twoholders of the Company’s currentconvertible debentures, including James H. Hugar and G. Grant Lyon. Members of our Board reviewed the qualifications of each of the eight candidates and conducted interviews with four of the candidates. As per our independent directors had to resignselection process announced on or priorJuly 17, 2007, these four candidates were also vetted by an independent executive search firm, McDermott & Bull. McDermott & Bull provided an assessment of each
candidate's experience as compared to the Closing. Effective October 30, 2009, Guy W. Adams, Willow B. Shirequalifications criteria and Robert A. Lundy resignedIndependence Standards as directorsdocumented in the Company's Corporate Governance Guidelines. This document is available on the Company's website,http://www.vitesse.com, under "Investors—Corporate Governance." McDermott & Bull also conducted a comprehensive and confidential background investigation of the Company. Effective October 30, 2009,final candidates.
The resignation of three of our former directors and the appointment of James H. Hugar and G. Grant Lyon to the Board to fill two of the resulting vacancies became effective on October 30, 2009, upon the closing of our debt restructuring transaction on October 30, 2009.
Director Independence
The Board has determined that, with the exception of Mr. Gardner, all of its current members meet the criteria for independence set forth in the NASDAQ Listing Rules and the Company's Corporate Governance Guidelines. Our Corporate Governance Guidelines are posted on our website,http://www.vitesse.com, under "Investors—Corporate Governance."
Board Meetings and Committees
The Board held a total of forty-four (44) meetings during fiscal year 2009. During fiscal year 2009, the Board had three standing committees: the Audit Committee; the Compensation Committee; and the Nominating and Corporate Governance Committee. In addition, in fiscal year 2009, the Board had one additional committee: the Strategic Development Committee. The Strategic Development Committee was dissolved effective as of October 30, 2009. Three of the members of that Committee, Guy Adams, Willow Shire and Robert Lundy, resigned from the Board effective as of October 30, 2009. Each of our incumbent directors attended at least 75% of the aggregate of all meetings of the Board and the committees of the Board upon which such director served in fiscal year 2009. Under our Corporate Governance Guidelines, the Board is required to hold an executive session at each meeting of the Board at which employee directors are not present.
Audit Committee
The Audit Committee, which has been established in accordance with Section 3(a)(58)(A) of the Exchange Act, consists of directors Hugar, Hanson and Rogas. Mr. Hugar was appointed to the Committee as its Chairman on December 9, 2009. The Audit Committee held sixteen (16) meetings during fiscal year 2009. All of the members of the Audit Committee are "independent" as defined under rules promulgated by the SEC and meet the NASDAQ Listing Rules criteria for independence. The Board has determined that Mr. Hugar is an "audit committee financial expert" as that term is defined in Item 407(d)(5) of Regulation S-K. Among other things, the Audit Committee assists our Board of Directors in its oversight of the integrity of our financial statements, the qualifications and independence of our independent audits, the performance of our internal audit function, compliance with legal and regulatory requirements, our disclosure controls, and system of internal controls. A copy of the Audit Committee charter, including any updates thereto, is available on our website at www.vitesse.com.
Compensation Committee
The Compensation Committee of the Board consists of directors Lyon and Rogas, both of whom were appointed to this Committee on December 9, 2009 following the resignation of directors Adams, Lundy and Shire from the Board effective as of October 30, 2009. The Compensation Committee held twelve (12) meetings during fiscal year 2009. The Compensation Committee, among other things, reviews and approves our executive compensation policies and programs, and grants stock options to our employees, including officers, pursuant to our stock option plans. See "Executive Officers and Executive Compensation—Compensation Discussion and Analysis" and "Director Compensation"
below for a description of our processes and procedures for the consideration and determination of executive and director compensation. A copy of the Compensation Committee charter, including any updates thereto, is available on our website at www.vitesse.com.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee consists of directors Hanson and Hugar. During fiscal year 2009, the Governance and Nominating Committee consisted of directors Shire, Hanson and Lundy. Mr. Hugar was appointed to the Committee on December 9, 2009. The Nominating and Corporate Governance Committee held six (6) meetings during fiscal year 2009. The Nominating and Corporate Governance Committee, among other things, assists the Board by making recommendations to the Board on matters concerning director nominations and elections, board committees and corporate governance. A copy of the Nominating and Corporate Governance Committee charter, including any updates thereto, is available on our website at www.vitesse.com.
Corporate Governance Guidelines
The Company maintains a set of Corporate Governance Guidelines, which can also be found on our website under "Investors—Corporate Governance." The Corporate Governance Guidelines cover a range of governance-related matters, including that the Board of Directors maintain an independent Chairman of the Board and that three-fourths of the Board consist of independent members.
Codes of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics for members of the Board of Directors, a Code of Business Conduct and Ethics for all officers and employees of the Company and its consolidated subsidiaries, and a Code of Ethics for the Chief Executive Officer and Senior Financial Officers that applies to our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer/Controller and persons performing similar functions. Copies of these Codes are posted on our website,http://www.vitesse.com, under "Investors—Corporate Governance." We intend to disclose any amendment to, or waiver from, the provisions of these Codes on our website under "Investors—Corporate Governance."
Attendance at Annual Meeting of Stockholders by Directors
It is the policy of the Company that absent extraordinary circumstances each member of the Board of Directors shall attend our annual meeting of stockholders.
Process for Recommending Candidates for Election to the Board of Directors
The Nominating and Corporate Governance Committee will consider nominees recommended by stockholders. A stockholder that desires to recommend a candidate for election to the Board must direct the recommendation in writing to us at our principal offices (Attention: Tracy Kern, Corporate Controller) and must include the candidate's name, age, home and business contact information, principal occupation or employment, the number of shares beneficially owned by the nominee, whether any hedging transactions have been entered into by the nominee or on his or her behalf, information regarding any arrangements or understandings between the nominee and the stockholder nominating the nominee or any other persons relating to the nomination, a written statement by the nominee acknowledging that the nominee will owe a fiduciary duty to the Company, if elected, and any other information required to be disclosed about the nominee if proxies were to be solicited to elect the nominee as a director. For a stockholder recommendation to be considered by the Nominating and Corporate Governance Committee as a potential candidate at an annual meeting, nominations must be received on or before the deadline for receipt of stockholder proposals for such meeting. In the event a
stockholder decides to nominate a candidate for director and solicits proxies for such candidate, the stockholder will need to follow the rules set forth by the SEC and in our bylaws. See "Information Concerning Solicitation and Voting—Deadline for Receipt of Stockholder Proposals."
The Nominating and Corporate Governance Committee's criteria and process for evaluating and identifying the candidates that it approves as director nominees are as follows:
The Nominating and Corporate Governance Committee may, from time to time, establish additional qualifications for directors as it shall deem appropriate.
The Nominating and Corporate Governance Committee will endeavor to notify, or cause to be notified, all director candidates, including those recommended by a stockholder, of its decision as to whether to nominate such individual for election to the Board.
Stockholder Communication with the Board of Directors
We believe that management speaks for Vitesse. Any stockholder may contact any of our directors by writing to them by mail, c/o our Corporate Secretary, at our principal executive offices, the address of which appears on the cover of this proxy statement.
Any stockholder may report to us any complaints regarding accounting, internal accounting controls, or auditing matters. Any stockholder who wishes to so contact us should send such complaints to the Audit Committee c/o James H. Hugar, at our principal executive offices, the address of which appears on the cover of this proxy statement.
Any stockholder communications that the Board is to receive will first go to our Corporate Secretary, who will log the date of receipt of the communication as well as the identity and contact information of the correspondent in our stockholder communications log. After logging the communication, our Corporate Secretary will forward the communication to the Chairman of the Board (in the case of communications directed to the whole Board) or to the applicable individual director(s) addressed in the correspondence.
In the case of any complaints, the appropriate committee of the Board will review and, if appropriate, investigate the complaint in a timely manner. In the case of accounting or auditing related matters, a member of the Audit Committee, or the Audit Committee as a whole, will review the summary of the communication, the results of the investigation, if any, and, if appropriate, the draft response. The summary and response will be in the form of a memo, which will become part of the stockholder communications log that the Corporate Secretary maintains with respect to all stockholder communications.
Compensation of Directors
Effective April 1, 2010, after consultation with its independent compensation consultant, DolmatConnell & Partners, the Board of Directors adopted the following compensation package for directors:
(i) directors receive an annual retainer of $30,000, paid monthly;
(ii) the Chairperson of the Board (or Independent Lead Director if the Chairperson of the Board is an executive of the Company) receives an additional annual retainer of $20,000;
(iii) the Chairperson of the Audit Committee receives an additional annual retainer of $20,000 and each other member of the Audit Committee receives an additional annual retainer of $8,000;
(iv) the Chairperson of the Compensation Committee receives an additional annual retainer of $12,000 and each other member of the Compensation Committee receives an additional annual retainer of $6,000;
(v) the Chairperson of the Nominating and Corporate Governance Committee receives an additional annual retainer of $8,000 and each other member of the Nominating and Corporate Governance Committee receives an additional annual retainer of $4,000;
(vi) directors receive an additional $1,500 for each in-person Board meeting and $750 for each scheduled conference call Board meeting that they attend and each member of a Board Committee receives $1,000 for each in-person Committee meeting and $500 for each scheduled conference call Committee meeting that they attend; and
(vii) new directors appointed or elected to the Board of Directors after April 1, 2010 will receive restricted stock units on the date of their appointment or election to the Board of Directors with a value of $100,000 while continuing directors will receive an annual grant of restricted stock units with a value of $55,000 on the second Monday in January.
In October 2008, the Board of Directors formed the Strategic Development Committee. This Committee initially consisted of Edward Rogas, Jr., Steven Hanson and former director Guy Adams. The function of this Committee was to seek and evaluate various alternatives to refinancing the 2024 Debentures. The Strategic Development Committee received a monthly retainer of $10,000. In July 2009, the Board of Directors made the decision to expand the Strategic Development Committee to include directors Robert Lundy and Willow Shire. The Strategic Development Committee was dissolved upon the successful completion of the debt restructuring on October 30, 2009.
Director Compensation Table for Fiscal Year 2009
The following table presents information regarding the compensation earned during fiscal year 2009 by members of our Board of Directors who were not also our employees (referred to as "Non-Employee Directors"). The compensation paid to Mr. Gardner, who is employed by us, is presented below in the Summary Compensation Table and the related explanatory tables. Directors who
are also officers or employees of the Company or its subsidiaries receive no additional compensation for their services as directors.
Name | Fees Earned or Paid in Cash | Option Awards(1) | Total | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Guy W. Adams(2) | $ | 175,337 | $ | 18,410 | $ | 193,747 | ||||
Vincent Chan, Ph.D(3) | 28,771 | 18,749 | 47,520 | |||||||
Steven P. Hanson(4) | 165,254 | 19,180 | 184,434 | |||||||
Robert A. Lundy(5) | 93,754 | 14,230 | 107,984 | |||||||
Edward Rogas, Jr.(6) | 185,750 | 25,473 | 211,223 | |||||||
Willow B. Shire(7) | 112,504 | 19,149 | 131,653 |
Vote Required
If a quorum is present, the five (5) nominees receiving the highest number of votes will be elected to the Board. See "Information Concerning Solicitation and Voting—Quorum; Abstentions; Broker Non-Votes."
12THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE FIVE NOMINEES
PRESENTED HEREIN.
Voting and Lock-Up AgreementsAPPROVAL OF THE VITESSE SEMICONDUCTOR CORPORATION 2010 INCENTIVE PLAN
Our board of directors believes that the effective use of stock-based, long-term incentive compensation is vital to our ability to achieve continued strong performance in the future by providing a direct link between executive compensation and long-term stockholder value creation. Accordingly, we are seeking stockholder approval of the Vitesse Semiconductor Corporation 2010 Incentive Plan, or the "2010 Incentive Plan." The board adopted the 2010 Incentive Plan, upon recommendation of its Compensation Committee, subject to stockholder approval at the Annual Meeting.
If the 2010 Incentive Plan is approved by stockholders, it will replace the Vitesse Semiconductor Corporation 2001 Stock Incentive Plan, which we refer in this proposal as the "Current Incentive Plan" and in the text of the 2010 Incentive Plan as the "Prior Plan." If stockholders approve the 2010 Incentive Plan, no new awards will be granted under the Current Incentive Plan. If stockholders do not approve the 2010 Incentive Plan, the Current Incentive Plan will remain available for new grants until it expires on October 17, 2010.
The 2010 Incentive Plan authorizes the issuance of 50,000,000 shares of our common stock. As of October 16,March 26, 2010, 4,957,794 shares were available for issuance under the Current Incentive Plan, and these shares will be cancelled if the stockholders approve the 2010 Incentive Plan. The Board believes that these additional reserved shares are required in order for us to have an appropriate reserve of equity incentives to recruit, hire and retain the top talent that we will require to successfully execute our business strategy.
As of March 26, 2009, we had outstanding 404,841,802 shares of our common stock. The new shares authorized for issuance under the 2010 Incentive Plan represent approximately 11.1% of our shares of common stock currently outstanding. We anticipate granting awards for up to approximately 3.7% of the outstanding shares per year, as compared to the average run rate of 3% to 4% for our industry group. We anticipate that with the additional shares for which we are seeking stockholder approval, we will have sufficient shares reserved for our equity compensation program through fiscal year 2012, and that we will need to seek stockholder approval for additional shares at our 2012 annual stockholders meeting.
While authorizing these additional shares for issuance under the 2010 Incentive Plan will increase the potential dilution represented by equity compensation awards, the potential dilution represented by our current outstanding equity compensation awards is very small relative to our peer group companies. The primary reason for this is that we have granted equity compensation awards with respect to relatively few shares over the past three years. In addition, a significant number of our outstanding stock options are "underwater" (the exercise prices are above the current market price of our common stock), which means that these stock options are unlikely to be exercised before they expire.
In addition to the new shares authorized for issuance under the 2010 Incentive Plan, up to 40,577,825 shares subject to awards outstanding under the Current Incentive Plan may become available for issuance under the 2010 Incentive Plan to the extent that these shares on or after the date of stockholder approval of the 2010 Incentive Plan, cease to be subject to the awards (such as by expiration, cancellation or forfeiture of the awards).
Although currently our common stock is not listed on any stock exchange, we are voluntarily soliciting stockholder approval of the 2010 Incentive Plan to provide the Compensation Committee with the flexibility to grant incentive stock options to employees under the 2010 Incentive Plan and certain awards that qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code. See "U.S. Federal Income Tax Information."
The principal features of the 2010 Incentive Plan are summarized below. This summary does not contain all information about the 2010 Incentive Plan. A copy of the complete text of the 2010 Incentive Plan is included as Appendix A to this proxy statement, and the following description is qualified in its entirety by reference to the text of the 2010 Incentive Plan.
DESCRIPTION OF THE 2010 INCENTIVE PLAN
Purpose
The purpose of the 2010 Incentive Plan is to attract, retain and motivate our employees, officers and directors by providing them with the opportunity to acquire a proprietary interest in the Company and to align their interests and efforts to the long-term interests of our stockholders. The 2010 Incentive Plan would also allow us to provide the same opportunity to consultants, agents, advisors and independent contractors.
Administration
The Compensation Committee of our Board of Directors will administer the 2010 Incentive Plan, except that the board will administer the 2010 Incentive Plan with respect to our non-employee directors. The Board or the Committee may delegate administration of the 2010 Incentive Plan in accordance with its terms. References to the "Committee" in this Proposal Two are, as applicable, to the Compensation Committee, the Board or other delegate, including an officer of the Company authorized by the board or Compensation Committee to make grants to certain eligible employees of the Company.
Eligibility
Awards may be granted under the 2010 Incentive Plan to employees, officers, directors, consultants, agents, advisors and independent contractors of the Company and its subsidiaries and affiliates. As of March 26, 2009, approximately 439 employees, 3 executive officers, and 4 non-employee directors were eligible to receive awards under the 2010 Incentive Plan.
Number of Shares
The number of shares of common stock authorized for issuance under the 2010 Incentive Plan is 50,000,000. In addition, any shares subject to outstanding awards under the Current Incentive Plan as of the date of stockholder approval of the 2010 Incentive Plan that cease to be subject to these awards (other than from exercise or settlement of the awards in shares) will automatically become available for issuance under the 2010 Incentive Plan, up to an aggregate maximum of up to 40,577,825 shares. The maximum number of shares of common stock that may be issued pursuant to the exercise of incentive stock options is the same as the total number of shares authorized under the 2010 Incentive Plan.
The following shares will be available again for issuance under the 2010 Incentive Plan:
Awards granted in assumption of or substitution for previously granted awards in acquisition transactions will not reduce the number of shares authorized for issuance under the 2010 Incentive Plan.
If any change in our stock occurs by reason of any stock dividend, stock split, spin-off, recapitalization, merger, consolidation, combination or exchange of shares, distribution to stockholders other than a normal cash dividend or other change in our corporate or capital structure, the Committee will make proportional adjustments to the maximum number and kind of securities (a) available for issuance under the 2010 Incentive Plan, (b) issuable as incentive stock options, (c) issuable to certain individuals subject to Code Section 162(m), and (d) subject to any outstanding award, including the per share price of such securities.
Types of Awards
The 2010 Incentive Plan permits the grant of any or all of the following types of awards.
Stock Options. The Committee may grant either incentive stock options, which must comply with Code Section 422, or nonqualified stock options. The committee sets option exercise prices and terms, except that the exercise price of stock options granted under the 2010 Incentive Plan must be at least 100% of the fair market value of the common stock on the date of grant, except in the case of options granted in connection with assuming or substituting options in acquisition transactions. At the Company’s entry intotime of grant, the Conversion Agreement,Committee determines when stock options are exercisable and when they expire, except that the Company entered intoterm of a Votingstock option cannot exceed ten years. Unless the committee otherwise determines, fair market value means, as of a given date, the closing price of our common stock.
Stock Appreciation Rights (SARs). The committee may grant SARs as a right in tandem with the number of shares underlying stock options granted under the 2010 Incentive Plan or on a stand-alone basis. SARs are the right to receive payment per share of an exercised SAR in stock or cash, or a combination of stock and Lock-Up Agreement with eachcash, equal to the excess of the Noteholders (the “Lock-Up Agreement”). Pursuantshare's fair market value on the date of exercise over its fair market value on the date the SAR was granted. Exercise of an SAR issued in tandem with stock options will result in the reduction of the number of shares underlying the related SAR to the extent of the SAR exercised. The term of a stand-alone SAR cannot be more than ten years, and the term of a tandem SAR will not exceed the term of the related option.
Stock Awards, Restricted Stock and Stock Units. The Committee may grant awards of shares of common stock, or awards designated in units of common stock, under the 2010 Incentive Plan. These awards may be made subject to repurchase or forfeiture restrictions at the Committee's discretion. The restrictions may be based on continuous service with us or the achievement of specified performance criteria, as determined by the Committee.
Performance Awards. The Committee may grant performance awards in the form of performance shares or performance units. Performance shares are units valued by reference to a designated number of shares of common stock, and performance units are units valued by reference to a designated amount of cash. Either may be payable in stock or cash, or a combination of stock and cash, upon the attainment of performance criteria and other terms and conditions as established by the committee.
Other Stock or Cash-Based Awards. The Committee may grant other incentives payable in cash or in shares of common stock, subject to the terms of the Lock-Up Agreement, for a period beginning on October 16, 20092010 Incentive Plan and ending onany other terms and conditions determined by the earliest of (i) November 15, 2009, (ii) the record date for the Special Meeting and (iii) the date that is three weeks from the issuance of the New Securities, each Noteholder agreed not to sell or transfer any shares of Common Stock issued to it pursuant to the Conversion Agreement, subject to specified exceptions. Additionally, each Noteholder has agreed to vote all shares of Common Stock that it beneficially owns at the Special Meeting to approve Proposal 1.Committee.
13
Table of ContentsRepricing
The following unaudited pro forma condensed consolidated financial information for2010 Incentive Plan prohibits the year ended September 30, 2008, and as of and forCommittee, without stockholder approval, from lowering the nine months ended June 30, 2009 has been presented to give effect and show the pro forma impact of the debt restructure plan (“Debt Restructure” or “Transaction”) which include (1) partial repayment and refinancing of the Company’s outstanding senior term loan balance with Whitebox VSC Ltd. pursuant to the Loan Agreement Amendment, (2) repurchase of the Company’s 2024 Debentures from holders that are not parties to the Conversion Agreement, and (3) partial repayment and refinancing of the Company’s 2024 Debentures to holders that are parties to the Conversion Agreement. The Debt Restructure included the following transactions:
·$5.0 million of the Company’s $30.0 million outstanding senior term loan with Whitebox VSC Ltd. was repaid and the new amended loan is due in October 2011;
·approximately $3.6 million in cash was used to repurchase 2024 Debentures from holders of the Company’s 2024 Debentures that are not parties to the Conversion Agreement and approximately $6.4 million in cash was used to partially repay the holders of the Company’s 2024 Debentures that are parties to the Conversion Agreement;
·approximately 172.9 million shares of Common Stock and $50.0 million in aggregate principal amount of the New Notes were issued to holders of the Company’s 2024 Debentures that are parties to the Conversion Agreement; and
·approximately 770,786 shares of Series B Preferred Stock, each share of which is convertible into 100 shares of Common Stock for an aggregate of approximately 77.1 million shares of Common Stock were issued to holders of the Company’s 2024 Debentures that are parties to the Conversion Agreement who would otherwise own more than 9.9% (“Limit on Ownership”) of the outstanding Common Stock following the Debt Restructure.
The unaudited pro forma condensed consolidated financial information is presented for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have actually been reported had the Debt Restructure occurred at the beginning of the periods presented, nor is it indicative of our future financial position or results of operations. The unaudited pro forma adjustments were prepared based on assumptions that are directly attributable to the transactions listed above, factually supportable and that we believe are reasonable under the circumstances. The unaudited pro forma condensed consolidated balance sheet as of June 30, 2009, gives effect to the Debt Restructure as if it had occurred on that date. The unaudited pro forma condensed consolidated statements of operations for the year ended September 30, 2008, and the nine months ended June 30, 2009, give effect to the Debt Restructure as if it had occurred on October 1, 2007. The unaudited pro forma condensed consolidated financial information assumes that the transactions will not be accounted for as troubled debt restructurings under Statement of Financial Accounting Standard No. 15, Accounting by Debtors and Creditors for Troubled Debt Restructurings. Additionally, the refinancing of the 2024 Debentures will be accounted for as debt extinguishments according to the guidance of EITF 96-19, Debtor’s Accounting for a Modification of Exchange of Debt Instruments.
Additional assumptions included are:
·the market price of the Common Stock used in all calculationsan option after it is $0.18 per share, which is the implied fair value of the Common Stock based on the fair value analysis performed on the Debt Restructure; and
14
·fees of approximately $5.0 million were incurred on the Transaction, including reimbursement of $1.8 million to the holders of the senior term loan and the 2024 Debentures for their legal fees.
The unaudited pro forma condensed consolidated statements of operations do not include certain pro forma adjustments for certain known effects of the transactions which will be reported in our financial statements covering the period in which the transactions actually occur due to their non-recurring nature, e.g. estimated debt extinguishment loss of $18.9 million and approximately $0.6 million of third-party costs incurredgranted, except in connection with adjustments provided under the refinancing of the senior term loan, as well as2010
Incentive Plan, taking any associated tax effects. In addition, the unaudited pro forma condensed consolidated financial information does not reflect any effects or changes in disclosures potentially arising from a contemplated stock split as the respective terms are not sufficiently defined.
The unaudited pro forma condensed consolidated financial information has been derived by the application of pro forma adjustments to our consolidated financial statements for the fiscal year ended September 30, 2008, which are included in our Annual Report on Form 10-K filed with the SEC on December 31, 2008, and our unaudited condensed consolidated financial statements for the nine month period ended June 30, 2009, which are included in our Quarterly Report on Form 10-Q filed with the SEC on August 10, 2009. Our consolidated financial statements, our unaudited condensed consolidated financial statements and the unaudited pro forma condensed consolidated financial information were prepared on the assumption of the Company continuingother action that is treated as a going concern. The financial statements do not include any adjustments related to the recoverability and classification of asset carrying amountsrepricing under generally accepted accounting principles, or the amount and classification of liabilities that might result should we be unable to continue ascanceling an option at a going concern.
The audited financial statements from which the pro forma condensed consolidated financial information were prepared are in accordance with U.S. GAAP.
15
VITESSE SEMICONDUCTOR CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
|
| June 30, 2009 |
| |||||||
|
| Actual |
| Pro Forma |
| Pro Forma |
| |||
|
| (in thousands, except share data) |
| |||||||
|
|
|
|
|
|
|
| |||
ASSETS |
|
|
|
|
|
|
| |||
Current assets: |
|
|
|
|
|
|
| |||
Cash and cash equivalents |
| $ | 51,422 |
| $ | (15,000 | )(1) | $ | 36,422 |
|
Accounts receivable, net |
| 14,898 |
| — |
| 14,898 |
| |||
Inventory |
| 23,936 |
| — |
| 23,936 |
| |||
Restricted cash |
| 395 |
| — |
| 395 |
| |||
Prepaid expenses and other current assets |
| 4,345 |
| — |
| 4,345 |
| |||
Total current assets |
| 94,996 |
| (15,000 | ) | 79,996 |
| |||
Property, plant and equipment, net |
| 7,419 |
| — |
| 7,419 |
| |||
Other intangible assets, net |
| 1,833 |
| — |
| 1,833 |
| |||
Other assets |
| 3,388 |
| 1,667 | (2) | 5,055 |
| |||
|
| $ | 107,636 |
| $ | (13,333 | ) | $ | 94,303 |
|
|
|
|
|
|
|
|
| |||
LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS’ (DEFICIT) EQUITY |
|
|
|
|
|
|
| |||
Current liabilities: |
|
|
|
|
|
|
| |||
Accounts payable |
| $ | 16,980 |
| — |
| 16,980 |
| ||
Accrued expenses and other current liabilities |
| 9,825 |
| 2,987 | (3) | 12,812 |
| |||
Derivative liability |
| 4,636 |
| 18,171 | (4) | 22,807 |
| |||
Deferred revenue |
| 640 |
| — |
| 640 |
| |||
Current portion of debt, net of discount of $437 at June 30, 2009 |
| 29,563 |
| (29,563 | )(5) | — |
| |||
Convertible subordinated debt |
| 96,710 |
| (96,710 | )(6) | — |
| |||
Total current liabilities |
| 158,354 |
| (105,115 | ) | 53,239 |
| |||
|
|
|
|
|
|
|
| |||
Other long-term liabilities: |
| 1,703 |
| — |
| 1,703 |
| |||
Long-term debt, net of discount of $437 at June 30, 2009 |
| 44 |
| 24,563 | (5) | 24,607 |
| |||
Convertible subordinated debt |
| — |
| 42,041 | (7) | 42,041 |
| |||
Total liabilities |
| 160,101 |
| (38,511 | ) | 121,590 |
| |||
Minority interest |
| 166 |
| — |
| 166 |
| |||
Commitments and contingencies |
|
|
|
|
|
|
| |||
Preferred stock, $0.01 par value. 10,000,000 shares authorized; no shares issued and outstanding, actual; 770,786 shares issued and outstanding, pro forma at June 30, 2009 |
| — |
| 13,873 | (8) | 13,873 |
| |||
Shareholders’ (deficit) equity: |
|
|
|
|
|
|
| |||
Common stock, $0.01 par value. 500,000,000 shares authorized, actual and pro forma; 230,905,580 shares issued and outstanding, actual at June 30, 2009. 403,841,802 shares issued and outstanding, pro forma at June 30, 2009 |
| 2,314 |
| 1,729 | (9) | 4,043 |
| |||
Additional paid-in-capital |
| 1,753,846 |
| 29,091 | (10) | 1,782,937 |
| |||
Accumulated deficit |
| (1,808,791 | ) | (19,515 | )(11) | (1,828,306 | ) | |||
Total shareholders’ (deficit) equity |
| (52,631 | ) | 11,305 |
| (41,326 | ) | |||
|
| $ | 107,636 |
| $ | (13,333 | ) | $ | 94,303 |
|
16
(1)Represents payments of $5.0 million in principal to holders of the Company’s $30.0 million outstanding senior secured loan balance with Whitebox VSC Ltd. plus payments of $3.6 million and $6.4 million to holders of the Company’s 2024 Debentures that are not parties and are parties, respectively, to the Conversion Agreement.
(2)Represents $1.7 million in new capitalized debt issuance costs related to the amended senior secured loan and New Notes.
(3)Represents a reversal of $0.4 million in accrued interest payable related to the 2024 Debentures that will be settled upon completion of the Debt Restructure, net of $3.2 million of accruals for transaction costs.
(4)Represents settlement of a previously recognized derivative liability related to the premium put option attached to the 2024 Debentures of $4.6 million. This is offset by recognition of $22.5 million in estimated fair value of embedded derivatives related to the issuance of New Notes and $0.3 million in fair value of stock options being reclassed to liabilities. The embedded derivatives identified in the New Notes require bifurcation and must be accounted for at fair value. The fair value of these derivatives was also determined using a convertible bond valuation model within a lattice framework, under the same assumptions used to determine the value of the New Notes, as discussed in Note 7. The fair value of stock options reclassified to liabilities reflectstime when its strike price exceeds the fair value of in-the-money outstanding options. As the Company would not have sufficient authorized shares to satisfy the exercise of these options upon completion of the Debt Restructure, they have been reflected as a liability and will periodically be revalued with the changes in fair value recognized in income.
(5)Represents the reclassification of the Company’s $30.0 million outstanding senior term loan balance with Whitebox VSC Ltd. from current to long-term liabilities, net of related debt discount of approximately $0.4 million and partial repayment of $5.0 million in principal amount pursuant to the Loan Agreement Amendment. The new amended loan has a contractual interest rate of 8.5% per annum in cash, plus 2.0% per annum payment-in-kind interest, plus an additional 0.3% payment-in kind interest for every $1.0 million above $15.0 million of senior term loan. After the required $5.0 million prepayment, the Company has the right to reduce the effective interest rate by 0.3% for every additional $1.0 million of additional prepayment.
(6)Represents the book value of the 2024 Debentures that will be settled upon completion of the Debt Restructure.
(7)Represents the issuance of New Notes to holders of the Company’s 2024 Debentures that are parties to the Conversion Agreement. Interest is payable semi-annually in arrears on April 1 and October 1 of each year. Holders of New Notes may convert the notes at any time into shares of Common Stock at an initial conversion price of $0.225 per share at issuance subject to certain adjustments. Full conversion of New Notes would result in approximately an additional 222.2 million shares of Common Stock. The pro forma value of the New Notes was determined using a convertible bond valuation model within a lattice framework. The valuation model combined expected cash outflows with market based assumptions regarding risk-adjusted yields, stock price volatility, recent price quotes and trading information of our Common Stock into which the New Notes are convertible. Based on this, the fair value of the New Notes is estimated to be $64.5 million and is reflected net of a fair value of $22.5 million related to the embedded derivatives. See discussion at Note 4 regarding the methodology for determining the fair value of embedded derivatives.
(8)Represents the issuance of 770,786 shares of Series B Preferred Stock to certain holders of the Company’s 2024 Debentures that are parties to the Conversion Agreement as part of the Debt Restructure net of $0.3 million of equity issuance costs. These holders receive one share of Series B Preferred Stock for every 100 shares of Common Stock that they would have otherwise received in the exchange in excess of Limit on Ownership. The Series B Preferred Stock is non-voting and has a dividend preference equal to $0.001 per share of Series B Preferred Stock, which is payable when and if dividends are declared and payable with respect to the Common Stock. The fair value of the Series B Preferred Stock used in this calculation is $18.44 per share, which is based on the value of the underlying Common Stock of $0.18 per sharestock, in exchange for another option, restricted stock or units, or other equity, unless the cancellation and the conversion ratio of 1 share Series B Preferred Stock for 100 shares of Common Stock. The Company has not finalized its analysis of the availability of shares of Common Stock for settlement of outstanding convertible instruments pursuant to the guidance in EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, for the purposes of classifying the Series B Preferred Stock as permanent equity or temporary equity. The Company has made a determination to classify the Series B Preferred Stock as temporary equity. Subject to the completion by the Company of its analysis of available Common Stock for settlement of outstanding convertible instruments and the authorization of additional shares of Common Stock, the classification of the Series B Preferred Stock as temporary equity may change.
(9)Represents the issuance of 172.9 million shares of Common Stock to the holders of the Company’s 2024 Debentures that are parties to the Conversion Agreement as part of the Debt Restructure.
(10)Represents the excess of the fair market values of Common Stock issued to the holders of the Company’s 2024 Debentures that are parties to the Conversion Agreement over the par value of the stock which are offset by $0.3 million in fair value of stock options being reclassed to liabilities (See note 4) and $0.8 million of equity issuance costs.
(11)Includes a loss on the Debt Restructure of $18.9 million and third-party costs expensed as part of the modification of the senior term loan as well as the non-recurring costs associated with the Debt Restructure.
17
VITESSE SEMICONDUCTOR CORPORATIONUNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
| Fiscal Year Ended September 30, 2008 |
| |||||||
|
| Actual |
| Pro Forma |
| Pro Forma |
| |||
|
| (in thousands, except per share data) |
| |||||||
|
|
|
|
|
|
|
| |||
Product revenues |
| $ | 218,536 |
| — |
| $ | 218,536 |
| |
Licensing revenues |
| 10,000 |
| — |
| 10,000 |
| |||
Revenues |
| 228,536 |
| — |
| 228,536 |
| |||
Costs and expenses: |
|
|
|
|
|
|
| |||
Cost of revenues |
| 106,344 |
| — |
| 106,344 |
| |||
Engineering, research and development |
| 49,982 |
| — |
| 49,982 |
| |||
Selling, general and administrative (including gain on sale of fixed assets of $3.2 million) |
| 50,557 |
| — |
| 50,557 |
| |||
Accounting remediation & reconstruction expense & litigation costs |
| 10,761 |
| — |
| 10,761 |
| |||
Amortization of intangible assets |
| 2,514 |
|
|
| 2,514 |
| |||
Costs and expenses |
| 220,158 |
| — |
| 220,158 |
| |||
|
|
|
|
|
|
|
| |||
Income from operations |
| 8,378 |
| — |
| 8,378 |
| |||
Other income (expense): |
|
|
|
|
|
|
| |||
Interest expense, net |
| (3,868 | ) | (5,554 | )(1) | (9,422 | ) | |||
Other income, net |
| 4,882 |
| — |
| 4,882 |
| |||
Other income (expense), net |
| 1,014 |
| (5,554 | ) | (4,540 | ) | |||
Income tax expense |
| 1,222 |
| — | (2) | 1,222 |
| |||
Minority interest in earnings of consolidated subsidiary |
| (660 | ) | — |
| (660 | ) | |||
Income (loss) from continuing operations before discontinued operations |
| $ | 7,510 |
| $ | (5,554 | ) | $ | 1,956 |
|
|
|
|
|
|
|
|
| |||
Basic and diluted income (loss) per share: |
|
|
|
|
|
|
| |||
Actual |
|
|
|
|
|
|
| |||
Common Stock |
| $ | 0.03 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |||
Pro forma |
|
|
|
|
|
|
| |||
Common Stock |
|
|
| $ | (0.03 | )(3) | $ | 0.00 |
| |
Series B Preferred Stock |
|
|
| $ | 0.41 | (3) | $ | 0.41 |
| |
|
|
|
|
|
|
|
| |||
Weighted average shares outstanding: |
|
|
|
|
|
|
| |||
Basic |
|
|
|
|
|
|
| |||
Common Stock |
| 223,614 |
| 172,936 | (3) | 396,550 |
| |||
Series B Preferred Stock |
| — |
| 771 | (3) | 771 |
| |||
|
|
|
|
|
|
|
| |||
Diluted |
|
|
|
|
|
|
| |||
Common Stock |
| 223,614 |
| 173,889 | (3) | 397,503 |
| |||
Series B Preferred Stock |
| — |
| 771 | (3) | 771 |
|
18
VITESSE SEMICONDUCTOR CORPORATIONUNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
| Nine Months Ended June 30, 2009 |
| |||||||
|
| Actual |
| Pro Forma |
| Pro Forma |
| |||
|
| (in thousands, except per share data) |
| |||||||
|
|
|
|
|
|
|
| |||
Product revenues |
| $ | 115,743 |
| — |
| $ | 115,743 |
| |
Intellectual property revenues |
| 13,250 |
| — |
| 13,250 |
| |||
Net revenues |
| 128,993 |
| — |
| 128,993 |
| |||
Costs and expenses: |
|
|
|
|
|
|
| |||
Cost of revenues |
| 57,957 |
| — |
| 57,957 |
| |||
Engineering, research and development |
| 33,720 |
| — |
| 33,720 |
| |||
Selling, general and administrative (including gain on sale of fixed assets of $3.2 million for the nine months ended June 30, 2008 and a gain on the sale of building of $2.9 million for the nine months ended June 30, 2009) |
| 31,761 |
| — |
| 31,761 |
| |||
Accounting remediation & reconstruction expense & litigation costs |
| (9,742 | ) | — |
| (9,742 | ) | |||
Goodwill impairment |
| 191,418 |
| — |
| 191,418 |
| |||
Amortization of intangible assets |
| 1,068 |
| — |
| 1,068 |
| |||
Costs and expenses |
| 306,182 |
| — |
| 306,182 |
| |||
|
|
|
|
|
|
|
| |||
Loss from operations |
| (177,189 | ) | — |
| (177,189 | ) | |||
Other (expense) income: |
|
|
|
|
| — |
| |||
Interest expense, net |
| (8,104 | ) | (4,144 | )(1) | (12,248 | ) | |||
Other (expense) income, net |
| 58 |
| — |
| 58 |
| |||
Other (expense) income, net |
| (8,046 | ) | (4,144 | ) | (12,190 | ) | |||
Income tax (benefit) expense |
| (600 | ) | — | (2) | (600 | ) | |||
Minority interests in earnings of consolidated subsidiary |
| 1 |
| — |
| 1 |
| |||
Loss from continuing operations before discontinued operations |
| $ | (184,634 | ) | $ | (4,144 | ) | $ | (188,778 | ) |
|
|
|
|
|
|
|
| |||
Income (Loss) per Share |
|
|
|
|
|
|
| |||
Basic and diluted income (loss) per share: |
|
|
|
|
|
|
| |||
Actual |
|
|
|
|
|
|
| |||
Common Stock |
| $ | (0.81 | ) |
|
|
|
|
| |
|
|
|
|
|
|
|
| |||
Pro forma |
|
|
|
|
|
|
| |||
Common Stock |
|
|
| $ | 0.34 | (3) | $ | (0.47 | ) | |
Series B Preferred Stock |
|
|
| $ | — | (3) | $ | — |
| |
|
|
|
|
|
|
|
| |||
Weighted average shares outstanding: |
|
|
|
|
|
|
| |||
Basic and diluted: |
|
|
|
|
|
|
| |||
Common Stock |
| 229,098 |
| 172,936 | (3) | 402,034 |
| |||
Series B Preferred Stock |
| — |
| 771 | (3) | 771 |
|
19
(1)The pro forma adjustment represents an incremental interest expense resulting from the Debt Restructure as if it had occurred on October 1, 2007 and calculated as follows:
|
| Fiscal Year Ended |
| Nine Months Ended |
| ||
|
| (in thousands) |
| ||||
|
|
|
|
|
| ||
Actual interest expense on senior term loan (a) |
| $ | (2,417 | ) | $ | (1,944 | ) |
Actual interest expense on 2024 Debentures (b) |
| (1,450 | ) | (1,087 | ) | ||
Pro forma interest expense on amended senior term loan (c) |
| 3,457 |
| 2,702 |
| ||
Pro forma interest expense on New Notes at 8% (d) |
| 4,000 |
| 3,000 |
| ||
Amortization of issuance costs and debt discount (e) |
| 1,964 |
| 1,473 |
| ||
Pro forma adjustment |
| $ | 5,554 |
| $ | 4,144 |
|
(a)Amount reflects interest expense on $30 million outstanding senior term loan with Whitebox VSC Ltd. The interest rate on the unpaid principal is the greater of 8.5% or LIBOR plus 4% during the interest period ending on the interest date. The effective interest rate on this debt, including the impact of amortization of debt discount and debt issue costs was 11.1% and 10.6% for the year ended September 30, 2008 and nine month period ended June 30, 2009, respectively.
(b)Amount reflects interest expense on the 2024 Debentures. The rate of interest is 1.5% per annum on the outstanding balance of $96.7 million.
(c)Amount reflects interest expense on $25.0 million balance of the amended senior term loan with Whitebox VSC Ltd. The contractual interest rate on this amended loan is 8.5% per annum in cash, plus 2.0% per annum payment-in-kind interest, plus an additional 0.3% payment-in kind interest for every $1.0 million above $15.0 million of senior term loan. After the required $5.0 million prepayment, the Company has the right to reduce the effective interest rate by 0.3% for every additional $1.0 million of additional prepayment.
(d)Amount reflects interest expense on $50.0 million balance of New Notes at 8%.
(e)Amount reflects the amortization of approximately $0.1 million and $1.5 million of incremental capitalized debt issue costs related to the amended senior debt and New Notes, respectively and debt discount of approximately $8.0 million on the New Notes. Historical and new debt issue costs on the senior term loan will be amortized as interest expense over the new term of the amended senior term loan. Debt issue costs and debt discount on the New Notes will be amortized as interest expense over the stated life of the New Notes.
(2)The Company has established a valuation allowance against its U.S. federal, state and local, and foreign deferred tax assets as of June 30, 2009, as the Company believed, based on its analysis as of that date, that it was more likely than not that all of these assets would not be realized. As of June 30, 2009, the Company’s deferred tax assets net of deferred tax liabilities was $403.0 million, which was fully reserved.
There is no pro forma impact to income tax expense as originally reported as a result of the pro forma adjustments reflected in the unaudited pro forma condensed consolidated statements of operation for the year ended September 30, 2009 and the nine month period ended June 30, 2009.
(3)Reflects issuance of approximately 172.9 million shares of Common Stock pursuant to the Debt Restructure. As Series B Preferred Stock has participating rights in income only, pro forma basic EPS for the year ended September 30, 2008 reflects an allocation of net income between common and preferred stock based on such participation rights. For both the year ended September 30, 2008 and the nine month period ended June 30, 2009, all potential outstanding Common Stock is anti-dilutive and has therefore not been included in diluted EPS.
20
Our Board has adopted and is submitting for stockholder approval an amendment to the Certificate of Incorporation to increase the number of authorized shares of Common Stock from 500,000,000 to 5,000,000,000 shares to permit the full conversion of the New Notes into shares of Common Stock. Pursuant to the law of Delaware, our state of incorporation, the Board must adopt any amendment to our Certificate of Incorporation and submit the amendment to stockholders for their approval. The affected text of Article 4 of the Certificate of Incorporation as it is proposed to be amended to increase the authorized shares of Common Stock is attached to this proxy statement as Annex A.
The Common Stock is not entitled to any preemptive rights.
Reasons for Increase
As of November 2, 2009, there were:
·500,000,000 shares of Common Stock authorized under our Certificate of Incorporation;
·403,841,802 shares of Common Stock outstanding, including the 172,936,222 shares issuedexchange occurs in connection with the consummation of the Conversion Agreement; anda merger, acquisition, spin-off or other similar corporate transaction.
Performance-Based Compensation under Code Section 162(m)
· Performance Goals and Criteria. If the Committee intends to qualify an aggregate of 96,158,198 shares of Common Stock reserved for issuance (i) under our existing equity incentive arrangements and awards issued pursuant thereto, (ii) under outstanding warrants and (iii) upon conversion of the Series B Preferred Stock.
Accordingly, we do not currently have a sufficient amount of Common Stock authorizedaward under the Certificate2010 Incentive Plan as "qualified performance-based compensation" under Section 162(m) of Incorporation to permit the conversion of the New Notes into shares of Common Stock. Full conversion of the aggregate principal amount of the New Notes would result in the issuance of up to 222,191,111 shares of Common Stock and additional shares may be issued in connection with certain change of control events. See “Background to the Proposals — Debt Conversion Agreement — The New Notes” for information on the conversion features of the New Notes, as well as the indenture that governs the New Notes that is attached as Annex B to this proxy statement.
After discussions with our financial advisor, who conducted an analysis of the amount of authorized shares for which to seek stockholder approval, our Board determined to approve and recommend to stockholders for approval an authorized amount of 5,000,000,000 shares. In making its determination, our Board sought to authorize enough shares to cover any future issuances necessary for equity compensation, acquisition or financing purposes without having to seek shareholder approval for the authorization of additional shares. In addition, the Board sought to have a ratio of authorized to outstanding that was comparable to other semiconductor companies. Assuming Proposals 1 and 2 are approved by stockholders and the Board adopts a 1-for-50 Reverse Stock Split ratio, we would have 100,000,000 authorized shares, which assuming full conversion of the New Notes and other outstanding convertible securities would result in a
21
ratio of authorized to outstanding of approximately 7.0 using the shares outstanding on November 2, 2009.
As of November 2, 2009, options to purchase approximately 20.7million shares of Common Stock were outstanding. However, the Company does not have sufficient authorized and reserved shares to permit the exercise of 14.0million shares of Common Stock subject to outstanding options, all of which have exercise prices in excess of $0.826per share. Accordingly, as of November 2, 2009, approximately 6.7million shares of Common Stock were subject to outstanding options (“Potentially Exercisable Options”) for which the Company has sufficient authorized and reserved shares of Common Stock to permit exercise of these options. In addition, as of November 2, 2009, approximately 3.4 million shares of Common Stock were subject to issuance upon the vesting of outstanding restricted stock units, and approximately 5.3million shares of Common Stock were reserved and available for issuance pursuant to future awards under our stock incentive plans. Prior to the Debt Restructure, the Company dereserved substantially all of the shares of Common Stock reserved for issuance under our stock incentive plans. If Proposal 1 is adopted, the Company intends to reserve sufficient shares to permit the exercise of any options that are currently not exercisable due to the lack of authorized shares and to reserve additional shares for grant under our stock incentive plans.
The additional authorized shares of Common Stock not used for conversion of the New Notes will be available for general corporate purposes, including capital raising transactions, employee benefit plans, acquisitions and other uses. Assuming full conversion of the New Notes, the additional authorized shares of Common Stock to be available for general corporate purposes will total (i) 4,205,483,918 if Proposal 1 is approved and Proposal 2 is not approved, (ii) zero if Proposal 2 is approved (assuming for illustrative purposes only a 1-for-50 Reverse Stock Split) and Proposal 1 is not approved and (iii) 84,109,678 if both Proposals 1 and 2 are approved.
The Company currently has no specific plans or understandings with respect to the issuance of any Common Stock except as described in this proxy statement. Approval of the amendment to the Certificate of Incorporation would, in certain circumstances, permit such issuances to be taken without the delays and expense associated with obtaining stockholder approval at that time, except to the extent required by applicable state law or stock exchange listing requirements for the particular transaction. Unless required by applicable state law or stock exchange listing requirement, we do not currently expect to seek stockholder approval prior to the issuance of any of the additional authorized shares and any such issuances will be determined by the Board in its sole discretion. Although the availability of additional shares of Common Stock provides flexibility in carrying out corporate purposes, the increase in the number of shares of authorized Common Stock could make it more difficult for a third party to acquire a majority of our outstanding voting stock and could also result in the issuance of a significant number of shares to one or more investors in transactions that may not require stockholder approval.
Effects of the Increase
If the stockholders approve the amendment, the Company will amend Article 4 of the Certificate of Incorporation to increase the number of authorized shares of Common Stock as described above. If adopted by the stockholders, the increase will become effective on the filing of the amendment to the Certificate of Incorporation with the Secretary of State of the State of Delaware.
If the proposal regarding the Reverse Stock Split described in this proxy statement is implemented, the currently authorized shares of Common Stock and the number of additional shares of Common Stock authorized pursuant to this proposed amendment will be reduced by the same reverse split ratio between 1-for-20 and 1-for-50 approved by the Board.
The following table shows, as of November 2, 2009, the number of shares of Common Stock (1) authorized, (2) issued, (3) reserved but unissued and (4) authorized but unissued and unreserved in the following scenarios:
·if Proposal 1 is approved, but Proposal 2 is not;
·if Proposal 2 is approved (assuming for illustrative purposes only a 1-for-50 Reverse Stock Split), but Proposal 1 is not; and
22
·if Proposals 1 and 2 are both approved (assuming for illustrative purposes only a 1-for-50 Reverse Stock Split).
Number of shares of |
| If Proposal 1 is |
| If Proposal 2 is |
| If Proposals 1 and 2 |
|
Authorized |
| 5,000,000,000 |
| 10,000,000 |
| 100,000,000 |
|
|
|
|
|
|
|
|
|
Issued |
| 403,841,802 |
| 8,076,836 |
| 8,076,836 |
|
|
|
|
|
|
|
|
|
Reserved but unissued |
| 390,119,571 | (1) | 1,912,070 | (2) | 7,802,391 | (3) |
|
|
|
|
|
|
|
|
Authorized but unissued and unreserved |
| 4,206,038,627 |
| 11,094 |
| 84,120,773 |
|
(1) Includes (a) 90,849,895 shares of Common Stock related to equity incentive plans, (b) 77,078,565 shares of Common Stock related to conversion of the Series B Preferred Stock and (c) 222,191,111 shares of Common Stock related to conversion of the New Notes.
(2) Includes (a) 370,498 shares of Common Stock related to equity incentive plans and (b) 1,541,571 shares of Common Stock related to conversion of the Series B Preferred Stock.
(3) Includes (a) 1,816,998 shares of Common Stock related to equity incentive plans, (b) 1,541,571 shares of Common Stock related to conversion of the Series B Preferred Stock and (c) 4,443,822 shares of Common Stock related to conversion of the New Notes.
Possible Disadvantages of Stockholder Approval of the Increase
If Proposal 1 is approved and assuming all the New Notes are converted into Common Stock, there will be substantial dilution to the existing holders of Common Stock. If all New Notes are converted into Common Stock, up to 222,191,111 shares of Common Stock may be issued and additional shares may be issued in connection with certain change of control events. See “Background to the Proposals — Debt Conversion Agreement — The New Notes.” Based on the number of shares outstanding as of November 2, 2009, the 222,191,111 shares of Common Stock issuable upon conversion of the New Notes would represent approximately 35% of the post-conversion shares of Common Stock. Accordingly, our existing stockholders would own a smaller percentage of the outstanding Common Stock post-conversion. The Common Stock outstanding immediately prior to the Debt Restructure represented approximately 57.1% of the shares outstanding as of November 2, 2009, and would represent approximately 48.0% of the shares outstanding if all of the shares of Series B Preferred Stock were converted into shares of Common Stock and would represent approximately 32.8% of the shares outstanding if all of the New Notes were converted into shares of Common Stock. In addition, the dilutive effect of the conversion of New Notes may have a material adverse impact on the market price of the Common Stock.
The increase in the authorized number of shares of Common Stock not used for the conversion of the New Notes could have possible anti-takeover effects. These authorized but unissued shares could (within the limits imposed by applicable law) be issued in one or more transactions that could make a change of control of the Company more difficult, and therefore more unlikely. The additional authorized shares, including the issuance of Common Stock upon the conversion of the New Notes, could be used to discourage persons from attempting to gain control of the Company by diluting the voting power of shares then outstanding or increasing the voting power of persons that would support the Board in a potential takeover situation, including by preventing or delaying a proposed business combination that is opposed by the Board although perceived to be desirable by some stockholders. The Board does not have any current knowledge of any effort by any third party to accumulate our securities or obtain control of the Company by means of a merger, tender offer, solicitation in opposition to management or otherwise.
23
Advantages of Stockholder Approval of the Increase
If we are unable to obtain stockholder approval of this increase on or prior to February 15, 2010, then on February 16, 2010 we must pay to the Trustee, for the benefit of the holders of the New Notes, Penalty Payments equal to 1% of the outstanding principal amount of the New Notes (approximately $500,000 per month), and this amount will also be due on the fifteenth day of every following month until the stockholder approval is obtained. If we are unable to obtain stockholder approval of this increase prior to February 15, 2011, the holders of the New Notes will have the right to convert the New Notes into cash at a purchase price equal to (i) the as-converted amount of the shares that would have been issued to the Noteholder had the increase in authorized shares occurred and such Noteholder had exercised its conversion option plus (ii) the Make-Whole Amount (as defined in the indenture governing the New Notes attached as Annex B to this proxy statement) that would have been applicable if such Noteholder had exercised its conversion right. These Penalty Payments would materially impact our profitability and be a disadvantage to our existing stockholders. In the event the Noteholders converted their New Notes into cash, we would not have adequate liquidity to make a cash payment equal to the outstanding principal of the New Notes plus a Make-Whole Amount. Additionally, if we are forced to make Penalty Payments and convert the New Notes into cash, we may need to explore other available restructuring and reorganization alternatives, including a voluntary filing for reorganization under Chapter 11 of the U.S. Bankruptcy Code, and may not be able to continue as a going concern.
No Appraisal Rights
Under the Delaware General Corporation Law, our stockholders are not entitled to dissenter’s rights with respect to the proposed amendment to our Certificate of Incorporation to increase the number of authorized shares of Common Stock, and we will not independently provide stockholders with any such right.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK.
APPROVAL OF AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE STOCK SPLIT
Our Board has adopted and is submitting for stockholder approval an amendment to the Certificate of Incorporation to (1) effect a reverse stock split at a reverse split ratio between 1-for-20 and 1-for-50, which ratio will be selected by the Board following stockholder approval of the reverse stock split and prior to the time of filing of a Certificate of Amendment with the Secretary of State of the State of Delaware, and (2) decrease the total number of authorized shares of Common Stock on a basis proportional to the reverse split ratio
24
approved by the Board. Pursuant to the law of Delaware, our state of incorporation, the Board must adopt any amendment to our Certificate of Incorporation and submit the amendment to stockholders for their approval. The affected text of Article 4 of the Certificate of Incorporation as it is proposed to be amended to effect the Reverse Stock Split is attached to this proxy statement as Annex A.
Our Board, in its discretion, may elect, at any time to effect any Reverse Stock Split ratio within the range set forth above upon receipt of stockholder approval, or none of them if the Board determines in its discretion not to proceed with the Reverse Stock Split. We believe that the availability of a range of Reverse Stock Split ratios will provide us with the flexibility to implement the Reverse Stock Split in a manner designed to maximize the anticipated benefits for us and, therefore, our stockholders. In determining which Reverse Stock Split ratio to implement, if any, following the receipt of stockholder approval, the Board may consider, among other things, factors such as:
·the historical trading price and trading volume of the Common Stock;
·the then prevailing trading price and trading volume of the Common Stock and the anticipated impact of the Reverse Stock Split on the trading market for the Common Stock;
·our ability to list the Common Stock on The NASDAQ Capital Market;
·which Reverse Stock Split ratio would result in the greatest overall reduction in our administrative costs; and
·prevailing general market and economic conditions.
Reasons for the Reverse Stock Split
The Board believes that stockholders should authorize the Reverse Stock Split for the following reasons:
·Compliance with NASDAQ CapitalMarket Listing Standards. The Common Stock is currently quoted on the Pink Sheets electronic quotation system under the symbol “VTSS.PK.” Prior to June 28, 2006, the Common Stock was traded on The NASDAQ Capital Market under the symbol “VTSS.” See “Background of the Proposals” above. The Board hopes that in the future we can re-list the Common Stock on The NASDAQ Capital Market. In order to re-list the Common Stock on The NASDAQ Capital Market we must have, among other things, a minimum bid price of $4.00 per share for the Common Stock. On October 30, 2009, the closing price of the Common Stock on the Pink Sheets was $0.2150. The Board believes that the increase in the stock price that it expects to result from the Reverse Stock Split will help us satisfy the minimum bid price requirement in order to re-list the Common Stock on The NASDAQ Capital Market.
25
·Agreement under Indenture Governing New Notes. In addition, we agreed in the indenture governing the New Notes that on or prior to February 15, 2010, we would hold a stockholder meeting to gain authorization for a reverse stock split of the Common Stock at a ratio to be determined by the Board (with a minimum ratio of 1-for-10).
·Increase in Eligible Investors. The Reverse Stock Split would allow a broader range of institutions and other investors in the Common Stock, such as funds that are prohibited from buying stocks whose price is below a certain threshold, potentially increasing trading volume and liquidity.
·Increased Broker Interest. The Reverse Stock Split would help increase broker interest in the Common Stock as their policies can discourage them from recommending companies with lower stock prices. Because of the trading volatility often associated with lower-priced stocks, many brokerage houses and institutional investors have adopted internal policies and practices that either prohibit or discourage them from investing in such stocks or recommending them to their customers. Some of those policies and practices may also function to make the processing of trades in lower-priced stocks economically unattractive to brokers. Additionally, because brokers’ commissions on transactions in lower-priced stocks generally represent a higher percentage of the stock price than commissions on higher-priced stocks, the current average price per share of the Common Stock can result in individual stockholders paying transaction costs representing a higher percentage of their total share value than would be the case if the stock price were substantially higher.
·Decreased Stock Price Volatility. The Board believes that the increase in the stock price that it expects to result from the Reverse Stock Split could decrease price volatility, as small changes in the price of the Common Stock currently result in relatively large percentage changes in the stock price.
Possible Disadvantages of the Reverse Stock Split
The Board believes that the potential advantages of the Reverse Stock Split significantly outweigh any disadvantages that may result. The following are possible disadvantages of the Reverse Stock Split:
The Reverse Stock Split may not increase the price of the Common Stock. Although the Board expects that the Reverse Stock Split will result in an increase in the price of the Common Stock, the effect of the Reverse Stock Split cannot be predicted with certainty. Other factors, such as our financial results, market conditions and the market perception of our business may adversely affect the stock price. As a result, there can be no assurance that the Reverse Stock Split, if completed, will result in the intended benefits described above, that the stock price will increase following the Reverse Stock Split, or that the stock price will not decrease in the future.
The Reverse Stock Split may decrease the trading market for the Common Stock. Because the Reverse Stock Split will reduce the number of shares of Common Stock
26
available in the public market, the trading market for the Common Stock may be harmed, particularly if the stock price does not increase as a result of the Reverse Stock Split.
The Reverse Stock Split may leave certain stockholders with “odd lots.” The Reverse Stock Split may result in some stockholders owning “odd lots” of fewer than 100 shares of the Common Stock. Odd lot shares may be more difficult to sell, and brokerage commissions and other costs of transactions in odd lots are generally somewhat higher than the costs of transactions in “round lots” of even multiples of 100 shares.
Effects of the Reverse Stock Split
General
If the Reverse Stock Split is approved and implemented, the principal effects will be to decrease the number of outstanding shares of the Common Stock based on the Reverse Stock Split ratio selected by the Board and decrease proportionately the number of authorized shares of Common Stock. As of November 2, 2009, approximately 403,841,802 shares of Common Stock were issued and outstanding. Based on this number of shares issued and outstanding and, for illustrative purposes only, assuming a Reverse Stock Split ratio of 1-for-50, we would have approximately 8,076,836 shares outstanding immediately following the completion of the Reverse Stock Split (without giving effect to the treatment of fractional shares discussed below). The number of issued and outstanding shares of preferred stock, including the outstanding shares of Series B Preferred Stock, will not change as a result of the Reverse Stock Split.
The Reverse Stock Split will not affect the registration of the Common Stock under the Exchange Act. Following the Reverse Stock Split, the Common Stock will continue to be quoted on the Pink Sheets under the symbol “VTSS.PK,” although the Common Stock will have a new CUSIP number.
Proportionate voting rights and other rights of the holders of the Common Stock will not be affected by the Reverse Stock Split, other than as a result of the treatment of fractional shares as described below. Except for stockholders that are cashed out as a result of holding fractional shares and the adjustments that may result from the treatment of fractional shares discussed below, the number of stockholders of record will not be affected by the Reverse Stock Split and each stockholder will hold the same percentage of Common Stock immediately following the Reverse Stock Split as such stockholder held immediately prior to the Reverse Stock Split.
The decrease in our authorized and unissued shares as a result of the Reverse Stock Split will not have anti-takeover effects.
Effectiveness of Reverse Stock Split
The Reverse Stock Split, if approved by stockholders, would become effective upon the filing and effectiveness (the “Effective Time”) of a Certificate of Amendment to the Certificate of Incorporation with the Secretary of State of the State of Delaware. It is expected that this filing will take place promptly following the Special Meeting assuming the stockholders approve the amendment. However, the exact timing of the filing of the
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amendment will be determined by the Board based on its evaluation as to when such action will be the most advantageous to the Company and its stockholders. In addition, the Board reserves the right, notwithstanding stockholder approval and without further action by the stockholders, to elect not to proceed with the Reverse Stock Split if, at any time prior to filing the Certificate of Amendment, the Board, in its sole discretion, determines that it is no longer in the Company’s best interests and the best interests of our stockholders to proceed with the Reverse Stock Split.
Effect on Our Stock Plans and Other Convertible Securities
Under our stock incentive plans, the number of shares reserved and available for issuance and the number, exercise price, grant price or purchase price of shares subject to all outstanding awards will be proportionately adjusted based on the Reverse Stock Split ratio selected by the Board, if the Reverse Stock Split is effected. As a result, using the stock incentive plan numbers as of November 2, 2009 included under "Proposal 1 Approval of Amendment to the Amended and Restated Certificate of Incorporation to Increase the Authorized Number of Shares of Common Stock—Reasons for Increase" above, and assuming for illustrative purposes only that a 1-for-50 Reverse Stock Split is effected, the number of shares of Common Stock issuable upon exercise or vesting of currently Potentially Exercisable Options and restricted stock units would be adjusted from approximately 10.1million shares to approximately 203,000 shares, and the approximately 5.3million shares that were available for future issuance under the stock plans as of such date would be adjusted to approximately 106,000 shares (subject to increase as and when awards made under the stock plans expire or are forfeited and are returned in accordance with the terms of the plans). For individual holders, the number of shares subject to outstanding awards would be reduced by a factor of 50 and, in the case of outstanding stock options, the exercise price per share would be increased by a multiple of 50, such that upon an exercise, the aggregate exercise price payable by the optionee to us would remain the same. For example, an outstanding stock option for 5,000 shares of Common Stock, exercisable at $0.40 per share, would be adjusted as a result of a 1-for-50 Reverse Stock Split ratio into an option exercisable for 100 shares of Common Stock at an exercise price of $20 per share.
The number of shares of Common Stock issuable upon exercise of outstanding warrants, the Series B Preferred Stock and theNew Notes will be adjusted similarly as described above in proportion to the Reverse Stock Split ratio.
Effect on Authorized, but Unissued, Shares of Common Stock
Currently, we are authorized to issue up to a total of 510,000,000 shares, comprising 500,000,000 shares of Common Stock and 10,000,000 shares of preferred stock. Concurrently with the Reverse Stock Split, we intend to decrease the authorized shares of Common Stock, including the number of additional shares to be authorized if Proposal 1 is approved at the Special Meeting, by the same ratio as the Reverse Stock Split (rounded to the nearest whole number). The number of authorized shares of preferred stock, including the 800,000 authorized shares of Series B Preferred Stock, will not change. See Proposal 1 above for a table showing, as
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of November 2, 2009, the number of shares of Common Stock (1) authorized, (2) issued, (3) reserved but unissued and (4) authorized, but unissued and unreserved in the following scenarios:
·if Proposal 1 is approved, but Proposal 2 is not;
·if Proposal 2 is approved (assuming for illustrative purposes only a 1-for-50 Reverse Stock Split), but Proposal 1 is not; and
·if Proposals 1 and 2 are both approved (assuming for illustrative purposes only a 1-for-50 Reverse Stock Split).
Fractional Shares
We do not currently intend to issue fractional shares in connection with the Reverse Stock Split. Stockholders that would otherwise hold fractional shares because the number of shares of Common Stock they hold before the Reverse Stock Split is not evenly divisible by the Reverse Stock Split ratio ultimately selected by the Board will be entitled to receive cash in an amount equal to the product obtained by multiplying (a) the closing price per share of Common Stock on the effective date for the Reverse Stock Split as reported on the Pink Sheets by (b) the fraction of one share owned by the stockholder. Stockholders will not be entitled to receive interest for the period of time between the effective date of the Reverse Stock Split and the date the stockholder receives his or her cash payment. The record date for voting at this Special Meeting is not the effective date for the reverse stock split. Stockholders that own their shares in certificated form will receive such cash payment in lieu of fractional shares following the surrender of their pre-split certificates for post-split shares. The ownership of a fractional share interest will not give the holder any voting, dividend or other rights, except to receive the above-described cash payment.
Stockholders should be aware that, under the escheat laws of various jurisdictions, sums due for fractional interests that are not timely claimed after the Effective Time may be required to be paid to the designated agent for each such jurisdiction, unless correspondence has been received by us or our transfer agent concerning ownership of such funds within the time permitted in such jurisdiction. Thereafter, if applicable, stockholders otherwise entitled to receive such funds, but that do not receive them, will have to seek to obtain such funds directly from the state to which they were paid.
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Effect on Par Value
The proposed amendments to the Certificate of Incorporation related to the Reverse Stock Split will not affect the par value of the Common Stock, which will remain at $0.01 per share.
Reduction in Stated Capital
As a result of the Reverse Stock Split, upon the Effective Time, the stated capital on our balance sheet attributable to the Common Stock, which consists of the par value per share of the Common Stock multiplied by the aggregate number of shares of the Common Stock issued and outstanding, will be reduced in proportion to the size of the Reverse Stock Split. Correspondingly, our additional paid-in capital account, which consists of the difference between our stated capital and the aggregate amount paid to us upon issuance of all currently outstanding shares of Common Stock, will be credited with the amount by which the stated capital is reduced. Our stockholders’ equity, in the aggregate, will remain unchanged.
No Going Private Transaction
Notwithstanding the decrease in the number of outstanding shares following the proposed Reverse Stock Split, the Board does not intend for this transaction to be the first step in a “going private transaction” within the meaning of Rule 13e-3 of the Exchange Act.
Effects on Registered and Beneficial Holders
If the Reverse Stock Split is effected, we intend to treat beneficial holders (i.e., stockholders that hold their shares in “street name” through a bank, nominee, fiduciary or other custodian) in the same manner as registered stockholders whose shares are registered in their names. Banks, brokers or other nominees will be instructed to effect the Reverse Stock Split for their beneficial holders holding shares in “street name.” However, these banks, brokers or other nominees may have their own procedures for processing the Reverse Stock Split. Stockholders that hold shares with a bank, broker or other nominee and have questions in this regard are encouraged to contact their bank, broker or other nominee.
Effect on Registered Book-Entry Holders
Our registered stockholders may hold some or all of their shares electronically in book-entry form under the direct registration system for securities. These stockholders will not have stock certificates evidencing their ownership of the Common Stock. They are, however, provided with a statement reflecting the number of shares registered in their accounts.
·If you hold shares in a book-entry form, you do not need to take any action to receive your post-split shares or your cash payment in lieu of any fractional share interest, if applicable. If you are entitled to post-split shares, a transaction statement will automatically be sent to your address of record indicating the number of shares you hold.
·If you are entitled to a payment in lieu of any fractional share interest, a check will be mailed to you at your registered address as soon as practicable after the effective date of the Reverse Stock Split.
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By signing and cashing this check, you will warrant that you owned the shares for which you received a cash payment.
Effect on Holders of Registered Certificated Shares
Some registered stockholders hold their shares of Common Stock in certificate form or a combination of certificate and book-entry form. If any of your shares are held in certificate form, you will receive a transmittal letter from our transfer agent as soon as practicable after the effective date of the Reverse Stock Split. The transmittal letter will contain instructions on how to surrender your certificate(s) representing your pre-split shares to the transfer agent. Upon receipt of your properly completed and executed letter of transmittal and your stock certificate(s), you will be issued a new stock certificate representing the appropriate number of post-split shares. If you are entitled to a payment in lieu of any fractional share interest, payment will be made as described above under “Fractional Shares.”
No new certificated shares will be issued and no payment in lieu of any fractional share interest will be made to you until you surrender your outstanding certificate(s), together with the properly completed and executed letter of transmittal, to the transfer agent.
No Appraisal Rights
Under the Delaware General Corporation Law, our stockholders are not entitled to dissenter’s rights with respect to the proposed amendment to our Certificate of Incorporation to effect the Reverse Stock Split, and we will not independently provide stockholders with any such right.
Accounting Matters
The proposed amendment to our Certificate of Incorporation will not affect the par value of our Common Stock per share, which will remain $0.01 per share. As a result, as of the Effective Time, the stated capital attributable to Common Stock and the additional paid-in capital account on our balance sheet will not change due to the Reverse Stock Split. Reported per share net income or loss will be higher because there will be fewer shares of Common Stock outstanding.
Material U.S. Federal Income Tax Consequences of the Reverse Stock Split
The following is a summary of certain United States federal income tax consequences of a reverse stock split. It does not address any state, local or foreign income or other tax consequences. It applies to you only if you held pre-reverse stock split Common Stock shares
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and post-reverse stock split Common Stock shares as capital assets for tax purposes. This section does not apply to you if you are a member of a class of holders subject to special rules, such as (i) a dealer in securities, (ii) a trader in securities that elects to use a mark-to-market method of accounting for your securities holdings, (iii) a bank, (iv) a tax-exempt organization, (v) a person that owns Common Stock shares that are a hedge of, or that are hedged against, the risks of price movements in our Common Stock, or that has recently purchased, will soon purchase, is committed to purchase, or has an option to purchase our Common Stock shares in a transaction that would be a “wash-sale” for U.S. federal income tax purposes, (vi) a person that owns our Common Stock shares as part of a straddle or conversion transaction for tax purposes, (vii) a person whose functional currency for tax purposes is not the U.S. dollar or (viii) a person that has acquired his or her Common Stock shares upon exercise of an employee stock option or otherwise as compensation. This section is based on the Internal Revenue Code of 1986, as amended its legislative history, existing(the "Code"), the performance goals selected by the Committee may be based on the attainment of specified levels of one, or any combination, of the following performance criteria for the Company as a whole or any business unit, as reported or calculated by the Company: cash flows (including, but not limited to, operating cash flow, free cash flow or cash flow return on capital); working capital; earnings per share; book value per share; operating income (including or excluding depreciation, amortization, extraordinary items, restructuring charges or other expenses); revenues; operating margins; return on assets; return on equity; debt; debt plus equity; market or economic value added; stock price appreciation; total stockholder return; cost control; strategic initiatives; market share; net income; return on invested capital; improvements in capital structure; or customer satisfaction, employee satisfaction, services performance, subscriber, cash management or asset management metrics.
The performance goals also may be based on the achievement of specified levels of performance for the Company as a whole or any business unit or applicable affiliate under one or more of the performance goals described above relative to the performance of other corporations.
The Committee may provide in any award that any evaluation of performance may include or exclude any of the following events that occur during a performance period: asset write-downs, litigation or claim judgments or settlements, the effect of changes in tax laws, accounting principles, or other laws or provisions affecting reported results, any reorganization and proposed regulationsrestructuring programs, extraordinary nonrecurring items as described in Accounting Principles Board Opinion No. 30 and/or in Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in the Company's annual report to stockholders for the applicable year, acquisitions or divestitures, foreign exchange gains and losses, and gains and losses on asset sales.
Adjustments and Certification. The Committee may adjust the amount payable pursuant to an award under the Internal Revenue Code, published rulings and court decisions, all2010 Incentive Plan that is intended to qualify as currently"performance-based compensation" under Section 162(m) downward, but not upward. The Committee may not waive the achievement of performance goals related to an award except in effect. These laws are subject to change, possibly on a retroactive basis.
PLEASE CONSULT YOUR OWN TAX ADVISOR CONCERNING THE CONSEQUENCES OF A REVERSE STOCK SPLIT IN YOUR PARTICULAR CIRCUMSTANCES UNDER THE INTERNAL REVENUE CODE AND THE LAWS OF ANY OTHER TAXING JURISDICTION.
If a partnership (or other entity classified as a partnership for U.S. federal income tax purposes) is the beneficial owner of our Common Stock, the U.S. federal income tax treatmentcase of a partnerparticipant's death or disability. Section 162(m) requires that the Committee certify that performance goals were achieved before the payment of the "performance-based compensation."
Limitations. Subject to certain adjustments, participants who are granted awards intended to qualify as "performance-based compensation" under Section 162(m) may not be granted awards, other than performance units, for more than 5,000,000 shares of common stock in any calendar year, except that additional awards for up to 5,000,000 shares may be granted to newly hired or promoted individuals in any calendar year. The maximum dollar value payable to any participant with respect to performance units or other awards payable in cash that are intended to qualify as "performance-based compensation" cannot exceed $3,000,000 in any calendar year.
Change of Control
Under the 2010 Incentive Plan, unless otherwise provided in the partnershipinstrument evidencing an award or in a written employment, services or other agreement between the participant and us, in the event of a change of control:
Definition of Change of Control. Unless the committee determines otherwise with respect to an award at the time it is granted or unless otherwise defined for purposes of an award in a written employment, services or other agreement between a participant and us, a change of control of the Company generally means the occurrence of any of the following events:
Amendment and partners in such partnerships, should consult their own tax advisors regardingTermination
The Board of Directors or the committee may amend the 2010 Incentive Plan, except that if any applicable statute, rule or regulation requires stockholder approval for an amendment to the 2010 Incentive Plan, then to the extent so required, stockholder approval will be obtained. The Board or the Committee may also suspend or terminate all or any portion of the 2010 Incentive Plan at any time, but any suspension or termination may not, without a participant's consent, materially adversely affect any rights under any outstanding award. Unless sooner terminated by the Board or Committee, the 2010 Incentive Plan will terminate ten years after the date of stockholder approval of the 2010 Incentive Plan.
U.S. Federal Income Tax Information
The following is a brief summary of the U.S. federal income tax consequences of the Reverse Stock Split.
U.S. Federal Income Tax Consequences2010 Incentive Plan generally applicable to us and to participants in the 2010 Incentive Plan who are subject to U.S. Holdersfederal taxes. The summary is based on the Code, applicable Treasury Regulations and administrative and judicial interpretations thereof, each as in effect on the date of this proxy statement and is, therefore, subject to future changes in the law, possibly with retroactive effect. The summary is general in nature and does not purport to be legal or tax advice. Furthermore, the summary does not address issues relating to any U.S. gift or estate tax consequences or the consequences of any state, local or foreign tax laws.
Nonqualified Stock Options.A U.S. holder,participant generally will not recognize income upon the grant or vesting of a nonqualified stock option with an exercise price at least equal to the fair market value of our common stock on the date of grant and no additional deferral feature. When a nonqualified stock option is exercised, a participant generally will recognize compensation taxable as used herein, is a shareholder that is: (i) a citizen or residentordinary income in an amount equal to the difference between the fair market value of the United States, (ii)shares underlying the option on the date of exercise and the option exercise price. When a domestic corporation, (iii) an estate whose income is subject to United States federal income tax regardless of its source,participant sells the shares, the participant will have short-term or (iv) a trust if a United States court can exercise primary supervision over the trust’s administration and one or more United States persons are authorized to control all substantial decisions of the trust.
Other than with respect to any cash payments received in lieu of fractional shares discussed below, nolong-term capital gain or loss, willas the case may be, recognized by a U.S. holder upon such holder’s exchange of pre-reverse stock split shares for post-reverse stock split shares pursuantequal to a reverse stock split. The aggregatethe difference between the amount the participant received from the sale and the tax basis of the post-reverseshares sold. The tax basis of the shares generally will be equal to the greater of the fair market value of the shares on the exercise date or the option exercise price.
Incentive Stock Options. A participant generally will not recognize income upon the grant of an incentive stock split shares receivedoption. If a participant exercises an incentive stock option during employment as an employee or within three months after his or her employment ends (12 months in the reverse stock split (including any fractioncase of a new share deemed to have been received)permanent and total disability), the participant will benot recognize income at the same as the holder’s aggregate tax basis in the pre-reverse stock split shares exchanged therefor. In general, U.S. holders that receive cash in exchangetime of exercise for their fractional share interests in the post-reverse stock split shares as a result of a reverse stock split will be deemed forregular U.S. federal income tax purposes to have first received(although the fractional share interestsparticipant generally will recognize income for alternative minimum tax purposes at that time as if the option were a nonqualified stock option). If a participant sells or otherwise disposes of the shares acquired upon exercise of an incentive stock option after the later of (a) one year from the date the participant exercised the option and then to have had those fractional share interests redeemed for cash. The U.S. holder’s holding period for(b) two years from the post-
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reverse stock split sharesthe option, the participant generally will include the period during which the holder held the pre-reverse stock split shares surrendered in the Reverse Stock Split.
The receipt of cash instead of a fractional share of Common Stock by a U.S. holder of our Common Stock will generally result in a taxablerecognize long-term capital gain or loss equal to the difference between the amount of cashthe participant received in the disposition and the holder’s adjustedoption exercise price. If a participant sells or otherwise disposes of shares acquired upon exercise of an incentive stock option before these holding period requirements are satisfied, the disposition will constitute a "disqualifying disposition," and the participant generally will recognize taxable ordinary income in the year of disposition equal to the excess of the fair market value of the shares on the date of exercise over the option exercise price (or, if less, the excess of the amount realized on the disposition of the shares over the option exercise price). The balance of the participant's gain on a disqualifying disposition, if any, will be taxed as short-term or long-term capital gain, as the case may be.
With respect to both nonqualified stock options and incentive stock options, special rules apply if a participant uses shares of common stock already held by the participant to pay the exercise price.
Stock Appreciation Rights. A participant generally will not recognize income upon the grant or vesting of an SAR with a grant price at least equal to the fair market value of our common stock on the date of grant and no additional deferral feature. Upon the exercise of an SAR, a participant generally will recognize compensation taxable as ordinary income in an amount equal to the difference between the fair market value of the shares underlying the SAR on the date of exercise and the grant price of the SAR.
Unrestricted Stock Awards. Upon receipt of an unrestricted stock award, a participant generally will recognize compensation taxable as ordinary income in an amount equal to the excess of the fair
market value of the shares at such time over the amount, if any, paid by the participant with respect to the shares.
Restricted Stock Awards. Upon receipt of a restricted stock award, a participant generally will recognize compensation taxable as ordinary income when the shares cease to be subject to restrictions in an amount equal to the excess of the fair market value of the shares at such time over the amount, if any, paid for the shares. Instead of postponing the federal income tax basisconsequences of a restricted stock award until the restrictions lapse, a participant may elect to recognize compensation taxable as ordinary income in the fractional share. Gain or loss will generally constitute a capital gain or loss. Capital gain of a noncorporate U.S. holder is generally taxed at a maximum rate of 15% where the holder has a holding period for federal income tax purposes in the property of more than one year. There are limits on the deductibility of capital losses for both corporate and noncorporate holders.
Persons that, actually or constructively for U.S. federal income tax purposes, own more than 1 percentyear of the outstanding Common Stockaward in an amount equal to the fair market value of the shares should consult their tax advisors as to whetherat the cash in lieutime of fractional sharesreceipt. This election is treated as being “essentially equivalent tomade under Section 83(b) of the Code. In general, a dividend” and taxed accordingly.
U.S. Information Reporting and Backup Withholding. Information returns generally will be required to be filedSection 83(b) election is made by filing a written notice with the Internal Revenue Service (“IRS”)within 30 days of the date of grant of the restricted stock award for which the election is made and must meet certain technical requirements.
The tax treatment of a subsequent disposition of restricted stock will depend upon whether a participant has made a timely and proper Section 83(b) election. If a participant makes a timely and proper Section 83(b) election, when the participant sells the restricted shares, the participant generally will recognize short-term or long-term capital gain or loss, as the case may be, equal to the difference between the amount the participant receives from the sale and the tax basis of the shares sold. If no Section 83(b) election is made, any disposition after the restriction lapses generally will result in short-term or long-term capital gain or loss, as the case may be, equal to the difference between the amount the participant received from the sale and the tax basis of the shares sold. The tax basis of the shares generally will be equal to the amount, if any, the participant paid for the shares plus the amount of taxable ordinary income recognized either at the time the restrictions lapsed or at the time of the Section 83(b) election, if an election was made. If a participant has to forfeit the shares to us (e.g., upon the participant's termination prior to expiration of the restriction period), the participant may not claim a deduction for the amount of compensation income recognized as a result of making the Section 83(b) election, and the participant generally will have a capital loss equal to the amount, if any, paid for the shares.
Restricted Stock Units. A participant generally will not recognize income at the time a stock unit is granted. When any part of a stock unit is issued or paid, the participant generally will recognize compensation taxable as ordinary income at the time of such issuance or payment in an amount equal to the then fair market value of any shares, cash or property the participant receives.
Performance Shares and Performance Units. A participant generally will not recognize income upon the grant of performance shares or performance units. Upon the distribution of cash, shares or other property to the participant pursuant to the terms of the performance shares or units, the participant generally will recognize compensation taxable as ordinary income equal to the excess of the amount of cash or the fair market value of any property transferred to the participant over any amount paid by the participant with respect to the receipt of cash in lieu of a fractional share of Common Stock pursuant to the Reverse Stock Split in the case of certain U.S. holders. In addition, U.S. holders may be subject to a backup withholding tax (at the current applicable rate of 28%) on the payment of such cash if they do not provide their taxpayer identification numbers in the manner requiredperformance shares or otherwise fail to comply with applicable backup withholding tax rules. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or allowed as a credit against the U.S. holder’s federal income tax liability, if any, provided the required information is timely furnished to the IRS.units.
U.S. Federal Income Tax Consequences to Non-U.S. Holders
Generally, a non-U.S. holder, defined as any beneficial owner of our Common Stock that is neither a U.S. holder nor a partnership or other entity or arrangement treated as a partnership for U.S. federal income tax purposes, will not be subject to U.S. federal income tax on gain recognized on a deemed disposition of fractional shares for cash unless (i) the gain is “effectively connected” with the conduct of a trade or business in the United States, and the gain is attributable to a permanent establishment or fixed base maintained in the United States, if that is required by an applicable income tax treaty as a condition for being subjected to United States federal income tax on a net income basis, (ii) the holder is an individual, is present in the United States for 183 or more days in the taxable year of the sale and certain other conditions exist, or (iii) Vitesse is or has been a United States real property holding corporation for U.S. federal income tax purposes and certain other conditions are met.
A corporate non-U.S. holder’s “effectively connected” recognized gains may also, under certain circumstances, be subject to an additional “branch profits tax” on earnings and profits for the taxable year that are effectively connected to the conduct of a trade or business within the United States at a 30% gross rate (or at a lower rate if the holder is eligible for the benefits of an income tax treaty that provides for a lower rate).
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Non-U.S. holders that, actually or constructively for U.S. federal income tax purposes, own more than 1% of the outstanding Common Stock shares should consult their tax advisors as to whether the cash in lieu of fractional shares is treated as being “essentially equivalent to a dividend” and taxed accordingly.
Vitesse has not been, is not, and does not anticipate, becoming a United States real property holding corporation for U.S. federal income tax purposes.
U.S. Information Reporting and Backup Withholding Tax. In general, backup withholding and information reporting will not apply to payment of cash in lieu of a fractional share of Common Stock to a non-U.S. holder pursuant to the Reverse Stock Split if the non-U.S. holder certifies under penalties of perjury that it is a non-U.S. holder and the applicable withholding agent does not have actual knowledge to the contrary. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or allowed as a credit against the non-U.S. holder’s U.S. federal income tax liability, if any, provided that certain required information is timely furnished to the IRS. In certain circumstances the amount of cash paid to a non-U.S. holder in lieu of a fractional share of our Common Stock, the name and address of the beneficial owner and the amount, if any, of tax withheld may be reported to the IRS.
Tax Consequences to the CompanyCompany. In the foregoing cases, we generally will be entitled to a deduction at the same time and in the same amount as a participant recognizes ordinary income, subject to certain limitations imposed under the Code.
Code Section 409A. We intend that awards granted under the 2010 Incentive Plan comply with, or otherwise be exempt from, Code Section 409A, but make no representation or warranty to that effect.
Code Section 162(m). Under Code Section 162(m), we are generally prohibited from deducting compensation paid to "covered employees" in excess of $1,000,000 per person in any year. "Covered employees" are defined as the principal executive officer and any one of the three highest paid executive officers (other than the principal executive officer or the principal financial officer) as of the
close of the applicable taxable year. Compensation that qualifies as "performance-based" is excluded for purposes of calculating the amount of compensation subject to the $1,000,000 limit. In general, one of the requirements that must be satisfied to qualify as performance-based compensation under Code Section 162(m) is that the material terms of the performance goals under which the compensation may be paid must be disclosed to and approved by a majority vote of our stockholders. Accordingly, stockholder approval of the 2010 Incentive Plan is necessary to ensure that we have the ability to exclude taxable compensation attributable to stock options, stock appreciation rights and performance-based awards under the 2010 Incentive Plan that are intended to qualify as "qualified performance-based compensation" under Code Section 162(m) from the limits on tax deductibility imposed by Section 162(m).
Tax Withholding. We are authorized to deduct or withhold from any award granted or payment due under the 2010 Incentive Plan, or require a participant to remit to us, the amount of any withholding taxes due in respect of the award or payment and to take such other action as may be necessary to satisfy all obligations for the payment of applicable withholding taxes. We are not required to issue any shares of common stock or otherwise settle an award under the 2010 Incentive Plan until all tax withholding obligations are satisfied.
Plan Benefits
All awards to employees, officers, directors and consultants under the 2010 Incentive Plan are made at the discretion of the Compensation Committee. Therefore, the benefits and amounts that will be received or allocated under the 2010 Incentive Plan are not determinable at this time. However, please refer to the description of grants made to our named executive officers in the last fiscal year described in the "Grants of Plan-Based Awards in Fiscal Year 2009" table. Grants made to our non-employee directors in the last fiscal year are described in the "Director Compensation" section. The closing price of our common stock, as reported on the Pink Sheets on March 26, 2010, was $0.349 per share.
EQUITY COMPENSATION PLAN INFORMATION
WeEquity Compensation Plan Information Table
The following table provides information as of September 30, 2009 concerning securities authorized for issuance under equity compensation plans of the Company.
| A | B | C | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Plan Category | Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column A) | ||||||||
Equity Compensation Plans approved by Shareholders(1) | 21,939,222 | (2) | $ | 4.56 | (3) | 25,394,347 | |||||
Equity Compensation Plans not approved by Shareholders(4) | 2,696,743 | 6.05 | 560,215 | ||||||||
Total(5) | 24,635,965 | $ | 4.72 | 25,954,562 | |||||||
Vote Required
If a quorum is present, the approval of the 2010 Incentive Plan will require a majority of the shares voting at the Annual Meeting. See "Information Concerning Solicitation and Voting—Quorum; Abstentions; Broker Non-Votes."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
APPROVAL OF THE VITESSE SEMICONDUCTOR CORPORATION 2010 INCENTIVE PLAN.
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board has selected BDO Seidman, LLP, an independent registered public accounting firm, to audit our financial statements for the fiscal year ending September 30, 2010, and recommends that stockholders vote for ratification of such appointment. BDO Seidman, LLP has audited our financial statements since the fiscal year ended September 30, 2008. Although ratification by stockholders is not recognizerequired by law, the Audit Committee has determined that it is desirable to request ratification of this selection by the stockholders as a matter of good corporate practice. Notwithstanding its selection, the Audit Committee, in its discretion, may appoint a new independent registered public accounting firm at any gaintime during the year if the Audit Committee believes that such a change would be in the best interest of Vitesse and its stockholders. If the stockholders do not ratify the appointment of BDO Seidman, LLP, the Audit Committee may reconsider its selection. The Audit Committee selected BDO Seidman, LLP to audit our financial statements for the fiscal year ended September 30, 2009.
Representatives of BDO Seidman, LLP are expected to be present at the meeting and will be afforded the opportunity to make a statement if they desire to do so. The representatives of BDO Seidman, LLP are also expected to be available to respond to appropriate questions.
Principal Accounting Fees and Services
The following table shows the approximate fees billed to us by BDO Seidman, LLP, our independent registered public accounting firm:
| 2009 | 2008 | |||||
---|---|---|---|---|---|---|---|
Audit Fees | $ | 2,694,422 | $ | 2,376,850 | |||
Audit-Related Fees | 140,958 | — | |||||
Tax Fees | 309,892 | 120,450 | |||||
All Other Fees | — | — | |||||
Total | $ | 3,145,272 | $ | 2,497,300 | |||
Audit Fees
This category includes the audit of our annual financial statements, review of financial statements included in our Form 10-Q quarterly reports, and services that are normally provided in connection with statutory and regulatory filings or lossengagements for those fiscal years. This category also includes advice on accounting matters that arose during, or as a result of, the Reverse Stock Split.audit or the review of interim financial statements, statutory audits required by non-U.S. jurisdictions and the preparation of an annual "management letter" on internal control matters.
Audit-Related Fees
This category consists of professional services rendered primarily in connection with our debt restructuring activities. These professional services continued through consummation of the debt restructuring on October 30, 2009, as discussed in our annual report on Form 10-K for the year ended September 30, 2009.
Tax Fees
This category consists of professional services rendered primarily in connection with computation of our tax provision as well as tax compliance activities, including the preparation of tax returns in certain overseas jurisdictions and technical tax advice related to the preparation of tax returns.
Pre-Approval Policies and Procedures
The Audit Committee, in its sole discretion, pre-approved and reviewed audit and non-audit services performed by our independent registered public accounting firm, as well as the fees charged for such services. Requests for approval are considered at each regularly scheduled Audit Committee meeting or, if necessary, are approved by the unanimous consent of all members of the Audit Committee. In its pre-approval and review of non-audit service fees, the Audit Committee considers, among other factors, the possible effect of the performance of such services on the auditors' independence. The Audit Committee considered and pre-approved all services rendered during fiscal years 2009 and 2008.
Vote Required
If a quorum is present, the approval of the ratification of the appointment of BDO Seidman, LLP as our independent registered public accounting firm for the fiscal year ending September 30, 2010 will require a majority of the shares voting at the Annual Meeting. See "Information Concerning Solicitation and Voting—Quorum; Abstentions; Broker Non-Votes."
THE BOARD OF DIRECTORSAUDIT COMMITTEE UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THIS PROPOSAL TO AMEND"FOR" THE CERTIFICATE OF INCORPORATION TO (1) EFFECT A REVERSE STOCK SPLITRATIFICATION OF THE COMMON STOCK AT A REVERSE SPLIT RATIO BETWEEN 1-FOR-20 AND 1-FOR-50, WHICH RATIO WILL BE SELECTED BYAPPOINTMENT OF BDO SEIDMAN, LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE BOARD OF DIRECTORS, AND (2) DECREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK ON A BASIS PROPORTIONAL TO THE REVERSE SPLIT RATIO APPROVED BY THE BOARD OF DIRECTORS.FISCAL YEAR ENDING SEPTEMBER 30, 2010.
If at the Special Meeting, the number of shares of Common Stock present or represented and voting in favor of the other proposals is insufficient to approve such proposals, our management may move to adjourn, postpone or continue the Special Meeting in order to enable our Board to continue to solicit additional proxies in favor of the proposals. In that event, you will be asked to vote only upon the adjournment, postponement or continuation proposal and not on the other proposals.
34
In this proposal, we are asking you to authorize the holder of any proxy solicited by our Board to vote in favor of adjourning, postponing or continuing the Special Meeting and any later adjournments. If our stockholders approve the adjournment, postponement or continuation proposal, we could adjourn, postpone or continue the Special Meeting, and any adjourned session of the Special Meeting, to use the additional time to solicit additional proxies in favor of the other proposals, including the solicitation of proxies from stockholders that have previously voted against the other proposals. Among other things, approval of the adjournment, postponement or continuation proposal could mean that, even if proxies representing a sufficient number of votes against the other proposals have been received, we could adjourn, postpone or continue the Special Meeting without a vote on the other proposals and seek to convince the holders of those shares to change their votes in favor of the approval of the other proposals.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE PROPOSAL TO GRANT MANAGEMENT THE AUTHORITY TO ADJOURN, POSTPONE OR CONTINUE THE SPECIAL MEETING.
Neither our directors and executive officers nor any of their associates have any direct or indirect substantial interest in any of the proposals set forth in this proxy statement, except to the extent of their ownership of shares of our Common Stock and options to purchase Common Stock.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the beneficial ownership of shares of our Common Stockcommon stock based on 404,841,802 shares of common stock outstanding as of November 2, 2009March 26, 2010 by: (i) each of our current directors; (ii) each of our executive officers named in the Summary Compensation Table found in our Annual Report on Form 10-K/A for the year ended September 30, 2008 filed on January 28, 2009; (iii) all of our current executive officers and directors as a group; and (iv) all those known by us to be beneficial owners of more than five percent of the outstanding shares of our Common Stock.common stock; (ii) each of our executive officers named in the Summary Compensation Table; (iii) each of our current directors; and (iv) all of our current executive officers and directors as a group. Five percent or greater stockholdershareholder information is based on information contained in the Conversion Agreement and information contained in Schedule 13D/13G filings. Unless otherwise indicated, the address of each of the beneficial owners listed in this table is: c/o Vitesse Semiconductor Corporation, 741 Calle Plano, Camarillo, California 93012.
35
Name of Individuals or Identity of Group | Shares Beneficially Owned | Shares Exercisable Within 60 Days of March 26, 2010 | Total Shares Beneficially Owned Plus Exercisable Within 60 Days of March 26, 2010 | Additional Shares Exercisable Within 60 Days of March 26, 2010 and upon the Company's Listing on an Exchange | Percent of Total Shares Outstanding | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
AQR Capital Management, LLC; AQR | 33,677,288 | (1) | 7,329,630 | 41,006,918 | — | 9.9 | % | ||||||||||
Absolute Return Master Account L.P. | |||||||||||||||||
Two Greenwich Plaza, 3rd Floor | |||||||||||||||||
Greenwich, CT 06830 | |||||||||||||||||
CNH CA Master Account, L.P. | 39,980,338 | (2) | 403,798 | 40,384,136 | — | 9.9 | % | ||||||||||
Two Greenwich Plaza, 3rd Floor | |||||||||||||||||
Greenwich, CT 06830 | |||||||||||||||||
Linden Capital, L.P. | 12,471,723 | (3) | 30,934,598 | 43,406,321 | — | 9.9 | % | ||||||||||
c/o Wakefield Quin | |||||||||||||||||
Victoria Place | |||||||||||||||||
31 Victoria Street | |||||||||||||||||
Hamilton HM10, Bermuda | |||||||||||||||||
Whitebox Advisors, LLC | 40,712,026 | (4) | 40,712,026 | — | 9.9 | % | |||||||||||
3033 Excelsior Boulevard, Suite 300 | |||||||||||||||||
Minneapolis, MN 55416 | |||||||||||||||||
Aristeia Master, L.P. | 30,811.017 | (5) | — | 30,811,017 | — | 7.6 | % | ||||||||||
136 Madison Avenue, 3rd Floor | |||||||||||||||||
New York, NY 10016 | |||||||||||||||||
ABN AMRO Bank N.V., | 26,726,116 | (6) | — | 26,726,116 | — | 6.6 | % | ||||||||||
London Branch | |||||||||||||||||
c/o RBS Global Banking & Markets | |||||||||||||||||
600 Washington Boulevard | |||||||||||||||||
Stamford, CT 06901 | |||||||||||||||||
Kopp Investment Advisors, LLC | 21,138,676 | (7) | — | 21,138,676 | — | 5.2 | % | ||||||||||
7701 France Avenue South, | |||||||||||||||||
Suite 500 | |||||||||||||||||
Edina, MN 55435 | |||||||||||||||||
Lake Union Capital Fund, L.P. | 20,210,000 | (8) | 20,210000 | 5.0 | % | ||||||||||||
600 University Street, Suite 1520 | |||||||||||||||||
Seattle, WA 98101 | |||||||||||||||||
Christopher R. Gardner | 399,316 | 1,677,885 | 2,077,021 | 300,000 | (9) | * | |||||||||||
Richard C. Yonker | — | 225,000 | 225,000 | 150,000 | (10) | * | |||||||||||
Dr. Martin C. Nuss | — | 100,000 | 100,000 | 75,000 | (11) | * | |||||||||||
Steven P. Hanson | — | 49,500 | 49,500 | 40,000 | (12) | * |
Name and Address of |
| Shares of |
| Shares |
| Total Shares |
| Percent of |
|
Whitebox Advisors, LLC |
| 39,980,334 | (2) | — |
| 39,980,334 |
| 9.9 | % |
|
|
|
|
|
|
|
|
|
|
CNH CA Master Account, L.P. |
| 39,980,338 | (3) | — |
| 39,980,338 |
| 9.9 | % |
|
|
|
|
|
|
|
|
|
|
Aristeia Master, L.P. |
| 39,755,096 |
| — |
| 39,755,096 |
| 9.8 | % |
|
|
|
|
|
|
|
|
|
|
ABN AMRO Bank N.V., London Branch |
| 26,726,116 |
| — |
| 26,726,116 |
| 6.6 | % |
|
|
|
|
|
|
|
|
|
|
Kopp Investment Advisors, LLC |
| 22,291,270 | (4) | — |
| 22,291,270 |
| 5.5 | % |
|
|
|
|
|
|
|
|
|
|
Linden Capital, L.P. |
| 13,254,223 | (5) | — |
| 13,254,223 |
| 3.3 | % |
|
|
|
|
|
|
|
|
|
|
Christopher R. Gardner |
| 393,734 | (6) | 1,877,885 |
| 2,271,619 |
| * |
|
|
|
|
|
|
|
|
|
|
|
Richard C. Yonker |
| 100,000 | (7) | 325,000 |
| 425,000 |
| * |
|
|
|
|
|
|
|
|
|
|
|
Edward Rogas, Jr. |
| — |
| 37,600 |
| 37,600 |
| * |
|
|
|
|
|
|
|
|
|
|
|
Steven P. Hanson |
| — |
| 42,000 |
| 42,000 |
| * |
|
|
|
|
|
|
|
|
|
|
|
James H. Hugar |
| — |
| 3,000 |
| 3,000 |
| * |
|
|
|
|
|
|
|
|
|
|
|
G. Grant Lyon |
| — |
| 3,000 |
| 3,000 |
| * |
|
|
|
|
|
|
|
|
|
|
|
Michael B. Green |
| 50,000 | (8) | 40,000 |
| 90,000 |
| * |
|
|
|
|
|
|
|
|
|
|
|
Martin C. Nuss |
| 50,000 | (9) | 150,000 |
| 200,000 |
| * |
|
|
|
|
|
|
|
|
|
|
|
All executive officers and directors as a group (8 persons) |
| 593,734 |
| 2,478,485 |
| 3,072,219 |
| * |
|
Name of Individuals or Identity of Group | Shares Beneficially Owned | Shares Exercisable Within 60 Days of March 26, 2010 | Total Shares Beneficially Owned Plus Exercisable Within 60 Days of March 26, 2010 | Additional Shares Exercisable Within 60 Days of March 26, 2010 and upon the Company's Listing on an Exchange | Percent of Total Shares Outstanding | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Edward Rogas, Jr. | — | 40,000 | 40,000 | 40,000 | (12) | * | ||||||||||
G. Grant Lyon | — | — | — | — | * | |||||||||||
James H. Hugar | — | — | — | — | * | |||||||||||
All executive officers and Directors as a group (7 persons) | 399,316 | 2,092,385 | 2,491,701 | 605,000 | * | |||||||||||
Former Executive Officers: | ||||||||||||||||
Michael B. Green(13) | — | — | — | — | — |
Stock.
(2)Whitebox AdvisorsFebruary 11, 2010 by AQR Capital Management, LLC and its affiliates alsowhich together beneficially own an aggregate of 448,563.7133,677,288 shares of Series B Preferred Stockcommon stock and debt securities that are convertible into an aggregate of 44,856,3717,329,630 shares of Common Stock. Each share of Series B Preferred Stock is convertible into 100 shares of Common Stock, subject to a limitation on beneficial ownership of 9.99% of the outstanding shares of Common Stock.
36
(3) also beneficially own an aggregate of 134,718.93 shares of Series B Preferred Stock that are convertible into an aggregate of 13,471,893 shares of Common Stock. Each sharecommon stock and $10,689,000 aggregate principal amount of debt securities that are convertible into an aggregate of 47,506,666 shares of common stock. The shares of Series B Preferred Stock isand the Debt securities are convertible into 100 shares of Commoncommon stock but only to the extent that conversion would not cause the holder to become a beneficial owner of more than 9.99% of the shares of common stock outstanding.subjectand $6,150,000 principal amount of debt securities held by Linden Capital. The shares of Series B Preferred Stock and the debt securities are convertible into shares of common stock but only to the extent that conversion would not cause the holder to become a limitationbeneficial owner of more than 9.99% of the shares of common stock outstanding.outstanding shares of Common Stock.
(4)The information in the table and in this footnote is based solely oncommon stock outstanding. review of the Schedule 13D/A was filed by Kopp Investment Advisors, LLC (“KIA”("KIA"), Kopp Holding Company, LLC (“KHCLLC”("KHCLLC"), and LeRoy C. Kopp with the SEC on October 5, 2009.SEC. With respect to the shares reported on the Schedule 13D/A, KIA is an investment advisor managing discretionary accounts owned by numerous third-party clients, KHCLLC is a holding company, and the parent company of KIA, engaged in the investment industry, and Mr. Kopp is serving as the sole governor, chairman and chief investment officer of KIA and KHCLLC. As reported in the Schedule 13D/A, KIA has sole voting power with respect to 22,291,27021,074,776 shares and shared dispositive power with respect to 9,149,070
7,887,676 shares, KHCLLC does not have voting or dispositive with respect to any shares, but beneficially owns 22,291,27021,074,776 shares, and Mr. Kopp has sole dispositive power with respect to 13,251,000 shares and beneficially owns 22,400,07021,138,676 shares.
(5)Linden
(6)Includes a grant of 200,000all 20,210,000 shares.
(7)Represents a grant of Such vested options are not exercisable nor are the shares underlying restricted stock units eachdeliverable until the Company's common stock is listed on a national security exchange.
(8)Represents a grant of Such vested options are not exercisable nor are the shares underlying restricted stock units eachdeliverable until the Company's common stock is listed on a national security exchange.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our executive officers, directors, and persons who own beneficially more than 10 percent of a registered class of our equity securities to file reports of ownership and changes in ownership within specified periods with the SEC. To our knowledge, based solely on our review of the copies of Section 16(a) forms required to be furnished to us with respect to fiscal year 2009 and any written representations that no other reports were required, the Section 16(a) reporting requirements for reports required to be filed for fiscal year 2009 were met.
37
Table
EXECUTIVE OFFICERS AND EXECUTIVE COMPENSATION
Executive Officers
Set forth below is information regarding our executive officers, other than Christopher R. Gardner, our President and Chief Executive Officer, for whom information is set forth above under "Nominees."
Richard C. Yonker, age 62, was appointed our Chief Financial Officer on December 14, 2006. Mr. Yonker was the Chief Financial Officer of ContentsCapella Photonics, a telecommunications company, from October 2005 to November 2006. He also served as Chief Financial Officer of Avanex Corporation, an optical telecommunications company, from April 2005 to September 2005; Actelis Networks, a telecommunications company, from May 2004 to April 2005; Bermai, a WiFi semiconductor company, from November 2003 to April 2004; Gluon Networks, a telecommunications switch company, from February 2003 to October 2003; and Agility Communications, a telecommunications company, from November 2000 to January 2003. Mr. Yonker served as a director of LogicVision, a semiconductor company providing built-in-self-test and diagnostic solutions, from January 2005 until the company merged with Mentor Graphics in August 2009. Mr. Yonker holds a bachelor's degree in industrial engineering from the General Motors Institute and a master's degree in finance management from the Massachusetts Institute of Technology.
Dr. Martin C. Nuss, age 53, was appointed our Vice President of Technology and Strategy on November 16, 2007. Dr. Nuss was most recently Vice President and Chief Technology Officer of Ciena's Optical Ethernet group. Ciena provides leading network infrastructure solutions and intelligent software. Prior to Ciena's acquisition of the company in 2004, he was founder and Chief Technology Officer of Internet Photonics since 2000. He also served 15 years at Bell Labs in various technical and management roles including Director of the Optical Data Networks Research Department. He is a Fellow of the Optical Society of America and a member of IEEE. Dr. Nuss holds a doctorate in applied physics from the Technical University in Munich, Germany.
Compensation Discussion and Analysis
Overview
The Compensation Committee of the Board of Directors determines the overall executive compensation practices for our named executive officers. For fiscal year 2009, our named executive officers were: Christopher R. Gardner, Chief Executive Officer; Richard C. Yonker, Chief Financial Officer; Dr. Martin C. Nuss, Vice President, Technology and Strategy; and Michael B. Green, Vice President, General Counsel and Secretary. Mr. Green resigned from the Company effective as February 5, 2010.
Executive compensation for our named executive officers consists of three components:
Compensation Philosophy and Objectives
The basic philosophy of the Compensation Committee is to pay a reasonable and competitive base salary and to reward named executive officers for achievements during the previous fiscal year and incentivize performance in future years. Its overall goal is to establish and administer an executive compensation program that effectively attracts and retains highly skilled executive officers, enhances shareholder value, motivates technological innovation, and rewards executive officers who contribute to the Company's long-term success.
Compensation Practices
Each year, the Compensation Committee determines the amounts of each named executive officer's base salary, annual cash bonus, and equity grants. The Compensation Committee reviews industry data as described below to gain an understanding of compensation levels within the industry for each executive position.
The Compensation Committee previously reviewed the Radford Executive Survey to obtain industry data. Starting in fiscal year 2009, the Compensation Committee contracted with DolmatConnell, independent compensation consultants, to assess its competitors' executive compensation levels for base salary, annual cash bonus and equity awards.
The Compensation Committee considers industry compensation data because it wishes to provide compensation packages that are neither at the low nor high ends of the range of comparable companies but, instead, are targeted toward the mid-point of the range of comparable companies. Overall, the Company's compensation for fiscal year 2009 for its named executive officers is competitive with the market. While base salaries slightly lagged the market by approximately five to 15 percent, bonus targets bring total cash compensation to the 50th percentile for comparable companies. Equity or long-term incentive compensation for fiscal year 2009 for named executives is in line with or slightly below the 50th percentile for comparable companies. The Compensation Committee's determinations regarding individual compensation elements are based on several factors beyond industry data, including, but not limited to, the criticality of the position, individual performance and company performance. After reviewing industry data and assessing the role and performance of each named executive officer, the Compensation Committee uses its discretion to set compensation levels for each of the three components for the named executive officers.
Consideration of Competitors' Compensation
The Compensation Committee selected independent compensation consultants, DolmatConnell, to conduct a peer group compensation survey. DolmatConnell provides pay data of semiconductor companies, including the majority of our competitors.
DolmatConnell's October 28, 2008 study benchmarked Vitesse's executive compensation and long-term incentives against 19 peer firms:
Actel Corporation | Magma Design Automation, Inc. | |
Anadigics, Inc. | Mindspeed Technologies, Inc. | |
Applied Digital Solutions, Inc. | MIPS Technologies, Inc. | |
Applied Micro Circuits Corporation | Nanometrics, Inc. | |
Cirrus Logic, Inc. | Oplink Communications, Inc. | |
DSP Group, Inc. | Pericom Semiconductor Corporation | |
Emcore Corporation | Sigma Designs, Inc. | |
Entropic Communications, Inc. | Silicon Image, Inc. | |
Ikanos Communications, Inc. | Sirf Technology Holdings, Inc. | |
IXYS Corporation |
DolmatConnell reviewed the potential peer landscape by assessing direct product competitors listed in Hoover's database, companies that listed Vitesse in their peer groups, local labor market companies and firms in Vitesse's related industries as referenced in Hoover's database. The resulting peer group of 19 companies was then selected using the following criteria:
The peer group used in the compensation survey is representative of the market for executive talent in which Vitesse competes, although some of these firms may not be in direct competition with Vitesse. The list also differs from the previous Radford Executive Survey, as methodology and criteria were altered to reflect company size and market capitalization.
The Role of Management in Setting Executive Compensation
Compensation for our named executive officers, other than our Chief Executive Officer, Christopher R. Gardner, is established by the Compensation Committee upon the recommendation of Mr. Gardner. With regard to our named executive officers other than the Chief Executive Officer, Mr. Gardner recommends individual goals and presents to the Compensation Committee his subjective evaluation of the other named executive officers in executive sessions. After consideration of Mr. Gardner's presentation, the ultimate decision as to compensation to be paid to those named executive officers is made by the Compensation Committee.
The Compensation Committee is solely responsible for setting compensation for the Chief Executive Officer, including establishing goals and evaluating performance. Mr. Gardner does not participate in any Compensation Committee decisions regarding his own compensation.
Fiscal Year 2009 Compensation Practices
The Compensation Committee determined bonuses for executives for the fiscal year based on 1) the Company's attainment of specific financial performance objectives for the fiscal year and 2) the executive's achievement of personal goals, including the successful restructuring of the Company's debt in fiscal year 2009.
For named executive officers other than Mr. Gardner, the bonus amount is based partially on the Company achieving a minimum Adjusted EBITDA. Adjusted EBITDA is calculated as net income before interest, expenses for taxes, depreciation, amortization, deferred stock compensation, and non-recurring professional fees, with the possibility of adjustment for certain unusual or non-recurring events. The Company under-performed its EBITDA goals for fiscal year 2009 and thus this element was rated with zero weight for these officers in 2009. The Company requested, and the SEC granted, confidential treatment of the EBITDA goals in the Company's 2009 Executive Bonus Plan based on potential competitive injury to the Company if such information were disclosed. The EBITDA goals were established at multiple tiers of difficulty, with lower payouts at moderate 'plan' performance levels and higher payouts at higher 'stretch' performance levels. EBITDA goals were also used as a financial measure for bonuses in fiscal year 2008.
Because the minimum Adjusted EBITDA goal was not met, the maximum bonus under the formal 2009 Executive Bonus Plan for personal performance was 15% for each of Mr. Green and Dr. Nuss and 25% for Mr. Yonker. Mr. Gardner made a subjective assessment of the other named executive officers' performance, including his view of Mr. Yonker's and Mr. Green's performance with respect to the Company's legal and financial reporting, Mr. Green's and Dr. Nuss' achievement of intellectual property and patent sales, Dr. Nuss' contribution to the development of the Company's strategic directions and plan, and Mr. Yonker's contribution towards the Company's financial performance measures such as gross margin and cash. Based on this assessment, the named executive officers earned 55% to 70% of the personal goals component of their incentive compensation.
Because the Compensation Committee considered the debt restructuring as an important Company objective, the Compensation Committee also included in this year's bonus program a component to reward the named executive officers for the extra time and effort required during fiscal year 2009 in negotiating and supporting the debt restructuring that was successfully completed on October 30, 2009. Such component was awarded based on the named executive officer's contribution to such successful debt restructuring. Because Mr. Yonker and Mr. Green contributed a substantial portion of the effort on the debt restructuring, they earned the larger portion of this component resulting in a 25% incremental incentive payment based on this goal. Dr Nuss, who had a less substantial role in the debt restructuring, received an incremental 8.3% incentive payment. The total incentive based on personal performance as described in this and the prior paragraph is set forth for the named executive officers in the Summary Compensation Table.
The bonus payment to the Chief Executive Officer for fiscal year 2009 was determined at the discretion of the Compensation Committee after assessing the Company's financial performance and reviewing Mr. Gardner's achievement in the following three areas: strategic execution (strategic plan, product execution), financial performance (revenue, gross margin, cash) and market position (growth, customer position) with strategic execution and financial performance weighted twice as heavily as market position. Based on achieved financial performance of the Company and a subjective evaluation of Mr. Gardner's performance, the Compensation Committee determined Mr. Gardner's incentive compensation to be 75% of his base salary, as reflected in the Summary Compensation Table.
In prior years, bonus payments were made in two equal installments, one before the end of the second quarter of the following fiscal year and one before the end of the fourth quarter of the following fiscal year. The bonus payments for 2009 are to be made in a lump sum in the second quarter of fiscal year 2010 or as soon as practicable after determination by the Compensation Committee, but in no event later than March 15, 2010, in order to comply with Section 409A of the IRS tax code.
In October 2008, the Compensation Committee determined that it was appropriate to grant equity awards to its named executive officers. Such grants were weighted in such a way to achieve short term retention by granting restricted stock awards and with a focus towards long term incentive and retention by granting stock options. The number of grants of each type of award made to executive officers was determined at the discretion of the Compensation Committee after consultation with DolmatConnell and taking into consideration each officer's total percent of stock ownership. The grants were considered by DolmatConnell to be within the low- to mid-end of ranges of equity grants based on peer group market data.
The Compensation Committee determined that these grants should have a three rather than four year vesting schedule to promote retention. The Compensation Committee may consider a four year vesting schedule for future grants. As part of the terms of the awards, the Compensation Committee determined that regardless of the vesting schedule no options would be exercisable, nor would any restricted stock units be converted to shares of common stock until the shares of the Company were listed on a national exchange.
Fiscal Year 2009 Actions
On January 26, 2009, pursuant to an interim and temporary plan designed to protect the immediate operating performance and cash position of the Company, we reduced the base salaries of our named executive officers, effective February 1, 2009 through the end of the fiscal year, as follows: (i) Mr. Gardner—20% reduction; (ii) Mr. Yonker—10% reduction; (iii) Dr. Nuss—10% reduction; and (iv) Mr. Green—10% reduction. Also effective February 1, 2009, the Company suspended all matching contributions for its named executive officers in connection with the Company's 401(k) plan. In addition, there were reduced wages and benefits to substantially all other employees of the Company. These actions remained in effect through the end of the Company's 2009 fiscal year. These temporary salary reductions were not intended to reduce potential payments upon termination or change in control. Earned bonuses pursuant to the fiscal year 2009 Executive Bonus Plan were calculated based upon the officers' full salaries before the temporary salary reduction.
The Compensation Committee thought it appropriate to offer its named executive officers Change in Control Agreements in response to uncertainties surrounding the Company's imminent debt restructuring. Details of these agreements for Mr. Yonker and Mr. Green are set forth below under Employment Agreements. The Compensation Committee also agreed during the year to amend and restate Mr. Gardner's agreement to address certain tax issues as well as to incorporate an obligation to disgorge to the Company certain bonus payments and profits if the Company is required to prepare an accounting restatement to correct an accounting error on an interim or annual financial statement
included in a report on Form 10-Q or Form 10-K due to material noncompliance with any financial reporting requirement under the federal securities laws, and the Company's board of directors determines that misconduct by Mr. Gardner has occurred and caused such restatement. The Compensation Committee also later agreed to extend the term of Mr. Gardner's agreement until January 27, 2010. Mr. Gardner's agreement terminated by its terms on January 27, 2010. On February 12, 2010 the Company entered into a new Employment Agreement with Mr. Gardner (see "Employment Agreements" below for a discussion of its terms).
Other Compensation
The named executive officers enjoy the same benefits as all other employees of the Company, including medical, dental, vision, accidental death and dismemberment, group term life insurance in the amount of two times annual compensation (up to $280,000), business travel insurance, and a 401(k) plan. Paid leave benefits include vacation, sick leave, holidays and a sabbatical after 10 years of employment. The Company offers education assistance and a health/fitness benefit of $100 per year for health club membership or health/fitness classes. The Company also offers monetary rewards for patents.
Compensation Committee Report
The following Compensation Committee Report does not constitute soliciting materials and shall not be deemed filed or incorporated by reference into any other filings by us under the Securities Act of 1933 or the Exchange Act, except to the extent we specifically incorporate this Compensation Committee Report by reference therein.
The Board's Compensation Committee has submitted the following report for inclusion in this Amendment:
We have reviewed and discussed the Compensation Discussion and Analysis contained in this Amendment with management. Based on our review of and the discussions with management with respect to the Compensation Discussion and Analysis, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Amendment.
The foregoing report is provided by the following directors, who constitute the Compensation Committee:
G. Grant Lyon, Chairman
Edward Rogas, Jr., member
Compensation Committee Interlocks and Insider Participation
The Compensation Committee currently consists of G. Grant Lyon, Chairperson, and Edward Rogas, Jr. Former directors Guy W. Adams, Vincent Chan, Robert A. Lundy, and Willow B. Shire served as members of the Compensation Committee during fiscal year 2009. No director who served on the Compensation Committee of our Board during fiscal year 2009 currently is, or during fiscal year 2009, was an officer or employee of the Company or had any relationship requiring disclosure by us under Item 404 of Regulation S-K. In addition, no member of our Compensation Committee is, or during fiscal year 2009 was, employed by a company whose Board of Directors includes or included any members of our management.
Fiscal Year 2009 Summary Compensation Table
The following table sets forth the compensation earned by our named executive officers for services rendered in all capacities to the Company during the fiscal years ended September 30, 2009, 2008 and 2007:
Name and Principal Position | Year | Salary(1) | Bonus(2) | Stock Awards(3) | Option Awards(3) | Non-Equity Incentive Plan Compensation(4) | All Other Compensation(5) | Total(6) | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Christopher R. Gardner | 2009 | $ | 303,333 | $ | — | $ | 23,788 | $ | 273,218 | $ | 262,500 | $ | 1,212 | $ | 864,051 | |||||||||||
Chief Executive Officer | 2008 | 350,000 | 262,500 | — | 316,679 | — | 6,926 | 936,105 | ||||||||||||||||||
2007 | 328,462 | 175,000 | — | 320,540 | — | 5,723 | 829,725 | |||||||||||||||||||
Richard C. Yonker | 2009 | 256,667 | — | 11,894 | 54,457 | 116,875 | 2,689 | 442,582 | ||||||||||||||||||
Chief Financial Officer | 2008 | 275,000 | — | — | 41,098 | 74,250 | 7,734 | 398,082 | ||||||||||||||||||
2007 | 223,438 | 25,000 | — | 30,939 | 80,000 | 6,029 | 365,406 | |||||||||||||||||||
Dr. Martin C. Nuss | 2009 | 205,333 | — | 5,947 | 7,246 | 38,133 | 2,539 | 259,198 | ||||||||||||||||||
Vice President, Technology | 2008 | 193,991 | — | — | 23,672 | 66,000 | 5,312 | 288,975 | ||||||||||||||||||
and Strategy | ||||||||||||||||||||||||||
Michael B. Green(7) | 2009 | 205,333 | — | 5,947 | 5,797 | 73,150 | 2,400 | 292,627 | ||||||||||||||||||
Vice President, General | 2008 | 205,000 | — | — | — | 53,300 | 6,150 | 264,450 | ||||||||||||||||||
Counsel and Secretary | 2007 | 153,750 | 20,000 | — | — | 41,000 | 4,021 | 218,771 |
Grants of Plan-Based Awards in Fiscal Year 2009
(9) The following table sets forth information relating to plan-based awards granted to our named executive officers in fiscal year 2009:
| | | | | All Other Stock Awards: Number of Shares of Stock or Units | All Other Option Awards: Number of Securities Underlying Options | | | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Estimate Future Payouts Under Non-Equity Incentive Plan Awards(1) | | | Grant Date Fair Value of Stock and Option Awards(2) | |||||||||||||||||||||
| | Exercise Price of Options (Per Share) | |||||||||||||||||||||||
Name | Threshold | Target | Maximum | Grant Date | |||||||||||||||||||||
Christopher R. Gardner | $ | — | $ | 350,000 | $ | 525,000 | |||||||||||||||||||
10/13/2008 | 400,000 | $ | 0.37 | $ | 90,160 | ||||||||||||||||||||
10/13/2008 | 200,000 | 74,000 | |||||||||||||||||||||||
Richard C. Yonker | — | 110,000 | 165,000 | ||||||||||||||||||||||
10/13/2008 | 200,000 | 0.37 | 45,080 | ||||||||||||||||||||||
10/13/2008 | 100,000 | 37,000 | |||||||||||||||||||||||
Dr. Martin C. Nuss | — | 66,000 | 88,000 | ||||||||||||||||||||||
10/13/2008 | 100,000 | 0.37 | 22,540 | ||||||||||||||||||||||
10/13/2008 | 50,000 | 18,500 | |||||||||||||||||||||||
Michael B. Green(3) | — | 66,000 | 88,000 | ||||||||||||||||||||||
10/13/2008 | 80,000 | 0.37 | 18,032 | ||||||||||||||||||||||
10/13/2008 | 50,000 | 18,500 |
Outstanding Equity Awards at Fiscal Year-End 2009
The following table provides information regarding the holdings of equity awards by our named executive officers at September 30, 2009:
| Option Awards | Stock Awards | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name | Number of Securities Underlying Unexercised Options Exercisable | Number of Securities Underlying Unexercised Options Unexercisable | Option Exercise Price per Share | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested | Market Value of Shares or Units of Stock That Have Not Vested(a) | |||||||||||||
Christopher R. Gardner | 120,000 | (1) | — | $ | 35.91 | 10/19/2009 | 200,000 | (b) | $ | 74,000 | |||||||||
200,000 | (2) | — | 17.44 | 4/6/2011 | |||||||||||||||
120,000 | (3) | — | 7.27 | 10/2/2011 | |||||||||||||||
20,000 | (4) | — | 7.27 | 10/2/2011 | |||||||||||||||
2,885 | (5) | — | 7.27 | 10/2/2011 | |||||||||||||||
270,600 | (6) | — | 7.27 | 10/2/2011 | |||||||||||||||
29,400 | (7) | — | 7.27 | 10/2/2011 | |||||||||||||||
225,000 | (8) | — | 0.83 | 10/17/2012 | |||||||||||||||
100,000 | (9) | — | 6.97 | 10/20/2013 | |||||||||||||||
75,000 | (10) | — | 2.58 | 10/27/2014 | |||||||||||||||
75,000 | (11) | — | 2.58 | 10/27/2014 | |||||||||||||||
112,500 | (12) | — | 2.58 | 10/27/2014 | |||||||||||||||
— | 37,500 | (13) | 2.58 | 10/27/2014 | |||||||||||||||
82,500 | (14) | 27,500 | (14) | 2.40 | 12/2/2015 | ||||||||||||||
300,000 | (15) | 100,000 | (15) | 1.53 | 6/21/2016 | ||||||||||||||
— | 400,000 | (16) | 0.37 | 10/13/2018 | |||||||||||||||
Richard C. Yonker | 150,000 | (17) | 150,000 | (17) | 0.86 | 12/11/2016 | 100,000 | (b) | 37,000 | ||||||||||
— | 200,000 | (16) | 0.37 | 10/13/2018 | |||||||||||||||
Dr. Martin C. Nuss | 50,000 | (18) | 150,000 | (18) | 0.99 | 11/16/2017 | 50,000 | (b) | 18,500 | ||||||||||
— | 100,000 | (16) | 0.37 | 10/13/2018 | |||||||||||||||
Michael B. Green | — | 80,000 | (16) | 0.37 | 10/13/2018 | 50,000 | (b) | 18,500 |
Stock Option Exercises
There were no stock options exercised by our named executive officers or vesting of restricted stock awards held by our named executive officers during fiscal year 2009.
Pension Benefits and Nonqualified Deferred Compensation for Fiscal Year 2009
We do not have any plans that provide pension benefits to our named executive officers, nor do we have any nonqualified deferred compensation plans that provide for deferred compensation to our named executive officers.
Employment Agreements
Christopher R. Gardner Employment Agreement
Mr. Gardner's compensation was established by his employment agreement, initially dated June 26, 2006. On July 27, 2007, the employment agreement with Mr. Gardner was amended. Under the amended agreement, his base salary was increased to $350,000 per year, effective April 1, 2007. On February 23, 2009, his agreement was amended and restated (as amended, the "Prior Gardner Agreement") with no change in salary to address certain tax issues and provide for a return of bonuses paid under certain circumstances described below. During 2009, the Company implemented several measures to reduce expenses, including reductions in executive salaries. Effective February 1, 2009, Mr. Gardner's base salary was reduced by 20%, which reduction remained in effect through September 30, 2009. On July 8, 2009, his contract was amended to extend the term of the contract to January 27, 2010.
On February 12, 2010, the Company entered into a new Employment Agreement with Mr. Gardner (the "2010 Employment Agreement"). Pursuant to the terms of the 2010 Employment Agreement, Mr. Gardner will receive a base salary of $375,000 and is eligible to receive a target bonus of 100% of his base salary and a maximum bonus of 150% of his base salary. The amount of any such bonus is subject to the discretion of the Company's Compensation Committee. In connection with entering into the 2010 Employment Agreement, the Company's Compensation Committee granted Mr. Gardner 1,800,000 restricted stock units ("RSUs") and stock options to purchase 1,800,000 shares. The RSUs and stock options were granted pursuant to the terms of the Company's amended and restated 2001 Stock Incentive Plan. The stock options have an exercise price of $0.26 per share and vest 25% per year over four years. The RSUs vest over three years, with one-third of the RSU grant vesting on each one-year anniversary of the date of grant.
If Mr. Gardner's employment is terminated by him for Good Reason or by Vitesse other than For Cause, Mr. Gardner would be entitled to receive a lump sum payment equal to (a) two years of his
base salary plus (b) two times his maximum target bonus plus (c) a pro rata portion (based upon the portion of the fiscal year prior to his termination date) of either (i) his target bonus or (ii) in the case of a termination for such reasons within 24 months following a Change of Control Event, a pro rata portion of the greater of his target bonus or the amount of his bonus in the prior fiscal year, whichever is greater. If Mr. Gardner's employment is terminated by Vitesse other than For Cause during the one-year period prior to a Change of Control Event and Mr. Gardner can demonstrate that his termination arose in connection with or anticipation of such Change of Control Event (including as a result of the request of a third party which had taken steps reasonably calculated to effect such Change of Control Event), then all RSUs which are subject solely to time-based vesting and were outstanding immediately prior to Mr. Gardner's final day of employment will become fully vested and, to the extent such Change of Control Event occurs during the six-month period following the termination date of Mr. Gardner's employment, all of his outstanding options which are subject solely to time-based vesting shall become fully vested as of the Change of Control Event. If Mr. Gardner's employment is terminated by him for Good Reason or by the Company other than For Cause during the 24-month period following a Change of Control Event, then all outstanding stock options and RSUs which are subject solely to time-based vesting shall become fully vested.
"Change of Control Event" means (i) a consolidation or merger of the Company with or into any other entity or entities or the effectuation by the Company of a transaction or series of related transactions in which more than 50% of the voting power of the Company is disposed of or (ii) a sale, conveyance or disposition of all or substantially all the assets of the Company.
"For Cause" is defined as termination by reason of: (i) the executive's conviction of a felony or plea of guilty or nolo contendere to a felony; (ii) the executive's intentional failure or refusal to perform his employment duties and responsibilities; (iii) the executive's intentional misconduct that injures the Company's business; (iv) the executive's intentional violation of any other material provision of his employment agreement or the Company's Code of Business Conduct and Ethics; or (v) as otherwise provided for in Section 8 of the employment agreement. Section 8 of Mr. Gardner's employment agreement is titled"Compliance with Vitesse Policies and Procedures" and states:
"As a member of Vitesse management, Executive will be expected to comply with all provisions of the Vitesse Policies, Procedures Manual and Employee Handbook, as amended from time-to-time. Executive acknowledges, by signature on this Agreement, that failure to comply with and ensure enforcement of Vitesse's policies, procedures and all federal/state laws relating to business operations may result in immediate termination of employment For Cause."
"Good Reason" is defined as the occurrence, without the executive's written consent, of any of the following actions unless the action is fully corrected (if possible) within 15 days after the Company receives written notice of the action from the executive: (i) a material reduction in the executive's base salary; (ii) the Company's failure to pay the executive any material amount that is expressly required to be paid under his employment agreement; (iii) the Company's material and adverse reduction of the nature of the executive's duties and responsibilities, disregarding mere changes in title; or (iv) the Company's requirement that the executive perform his principal employment duties at an office that is more than 35 miles from Camarillo, California.
The 2010 Employment Agreement contains a provision that would require Mr. Gardner to return any bonus payments earned if the Company were required to prepare an accounting restatement to correct an accounting error on an interim or annual financial statement included in a report on Form 10-Q or Form 10-K, due to material noncompliance with any financial reporting requirement under the federal securities laws, and the Company's Board of Directors determines that misconduct by Mr. Gardner occurred and caused such restatement.
The 2010 Employment Agreement terminates on February 12, 2012.
Richard C. Yonker Employment Agreement
Mr. Yonker's compensation was established by his employment agreement, dated November 16, 2006, and was amended on June 26, 2007. An employment agreement dated February 20, 2009 superseded the prior Agreement and Amendment. Under his current agreement, Mr. Yonker receives a base salary of $275,000 per year. During 2009, the Company implemented several measures to reduce expenses, including reductions in executive salaries. Effective February 1, 2009, Mr. Yonker's base salary was reduced by 10%, which reduction remained in effect through September 30, 2009. Mr. Yonker's employment agreement terminates on February 20, 2011, but automatically renews for an additional 24 months if no prior written notice of termination is provided.
If Mr. Yonker's employment is terminated for Good Reason or other than For Cause (defined in a manner substantially the same as in Mr. Gardner's employment agreement), death, or Disability (defined in a manner substantially the same as in Mr. Gardner's employment agreement), he will receive severance pay equal to 12 months of his then base salary and be eligible for his earned bonus, prorated through his date of termination. In addition, if such termination of employment occurs within the 12 months following a change in control (defined in a manner substantially the same as in Mr. Gardner's employment agreement), Mr. Yonker would be entitled to an additional bonus equal to the amount of his maximum potential annual bonus for the fiscal year. If such termination of employment does not occur within 12 months following a change in control, Mr. Yonker would be eligible for an additional bonus equal to a full year bonus based on his performance. In the event of a Change in Control (defined in a manner substantially the same as in Mr. Gardner's employment agreement) of the Company (or its successor) and any involuntary termination other than For Cause or Mr. Yonker's resignation for Good Reason within one year of such a Change in Control, then any equity awards granted prior to the Change in Control would be accelerated and immediately become vested as though the equity awards were vesting over four years in 48 equal monthly amounts, and as though Mr. Yonker had completed an additional two years of service with the Company, and those options would be exercisable for an additional 90 days following the date of termination of employment.
"Good Reason" is defined as the occurrence, without the executive's written consent, of any of the following actions unless the action is fully corrected (if possible) within 15 days after the Company receives written notice of the action from the executive: (i) a material reduction in the executive's base salary; (ii) the Company's failure to pay the executive any material amount that is expressly required to be paid under his employment agreement; (iii) the Company's material and adverse reduction of the nature of the executive's duties and responsibilities, disregarding mere changes in title; (iv) the Company's requirement that the executive perform his principal employment duties at an office that is more than 35 miles from Camarillo, California or (v) the Company's failure to renew the agreement.
Mr. Yonker is bound by a non-solicitation clause for the duration of his employment pursuant to his agreement and for two years thereafter. This clause precludes him from directly or indirectly soliciting any person who is currently employed or has been employed by the Company within the prior six months. During the term of his agreement, Mr. Yonker is also precluded from influencing customers, vendors, and other partners of the Company in a way that would divert business away from the Company or otherwise materially interfere with any business relationship of the Company.
Mr. Yonker's agreement contains a provision that would require him to return any bonus payments earned if the Company were required to prepare an accounting restatement to correct an accounting error on an interim or annual financial statement included in a report on Form 10-Q or Form 10-K, due to material noncompliance with any financial reporting requirement under the federal securities laws, and the Board determines that misconduct by Mr. Yonker occurred and caused such restatement. Mr. Yonker is also eligible to participate in the Executive Bonus Plan.
Martin Nuss Employment Arrangement
On November 16, 2007, the Board of Directors appointed Dr. Martin Nuss as Vice President Technology and Strategy. Dr. Nuss received an employment letter from the Company pursuant to which the Company agreed that he is entitled to receive $220,000 as an annual base salary. During 2009, the Company implemented several measures to reduce expenses, including reductions in executive salaries. Effective February 1, 2009, Dr. Nuss' base salary was reduced by 10%, which reduction remained in effect through September 30, 2009.
Dr. Nuss is eligible to participate in the Executive Bonus Plan and he is also entitled to employee benefits provided to other senior executives. In the event that his employment is terminated at any time by the Company other than for cause or he terminates his employment within nine months after a Change in Control resulting in a material change in his position, responsibilities, or compensation, Dr. Nuss will be entitled to a lump sum payment equal to 12 months of his then base salary. For this purpose, "for cause" is defined in a manner substantially the same as in Mr. Gardner's employment agreement with the addition of failure to effectively perform his job duties and responsibilities and "Change in Control" means the occurrence of any of the following:
Potential Payments upon Termination or Change-in-Control
Under the terms of the Prior Gardner Agreement, if Mr. Gardner's employment were to have been terminated on September 30, 2009, for Good Reason or for reasons other than For Cause, death or disability, he would have received a lump sum severance payment of $1,575,000 and he would be engaged as a consultant at $3,000 per month until the earlier of: (i) three years after the termination of his employment; and (ii) one year after the date we have an effective registration statement under the Securities Act with respect to the shares to be issued upon exercise of options granted to him. In addition, Mr. Gardner's stock options outstanding on the date of his termination would continue to vest normally during his service as a consultant and those options would be exercisable until the earlier of 90 days following his termination as a consultant and the normal expiration dates of those options. As of September 30, 2009, all of Mr. Gardner's outstanding stock option awards were out-of-the-money.
If Mr. Yonker's employment were to have been terminated on September 30, 2009, for Good Reason or for reasons other than For Cause, death or Disability, he would have received a lump sum payment of his annual base salary of $275,000 plus $233,750 (twice his earned bonus of $116,875). If a Change in Control had occurred within the 12 months prior to September 30, 2009, Mr. Yonker would have received his annual base salary of $275,000 plus $281,875 (his earned bonus of $116,875 and an additional $165,000 upon such termination, representing his maximum bonus for the year). In addition,
the shares underlying all of Mr. Yonker's outstanding stock options and restricted stock unit representing a contingent right to receive oneawards would be accelerated and immediately become vested as though equity awards were vesting over four years in 48 equal monthly amounts, and he had completed an additional 24 months of service with the Company. Those options would be exercisable for an additional 90 days after termination. As of September 30, 2009, all of Mr. Yonker's outstanding stock option awards were out-of-the-money. The vesting of 72,917 of Mr. Yonker's restricted stock units would be accelerated. Based on the closing price per share of Common Stock, which vested 50%the Company's stock on September 30, 2009 of $0.37, the value of such restricted stock units subject to accelerated vesting was $26,979.
If Dr. Nuss' employment were to have been terminated on September 30, 2009 by the Company other than for cause or by Dr. Nuss within nine months after a Change in Control resulting in a material change in his position, responsibilities, or compensation, he would have received a lump sum payment of $220,000.
Upon termination, all named executive officers would also receive any vacation accrued and unpaid as of the date of termination.
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Review, Approval or Ratification of Related Person Transactions
In accordance with the charter for the Audit Committee of the Board, the members of the Audit Committee, all of whom are independent directors, review and approve in advance any proposed related person transactions. Additionally, from time to time the Board may directly consider these transactions. For purposes of these procedures, the individuals and entities that are considered "related persons" include:
Related Person Transactions
Certain Transactions with Related Persons
We are currently a party to a consulting agreement with Lynn Jones, who shares a household with Mr. Gardner, our Chief Executive Officer and a director. Ms. Jones was previously employed with the Company as a paralegal from September 2000 until July 2006. She was asked to assist the Company in fiscal year 2009 because of her experience and her knowledge of the Company, as well as the increasing demands placed on the Company's legal resources as a result of the imminent debt restructuring that was completed on October 14,30, 2009. From October 1, 2008 through December 31, 2009, we paid Ms. Jones an aggregate of $137,086 in cash compensation, at a rate of $80.00 per hour, pursuant to the consulting agreement for her services as a legal consultant. Ms. Jones' consulting relationship was approved by the Board of Directors which received full disclosure of Mr. Gardner's relationship to Ms. Jones.
The charter of our Board's Audit Committee provides that the Audit Committee is responsible for reviewing, in consultation with our General Counsel, reports and disclosures of insider and affiliated party transactions and compliance with our policy and procedures with respect to related party transactions. Our policies and procedures regarding related party transactions are evidenced in writing
by our Code of Business Conduct and Ethics, which we refer to as our Employees' Code, and our Code of Business Conduct and Ethics for Members of the Board of Directors, which we refer to as our Directors' Code. The Employees' Code requires all officers and employees to discharge their responsibilities solely on the basis of the Company's best interests, independent of personal interests, considerations or relationships. This code also requires anyone who personally becomes involved in a situation that gives rise to an actual or potential conflict of interest to immediately notify our General Counsel. The Directors' Code requires members of our Board to take all reasonable steps to avoid conflicts of interest with the Company. Additionally, the Directors' Code requires members of our Board to promptly disclose to the Chairperson of our Nominating and Governance Committee any situation that involves, or may reasonably be expected to involve, a conflict of interest with the Company. The charter of our Board's Nominating and Governance Committee provides that this committee will review potential conflicts of interest involving members of our Board and will determine whether such director or directors may vote on any issue as to which there may be a conflict.
Directors' Independence
Except for Christopher R. Gardner, our President, Chief Executive Officer, and a director, all of our directors meet the independence requirements set forth in the NASDAQ Listing Rules and our Corporate Governance Guidelines. The members of our Audit Committee also meet the additional independence requirements set forth in the NASDAQ Listing Rules and the SEC rules for Audit Committee members.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee is responsible for overseeing our accounting and financial reporting processes and audits of our financial statements. As set forth in its charter, the Audit Committee acts only in an oversight capacity and relies on the work and assurances of both management, which has primary responsibilities for our financial statements and reports, as well as the independent registered public accounting firm that is responsible for expressing an opinion on the conformity of our audited financial statements to generally accepted accounting principles.
The Audit Committee met sixteen (16) times either in person or by telephone during fiscal year 2009. In the course of these meetings, the Audit Committee met with management and our independent auditors and reviewed the results of the audit examinations, evaluations of our internal controls and the overall quality of our financial reporting.
The Audit Committee believes that a candid, substantive and focused dialogue with the independent registered public accounting firm is fundamental to the Audit Committee's oversight responsibilities. To support this belief, the Audit Committee periodically meets separately with the independent auditors, without management present. In the course of its discussions in these meetings, the Audit Committee asked a number of questions intended to bring to light any areas of potential concern related to our financial reporting and internal controls. These questions include:
The Audit Committee approved the engagement of BDO Seidman, LLP as our independent registered public accounting firm for fiscal year 2009 and reviewed with the independent registered public accounting firm their respective overall audit scope and plans. In approving BDO Seidman, LLP, the Audit Committee considered the qualifications of BDO Seidman, LLP and discussed with BDO Seidman, LLP their independence, including a review of the audit and non-audit services provided by them to us. The Audit Committee also discussed with BDO Seidman, LLP the matters required to be discussed by Statement on Auditing Standards No. 61, as amended, (AICPA,Professional Standards, Vol. 1 AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T, and it received the written disclosures and the letter from BDO Seidman, LLP required by the applicable requirements of the Public Company Accounting Oversight Board regarding BDO Seidman, LLP's communications with Audit Committee concerning independence and has discussed BDO Seidman, LLP's independence with BDO Seidman, LLP.
Management has reviewed the audited financial statements for fiscal year 2009 with the remainder vestingAudit Committee, including a discussion of the quality and acceptability of the financial reporting, the reasonableness of significant accounting judgments and estimates and the clarity of disclosures in two annual installmentsthe financial statements. In connection with this review and discussion, the Audit Committee asked a number of 25% each on October 13, 2010follow-up questions of management and October 12, 2011, respectively.the independent registered public accounting firm to help give the Audit Committee comfort in connection with its review.
The SEC maintains a website that contains reports, proxies and information statements and other information regarding us and other issuers that file electronically with the SEC at www.sec.gov. Our proxy statements, annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as any amendments to those reports, are available free of charge through the SEC’s website. Stockholders may also read and copy materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. Stockholders may obtain informationIn reliance on the operation ofreviews and discussions referred to above, the Public Reference Room by calling the SEC at 1-800-SEC-0330.
We expect to hold our 2010 Annual Meeting of Stockholders (the “2010 Annual Meeting”) on or about [ ], 2010 and expect to mail a definitive proxy statement relatingAudit Committee recommended to the 2010 Annual Meeting on or about [ ], 2010 toBoard (and the stockholders of record entitled to vote atBoard has approved) that the 2010 Annual Meeting. The deadline for submitting proposals for inclusion in our proxy materials for the 2010 Annual Meeting is [ ], 2009, by which date you must submit your proposal in writing to our Secretary, c/o Vitesse Semiconductor Corporation, 741 Calle Plano, Camarillo, California 93012. We recommend that such proposals be sent by certified mail, return receipt requested. Such proposals will also need to comply with the rules of the Securities and Exchange Commission regarding the inclusion of stockholder proposals in our proxy materials, and may be omitted if not in compliance with applicable requirements.
Stockholders that intend to present a proposal that will notaudited financial statements be included in the proxy statement and form of proxy for the 2010 Annual Meeting must give notice of such proposal no later than [ ], 2010 and no earlier than [ ], 2010. With respect to each item of business that you propose to bring before the 2010 Annual Meeting, you must submit to our Secretary (a) a brief description of the business desired to be brought before the 2010 Annual Meeting and the reasons for conducting such business at the 2010 Annual Meeting, (b) your name and address as they appear on our books, (c) the class and number of our shares that you beneficially own and (d) any material interest you may have in such business.
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The SEC allows us to “incorporate by reference” into this proxy statement documents we file with the SEC. This means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be a part of this proxy statement, and later information that we file with the SEC as specified below will update and supersede that information. We incorporate by reference Items 7, 7A, 8 and 9 from the Company’s Annual Reportannual report on Form 10-K for the fiscal year ended September 30, 2008 filed on December 31, 2008, and Items 1, 2 and 3 from2009, for filing with the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009 filed on August 10, 2009.SEC.
Respectively submitted by THE AUDIT COMMITTEE | ||
James H. Hugar, Chair Steve Hanson |
This proxy statement incorporates important business and financial information about Vitesse from other documents that are not included in this document. A copy of the incorporated information is being delivered with this proxy statement. In addition, you can obtain the information incorporated by reference in this proxy statement through our website, www.vitesse.com, and from the SEC at its website, www.sec.gov.
OTHER MATTERS
Management does notWe know of anyno other matters to be presented atsubmitted to the Special Meetingmeeting. If any other than those set forth herein andmatters properly come before the meeting, it is the intention of the persons named in the notice accompanying this proxy statement.enclosed form Proxy to vote the shares they represent as the Board may recommend.
BY ORDER OF THE BOARD OF DIRECTORS | ||
Dated: March 31, 2010 | Christopher R. Gardner President and Chief Executive Officer |
VITESSE SEMICONDUCTOR CORPORATION
2010 INCENTIVE PLAN
SECTION 1. PURPOSE
RepresentativesThe purpose of ourthe Vitesse Semiconductor Corporation 2010 Incentive Plan is to attract, retain and motivate employees, officers, directors, consultants, agents, advisors and independent registered public accounting firm, BDO Seidman, LLP, are expected to be present atcontractors of the Special Meeting, will haveCompany and its Related Companies by providing them the opportunity to makeacquire a statement if they desireproprietary interest in the Company and to do so,align their interests and are expectedefforts to be available to respond to appropriate questions.the long-term interests of the Company's stockholders.
39
Table of Contents
SECTION 2. DEFINITIONS
Certain capitalized terms used in the Plan have the meanings set forth in Appendix A.
ANNEX A
SECTION 3. ADMINISTRATION
PROPOSED AMENDMENT TO ARTICLE 4 OF VITESSE SEMICONDUCTOR CORPORATION’S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION3.1
RELATING TO PROPOSALS 1 AND 2
If Proposal 1 is approved and Proposal 2 is not approved, Article 4 Administration of the Company’s AmendedPlan
(a) The Plan shall be administered by the Board or the Compensation Committee, which shall be composed of two or more directors, each of whom is a "non-employee director" within the meaning of Rule 16b-3(b)(3) promulgated under the Exchange Act, or any successor definition adopted by the Securities and Restated CertificateExchange Commission , and an "outside director" within the meaning of Incorporation would read as follows:Section 162(m) of the Code, or any successor provision thereto.
“This Corporation is authorized(b) Notwithstanding the foregoing, the Board may delegate concurrent responsibility for administering the Plan, including with respect to issue twodesignated classes of sharesEligible Persons, to bedifferent committees consisting of one or more members of the Board, subject to such limitations as the Board deems appropriate, except with respect to Awards to Participants who are subject to Section 16 of the Exchange Act or Awards granted pursuant to Section 16 of the Plan. Members of any committee shall serve for such term as the Board may determine, subject to removal by the Board at any time. To the extent consistent with applicable law, the Board or the Compensation Committee may authorize one or more officers of the Company to grant Awards to designated respectively Preferred Stock (“Preferred”) and Common Stock (“Common”). The total numberclasses of shares of Preferred this CorporationEligible Persons, within limits specifically prescribed by the Board or the Compensation Committee; provided, however, that no such officer shall have or obtain authority to issuegrant Awards to himself or herself or to any person subject to Section 16 of the Exchange Act.
(c) All references in the Plan to the "Committee" shall be, 10,000,000, $0.01 par value,as applicable, to the Board, the Compensation Committee or any other committee or any officer to whom authority has been delegated to administer the Plan.
3.2 Administration and Interpretation by Committee
(a) Except for the total number of Common this Corporationterms and conditions explicitly set forth in the Plan and to the extent permitted by applicable law, the Committee shall have full power and exclusive authority, subject to issue shall be 5,000,000,000, $0.01 par value.
The Preferred Stocksuch orders or resolutions not inconsistent with the provisions of the Plan as may be issued from time to time in one or more series pursuant to a resolution or resolutions providing for such issue dulybe adopted by the Board or a Committee composed of Directors (authoritymembers of the Board, to do so being hereby expressly vested in(i) select the Board). The BoardEligible Persons to whom Awards may from time to time be granted under the Plan; (ii) determine the type or types of Directors is further authorizedAward to determine or alter the rights, preferences, privileges and restrictionsbe granted to or imposed upon any wholly unissued series of Preferred Stock and, to fixeach Participant under the Plan; (iii) determine the number of shares of Common Stock to be covered by each Award granted under the Plan; (iv) determine the terms and conditions of any seriesAward granted under the Plan; (v) approve the forms of Preferrednotice or agreement for use under the Plan; (vi) determine whether, to what extent and under what circumstances Awards may be settled in cash, shares of Common Stock or other property or canceled or suspended; (vii) interpret
and administer the Plan and any instrument evidencing an Award, notice or agreement executed or entered into under the Plan; (viii) establish such rules and regulations as it shall deem appropriate for the proper administration of the Plan; (ix) delegate ministerial duties to such of the Company's employees as it so determines; and (x) make any other determination and take any other action that the Committee deems necessary or desirable for administration of the Plan.
(b) In no event, however, shall the Committee have the right, without stockholder approval, to (i) lower the price of an option after it is granted, except in connection with adjustments provided in Section 15.1; (ii) take any other action that is treated as a repricing under generally accepted accounting principles; or (iii) cancel an option at a time when its strike price exceeds the fair market value of the underlying stock, in exchange for another option, restricted stock, or other equity, unless the cancellation and exchange occurs in connection with a merger, acquisition, spin-off or other similar corporate transaction.
(c) The effect on the vesting of an Award of a Company-approved leave of absence or a Participant's reduction in hours of employment or service shall be determined by the Company's chief human resources officer or other person performing that function or, with respect to directors or executive officers, by the Compensation Committee, whose determination shall be final.
(d) Decisions of the Committee shall be final, conclusive and binding on all persons, including the Company, any Participant, any stockholder and any Eligible Person. A majority of the members of the Committee may determine its actions.
SECTION 4. SHARES SUBJECT TO THE PLAN
4.1 Authorized Number of Shares
(a) 50,000,000 shares; plus
(b) up to 40,457,825 shares subject to outstanding awards under the Company's 2001 Stock Incentive Plan (the "Prior Plan") on the Effective Date that cease to be subject to such awards (other than by reason of exercise or settlement of the awards to the extent they are exercised for or settled in shares) subject to adjustment from time to time as provided in Section 15.1, which shares shall cease, as of such date, to be available for grant and issuance under the Prior Plan and shall instead be available for issuance under the Plan.
(c) Shares issued under the Plan shall be drawn from authorized and unissued shares or shares now held or subsequently acquired by the Company as treasury shares.
4.2 Share Usage
(a) Shares of Common Stock covered by an Award shall not be counted as used unless and until they are actually issued and delivered to a Participant. If any Award lapses, expires, terminates or is canceled prior to the issuance of shares thereunder or if shares of Common Stock are issued under the Plan to a Participant and thereafter are forfeited to or otherwise reacquired by the Company, the shares subject to such Awards and the designationforfeited or reacquired shares shall again be available for issuance under the Plan. Any shares of anyCommon Stock (i) tendered by a Participant or retained by the Company as full or partial payment to the Company for the purchase price of an Award or to satisfy tax withholding obligations in connection with an Award, or (ii) covered by an Award that is settled in cash, or in a manner such series of Preferred Stock. The Board of Directors, within the limits and restrictions stated in any resolutionthat some or resolutionsall of the Boardshares of Directors originally fixingCommon Stock covered by the Award are not issued, shall be available for Awards under the Plan. The number of shares of Common Stock available for issuance under the Plan shall not be reduced to reflect any dividends or dividend equivalents that are reinvested into additional shares of Common Stock or credited as additional shares of Common Stock subject or paid with respect to an Award.
(b) The Committee shall also, without limitation, have the authority to grant Awards as an alternative to or as the form of payment for grants or rights earned or due under other compensation plans or arrangements of the Company.
(c) Notwithstanding any other provision of the Plan to the contrary, the Committee may grant Substitute Awards under the Plan. Substitute Awards shall not reduce the number of shares constituting any series,authorized for issuance under the Plan. In the event that an Acquired Entity has shares available for awards or grants under one or more preexisting plans not adopted in contemplation of such acquisition or combination, then, to the extent determined by the Board or the Compensation Committee, the shares available for grant pursuant to the terms of such preexisting plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to holders of common stock of the entities that are parties to such acquisition or combination) may increase or decrease (butbe used for Awards under the Plan and shall not below the number of shares in any such series then outstanding)reduce the number of shares of any series subsequentCommon Stock authorized for issuance under the Plan; provided, however, that Awards using such available shares shall not be made after the date awards or grants could have been made under the terms of such preexisting plans, absent the acquisition or combination, and shall only be made to the issue of shares of that series.”
If Proposals 1 and 2 are approved, Article 4individuals who were not employees or directors of the Company’s AmendedCompany or a Related Company prior to such acquisition or combination. In the event that a written agreement between the Company and Restated Certificatean Acquired Entity pursuant to which a merger or consolidation is completed is approved by the Board and that agreement sets forth the terms and conditions of Incorporation would read as follows:
“This Corporation is authorized to issue two classesthe substitution for or assumption of sharesoutstanding awards of the Acquired Entity, those terms and conditions shall be deemed to be designated respectively Preferred Stock (“Preferred”) and Common Stock (“Common”). The total number of shares of Preferred this Corporation shall have authority to issue shall be 10,000,000, $0.01 par value, and the total number of Common this Corporation shall have authority to issue shall be [ ](1), $0.01 par value.
Upon the filing and effectiveness (the “Effective Time”) of this amendment to the Amended and Restated Certificate of Incorporationaction of the Corporation pursuant to the General Corporation Law of the State of Delaware, each [ ](2) shares of Common issued and outstanding immediately prior to the Effective Time shall automatically be combined into one (1) validly issued, fully paid and non-assessable share of CommonCommittee without any further action by the Corporation or the holder thereof, subject to the treatment of fractional share interestsCommittee, except as described below (such combination, the “Reverse Stock Split”). No fractional shares of Common shall be issued in connection with the Reverse Stock Split.
(1) The number of authorized shares of Common following the Effective Time (as defined below) will be equal to the quotient, rounded to the nearest whole number, of 5,000,000,000 divided by the number of shares of Common to be combined into one share in connection with the Reverse Stock Split (as defined below) determined in accordance with Footnote 2 below.
(2) By approving this amendment, stockholders are approving a combination of any number of shares of Common, between and including 20 and 50, into one share. The Certificate of Amendment that is filed with the Secretary of State of the State of Delaware will include only one ratio determined by the Board of Directors of the Corporation to be in the best interests of the Corporation and its stockholders following stockholder approval of this amendment and prior to the time of filing of the Certificate of Amendment.
A-1
Stockholders who otherwise would be entitled to receive fractional shares of Common shall be entitled to receive cash (without interest) for such holder’s fractional share equal to the product obtained by multiplying (a) the closing price per share of the Common as reported on the Pink Sheets, as of the date this Certificate of Amendment is filed with the Secretary of State of the State of Delaware, by (b) the fraction of one share owned by the stockholder.
The Preferred Stock may be issued from time to time in one or more series pursuant to a resolution or resolutions providingrequired for such issue duly adopted bycompliance with Rule 16b-3 under the Board of Directors (authority to do so being hereby expressly vested in the Board). The Board of Directors is further authorized to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and, to fix the number of shares of any series of Preferred StockExchange Act, and the designation of anypersons holding such series of Preferred Stock. The Board of Directors, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares in any such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series.”
If Proposal 2 is approved and Proposal 1 is not, Article 4 of the Company’s Amended and Restated Certificate of Incorporation would read as follows:
“This Corporation is authorized to issue two classes of shares to be designated respectively Preferred Stock (“Preferred”) and Common Stock (“Common”). The total number of shares of Preferred this Corporationawards shall have authority to issue shall be 10,000,000, $0.01 par value, and the total number of Common this Corporation shall have authority to issue shall be [ ](3), $0.01 par value.
Upon the filing and effectiveness (the “Effective Time”) of this amendment to the Amended and Restated Certificate of Incorporation of the Corporation pursuant to the General Corporation Law of the State of Delaware, each [ ](4) shares of
(3) The number of authorized shares of Common following the Effective Time (as defined below) will be equal to the quotient, rounded to the nearest whole number, of 500,000,000 divided by the number of shares of Common to be combined into one share in connection with the Reverse Stock Split (as defined below) determined in accordance with Footnote 4 below.
(4) By approving this amendment, stockholders are approving a combination of any number of shares of Common, between and including 20 and 50, into one share. The Certificate of Amendment that is filed with the Secretary of State of the State of Delaware will include only one ratio determined by the Board of Directors of the Corporation to be in the best interests of the Corporation and its stockholders following stockholder approval of this amendment and prior to the time of filing of the Certificate of Amendment.
A-2
Common issued and outstanding immediately prior to the Effective Time shall automatically be combined into one (1) validly issued, fully paid and non-assessable share of Common without any further action by the Corporation or the holder thereof, subject to the treatment of fractional share interests as described below (such combination, the “Reverse Stock Split”). No fractional shares of Common shall be issued in connection with the Reverse Stock Split. Stockholders who otherwise would be entitled to receive fractional shares of Common shall be entitled to receive cash (without interest) for such holder’s fractional share equal to the product obtained by multiplying (a) the closing price per share of the Common as reported on the Pink Sheets, as of the date this Certificate of Amendment is filed with the Secretary of State of the State of Delaware, by (b) the fraction of one share owned by the stockholder.
The Preferred Stock may be issued from time to time in one or more series pursuant to a resolution or resolutions providing for such issue duly adopted by the Board of Directors (authority to do so being hereby expressly vested in the Board). The Board of Directors is further authorized to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and, to fix the number of shares of any series of Preferred Stock and the designation of any such series of Preferred Stock. The Board of Directors, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares in any such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series.”
A-3
INDENTURE
Between
VITESSE SEMICONDUCTOR CORPORATION
U.S. BANK NATIONAL ASSOCIATION,
as Trustee
8.00% CONVERTIBLE SECOND LIEN DEBENTURES DUE 2014
DATEDASOF OCTOBER 30, 2009
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CROSS-REFERENCE TABLE*
Trust Indenture |
| Indenture |
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310 | (a)(1) |
| 5.11 |
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| (a)(2) |
| 5.11 |
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| (a)(3) |
| n/a |
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| (a)(4) |
| n/a |
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| (a)(5) |
| 5.11 |
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| (b) |
| 5.3; 5.11 |
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| (c) |
| n/a |
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311 | (a) |
| 5.12 |
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| (b) |
| 5.12 |
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| (c) |
| n/a |
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312 | (a) |
| 2.10 |
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| (b) |
| 15.3 |
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| (c) |
| 15.3 |
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313 | (a) |
| 5.7 |
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| (b)(1) |
| n/a |
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| (b)(2) |
| 5.7 |
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| (c) |
| 5.7; 15.2 |
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| (d) |
| 5.7 |
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314 | (a)(1), (2), (3) |
| 9.6; 15.6 |
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| (a)(4) |
| 9.6; 9.7; 15.6 |
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| (b) |
| n/a |
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| (c)(1) |
| 15.5 |
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| (c)(2) |
| 15.5 |
|
| (c)(3) |
| n/a |
|
| (d) |
| n/a |
|
| (e) |
| 15.6 |
|
| (f) |
| n/a |
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315 | (a) |
| 5.1(a) |
|
| (b) |
| 5.6; 15.2 |
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| (c) |
| 5.1(b) |
|
| (d) |
| 5.1(c) |
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| (e) |
| 4.14 |
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316 | (a)(last sentence) |
| 2.13 |
|
| (a)(1)(A) |
| 4.5 |
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| (a)(1)(B) |
| 4.4 |
|
| (a)(2) |
| n/a |
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| (b) |
| 4.7 |
|
| (c) |
| 7.4 |
|
317 | (a)(1) |
| 4.8 |
|
| (a)(2) |
| 4.9 |
|
| (b) |
| 2.5 |
|
318 | (a) |
| 15.1 |
|
| (b) |
| n/a |
|
| (c) |
| 15.1 |
|
“n/a” means not applicable.
* This Cross-Reference Table shall not, for any purpose, be deemed to be a part ofParticipants.
(d) Notwithstanding the Indenture.
B-2
TABLE OF CONTENTS
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B-6
INDENTURE, dated as of October 30, 2009, between VITESSE SEMICONDUCTOR CORPORATION, a corporation duly organized and existing under the laws of the State of Delaware, having its principal office at 741 Calle Plano, Camarillo, California 93012 (the “Company”), and U.S. BANK NATIONAL ASSOCIATION, as Trustee (the “Trustee”), having its principal corporate trust office at 60 Livingston Avenue, St. Paul, Minnesota 55107-2292.
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of its 8.00% Convertible Second Lien Debentures due 2014 (herein called the “Securities”) of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture.
All things necessary to make the Securities, when the Securities are executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company, and to make this Indenture a valid agreement of the Company, in accordance with their and its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows:
For all purposes of this Indenture and the Securities, the following terms are defined as follows:
“Act,” when used with respect to any Holder of a Security, has the meaning specified in Section 15.4(a).
“Additional Premium” has the meaning specified in Section 13.2(b).
“Additional Shares” has the meaning specified in Section 13.2(c)(iii).
“Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “control,” when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.
“Agent Member” hascontrary, the meaning specified in Section 2.8(a).
“Applicable Stock Price” shall mean, in respect of a Determination Date, the average Closing Sale Price of the Common Stock over the 20 Trading Day period (the “Cash Settlement Averaging Period”): (i) ending on the second Trading Day preceding the Redemption Date, if the Company has called the Securities for redemption pursuant to Article 10; (ii) subject to the succeeding clause (iii), beginning on the Trading Day following the Company’s receipt of the Holder’s conversion notice, if the Company has irrevocably elected to make a cash payment of principal upon conversion; (iii) ending on the second Trading Day preceding the Maturity Date, with respect to conversion notices received during the period beginning 25 Trading Days preceding the Maturity Date and ending one Trading Day preceding the Maturity Date; and (iv) beginning on the Trading Day following the final Trading Day of the Conversion Retraction Period, in all other cases.
“Bankruptcy Law” means Title 11 of the U.S. Code or any similar federal or state law for the relief of debtors.
“Board of Directors” means either the board of directors of the Company or any committee of that board empowered to act for it with respect to this Indenture.
“Board Resolution” means a resolution duly adopted by the Board of Directors, a copy of which, certified by the Secretary or an Assistant Secretary of the Company to be in full force and effect on the date of such certification, shall have been delivered to the Trustee.
“Business Day,” when used with respect to any Place of Payment or Place of Conversion, means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in that Place of Payment or Place of Conversion, as the case may be, are authorized or obligated by law to close.
B-7
“Calculation Agent” has the meaning specified in Section 13.2.
“Capital Lease” means all obligations and liabilities (contingent or otherwise) in respect of leases of such Person required, in conformity with generally accepted accounting principles, to be accounted for as capitalized lease obligations on the balance sheet of such Person.
“Capitalized Lease Obligation” means the discounted present value of the rental obligations and liabilities (contingent or otherwise) under a Capital Lease.
“Cash Amount” has the meaning specified in Section 12.12(e).
“Cash Equivalents” means (i) marketable direct obligations issued or unconditionally guaranteed by the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within six (6) months from the date of acquisition thereof; (b) commercial paper maturing no more than six (6) months from the date issued and, at the time of acquisition, having a rating of at least A-1 from Standard & Poor’s Corporation or at least P-1 from Moody’s Investors Service, Inc.; and (c) certificates of deposit or bankers’ acceptances maturing within six (6) months from the date of issuance thereof issued by, or overnight reverse repurchase agreements from, any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia having combined capital and surplus of not less than $250,000,000 and not subject to setoff rights in favor of such bank.
“Cash-Only Settlement Amount” has the meaning specified in Section 12.12(e).
“Cash Settlement Averaging Period” has the meaning specified in the definition of Cash Settlement Averaging Period.
“Closing Sale Price” means the closing sale price of any share of Common Stock on any Trading Day (or if no closing sale price is reported, the average of the closing bid and closing ask prices or, if more than one in either case, the average of the average closing bid and the average closing ask prices) on such date as reported in composite transactions for the principal United States securities exchange on which the Common Stock is traded or, if the Common Stock is not listed on a United States national or regional securities exchange, as reported by the Nasdaq System or by the National Quotation Bureau Incorporated. In the absence of such a quotation, the Company shall determine the Closing Sale Price on the basis it considers appropriate.
“Collateral” has the meaning assigned to such term in the Second Lien Security Documents.
“Collateral Agent” means the Trustee, in its capacity as Collateral Agent under this Indenture and the Second Lien Security Documents.
“Common Stock” means any stock of any class of the Company which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which is not subject to redemption by the Company. However, subject to the provisions of Section 12.11, shares issuable on conversion of Securities shall include only shares of the class designated as Common Stock, par value $0.01 per share, of the Company at the date of this Indenture or shares of any class or classes resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which are not subject to redemption by the Company; provided, however, that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the totalmaximum number of shares that may be issued upon the exercise of such class resulting from all such reclassifications bears toIncentive Stock Options shall equal the totalaggregate share number of shares of all such classes resulting from all such reclassifications.
“Company” means the corporation named as the “Company” in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Company” shall mean such successor Person.
“Company Order” means a written order signed in the name of the Company by any of the Chairman of the Board, the Chief Executive Officer, the President, a Vice President, the Chief Financial Officer, the Controller, the Treasurer or the Secretary of the Company, and delivered to the Trustee.
“Conversion Agent” means any Person authorized by the Company to convert Securities in accordance with Article 12.
B-8
“Conversion Agreement” means that certain the Conversion Agreement, dated as of the date hereof among the Company and certain of the Holders parties thereto, as amended..
“Conversion Price” has the meaning specifiedstated in Section 12.1.
“Conversion Retraction Period” has the meaning specified in Section 12.12(c).
“Corporate Trust Office” means for purposes of presentation or surrender of Securities for payment, registration, transfer, exchange or conversion or for service of notices or demands upon the Company or for any other purpose of this Indenture, both the office of the Trustee located at 60 Livingston Avenue, St. Paul, Minnesota 55107-2292, Attention: Corporate Trust Administration (Vitesse Semiconductor Corporation 8.00% Convertible Second Lien Second Lien Debentures due 2014).
“corporation” means corporations, associations, limited liability companies, companies and business trusts.
“Credit Facility” means the First Lien Loan Agreement, or upon payment in full of the First Lien Loan Agreement and the termination of all obligations of the lenders thereunder4.1, subject to extend credit to the Company, one or more credit facilities or commercial paper facilities, in each case with banks, institutional lenders or other lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time by one or more of such facilities , whether with the same or different banks and lenders.
“Current Market Price” has the meaning set forth in Section 12.4(g).
“Custodian” means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law.
“Default” means an event which is, or after notice or lapse of time or both would be, an Event of Default.
“Defaulted Interest” has the meaning specified in Section 2.17.
“Depositary” means The Depository Trust Company, its nominees and their respective successors.
“Determination Date” has the meaning specified in Section 12.12(d).
“dollar,” “U.S. Dollar” or “$” means a dollar or other equivalent unit in such coin or currency of the United States as at the time shall be legal tender for the payment of public and private debts.
“Domestic Subsidiary” means any Subsidiary organized or existing under the laws of the United States of America, or any state or territory thereof, or the District of Columbia.
“Effective Date” has the meaning specified in Section 13.2.
“Event of Default” has the meaning specified in Section 4.1.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“‘Existing Securities” mean the securities issued pursuant to that certain indenture dated as of September 22, 2004, among the Company and the Trustee governing the issuance of the Company’s 1.50% Convertible Subordinated Debentures due 2024, as amended.
“Expiration Time” has the meaning specified in Section 12.4(f).
“fair market value” has the meaning set forth in Section 12.4(g).
“First Lien Loan Agreement” shall mean that certain Loan Agreement, dated as of August 23, 2007, among the Company, the lenders from time to time parties thereto, and Whitebox VSC, Ltd., as agent, as amended.
“First Lien Security Documents” shall mean the Collateral Documents as defined in the First Lien Loan Agreement.
“Fundamental Change” means any transaction or event (whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or otherwise) in connection with which 50% or more of the Common Stock is exchanged for, converted into, acquired for or constitutes solely the right to receive, consideration which is not at least 90% common stock that is (i) listed on, or immediately after the transaction or event will be listed on, a United States national securities exchange or (ii) approved, or immediately after the transaction or
B-9
event will be approved, for quotation on the Nasdaq National Market or any similar United States system of automated dissemination of quotations of securities prices.
“Global Security” has the meaning specified in Section 2.2(b).
“guarantee” means any obligation, contingent or otherwise, of any Person, directly or indirectly guaranteeing any Indebtedness of any other Person and any obligation, direct or indirect, contingent or otherwise, of such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such other Person (whether arising by virtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or maintain financial statement conditions or otherwise); or
(2) entered into for purposes of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term “guarantee” will not include endorsements for collection or deposit in the ordinary course of business. The term “guarantee” used as a verb has a corresponding meaning.
“Guarantors” shall mean (a) Vitesse Manufacturing & Development Corporation, (b) Vitesse Semiconductor Sales Corporation and (c) Vitesse International, Inc.
“Guarantor Security Agreement” shall mean the security agreement dated as of the date hereof, delivered by each Guarantor to the Collateral Agent, as amended.
“Guaranty” shall mean the guaranty agreement, dated as of the date hereof, delivered by each Guarantor to the Collateral Agent, as amended.
“Holder,” when used with respect to any Security, including any Global Security, means the Person in whose name the Security is registered in the Register.
“Indebtedness,” when used with respect to any Person, and without duplication means:
(1) all indebtedness, obligations and other liabilities (contingent or otherwise) of such Person for borrowed money (including obligations of the Company in respect of overdrafts, foreign exchange contracts, currency exchange agreements, Interest Rate Protection Agreements, and any loans or advances from banks, whether or not evidenced by notes or similar instruments) or evidenced by bonds, debentures, notes or other instruments for the payment of money, or Purchase Money Debt, or incurred in connection with the acquisition of any services (whether or not the recourse of the lender is to the whole of the assets of such Person or to only a portion thereof), other than any account payable or other accrued current liability or obligation to trade creditors incurred in the ordinary course of business in connection with the obtaining of such services;
(2) all reimbursement obligations and other liabilities (contingent or otherwise) of such Person with respect to letters of credit, bank guarantees, bankers’ acceptances, surety bonds, performance bonds or other guaranty of contractual performance;
(3) all obligations and liabilities (contingent or otherwise) in respect of (a) Capital Leases; and (b) any lease or related documents (including a purchase agreement) in connection with the lease of real property which provides that such Person is contractually obligated to purchase or cause a third party to purchase the leased property and thereby guarantee a minimum residual value of the leased property to the landlord and the obligations of such Person under such lease or related document to purchase or to cause a third party to purchase the leased property;
(4) all obligations of such Person (contingent or otherwise) with respect to an interest rate or other swap, cap or collar agreement or other similar instrument or agreement or foreign currency hedge, exchange, purchase or similar instrument or agreement;
(5) all direct or indirect guarantees or similar agreements by such Person in respect of, and obligations or liabilities (contingent or otherwise) of such Person to purchase or otherwise acquire or otherwise assure a creditor against loss in respect of, indebtedness, obligations or liabilities of another Person of the kind described in clauses (1) through (4);
(6) any indebtedness or other obligations described in clauses (1) through (4) secured by any mortgage, pledge, lien or other encumbrance existing on property which is owned or held by such Person, regardless of whether the indebtedness or other obligation secured thereby shall have been assumed by such Person; and
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(7) any and all deferrals, renewals, extensions and refundings of, or amendments, modifications or supplements to, any indebtedness, obligation or liability of the kind described in clauses (1) through (6).
“Indenture” means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof.
“Indenture Documents” means the Indenture and the Second Lien Security Documents.
“Intercreditor Agreement” shall mean the intercreditor agreement, dated as of the date hereof, between the First Lien Agent, the Trustee, the Company and the Guarantors.
“Interest Payment Date” means each of April 1 and October 1; provided, however, that if any such date is not a Business Day, the Interest Payment Date shall be the next succeeding Business Day.
“Interest Rate” means 8.00% per annum.
“Interest Rate Protection Agreement” means, with respect to any Person, any interest rate swap agreement, interest rate cap or collar agreement or other financial agreement or arrangement designed to protect such person against fluctuations in interest rates, as in effect from time to time.
“Investments” shall mean the acquisition, purchase, making or holding of any stock or other security, any loan, advance, contribution to capital, extension of credit (except for trade and customer accounts receivable for inventory sold or services rendered in the ordinary course of business and payable in accordance with customary trade terms), any acquisition of real or personal property (other than real or personal property acquired in the ordinary course of business) and any purchase, commitment or option to purchase stock or other debt or equity securities of or any other interest in another Person or an integral part of any business or the assets comprising such business or the assets comprising such business or part thereof. The amount of any Investment shall be the original cost of such Investment plus the cost of additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment.
“Issuer Security Agreement” shall mean the security agreement, dated as of the date hereof, delivered by the Company to the Collateral Agent, as amended.
“Lien” means, with respect to any Person, any security interest, mortgage, pledge, lien, charge, encumbrance, title retention agreement, or analogous instrument or device (including the interest of each lessor under any Capital Lease) in, of or on any assets or properties of such Person, now owned or hereafter acquired, whether arising by agreement or operation of law.
“Make-Whole Amount” has the meaning specified in Section 13.1(a).
“Make-Whole Percentage” has the meaning specified in Section 13.2(c)(iii).
“Make-Whole Premium” has the meaning specified in Section 13.2(b).
“Make-Whole Table” has the meaning specified in Section 13.2(c)(iii).
“Maturity” and “Maturity Date” means the date on which the principal of such Security becomes due and payable as therein or herein provided, whether at the Stated Maturity or by acceleration, conversion, call for redemption, exercise of a Repurchase Right or otherwise.
“Nasdaq National Market” means the National Association of Securities Dealers Automated Quotation National Market or any successor national securities exchange or automated over-the-counter trading market in the United States.
“Non-Electing Share” has the meaning specified in Section 12.11.
“Officer” of the Company means the Chairman of the Board, the Chief Executive Officer, the President, the Chief Financial Officer, the Treasurer, the Controller, any Vice President or the Secretary of the Company.
“Officers’ Certificate” means a certificate signed by both (1) the Chairman of the Board, the Chief Executive Officer, the President or a Vice President and (2) so long as not the same as the officer signing pursuant to clause (1), the Chief Financial Officer, the Treasurer, the Controller or the Secretary of the Company, and delivered to the Trustee.
“Opinion of Counsel” means a written opinion of counsel, who may be counsel to the Company (and may include directors or employees of the Company) and who is acceptable to the Trustee, which acceptance shall not be unreasonably withheld.
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“Outstanding,” when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except Securities:
(1) previously canceled by the Trustee or delivered to the Trustee for cancellation;
(2) for the payment or redemption of which money in the necessary amount has been previously deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided, however, that if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture; and
(3) which have been paid in exchange for or in lieu of other Securities which have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company.
“Paying Agent” has the meaning specified in Section 2.5.
“Person” means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, estate, unincorporated organization or government or any agency or political subdivision thereof.
“Permitted Liens” shall mean (a) the Security Interest, (b) the liens granted to the First Lien Agent pursuant to the First Lien Security Documents, (c) deposits or pledges to secure payment of workers’ compensation, unemployment insurance, pensions or other social security obligations, in the ordinary course of business of the Company and its Subsidiaries; (d) Liens for taxes, fees, assessments and governmental charges not delinquent, other than those being contested in good faith by appropriate proceeding, and as long as the Company’s or such Subsidiary’s title to its property is not materially adversely affected, its use of such property in the ordinary course of business is not materially interfered with and adequate reserves with respect thereto have been set aside on the Company’s or such Subsidiary’s books in accordance with GAAP; (e) Liens of carriers, warehousemen, mechanics and materialmen, and other like Liens arising in the ordinary course of busines, for sums not due; (f) the interests of any licensee under any intellectual property license agreement entered into in the ordinary course of business; and (g) Liens incurred or deposits or pledges made or given in connection with, or to secure payment of, indemnity, performance or other similar bonds in an amount not to exceed $500,000; and (g) the interest of any lessor under any Capital Lease entered into after the date hereof or Liens securing Purchase Money Debt acquired after the date hereof, provided that (i) the Indebtedness secured is permitted herein and (ii) such Liens are limited to the property acquired and do not secure Indebtedness other than the related Capitalized Lease Obligations or the purchase price of such property.
“Permitted Refinancing” means with respect to any Person, any modification, refinancing, refunding, renewal or extension of any Indebtedness of such Person; provided that (a) the principal amount (or accreted value, if applicable) thereof does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness so modified, refinanced, refunded, renewed or extended (the “Refinanced Indebtedness”) except by an amount equal to unpaid accrued interest and premium thereon plus other reasonable amounts paid, and fees and expenses reasonably incurred, in connection with such modification, refinancing, refunding, renewal or extension, (b) such modification, refinancing, refunding, renewal or extension has a final maturity date equal to or later than the final maturity date of the Refinanced Indebtedness, and (c) the lenders thereunder either assume the Intercreditor Agreement or enter into an intercreditor agreement on terms no less favorable to the Holders of the Securities.
“Physical Securities” means Securities issued in definitive, fully registered form without interest coupons, substantially in the form of Exhibit A hereto, with the applicable legendsadjustment as provided in Section 2.3.15.1.
“Place of Conversion” means any city in which any Conversion Agent is located.
“Place of Payment” means any city in which any Paying Agent is located.
“Pledge Agreement” shall mean the pledge agreement, dated as of the date hereof, delivered by the Company to the Collateral Agent.
“Predecessor Security” of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 2.12 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shallAn Award may be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security.
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“Purchase Money Debt” means all indebtedness, obligations and other liabilities (contingent or otherwise) incurred in connection with the acquisition of any property or assets (whether or not the recourse of the lender is to the whole of the assets of the borrower or to only a portion thereof), other than any account payable or other accrued current liability or obligation to trade creditors incurred in the ordinary course of business in connection with the obtaining of materials.
“Purchased Shares” has the meaning set forth in Section 12.4(f).
“QIB” means a “qualified institutional buyer” as defined in Rule 144A.
“Record Date” means either a Regular Record Date or a Special Record Date, as the case may be; provided that, for purposes of Section 12.4, Record Date has the meaning specified in 12.4(g).
“Redemption Date,” when used with respectgranted to any Security to be redeemed, means the date fixed for such redemption byemployee, officer or pursuant to this Indenture.
“Redemption Price,” when used with respect to any Security to be redeemed, means 100.0% of the principal amount of such Security to be redeemed pursuant to this Indenture.
“Reference Dealer” means a dealer engaged in the trading of convertible securities.
“Reference Period” has the meaning set forth in Section 12.4(d).
“Register” has the meaning specified in Section 2.5.
“Registrar” has the meaning specified in Section 2.5.
“Regular Record Date” for the interest on the Securities payable means the March 15 (whether or not a Business Day) next preceding an Interest Payment Date on April 1 and the September 15 (whether or not a Business Day) next preceding an Interest Payment Date on October 1.
“Regulation S” means Regulation S under the Securities Act.
“Repurchase Date” has the meaning specified in Section 11.1(a).
“Repurchase Event” has the meaning specified in Section 11.1(a).
“Repurchase Event Notice” has the meaning specified in Section 11.3.
“Repurchase Event Purchase Notice” has the meaning specified in Section 11.3.
“Repurchase Price” has the meaning specified in Section 11.1(a).
“Repurchase Right” has the meaning specified in Section 11.1(a).
“Responsible Officer,” when used with respect to the Trustee, means any officer in the Corporate Trust Office of the Trustee and also means, with respect to a particular corporate trust matter, any other officer of the Trustee whom such matter is referred because of such officer’s knowledge of and familiarity with the particular subject.
“Restricted Payments” means (a) all dividends (other than from a wholly-owned Subsidiary to the Company) or other distributions with respect to the equity interests of the Company or any Subsidiary of any nature, and all payments on any class of equity interests issued by the Company or a Subsidiary, whether authorized or outstanding on the date hereof, or at any time thereafter and any redemptions or purchase of, or distribution in respect of any of the foregoing and (b) any payments in respect of any Indebtedness incurred pursuant to Section 9.9(f).
“Rule 144” means Rule 144 under the Securities Act (including any successor rule thereof), as the same may be amended from time to time.
“Rule 144A” means Rule 144A under the Securities Act (including any successor rule thereof), as the same may be amended from time to time.
“Second Lien Security Documents” shall mean the Company Security Agreement, the Pledge Agreement, the Collateral Assignment of IP, the Guaranty and the Guarantor Security Agreement.
“SEC” means the Securities and Exchange Commission.
“Securities” has the meaning ascribed to it in the first paragraph under the caption “Recitals of the Company.”
“Securities Act” means the Securities Act of 1933, as amended.
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“Security Interest” has the meaning assigned to such term in the Second Lien Security Documents.
“Senior Secured Indebtedness” means Indebtedness of (a) the Company for borrowed money or evidenced by an instrument for the payment of money under a Credit Facility or (b) another Person for borrowed money or evidenced by an instrument for the payment of money which has been assumed or guaranteed by the Company under a Credit Facility, which by its terms is to be secured by a first priority Lien on all or substantially all of the assetsdirector of the Company or a pledge byRelated Company whom the Committee from time to time selects. An Award may also be granted to any consultant, agent, advisor or independent contractor for bona fide services rendered to the Company or any Related Company that (a) are not in connection with the offer and sale of the capital stock of any of its Subsidiaries.
“Significant Subsidiary” means any Subsidiary which isCompany's securities in a “significant subsidiary” within the meaning of Rule 405 under the Securities Act.
“Special Record Date” for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 2.17.
“Stated Maturity” means the date specified in any Security as the fixed date for the payment of principal on such Security or on which an installment of interest on such Security is duecapital-raising transaction and payable.
“Stock Price” has the meaning specified in Section 13.2(c).
“Stock Price Cap” has the meaning specified in Section 13.2(b).
“Stock Price Threshold” has the meaning specified in Section 13.2(b).
“Subsidiary” means a corporation more than 50% of the outstanding voting stock of which is owned,(b) do not directly or indirectly by the Companypromote or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. For the purposes of this definition only, “voting stock” means stock which ordinarily has voting powermaintain a market for the electionCompany's securities.
6.1 Form, Grant and Settlement of directors, whether at all timesAwards
The Committee shall have the authority, in its sole discretion, to determine the type or only so long as no senior classtypes of stock has such voting power by reason of any contingency.
“TIA” meansAwards to be granted under the Trust Indenture Act of 1939, as amended (15 U.S. Code Section 77aaa-77bbbb), as in effect on the date of this Indenture; provided, however, that in the event the TIA is amended after such date, “TIA” means, to the extent such amendment is applicable to this Indenture, the Trust Indenture Act of 1939, as so amended, or any successor statute.
“Trading Day” means:
(1) if the applicable security is listed or admitted for trading on the New York Stock Exchange or another national security exchange, a day on which the New York Stock Exchange or such other national security exchange is open for business;
(2) if the applicable security is quoted on the Nasdaq National Market, a day on which tradesPlan. Such Awards may be made thereon;granted either alone or
(3) if the applicable security is not so listed, admitted for trading in addition to or quoted,in tandem with any day other than a Saturday or Sunday or a day on which banking institutions in the Statetype of New York are authorized or obligated by law or executive order to close.
“Trading Price” of a security on any date of determination means:
(1) the closing sale price (or, if no closing sale price is reported, the last reported sale price) of such security (regular day) on the New York Stock Exchange on such date;
(2) if such security is not listed for trading on the New York Stock Exchange on any such date, the closing sale price as reported in the composite transactions for the principal U.S. securities exchange on which such security is so listed;
(3) if such security is not so listed on a U.S. national or regional securities exchange, the closing sale price as reported by the Nasdaq National Market;
(4) if such security is not so reported, the last price quoted by Interactive Data Corporation for such security or, if Interactive Data Corporation is not quoting such price, a similar quotation service selected by the Company;
(5) if such security is not so quoted, the average of the mid-point of the last bid and ask prices for such security from at least two dealers recognized as market-makers for such security; or
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(6) if such security is not so quoted, the average of the last bid and ask prices for such security from a Reference Dealer.
“Transfer Agent” means any Person, whichAward. Any Award settlement may be the Company, authorized by the Companysubject to exchange or register the transfer of Securities.
“Trigger Event” has the meaning specified in Section 12.4(d).
“Trustee” means the Person namedsuch conditions, restrictions and contingencies as the “Trustee” inCommittee shall determine.
6.2 Evidence of Awards
Awards granted under the first paragraph of this instrument until a successor TrusteePlan shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Trustee” shall mean such successor Trustee.
“U.S. Government Obligations” means: (1) direct obligations of the United States of America for the payment of which the full faith and credit of the United States of America is pledged or (2) obligations of a person controlled or supervised by and acting as an agency or instrumentality of the United States of America, the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America and which in either case, are non-callable at the option of the Company thereof.
“Vice President,” when used with respect to the Company, means any vice president, whether or not designatedbe evidenced by a number or a word or words added before or after the title “vice president.”
Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference inwritten, including an electronic, instrument that shall contain such terms, conditions, limitations and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
“indenture securities” means the Securities;
“indenture security holder” means a Holder;
“indenture to be qualified” means this Indenture;
“indenture trustee” or “institutional trustee” means the Trustee; and
“obligor” on the Securities means the Company and any other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions.
For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as wellrestrictions as the singular;
(2) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with accounting principles generally accepted in the United States prevailing at the time of any relevant computation hereunder;Committee shall deem advisable and
(3) the words “herein,” “hereof” and “hereunder” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision.
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6.3 Dividends and Distributions
Participants may, if the Committee so determines, be credited with dividends paid with respect to shares of this Indenture, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any securities exchange or automated quotation system on which the Securities may be listed or designated for issuance, or to conform to usage.
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Members holding the Securities evidenced thereby. The aggregate principal amount of the Global Securities may from time to time be increased or decreased by adjustments made on the records of the Trustee, as Custodian, and of the Depositary or its nominee, as hereinafter provided.
Each Global Security shall bear the following legend on the face thereof:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE REFERRED TO HEREIN. THIS GLOBAL SECURITY MAY NOT BE EXCHANGED OR TRANSFERRED, IN WHOLE OR IN PART, FOR A SECURITY REGISTERED IN THE NAME OF ANY PERSON OTHER THAN DTC OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES SET FORTH IN THE INDENTURE. BENEFICIAL INTERESTS IN THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT IN ACCORDANCE WITH THE INDENTURE.
Physical Securities will also bear a legend substantially in the following form:
THIS SECURITY WILL NOT BE ACCEPTED IN EXCHANGE FOR A BENEFICIAL INTEREST IN A GLOBAL SECURITY UNLESS THE HOLDER OF THIS SECURITY, SUBSEQUENT TO SUCH EXCHANGE, WILL HOLD NO DEBENTURES.
Two Officers of the Company shall execute the Securities on behalf of the Company by manual or facsimile signature. If an Officer of the Company whose signature is on a Security no longer holds that office at the time the Security is authenticated, the Security shall be valid nevertheless.
At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with such Company Order shall authenticate and deliver such Securities as in this Indenture provided and not otherwise.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture, or be valid or obligatory for any purpose, unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by or on behalf of the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder.
The Trustee may appoint an authenticating agent or agents reasonably acceptable to the Company with respect to the Securities. Unless limited by the terms of such appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent.
The Company shall maintain an office or agency where Securities may be presented for registration of transfer or for exchange (the “Registrar”) and an office or agency where Securities may be presented for payment (the “Paying Agent”). The Registrar shall keep a register of the Securities (the “Register”) and of their transfer and exchange. The Company may appoint one or more co-Registrars and one or more additional Paying Agents for the Securities. The term “Paying Agent” includes any additional paying agent and the term “Registrar” includes any additional registrar. The Company may change any Paying Agent or Registrar without prior notice to any Holder.
The Company will cause each Paying Agent (other than the Trustee) to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will:
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The Company shall give prompt written notice to the Trustee of the name and address of any Agent who is not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any Affiliate of the Company may act as Paying Agent or Registrar; provided, however, that none of the Company, its subsidiaries or the Affiliates of the foregoing shall act:
The Company hereby initially appoints the Trustee as Registrar and Paying Agent for the Securities.
Not later than 11:00 a.m. (New York City time) on each due date of the principal, premium, if any, and interest on any Securities, the Company shall deposit with one or more Paying Agents money in immediately available funds in an aggregate amount sufficient to pay the principal, premium, if any, and interest due on such date. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company) shall have no further liability for the money so paid over to the Trustee.
If the Company shall act as a Paying Agent, it shall, prior to or on each due date of the principal of and premium, if any, or interest on any of the Securities, segregate and hold in trust for the benefit of the Holders a sum sufficient with monies held by all other Paying Agents, to pay the principal and premium, if any, or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as provided in this Indenture, and shall promptly notify the Trustee of its action or failure to act.
The Securities are issuable only in registered form. A Holder may transfer a Security only by written application to the Registrar stating the name of the proposed transferee and otherwise complying with the terms of this Indenture. No such transfer shall be effected until, and such transferee shall succeed to the rights of a Holder only upon, final acceptance and registration of the transfer by the Registrar in the Register. Furthermore, any Holder of a Global Security shall, by acceptance of such Global Security, agree that transfers of beneficial interests in such Global Security may be effected only through a book-entry system maintained by the Holder of such Global Security (or its agent) and that ownership of a beneficial interest in the Global Security shall be required to be reflected in a book-entry.
When Securities are presented to the Registrar with a request to register the transfer or to exchange them for an equal aggregate principal amount of Securities of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its requirements for such transactions are met (including that such Securities are duly endorsed or accompanied by a written instrument of transfer duly executed by the Holder thereof or by an attorney who is authorized in writing to act on behalf of the Holder). Subject to Section 2.4, to permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Securities at the Registrar’s request. No service charge shall be made for any registration of transfer or exchange or redemption of the Securities, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or other similar governmental charge payable upon exchanges pursuant to Section 2.14, 7.5 or 10.6).
Neither the Company nor the Registrar shall be required to exchange or register a transfer of any Securities:
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Members of, or participants in, the Depositary (“Agent Members”) shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depositary, or the Trustee as its custodian, or under such Global Security, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Security for all purposes whatsoever.Stock Units. Notwithstanding the foregoing, nothing contained herein shall prevent the Company, the Trustee or any agent of the Company or Trustee from giving effectright to any written certification, proxydividends or other authorization furnished bydividend equivalents declared and paid on the Depositarynumber of shares underlying an Option or impair, as between the Depositary and the Agent Members, the operation of customary practices governinga Stock Appreciation Right may not be contingent, directly or indirectly on the exercise of the rightsOption or Stock Appreciation Right, and must comply with or qualify for an exemption under Section 409A. Also notwithstanding the foregoing, the right to any dividends or dividend equivalents declared and paid on Restricted Stock must (i) be paid at the same time they are paid to other shareholders and (ii) comply with or qualify for an exemption under Section 409A.
7.1 Grant of a Holder of any Security.Options
7.2 Option Exercise Price
Options shall be granted with an exercise price per share not less than 100% of the Securities.
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The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders and shall otherwise comply with Section 312(a) of the TIA. If the Trustee is not the Registrar, the Company shall furnish to the Trustee prior to or on each Interest Payment Date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Holders relating to such Interest Payment Date or request, as the case may be.
The Company, the Trustee and any agent of the Company or the Trustee may treat the Holder as the owner of such Security for the purpose of receiving payment of principal of and premium, if any, and interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and notwithstanding any notice of ownership or writing thereon, or any notice of previous loss or theft or other interest therein.
If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding.
If there is delivered to the Company and the Trustee:
In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion, but subject to any conversion rights, may, instead of issuing a new Security, pay such Security, upon satisfaction of the condition set forth in the preceding paragraph.
Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section 2.12 in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and such new Security shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder.
The provisions of this Section 2.12 are exclusive and shall preclude (to the extent lawful) all other rights and remediesCode with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities.
In determining whether the Holders of the requisite principal amount of Outstanding Securities are present at a meeting of Holders for quorum purposes or have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any Affiliate of the Company shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such determination as to the presence of a quorum or upon any such request, demand, authorization, direction, notice, consent or waiver, only such Securities of which the Trustee has received written notice and are so owned shall be so disregarded.
Pending the preparation of Securities in definitive form, the Company may execute and the Trustee shall, upon written request of the Company, authenticate and deliver temporary Securities (printed or lithographed). Temporary Securities shall be issuable in any authorized denomination, and substantially in the form of the Securities in definitive form but with such omissions, insertions and variations as may be appropriate for temporary Securities, all as may be determined
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by the Company. Every such temporary Security shall be executed by the Company and authenticated by the Trustee upon the same conditions and in substantially the same manner, and with the same effect, as the Securities in definitive form. Without unreasonable delay, the Company will execute and deliver to the Trustee Securities in definitive form (other than in the case of Securities in global form) and thereupon any or all temporary Securities (other than any such Securities in global form) may be surrendered in exchange therefor, at each office or agency maintained by the Company pursuant to Section 9.2 and the Trustee shall authenticate and deliver in exchange for such temporary Securities an equal aggregate principal amount of Securities in definitive form. Such exchange shall be made by the Company at its own expense and without any charge therefor. Until so exchanged, the temporary Securities shall in all respects be entitled to the same benefits and subject to the same limitations under this Indenture as Securities in definitive form authenticated and delivered hereunder.
All securities surrendered for payment, redemption, repurchase, conversion, registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee. All Securities so delivered shall be canceled promptly by the Trustee, and no Securities shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Indenture. The Trustee shall destroy canceled Securities and, after such destruction, shall deliver a certificate of such destruction to the Company. If the Company shall acquire any of the Securities, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Securities unless the same are delivered to the Trustee for cancellation.
The Company in issuing the Securities may use “CUSIP” numbers (if then generally in use), and the Trustee shall use CUSIP numbers in notices of redemption or exchange as a convenience to Holders; provided that any such notice shall state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any such notice and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company shall promptly notify the Trustee of any change in the CUSIP numbers.
If the Company fails to make a payment of interest on any Security when due and payable (“Defaulted Interest”), it shall pay such Defaulted Interest plus (to the extent lawful) any interest payable on the Defaulted Interest, in any lawful manner. It may elect to pay such Defaulted Interest, plus any such interest payable on it, to the Persons who are Holders of such Securities on which the interest is due on a subsequent Special Record Date. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each such Security. The Company shall fix any such Special Record Date and payment date for such payment. At least 15 days before any such Special Record Date, the Company shall mail to Holders affected thereby a notice that states the Special Record Date, the Interest Payment Date, and amount of such interest to be paid.
SATISFACTION AND DISCHARGE
When:
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if, in the case of either clause (3) or (4), the Company shall also pay or cause to be paid all other sums payable hereunder by the Company, then this Indenture shall cease to be of further effect (except as to: (i) remaining rights of registration of transfer, substitution and exchange and conversion of Securities; (ii) rights hereunder of Holders to receive payments of principal of and premium, if any, and interest on, the Securities and the other rights, duties and obligations of Holders, as beneficiaries hereof with respect to the amounts, if any, so deposited with the Trustee; and (iii) the rights, obligations and immunities of the Trustee hereunder) and the Trustee, on demand of the Company accompanied by an Officers’ Certificate and an Opinion of Counsel and at the cost and expense of the Company, shall execute proper instruments acknowledging satisfaction of and discharging this Indenture; provided, however, that the Company shall reimburse the Trustee for all amounts due the Trustee under Section 5.8 and for any costs or expenses thereafter reasonably and properly incurred by the Trustee and to compensate the Trustee for any services thereafter reasonably and properly rendered by the Trustee in connection with this Indenture or the Securities.
Section 3.2 Deposited Monies to be Held in Trust.
Subject to Section 3.3, all monies deposited with the Trustee pursuant to Section 3.1 shall be held in trust and applied by it to the payment, notwithstanding the provisions of Article 14, either directly or through any Paying Agent (including the Company if acting as its own Paying Agent), to the Holders of the particular Securities for the payment or redemption of which such monies have been deposited with the Trustee, of all sums due and to become due thereon for principal, premium, if any, and interest. All monies deposited with the Trustee pursuant to Section 3.1 (and held by it or any Paying Agent) for the payment of Securities subsequently converted shall be returned to the Company upon the earlier of the request of the Company and the date on which there are no Securities outstanding.
The Trustee and the Paying Agent shall pay to the Company any money held by them for the payment of principal or premium, if any, or interest that remains unclaimed for two years after the date upon which such payment shall have become due. After payment to the Company, Holders entitled to the money must look to the Company for payment as general creditors unless an applicable abandoned property law designates another Person, and all liability of the Trustee and such Paying Agent with respect to such money shall cease.
DEFAULTS AND REMEDIES
An “Event of Default” with respect to the Securities occurs when any of the following occurs (whatever the reason for such Event of Default and whether it shall be occasioned by the provisions of Article 14 or be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):
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Section 4.2 Acceleration of Maturity; Rescission and Annulment.
If an Event of Default with respect to Outstanding Securities occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the Outstanding Securities, by written notice to the Company, may declare due and payable 100% of the principal amount of all Outstanding Securities plus any accrued and unpaid interest to the date of payment. Upon a declaration of acceleration, such principal and accrued and unpaid interest to the date of payment shall be immediately due and payable.
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The Holders either (a) through notice to the Trustee of not less than a majority in aggregate principal amount of the Outstanding Securities, or (b) by the adoption of a resolution, at a meeting of Holders of the Outstanding Securities at which a quorum is present, by the Holders of at least a majority in aggregate principal amount of the Outstanding Securities represented at such meeting, may, on behalf of the Holders of all of the Securities, rescind and annul an acceleration and its consequences if:
provided, however, that in the event such declaration of acceleration has been made based on the existence of an Event of Default under Section 4.1(g) and the default with respect to Indebtedness for money borrowed which gave rise to such Event of Default has been remedied, cured or waived, then, without any further action by the Holders, such declaration of acceleration shall be rescinded automatically and the consequences of such declaration shall be annulled. No such rescission or annulment shall affect any subsequent Default or impair any right consequent thereon.
If an Event of Default with respect to Outstanding Securities occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of or interest on the Securities or to enforce the performance of any provision of the Securities.
The Trustee may maintain a proceeding in which it may prosecute and enforce all rights of action and claims under this Indenture or the Securities, even if it does not possess any of the Securities or does not produce any of them in the proceeding.
Section 4.4 Waiver of Past Defaults.
The Holders, either (a through the written consent of not less than a majority in aggregate principal amount of the Outstanding Securities, or (b) by the adoption of a resolution, at a meeting of Holders of the Outstanding Securities at which a quorum is present, by the Holders of at least a majority in aggregate principal amount of the Outstanding Securities represented at such meeting, may, on behalf of the Holders of all of the Securities, waive an existing Default or Event of Default, except a Default or Event of Default:
Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; provided, however, that no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon.
Section 4.5 Control by Majority.
The Holders of a majority in aggregate principal amount of the Outstanding Securities (or such lesser amount as shall have acted at a meeting pursuant to the provisions of this Indenture) shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that:
The Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction.
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Section 4.6 Limitation on Suit.
No Holder of any Security shall have any right to pursue any remedy with respect to this Indenture or the Securities (including, instituting any proceeding, judicial or otherwise, with respect to this Indenture or for the appointment of a receiver or trustee) unless:
provided, however, that no one or more of such Holders may use this Indenture to prejudice the rights of another Holder or to obtain preference or priority over another Holder.
Section 4.7 Unconditional Rights of Holders to Receive Payment and to Convert.
Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of and premium (including, without limitation, the Make-Whole-Amount and the Make-Whole Premium), if any, and interest on such Security on the Stated Maturity expressed in such Security (or, in the case of redemption, on the Redemption Date, or in the case of the exercise of a Repurchase Right, on the Repurchase Date) and to convert such Security in accordance with Article 12, and to bring an action for the enforcement of any such payment on or after such respective dates and such right to convert, and such rights shall not be impaired or affected without the consent of such Holder.
Section 4.8 Collection of Indebtedness and Suits for Enforcement by the Trustee.
The Company covenants that if:
the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable (as expressed therein or as a result of any acceleration effected pursuant to Section 4.2) on such Securities for principal and premium, if any, and interest and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal and premium, if any, and on any overdue interest, calculated using the Interest Rate, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company and collect the monies adjudged or decreed to be payable in the manner provided by law out of the property of the Company, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.
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Section 4.9 Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or the property of the Company or its creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise:
and any Custodian in any such judicial proceedings is hereby authorized by each Holder of Securities to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders of Securities, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and any other amounts due the Trustee under Section 5.8.
Nothing contained herein shall be deemed to authorize the Trustee to authorize or consent to or accept, or adopt on behalf of any Holder of a Security, any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder of a Security in any such proceeding.
Section 4.10 Restoration of Rights and Remedies.
If the Trustee or any Holder of a Security has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders of Securities shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted.
Section 4.11 Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 2.12, no right or remedy conferred in this Indenture upon or reserved to the Trustee or to the Holders of Securities is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.
Section 4.12 Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or any acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders of Securities may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders of Securities, as the case may be.
Section 4.13 Application of Money Collected.
Subject to Article 14, any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal or premium, if any, or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee;
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SECOND: To the payment of the amounts then due and unpaid for principal of and premium, if any, and interest on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal and premium, if any, and interest, respectively; and
THIRD: Any remaining amounts shall be repaid to the Company.
Section 4.14 Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by such Holder’s acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys’ fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Company, to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in aggregate principal amount of the Outstanding Securities, or to any suit instituted by any Holder of any Security for the enforcement of the payment of the principal of or premium, if any, or interest on any Security on or after the Stated Maturity expressed in such Security (or, in the case of redemption or exercise of a Repurchase Right, on or after the Redemption Date) or for the enforcement of the right to convert any Security in accordance with Article 12.
Section 4.15 Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim to take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.
THE TRUSTEE
Section 5.1 Certain Duties and Responsibilities.
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Section 5.2 Certain Rights of Trustee.
Subject to the provisions of Section 5.1 and subject to Section 315(a) through (d) of the TIA:
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Section 5.3 Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest (as such term is defined in Section 310(b) of the TIA), it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as trustee (to the extent permitted under Section 310(b) of the TIA) or resign. Any agent may do the same with like rights and duties. The Trustee is also subject to Sections 5.11 and 5.12.
Section 5.4 Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise expressly agreed with the Company.
Section 5.5 Trustee’s Disclaimer.
The recitals contained herein and in the Securities (except for those in the certificate of authentication) shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity, sufficiency or priority of this Indenture or of the Securities. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof.
Section 5.6 Notice of Defaults.
Within 90 days after the occurrence of any Default or Event of Default hereunder of which the Trustee has received written notice, the Trustee shall give notice to Holders pursuant to Section 15.2, unless such Default or Event of Default shall have been cured or waived; provided, however, that, except in the case of a Default or EventSubstitute Awards.
7.3 Term of Default in the payment of the principal of or premium, if any, or interest, or in the payment of any redemption or repurchase obligation on any Security, the Trustee shall be protected in withholding such notice if and so long as Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interest of the Holders.Options
Section 5.7 Reports by Trustee to Holders.
The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required by Section 313 of the TIA at the times and in the manner provided by the TIA.
A copy of each report at the time of its mailing to Holders shall be filed with the SEC, if required, and each stock exchange, if any, on which the Securities are listed. The Company shall promptly notify the Trustee when the Securities become listed on any stock exchange.
Section 5.8 Compensation and Indemnification.
The Company covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, reasonable compensation (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) and the Company covenants and agrees to pay or reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by or on behalf of it in accordance with any of the provisions of this Indenture (including the reasonable compensation and the expenses and disbursements of its counsel and of all agents and other persons not regularly in its employ), except to the extent that any such expense, disbursement or advance is due to its negligence or bad faith. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 4.1, the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. The Company also covenants to indemnify the Trustee and its officers, directors, employees and agents for, and to hold such Persons harmless against, any loss, liability or expense incurred by them, arising out of or in connection with the acceptance or administration of this Indenture or the trusts hereunder or the performance of their duties hereunder, including the costs and expenses of defending themselves against or investigating any claim of liability in the premises, except to the extent that any such loss, liability or expense was due to the negligence or willful misconduct of such Persons. The obligations of the Company under this Section 5.8 to compensate and indemnify the Trustee and its officers, directors, employees and agents and to pay or reimburse such Persons for expenses, disbursements and advances shall constitute additional indebtedness hereunder and shall survive the satisfaction and discharge of this Indenture or the earlier resignation or removal of the Trustee. Such additional indebtedness shall be a lien prior to that of the Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the Holders of particular Securities, and the Securities are hereby
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subordinated to such senior claim. “Trustee” for purposes of this Section 5.8 shall include any predecessor Trustee, but the negligence or willful misconduct of any Trustee shall not affect the indemnification of any other Trustee.
Section 5.9 Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee’s acceptance of appointment as provided in this Section 5.9.
The Trustee may resign and be discharged from the trust hereby created by so notifying the Company in writing. The Holders of at least a majority in aggregate principal amount of Outstanding Securities may remove the Trustee by so notifying the Trustee and the Company in writing. The Company must remove the Trustee if:
If the Trustee resigns or is removed or if a vacancy exists in the office of the Trustee for any reason, the Company shall promptly appoint a successor Trustee. The Trustee shall be entitled to payment of its fees and reimbursement of its expenses while acting as Trustee. Within one year after the successor Trustee takes office, the Holders of at least a majority in aggregate principal amount of Outstanding Securities may appoint a successor Trustee to replace the successor Trustee appointed by the Company.
Any Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee if the Trustee fails to comply with Section 5.11.
If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation or removal, the resigning or removed Trustee, as the case may be, may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The Company shall issue a notice of the successor Trustee’s succession to the Holders. Upon payment of its charges, the retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject nevertheless to its lien, if any, provided for in Section 5.8. Notwithstanding replacement of the Trustee pursuant to this Section 5.9, the Company’s obligations under Section 5.8 shall continue for the benefit of the retiring Trustee with respect to expenses, losses and liabilities incurred by it prior to such replacement.
Section 5.10 Successor Trustee.
Subject to Section 5.11, if the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business (including the administration of this Indenture) to, another Person, corporation or national banking association, the successor entity without any further act shall be the successor Trustee as to the Securities.
Section 5.11 Corporate Trustee Required; Eligibility.
The Trustee shall at all times satisfy the requirements of Section 310(a)(1), (2) and (5) of the TIA. The Trustee shall at all times have (or, in the case of a corporation included in a bank holding company system, the related bank holding company shall at all times have), a combined capital and surplus of at least $25 million as set forth in its (or its related bank holding company’s) most recent published annual report of condition. The Trustee is subject to Section 310(b) of the TIA.
Section 5.12 Collection of Claims Against the Company.
The Trustee is subject to Section 311(a) of the TIA, excluding any creditor relationship listed in Section 311(b) of the TIA. A Trustee who has resigned or been removed shall be subject to Section 311(a) of the TIA to the extent indicated therein.
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The Company shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and the Company shall not permit any Person to consolidate with or merge into the Company or convey, transfer or lease its properties and assets substantially as an entirety to the Company, unless:
Upon any consolidation or merger by the Company with or into any other corporation or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety to any Person, in accordance with Section 6.1, the successor corporation formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor corporation had been named as the Company herein, and shall expressly assume all obligations of the Company under the Indenture and the other Indenture Documents in a manner acceptable to the Holders of the Securities in their sole discretion, and thereafter, except in the case of a lease to another Person, the predecessor corporation shall be relieved of all obligations and covenants under this Indenture and the Securities (provided that all assets securing the Securities shall be transferred to the successor corporation in a manner acceptable to the Holders of the Securities in their sole discretion).
Without the consent of any Holders of Securities, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may amend this Indenture and the Securities to:
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Except as provided below in this Section 7.2, this Indenture or the Securities may be amended or supplemented, and noncompliance in any particular instance with any provision of this Indenture or the Securities may be waived, in each case (i) with the written consent of the Holders of at least a majority in aggregate principal amount of the Outstanding Securities or (ii) by the adoption of a resolution, at a meeting of Holders of the Outstanding Securities at which a quorum is present, by the Holders of a majority in aggregate principal amount of the Outstanding Securities represented at such meeting.
Without the written consent or the affirmative vote of each Holder of Securities affected thereby, an amendment or waiver under this Section 7.2 may not:
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It shall not be necessary for any Act of Holders of Securities under this Section 7.2 to approve the particular form of any proposal supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof.
Every amendment to this Indenture or the Securities shall be set forth in a supplemental indenture that complies with the TIA as then in effect.
Until an amendment, supplement or waiver becomes effective, a written consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder’s Security, even if notation of the consent is not made on any Security; provided, however, that unless a record date shall have been established, any such Holder or subsequent Holder may revoke the consent as to its Security or portion of a Security if the Trustee receives written notice of revocation before the date the amendment, supplement or waiver becomes effective.
An amendment, supplement or waiver becomes effective on receipt by the Trustee of written consents from or affirmative votes by, as the case may be, the Holders of the requisite percentage of aggregate principal amount of the Outstanding Securities, and thereafter shall bind every Holder of Securities; provided, however, if the amendment, supplement or waiver makes a change described in any of the clauses (a) through (k) of Section 7.2, the amendment, supplement or waiver shall bind only each Holder of a Security which has consented to it or voted for it, as the case may be, and every subsequent Holder of a Security or portion of a Security that evidences the same indebtedness as the Security of the consenting or affirmatively voting Holder, as the case may be.
If an amendment, supplement or waiver changes the terms of a Security:
Failure to make the appropriate notation or issue a new Security shall not affect the validity and effect of such amendment, supplement or waiver.
The Trustee shall sign any amendment authorized pursuant to this Article 7 if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If the amendment does adversely affect the rights, duties, liabilities or immunities of the Trustee, the Trustee may but need not sign it. In signing or refusing to sign such amendment, the Trustee shall be entitled to receive and shall be fully protected in relying upon an Officers’ Certificate and an Opinion of Counsel as conclusive evidence that such amendment is authorized or permitted by this Indenture.
A meeting of Holders of Securities may be called at any time and from time to time pursuant to this Article to make, give or take any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be made, given or taken by Holders of Securities.
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To be entitled to vote at any meeting of Holders of Securities, a Person shall be (a) a Holder of one or more Outstanding Securities, or (b) a Person appointed by an instrument in writing as proxy for a Holder or Holders of one or more Outstanding Securities by such Holder or Holders. The only Persons who shall be entitled to be present or to speak at any meeting of Holders shall be the Persons entitled to vote at such meeting and their counsel, any representatives of the Trustee and its counsel and any representatives of the Company and its counsel.
The Persons entitled to vote a majority in principal amount of the Outstanding Securities shall constitute a quorum. In the absence of a quorum within 30 minutes of the time appointed for any such meeting, the meeting shall, if convened at the request of Holders of Securities, be dissolved. In any other case, the meeting may be adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such meeting. In the absence of a quorum at any such adjourned meeting, such adjourned meeting may be further adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such adjourned meeting. Notice of the reconvening of any adjourned meeting shall be given as provided in Section 8.2(a), except that such notice need be given only once and not less than five days prior to the date on which the meeting is scheduled to be reconvened. Notice of the reconvening of an adjourned meeting shall state expressly the percentage of the principal amount of the Outstanding Securities which shall constitute a quorum.
Subject to the foregoing, at the reconvening of any meeting adjourned for a lack of a quorum, the Persons entitled to vote 25% in principal amount of the Outstanding Securities at the time shall constitute a quorum for the taking of any action set forth in the notice of the original meeting.
At a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid, any resolution and all matters (except as limited by the proviso to Section 7.2) shall be effectively passed and decided if passed or decided by the Persons entitled to vote not less than a majority in principal amount of Outstanding Securities represented and voting at such meeting.
Any resolution passed or decisions taken at any meeting of Holders of Securities duly held in accordance with this Section shall be binding on all the Holders of Securities, whether or not present or represented at the meeting.
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The vote upon any resolution submitted to any meeting of Holders of Securities shall be by written ballots on which shall be subscribed the signatures of the Holders of Securities or of their representatives by proxy and the principal amounts and serial numbers of the Outstanding Securities held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record, at least in duplicate, of the proceedings of each meeting of Holders of Securities shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more Persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was given as provided in Section 8.2 and, if applicable, Section 8.4. Each copy shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one such copy shall be delivered to the Company and another to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated.
The Company will duly and punctually pay the principal of and premium, if any, and interest in respect of the Securitiesearlier termination in accordance with the terms of the SecuritiesPlan and this Indenture.the instrument evidencing the Option, the maximum term of an Option shall be ten years from the Grant Date. For Incentive Stock Options, the Option Term shall be as specified in Section 8.4.
7.4 Exercise of Options
(a) The Company will depositCommittee shall establish and set forth in each instrument that evidences an Option the time at which, or cause tothe installments in which, the Option shall vest and become exercisable, any of which provisions may be deposited with the Trustee as directedwaived or modified by the Trustee, no later thanCommittee at any time.
(b) To the day ofextent an Option has vested and become exercisable, the Stated Maturity of any Security or installment of interest, all payments so due.
The Company hereby appoints the Corporate Trust Office of U.S. Bank National Association and its affiliated office in The City of New York, where Securities may be:
and where notices and demands to or upon the Company in respect of the Securities and this IndentureOption may be served.
The Company may at any time andexercised in whole or from time to time varyin part by delivery to or terminateas directed or approved by the appointmentCompany of anya properly executed stock option exercise agreement or notice, in a form and in accordance with procedures established by the Committee, setting forth the number of shares with respect to which the Option is being exercised, the restrictions imposed on the shares purchased under such officeexercise agreement or appoint any additional offices for any or all of such purposes; provided, however, that until all of the Securities have been delivered to the Trustee for cancellation, or monies sufficient to pay the principal of and premium,notice, if any, and interest onsuch representations and agreements as may be required by the Securities have been made availableCommittee, accompanied by payment in full as described in Sections 7.5. An Option may be exercised only for paymentwhole shares and eithermay not be exercised for less than a reasonable number of shares at any one time, as determined by the Committee.
7.5 Payment of Exercise Price
The exercise price for shares purchased under an Option shall be paid or returnedin full to the Company pursuantby delivery of consideration equal to the provisionsproduct of Section 9.3,the Option exercise price and the number of shares
purchased. Such consideration must be paid before the Company will maintainissue the shares being purchased and must be in The Citya form or a combination of New York, an officeforms acceptable to the Committee for that purchase, which forms may include:
(a) cash;
(b) check or agency where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange, where Securities may be surrendered for conversion and where notices and demands to or uponwire transfer;
(c) having the Company in respectwithhold shares of Common Stock that would otherwise be issued on exercise of the Securities and this Indenture may be served. The Company will give prompt written noticeOption that have an aggregate Fair Market Value equal to the Trustee, and notice to the Holders in accordance with Section 15.2,aggregate exercise price of the appointmentshares being purchased under the Option;
(d) tendering (either actually or, termination of any such agents and of the location and any change in the location of any such office or agency.
If at any time the Company shall fail to maintain any such required office or agency in The City of New York, or shall fail to furnish the Trustee with the address thereof, presentations and surrenders may be made at, and notices and demands may be served on, the Corporate Trust Office of the Trustee.
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Subject to Article 6, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights (charter and statutory) and franchises; provided, however, that the Company shall not be required to preserve any such right or franchise if the Company determines that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders.
The Company will maintain and keep its properties and every part thereof in such repair, working order and condition, and make or cause to be made all such needful and proper repairs, renewals and replacements thereto, as in the judgment of the Company are necessary in the interests of the Company; provided, however, that nothing contained in this Section shall prevent the Company from selling, abandoning or otherwise disposing of any of its properties or discontinuing a part of its business from time to time if, in the judgment of the Company, such sale, abandonment, disposition or discontinuance is advisable and does not materially adversely affect the interests or business of the Company.
The Company will, and will cause any Significant Subsidiary to, promptly pay and discharge or cause to be paid and discharged all material taxes, assessments and governmental charges or levies lawfully imposed upon it or upon its income or profits or upon any of its property, real or personal, or upon any part thereof, as well as all material claims for labor, materials and supplies which, if unpaid, might by law become a lien or charge upon its property; provided, however, that neither the Company nor any Significant Subsidiary shall be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge, levy, or claim if the amount, applicability or validity thereof shall currently be contested in good faith by appropriate proceedings and if the Company or such Significant Subsidiary,so long as the case may be, shall have set aside on its books reserves deemed by it adequate with respect thereto.
(e) so long as the Company fails to comply with this provision and such failure remains uncured for a period of 60 days, the outstanding Securities shall accrue interest at a rate thatCommon Stock is 0.8% above the Interest Rate for the period beginning on the date on which the Company first failed to comply with this provision and ending on the date that the Company makes such filings with the SEC and delivers to the Trustee the reports requiredregistered under this provision; provided further, the Company shall not be required to deliver to the Trustee any materials for which the Company has sought and received confidential treatment by the SEC. The Company also shall comply with the other provisions of Section 314(a) of the TIA.
(f) such security was last acquired from the Company or an “affiliate” (as defined under Rule 144 under the Securities Act) of the Company.
The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year of the Company (which as of the date hereof is September 30), an Officers’ Certificate stating that in the course of the performance by the signers of their duties as Officers of the Company, they would normally have knowledge of any failure by the Company to comply with all conditions, or any Default by the Company with respect to any covenants, under this Indenture, and further stating whether or not they have knowledge of any such failure or Default and, if so, specifying each such failure or Default and the nature thereof. In the event an Officer of the Company comes to have actual knowledge of a Default, regardless of the date, the Company shall deliver an Officers’ Certificate to the Trustee specifying such Default and the nature and status thereof.
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The Company will not, and will not permit any of its Subsidiaries to, incur, create, issue, assume or suffer to exist any Indebtedness, except:
7.6 Effect of the premium for such insurance; and
The Company will not, and will not permit any of its Subsidiaries to, incur, create, assume or suffer to exist any Lien, or enter into, or make any commitment to enter into, any arrangement for the acquisition of property through a conditional sale, lease purchase or other title retention agreements, with respect to any property now owned or hereinafter acquired by the Company or Subsidiary, except for Permitted Liens.
(a) The Company will not, and will not permit any Subsidiary, to enter into any agreement, bond, note or other instrument (other than the First Lien Loan Agreement) with or for the benefit of any Person other than the Holders which would (a) prohibit the Company or such Subsidiary from granting, or otherwise limit the ability of the Company or such Subsidiary to grant, to the Collateral Agent, any Lien on any assets or properties of the Company or such Subsidiary, or (b) require the Company or such Subsidiary to grant a Lien to any other Person if the Company or such Subsidiary grants any Lien to the Collateral Agent. The Company will not permit any Subsidiary to place or allow any restriction, directly or indirectly, on the ability of such Subsidiary to (a) pay dividends or any distributions on or with respect to such Subsidiaries capital stock or (b) make loans or other cash payments to the Company.
The Company will not make any Restricted Payments; provided that, so long as no Default or Event of Default has occurred and is continuing hereunder:
(a) the Company may make Restricted Payments in an aggregate amount not to exceed $250,000 in any fiscal year;
(b) to the extent constituting Restricted Payments, the Company and its Subsidiaries may enter into transactions and make payments expressly permitted by the terms of this Indenture;
(c) the Company may satisfy any redemption or conversion of the Securities, and any payment of the Make-Whole Amount or the Make-Whole-Premium, in each case as required or permissible hereunder; and
(d) the Company and its Subsidiaries may repurchase or redeem equity interests upon exercise of stock options or warrants to the extent such equity interests constitute a portion of the exercise price of such options or warrants.
(a) If the Company or any Subsidiary, directly or indirectly, sells, assigns, leases, conveys, transfers or otherwise disposes of (whether in one transaction or series of transactions), including without limitation, any transfer by the
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Company to a Subsidiary (other than a Guarantor) or a Subsidiary to a Subsidiary (other than a Guarantor) any property (“Asset Sale”), the Company shall, upon receipt by the Company or such Subsidiary of any net cash proceeds of such Asset Sale, apply such proceeds as required in clause (b); provided, that the application in clause (b) shall not be required in connection with:
(i) dispositions of inventory, or used, work-out or surplus equipment, all in the ordinary course of business; and
(ii) Assets Sales for which the net cash proceeds do not exceed $5,000,000 in the aggregate.
(b) Any net cash proceeds received by the Company in excess of $5,000,000 in the aggregate (i) shall, if required under the terms of the First Lien Loan Agreement, prepay amounts outstanding under the First Lien Loan Agreement (provided that such prepayments permanently reduce the amounts available thereunder), and (ii) the CompanyCommittee shall establish and maintain a cash pool (the “Cash Pool”)set forth in each instrument that evidences an Option whether the Option shall continue to be exercisable, and the terms and conditions of such net cash proceeds. Uponexercise, after a Termination of Service, any of which provisions may be waived or modified by the receipt of proceeds which increase the Cash Pool to an amount greater than or equal to $10,000,000, the Company shall commence a tender offer for the Securities, in an aggregate amount equal to the Cash Pool,Committee at par no less than 75 days after the receipt of such proceeds.any time.
(b) If the closing sale priceexercise of the Common StockOption following a Participant's Termination of Service, but while the Option is at least 130% ofotherwise exercisable, would be prohibited solely because the Conversion Price then in effect for 20 out of the 30 Trading Days immediately after the Cash Pool exceeds $10,000,000, the Company will not be required to make the tender for the Securities hereunder, and the Company shall be entitled to 50% of the Cash Pool at such time.
The Company will not, nor will it permit any Subsidiary to enter into any transaction with an Affiliate (other than an Affiliate that is an obligor hereunder) of the Company, except upon fair and reasonable terms no less favorable than the Company, or such Subsidiary would obtain in a comparable arms-length transaction with a Person not an Affiliate.
The Company will pay when due, all taxes, assessments, governmental charges and levies imposed on it or its properties and all claims or demands of any kind which, if not paid, could result in the creation of a Lien on its property, other than in connection with taxes, assessments, governmental charges and levies being contested in good faith by appropriate proceeding, and as long as the Company’s or such Subsidiary’s title to its property is not materially adversely affected, its use of such property in the ordinary course of business is not materially interfered with and adequate reserves with respect thereto have been set aside on the Company’s or such Subsidiary’s books in accordance with GAAP.
The Company will not, and will not permit its Subsidiaries to, acquire for value, make, have or hold any Investments, except:
(a) On or prior to February 15, 2010, the authorized number of sharesissuance of Common Stock shall be increased such thatwould violate the number of authorized but unissued shares of Common Stock shall be sufficient for purposes of effecting the conversion of Securities pursuant to this Indenture (the “Capital Increase”) and the Company shall maintain such sufficient number of shares at all times. If the Capital Increase has not occurred by February 16, 2010, the Company shall pay on such date, and on the fifteenth day of each month thereafter to the Trustee, for the benefit of the Holders of the Securities, an amount in cash equal to 1% of the outstanding principal amount of the Securities until the Capital Increase occurs; provided, however, that if the Capital Increase has not occurred on or prior to February 15, 2011, the Holders of the Securities shall have the right, at the Holder’s option, to require the Company to repurchase for cash, and upon exercise of such right, the Company shall purchase all of such Holder’s Securities at a purchase price equal to value of (i) the as-converted amount of the shares that would have been issued to the Holder had the Capital Increaseoccurred and such Holder had exercised its
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conversion option plus (ii) the Make-Whole Amount that would have been applicable if such Holder had exercised its conversion right. The value and settlement of the as-converted amount of such shares will be determined pursuant to 12.12, as if Holders had elected to convert on the date Holders request payment pursuant to the Section, and the Company had elected to settle the conversion request in cash. Amounts payable under Section 13.1 shall be calculated as if the Holder had elected to convert and the Company elected to pay amounts due in cash.
(b) On or prior to February 15, 2010, the Company shall hold a shareholder meeting and have a shareholder vote to gain authorization for a reverse stock split of the Common Stock at a ratio to be determined by the Board of Directors (with a minimum ratio of 10:1), (the “Reverse Stock Split”).
The Company will not, and will not permit any Subsidiary to, make any material change in the nature of the business of the Company and such Subsidiary, as carried on at the date hereof.
Subsequent to the Capital Increase, the Company shall not enter into any transaction, or take any other action, that will require additional adjustment to the shares issuable upon conversion (including shares issuable pursuant to Section 13.2) such that the Company would require shareholder approval to authorize additional shares without having obtained prior stockholder approval of such increase. In addition, the Company will not make any election to pay converting Holders in stock in connection with a conversion between a Notice of Redemption and a Redemption Date or during a period in which a Holder can elect to use a Fundamental Change Conversion unless such election provides for available authorized shares sufficient to satisfy the conversion of each and every Holder electing to convert during such time period, assuming all Holders convert during such a period.
The Company will not, nor will permit any Subsidiary to, cause or permit (a) any funds in excess of $50,000 to be transferred to or maintained in any deposit, checking, brokerage, securities or other similar account maintained by the Company or any Subsidiary which is not a Foreign Subsidiary unless such account is subject to an account control agreement in form and substance satisfactory to the Collateral Agent or (b) the Foreign Subsidiaries to maintain funds in an aggregate amount in excess of (i) on or prior to August 23, 2011, $3,000,000 and (ii) on or after August 24, 2011, $5,000,000, in all deposit, checking, brokerage, securities and other similar accounts maintained by all Foreign Subsidiaries unless such accounts are subject to account control agreements in form and substance satisfactory to the Collateral Agent. For purposes of this Section 9.21, “Foreign Subsidiary” shall mean any corporation that is a foreign corporation, as defined in Section 7701(a)(5) of the Internal Revenue Code of 1986.
The Company represents and warrants to the Holders of the Securities the following:
SECTION 8. INCENTIVE STOCK OPTION LIMITATIONS
Notwithstanding any other provision of the Plan to the contrary, the terms and conditions of any Incentive Stock Options shall in addition comply in all respects with Section 422 of the Code, or any successor provision, and any applicable stockholder approval provisions, including, without limitation, under the rules and regulations thereunder.
SECTION 9. STOCK APPRECIATION RIGHTS
9.1 Grant of any exchange or automated quotation system on which any of the securities of the Company are listed or designated. None of the Company, its subsidiaries, their affiliates and any person acting on their behalf will take any action or steps referred to in the preceding sentence that would require registration of any of the Securities under the Securities Act;Stock Appreciation Rights
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The Company shall deliver to the Trustee a deposit account control agreement in form and substance reasonably satisfactory to the Trustee within 5 Business Days of the date hereof or such later date agreed to by the Trustee and the Holders of at least a majority in aggregate principal amount of the Outstanding Securities.
On or after October 30, 2011, the CompanyThe Committee may at its option, redeem the Securities in wholegrant Stock Appreciation Rights to Participants at any time on such terms and conditions as the Committee shall determine in its sole discretion. An SAR may be granted in tandem with an Option or in part from timealone ("freestanding"). The grant price of a tandem SAR shall be equal to time, on any date prior to Maturity, upon notice asthe exercise price of the related Option. The grant price of a freestanding SAR shall be established in
accordance with procedures for Options set forth in Section 10.4, at7.2. An SAR may be exercised upon such terms and conditions and for the Redemption Price plus any interest accrued and unpaidterm as the Committee determines in its sole discretion; provided, however, that, subject to but excluding, the Redemption Date, if the closing sale price of the Common Stock has been at least 130% of the Conversion Price then in effect for at least 20 Trading Days during any 30 consecutive Trading Day period ending on the day prior to the date of notice of redemption.
The Company may not redeem or provide notice of redemption of the Securities pursuant to Section 10.1 on any date that is (a) subsequent to the execution of any agreement that is reasonably likely to result in a Fundamental Change and (b) prior to 45 days after the occurrence of a Fundamental Change resulting from such agreement or the cancellation of such agreement.
If the Company elects to redeem Securities pursuant to the provisions of Section 10.1, it shall notify the Trustee at least 45 days (unless a shorter period is reasonably acceptable to the Trustee) prior to the intended Redemption Date of (i) such intended Redemption Date, (ii) the principal amount of Securities to be redeemed and (iii) the CUSIP numbers of the Securities to be redeemed.
If fewer than all the Securities are to be redeemed, the Trustee shall select the particular Securities to be redeemed in principal amounts of $1,000 or whole multiples of $1,000 from the Outstanding Securities by a method that complies with the requirements of any exchange on which the Securities are listed, or, if the Securities are not listed on an exchange, on a pro rata basis or by lot orearlier termination in accordance with any other method the Trustee considers fairterms of the Plan and appropriate. Securities and portions thereof that the Trustee selectsinstrument evidencing the SAR, the maximum term of a freestanding SAR shall be in amounts equal to the minimum authorized denominations for Securities to be redeemed or any integral multiple thereof.
If any Security selected for partial redemption is converted in part before termination of the conversion right with respect to the portion of the Security so selected, the converted portion of such Security shall be deemed to be the portion selected for redemption; provided, however, that, unless otherwise indicated by Sections 13.1 or 13.2 hereof, the Holder of such Security so converted and deemed redeemed shall not be entitled to any additional interest payment as a result of such deemed redemption than such Holder would have otherwise been entitled to receive upon conversion of such Security. Securities which have been converted during a selection of Securities to be redeemed may be treated by the Trustee as Outstanding for the purpose of such selection.
The Trustee shall promptly notify the Company and the Registrar in writing of the Securities selected for redemptionten years, and in the case of any Securities selecteda tandem SAR, (a) the term shall not exceed the term of the related Option and (b) the tandem SAR may be exercised for partial redemption,all or part of the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires, all provisions relatingshares subject to the redemptionrelated Option upon the surrender of Securities shall relate, in the case of any Securities redeemed orright to be redeemed only in part, toexercise the equivalent portion of the principal amountrelated Option, except that the tandem SAR may be exercised only with respect to the shares for which its related Option is then exercisable.
9.2 Payment of such Securities which has been or is to be redeemed.SAR Amount
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TableUpon the exercise of Contents
Notice of redemptionan SAR, a Participant shall be givenentitled to receive payment in an amount determined by multiplying: (a) the difference between the Fair Market Value of the Common Stock on the date of exercise over the grant price of the SAR by (b) the number of shares with respect to which the SAR is exercised. At the discretion of the Committee as set forth in the instrument evidencing the Award, the payment upon exercise of an SAR may be in cash, in shares, in some combination thereof or in any other manner providedapproved by the Committee in Section 15.2its sole discretion.
9.3 Waiver of Restrictions
The Committee, in its sole discretion, may waive any other terms, conditions or restrictions on any SAR under such circumstances and subject to such terms and conditions as the HoldersCommittee shall deem appropriate.
SECTION 10. STOCK AWARDS, RESTRICTED STOCK AND STOCK UNITS
10.1 Grant of SecuritiesStock Awards, Restricted Stock and Stock Units
The Committee may grant Stock Awards, Restricted Stock and Stock Units on such terms and conditions and subject to such repurchase or forfeiture restrictions, if any, which may be redeemed. Such noticebased on continuous service with the Company or a Related Company or the achievement of any performance goals, as the Committee shall determine in its sole discretion, which terms, conditions and restrictions shall be given not less than 20 nor more than 60 days priorset forth in the instrument evidencing the Award.
10.2 Vesting of Restricted Stock and Stock Units
Upon the satisfaction of any terms, conditions and restrictions prescribed with respect to Restricted Stock or Stock Units, or upon a Participant's release from any terms, conditions and restrictions of Restricted Stock or Stock Units, as determined by the intended Redemption Date.
All noticesCommittee (a) the shares of redemptionRestricted Stock covered by each Award of Restricted Stock shall state:
10.3 Waiver of Restrictions
The Committee, in its sole discretion, may waive the repurchase or forfeiture period and any other terms, conditions or restrictions on any Restricted Stock in lieuor Stock Unit under such circumstances and subject to such terms and conditions as the Committee shall deem appropriate.
SECTION 11. PERFORMANCE AWARDS
11.1 Performance Shares
The Committee may grant Awards of Performance Shares, designate the Participants to whom Performance Shares are to be awarded and determine the number of Performance Shares and the terms and conditions of each such Award. Performance Shares shall consist of a unit valued by reference to a designated number of shares of Common Stock, only (and, in the event that the Company has elected to settle all or a portionvalue of its conversion obligation in cash, the date on which the Cash Settlement Averaging Period will begin) and the places where such Securities may be surrendered for conversion;
The notice given shall specify the last date on which exchanges or transfers of Securities may be made pursuant to Section 2.7, and shall specify the serial numbers of Securities, if Physical Securities are selected for redemption, and the portions thereof called for redemption.
Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company’s request, by the Trustee in the name of and at the expense of the Company.
Notice of redemption having been given as provided in Section 10.4, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued and unpaid interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with such notice, such Security shall be paid by the Company at the Redemption Price; provided, however, the installments of interest on Securities whose Stated Maturity is prior to or on the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such on the relevant Record Date according to their terms and the provisions of Section 2.7.
If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal and premium, if any, shall, until paid, bear interest from the Redemption Date at the Interest Rate.
Prior to 11:00 a.m. (New York City time) on any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent an amount of money sufficient to pay the Redemption Price, and accrued and unpaid interest, in respect of all the Securities to be redeemed on that Redemption Date, other than any Securities called for redemption on that date which have been converted prior to the date of such deposit, and accrued and unpaid interest, if any, on such Securities.
If any Security called for redemption is converted, any money deposited with the Trustee or with a Paying Agent or so segregated and held in trust for the redemption of such Security shall (subject to any right of the Holder of such Security or any Predecessor Security to receive interest as provided in the fourth to last paragraph of Section 2.1) be paid to the Company on Company Request or, if then heldParticipant by the Company, shall be discharged from such trust.
Any Security which is to be redeemed only in part shall be surrendered at an office or agency of the Company designated for that purpose pursuant to Section 9.2 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or the Holder’s attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and
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deliver to the Holder of such Security without service charge, a new Security or Securities of any authorized denomination as requested by such Holder in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered.
No later than 10 Business Days after the occurrence of a Fundamental Change, the Company shall mail a written notice of the Repurchase Event (the “Repurchase Event Notice”) by first-class mail to the Trustee and to each Holder (and to beneficial owners to the extent practicable) pursuant to Section 15.2. The Repurchase Event Notice shall include a form of notice (the “Repurchase Event Purchase Notice”) to be completed by the Holder and delivered to the Paying Agent pursuant to Section 11.4, and shall state the following:
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No failure by the Company to give the foregoing Repurchase Event Notice shall limit any Holder’s right to exercise its rights pursuant to Section 11.1 or affect the validity of the proceedings for the purchase of its Securities hereunder.
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The Paying Agent shall promptly notify the Company of the receipt by it of any Repurchase Event Purchase Notice or written notice of withdrawal thereof.
To exercise a Repurchase Right pursuant to Section 11.1, a Holder must deliver to the Trustee at its offices on or prior to the Repurchase Date the following:
When complying with the provisions of this Article 11 (provided that such offer or purchase constitutes an “issuer tender offer” for purposes of Rule 13e-4 (which term, as used herein, includes any successor provision thereto) under the Exchange Act at the time of such offer or purchase), the Company shall (a) comply with Rule 13e-4, Rule 14e-1 and any other tender offer rules under the Exchange Act which may then be applicable, (b) file the related Schedule TO (or any successor schedule, form or report) under the Exchange Act and (c) otherwise comply with all federal and state securities laws so as to permit the rights and obligations under this Article 11 to be exercised in the time and in the manner specified in this Article 11.
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Subject to and upon compliance with the provisions of this Article, at the option of the Holder thereof, any Security or any portion of the principal amount thereof which is an integral multiple of $1,000 may be converted at the principal amount thereof, or of such portion thereof, into duly authorized, fully paid and nonassessable shares of Common Stock (such shares of Common Stock to meet the conditions set forth in Section 12.14), at the Conversion Price (together with the Make-Whole Amount, if applicable), determined as hereinafter provided, in effect at the time of conversion. Such conversion right shall expire at the close of business on the Business Day immediately preceding , 2014. Additional consideration may be due upon conversion as required under the Indenture.
In case a Security or portion thereof is called for redemption, such conversion right in respect of the Security or the portion so called, shall expire at the close of business on the second Business Day preceding the Redemption Date, unless the Company defaults in making the payment due upon redemption; provided, that in no event shall the Holders have less than 20 Business Days from the receipt of a notice of redemption to exercise its conversion right in respect of the Security or the portion so called.
In the event of a Fundamental Change, each Holder’s right to convert through a Fundamental Change Conversion shall expire at the close of business on the Business Day immediately preceding the Repurchase Date, unless the Company defaults in making the payment due upon redemption; provided, that in no event shall the Holders have less than 20 Business Days from the receipt of a notice of a Fundamental Change to exercise its conversion right via a Fundamental Change Conversion.
The price at which shares of Common Stock shall be delivered upon conversion (the “Conversion Price”) shall be initially equal to $0.225 per share of Common Stock. The Conversion Price shall be adjusted in certain instances as provided in paragraphs (a), (b), (c), (d), (e), (f), (h) and (1) of Section 12.4. Additional shares may also be deliverable upon conversion as required under the Indenture.
To exercise the conversion right, the Holder of any Security to be converted shall surrender such Security duly endorsed or assigned to the Company or in blank, at the office of any Conversion Agent, accompanied by a duly signed Conversion Notice substantially in the form attached to the Security as Exhibit C, to the Company, with a copy to the Trustee, stating that the Holder elects to convert such Security or, if less than the entire principal amount thereof is to be converted, the portion thereof to be converted.
In the event of a Fundamental Change, Holders will have the right to elect to convert and receive Additional Shares as per Section 13.2 (a “Fundamental Change Conversion”) from the date of the Repurchase Event Notice through the Repurchase Date. To exercise the conversion right in the event of a Fundamental Change and receive Additional Shares pursuant to Section 13.2, the Holder of any Security to be converted shall surrender such Security duly endorsed or assigned to the Company or in blank, at the office of any Conversion Agent, accompanied by a duly signed Fundamental Change Conversion Notice substantially in the form attached to the Security as Exhibit D, to the Company, with a copy to the Trustee, stating that the Holder elects to convert such Security or, if less than the entire principal amount thereof is to be converted, the portion thereof to be converted.
For the avoidance of doubt, in the event of a Fundamental Change Holders may elect to receive consideration due pursuant to the Make Whole Amount (as per Section 13.1) by electing to convert by notice using a Conversion Notice substantially in the form of Exhibit C or elect to receive consideration due pursuant to the Make Whole Premium (as per Section 13.2) by electing to convert by notice using a Fundamental Change Conversion Notice substantially in the form of Exhibit D. In no event shall any Holder be entitled to elect to receive consideration pursuant to both the Make-Whole Amount as set forth in Section 13.1 and the Make-Whole Premium as set forth in Section 13.2, except to the extent that Holders may choose to elect differing treatment (if available) in separate conversion notices, to the extent the Holders do not convert all of their holdings at one time.
Unless otherwise specified in Section 13.1 or 13.2, Securities surrendered for conversion during the period from the close of business on any Regular Record Date to the opening of business on the next succeeding Interest Payment Date (except in the case of any Security whose Maturity is prior to such Interest Payment Date) shall be accompanied by payment in New York Clearing House funds or other funds acceptable to the Company of an amount equal to the interest to be received on such Interest Payment Date on the principal amount of Securities being surrendered for conversion.
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Securities shall be deemed to have been converted immediately prior to the close of business on the day of surrender of such Securities for conversion in accordance with the provisions of this Article 12, including any required payments, and at such time the rights of the Holders of such Securities as Holders shall cease, and the Person or Persons entitled to receive the Common Stock issuable upon conversion shall be treated for all purposes as the record Holder or Holders of such Common Stock at such time. As promptly as practicable on or after the conversion date, the Company shall cause to be issued and delivered to such Conversion Agent a stock certificate or stock certificates representing the number of full shares of Common Stock issuable upon conversion of such Securities, together with payment in lieu of any fraction of a share as provided in Section 12.3.
In the case of any Security which is converted in part only, upon such conversion the Company shall execute and the Trustee shall authenticate and deliver to the Holder thereof, at the expense of the Company, a new Security or Securities of authorized denominations in aggregate principal amount equal to the unconverted portion of the principal amount of such Securities.
Notwithstanding the foregoing, a Holder will only be entitled to exercise its conversion rights herein to the extent (and only to the extent) that the receipt of shares of Common Stock upon exercise of the conversion right would not cause such Holder (including its Affiliates) to become, directly or indirectly, a “beneficial owner” (within the meaning of Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder) of more than 9.99% of the shares of the Common Stock outstanding at such time. Any purported delivery of shares of Common Stock upon exerciseor, if set forth in the instrument evidencing the Award, of this conversion rightsuch property as the Committee shall be void and have no effect to the extent (but only to the extent) that such delivery would result in such Holder (including its Affiliates) becoming the beneficial owner of more than 9.99% of thedetermine, including, without limitation, cash, shares of Common Stock, outstanding atother property, or any combination thereof, upon the attainment of performance goals, as established by the Committee, and other terms and conditions specified by the Committee. The amount to be paid under an Award of Performance Shares may be adjusted on the basis of such time. Notwithstanding anything to the contrary herein, the Holder shall not be entitled, with or without the consent of the Company, to waive the restrictions set forth in this Section 12.2.
The Company hereby initially appoints the Trusteefurther consideration as the Conversion Agent.Committee shall determine in its sole discretion.
11.2 Performance Units
No fractionalPerformance Units, designate the Participants to whom Performance Units are to be awarded and determine the number of Performance Units and the terms and conditions of each such Award. Performance Units shall consist of a unit valued by reference to a designated amount of property other than shares of Common Stock, which value may be paid to the Participant by delivery of such property as the Committee shall be issueddetermine, including, without limitation, cash, shares of Common Stock, other property, or any combination thereof, upon conversionthe attainment of any Security or Securities. If more than one Security shall be surrendered for conversion at one timeperformance goals, as established by the same Holder,Committee, and other terms and conditions specified by the numberCommittee. The amount to be paid under an Award of full shares which shallPerformance Units may be issued upon conversion thereof shall be computedadjusted on the basis of such further consideration as the aggregate principal amountCommittee shall determine in its sole discretion.
SECTION 12. OTHER STOCK OR CASH-BASED AWARDS
Subject to the terms of the Securities (or specified portions thereof) so surrendered. Instead of any fractional share of Common Stock which would otherwise be issued upon conversion of any SecurityPlan and such other terms and conditions as the Committee deems appropriate, the Committee may grant other incentives payable in cash or Securities (or specified portions thereof), the Company shall pay a cash adjustment in respect of such fraction (calculated to the nearest one-100th of a share) in an amount equal to the same fraction of the Trading Price of the Common Stock as of the Trading Day preceding the date of conversion.
The Conversion Price shall be subject to adjustment, calculated by the Company, from time to time as follows:
13.1 Payment of Tax Withholding and Other Obligations
The Company may require the Participant to pay to the Company the amount of (a) any taxes that the Company is required by applicable federal, state, local or foreign law to withhold with respect to the grant, vesting or exercise of an Award ("tax withholding obligations") and (b) any amounts due from the Participant to the Company or to any Related Company ("other obligations"). Notwithstanding any other provision of the Plan to the contrary, the Company shall not be required to issue any shares of Common Stock or otherwise settle an Award under the Plan until such tax withholding obligations and other obligations are satisfied.
13.2 Payment Methods
The Committee, in effect atits sole discretion, may permit or require a Participant to satisfy all or part of the openingParticipant's tax withholding obligations and other obligations by (a) paying cash to the Company, (b) having the Company withhold an amount from any cash amounts otherwise due or to become due from the Company to the Participant, (c) having the Company withhold a number of businessshares of Common Stock that would otherwise be issued to the Participant (or become vested, in the case of Restricted Stock) having a Fair Market Value equal to the tax withholding obligations and other obligations, (d) surrendering a number of shares of Common Stock the Participant already owns having
a value equal to the tax withholding obligations and other obligations, (e) selling shares of Common Stock issued under an Award on the date followingopen market or to the date fixedCompany, or (f) taking such other action as may be necessary in the opinion of the Committee to satisfy any applicable tax withholding obligations. The value of the shares so withheld or tendered may not exceed the employer's applicable minimum required tax withholding rate or such other applicable rate as is necessary to avoid adverse treatment for financial accounting purposes, as determined by the Committee in its sole discretion.
No Award or interest in an Award may be sold, assigned, pledged (as collateral for a loan or as security for the determinationperformance of an obligation or for any other purpose) or transferred by a Participant or made subject to attachment or similar proceedings otherwise than by will or by the applicable laws of descent and distribution, except to the extent the Participant designates one or more beneficiaries on a Company-approved form who may exercise the Award or receive payment under the Award after the Participant's death. During a Participant's lifetime, an Award may be exercised only by the Participant. Notwithstanding the foregoing and to the extent permitted by Section 422 of the Code, the Committee, in its sole discretion, may permit a Participant to assign or transfer an Award subject to such terms and conditions as the Committee shall specify.
15.1 Adjustment of Shares
(a) In the event, at any time or from time to time, a stock dividend, stock split, spin-off, combination or exchange of shares, recapitalization, merger, consolidation, distribution to stockholders entitled to receive suchother than a normal cash dividend, or other distributionchange in the Company's corporate or capital structure results in (a) the outstanding shares of Common Stock, or any securities exchanged therefor or received in their place, being exchanged for a different number or kind of securities of the Company or (b) new, different or additional securities of the Company or any other company being received by the holders of shares of Common Stock, then the Committee shall make proportional adjustments in (i) the maximum number and kind of securities available for issuance under the Plan; (ii) the maximum number and kind of securities issuable as Incentive Stock Options as set forth in Section 4.2; (iii) the maximum number and kind of securities set forth in Section 4.3; (iv) the maximum numbers and kind of securities set forth in Section 16.3; and (v) the number and kind of securities that are subject to any outstanding Award and the per share price of such securities, without any change in the aggregate price to be paid therefor. The determination by the Committee, as to the terms of any of the foregoing adjustments shall be reducedconclusive and binding.
(b) Notwithstanding the foregoing, the issuance by multiplyingthe Company of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services rendered, either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such Conversion Priceshares or other securities, shall not affect, and no adjustment by a fraction:
15.2 Dissolution or Liquidation
To the extent not previously exercised or settled, and unless otherwise determined by the Committee in its sole discretion, Awards shall terminate immediately prior to the dissolution or liquidation of the Company. To the extent a vesting condition, forfeiture provision or repurchase right
applicable to an Award has not been waived by the Committee, the Award shall be forfeited immediately prior to the consummation of the dissolution or liquidation.
15.3 Change in Control
Notwithstanding any other provision of the Plan to the contrary, unless the Committee shall determine otherwise in the instrument evidencing the Award or in a written employment, services or other agreement between the Participant and the Company or a Related Company, in the event of a Change in Control:
(a) All outstanding Awards, other than Performance Shares and Performance Units, shall become fully and immediately exercisable, and all applicable restrictions or forfeiture provisions shall lapse, immediately prior to the Change in Control and shall terminate at the effective time of the Change in Control; provided, however, that with respect to a Change in Control that is a Company Transaction in which such Awards could be converted, assumed or replaced by the Successor Company, such Awards shall become fully and immediately exercisable, and all applicable restrictions or forfeiture provisions shall lapse, only if and to the extent such Awards are not converted, assumed or replaced by the Successor Company.
For the purposes of this Section 15.3(a), an Award shall be considered converted, assumed or replaced by the Successor Company if following the Company Transaction the option or right confers the right to purchase or receive, for each share of Common Stock subject to the Award immediately prior to the Company Transaction, the consideration (whether stock, cash or other securities or property) received in the Company Transaction 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 Company Transaction is not solely common stock of the Successor Company, the Committee may, with the consent of the Successor Company, provide for the consideration to be received pursuant to the Award, for each share of Common Stock subject thereto, to be solely common stock of the Successor Company substantially equal in fair market value to the per share consideration received by holders of Common Stock in the Company Transaction. The determination of such substantial equality of value of consideration shall be made by the Committee, and its determination shall be conclusive and binding.
(b) All Performance Shares or Performance Units earned and outstanding as of the date the Change in Control is determined to have occurred and for which the payout level has been determined shall be payable in full in accordance with the payout schedule pursuant to the instrument evidencing the Award. Any remaining Performance Shares or Performance Units (including any applicable performance period) for which the payout level has not been determined shall be prorated at the target payout level up to and including the date of such Change in Control and shall be payable in accordance with the payout schedule pursuant to the instrument evidencing the Award. Any existing deferrals or other restrictions not waived by the Committee in its sole discretion shall remain in effect.
(c) Notwithstanding the foregoing, the Committee, in its sole discretion, may instead provide in the event of a Change in Control that is a Company Transaction that a Participant's outstanding Awards shall terminate upon or immediately prior to such Company Transaction and that such Participant shall receive, in exchange therefor, a cash payment equal to the amount (if any) by which (x) the value of the per share consideration received by holders of Common Stock in the Company Transaction, or, in the event the Company Transaction is one of the transactions listed under subsection (c) in the definition of Company Transaction or otherwise does not result in direct receipt of consideration by holders of Common Stock, the value of the deemed per share consideration received, in each case as determined by the Committee in its sole discretion, multiplied by the number of shares of Common Stock subject to such outstanding atAwards (whether or not then vested and exercisable) exceeds (y) if applicable, the close of business on the Record Date (as defined in Section 12.4(g)) fixedrespective aggregate exercise price or grant price for such determination;Awards.
15.4 Further Adjustment of Awards
Subject to Sections 15.2 and
15.5 No Limitations
The grant of Awards shall bein no way affect the sumCompany's right to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of suchits business or assets.
15.6 Fractional Shares
In the event of any adjustment in the number of shares covered by any Award, each such Award shall cover only the number of full shares resulting from such adjustment.
15.7 Section 409A
Notwithstanding any other provision of the Plan to the contrary, (a) any adjustments made pursuant to this Section 15 to Awards that are considered "deferred compensation" within the meaning of Section 409A shall be made in compliance with the requirements of Section 409A and (b) any adjustments made pursuant to this Section 15 to Awards that are not considered "deferred compensation" subject to Section 409A shall be made in such a manner as to ensure that after such adjustment the Awards either (i) continue not to be subject to Section 409A or (ii) comply with the requirements of Section 409A.
SECTION 16. CODE SECTION 162(m) PROVISIONS
Notwithstanding any other provision of the Plan to the contrary, if the Committee determines, at the time Awards are granted to a Participant who is, or is likely to be as of the end of the tax year in which the Company would claim a tax deduction in connection with such Award, a Covered Employee, then the Committee may provide that this Section 16 is applicable to such Award.
16.1 Performance Criteria
(a) If an Award is subject to this Section 16, then the lapsing of restrictions thereon and the total number of shares constituting such dividend or other distribution.
Such reduction shall become effective immediately after the opening of business on the day following the Record Date. If any dividend or distribution of the type described in this Section 12.4(a) is declared but not so paid or made, the Conversion Price shall again be adjusted to the Conversion Price which would then be in effect if such dividend or distribution had not been declared.
stockholder return; cost control; strategic initiatives; market share; net income; return on invested capital; improvements in capital structure; or customer satisfaction, employee satisfaction, services performance, subscriber, cash management or asset management metrics (together, the"Performance Criteria").
(b) Such performance goals also may be based on the achievement of specified levels of Company performance (or performance of an applicable affiliate or business unit of the Company) under one or more of the Performance Criteria described above relative to the performance of other corporations. Such performance goals shall be set by the Committee within the time period prescribed by, and shall otherwise comply with the requirements of, Section 162(m) of the Code, or any successor provision thereto, and the regulations thereunder.
(c) The Committee may provide in any such Award that any evaluation of performance may include or exclude any of the following events that occurs during a performance period: (i) asset write-downs, (ii) litigation or claim judgments or settlements, (iii) the effect of changes in tax laws, accounting principles, or other laws or provisions affecting reported results, (iv) any reorganization and restructuring programs, (v) extraordinary nonrecurring items as described in Accounting Principles Board Opinion No. 30 and/or in Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in the Company's annual report to stockholders for the applicable year, (vi) acquisitions or divestitures, (vii) foreign exchange gains and losses, and (viii) gains and losses on asset sales. To the extent such inclusions or exclusions affect Awards to Covered Employees, they shall be prescribed in a form that satisfies the requirements for "performance-based compensation" within the meaning of Section 162(m)(4)(C) of the Code, or any successor provision thereto.
16.2 Compensation Committee Certification; Adjustment of Awards
(a) After the completion of each performance period, the Compensation Committee shall certify the extent to which any performance goal established under this Section 16 has been satisfied, and the amount payable as a result thereof, prior to payment, settlement or vesting, as applicable, of any Award subject to this Section 16.
(b) Notwithstanding any provision of the Plan other than Section 15, with respect to any Award that is subject to this Section 16, the Committee may adjust downwards, but not upwards, the amount payable pursuant to such Award, and the Committee may not waive the achievement of the applicable performance goals except in the case of the death or disability of the Covered Employee.
16.3 Limitations
(a) Subject to adjustment from time to time as provided in Section 15.1, no Covered Employee may be granted Awards other than Performance Units subject to this Section 16 in any calendar year period with respect to more than 5,000,000 shares of Common Stock for such Awards, except that the Company may make additional onetime grants of such Awards for up to 5,000,000 shares to newly hired or newly promoted individuals, and the maximum dollar value payable with respect to Performance Units or other awards payable in cash subject to this Section 16 granted to any Covered Employee in any one calendar year is $3,000,000.
(b) The Committee shall have the power to impose such other restrictions on Awards subject to this Section 16 as it may deem necessary or appropriate to ensure that such Awards satisfy all requirements for "performance-based compensation" within the meaning of Section 162(m)(4)(C) of the Code, or any successor provision thereto.
SECTION 17. AMENDMENT AND TERMINATION
17.1 Amendment, Suspension or Termination
The Board or the Compensation Committee may amend, suspend or terminate the Plan or any portion of the Plan at any time and in such respects as it shall deem advisable; provided, however, that, to the extent required by applicable law, regulation or stock exchange rule, stockholder approval shall be required for any amendment to the Plan; and provided, further, that any amendment that requires stockholder approval may be made only by the Board. Subject to Section 17.3, the Committee may amend the terms of any outstanding Award, prospectively or retroactively.
17.2 Term of the Plan
Unless sooner terminated as provided herein, the Plan shall terminate ten years from the Effective Date. After the Plan is terminated, no future Awards may be granted, but Awards previously granted shall remain outstanding in accordance with their applicable terms and conditions and the Plan's terms and conditions. Notwithstanding the foregoing, no Incentive Stock Options may be granted more than ten years after the later of (a) the adoption of the Plan by the Board and (b) the adoption by the Board of any amendment to the Plan that constitutes the adoption of a new plan for purposes of Section 422 of the Code.
17.3 Consent of Participant
The amendment, suspension or termination of the Plan or a portion thereof or the amendment of an outstanding Award shall not, without the Participant's consent, materially adversely affect any rights under any Award theretofore granted to the Participant under the Plan. Any change or adjustment to an outstanding Incentive Stock Option shall not, without the consent of the Participant, be made in a manner so as to constitute a "modification" that would cause such Incentive Stock Option to fail to continue to qualify as an Incentive Stock Option. Notwithstanding the foregoing, any adjustments made pursuant to Section 15 shall not be subject to these restrictions.
18.1 No Individual Rights
No individual or Participant shall have any claim to be granted any Award under the Plan, and the Company has no obligation for uniformity of treatment of Participants under the Plan. Furthermore, nothing in the Plan or any Award granted under the Plan shall be deemed to constitute an employment contract or confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Related Company or limit in any way the right of the Company or any Related Company to terminate a Participant's employment or other relationship at any time, with or without cause.
18.2 Issuance of Shares
(a) Notwithstanding any other provision of the Plan, the Company shall have no obligation to issue or deliver any shares of Common Stock under the Plan or make any other distribution of benefits under the Plan unless, in the opinion of the Company's counsel, such issuance, delivery or distribution would comply with all applicable laws (including, without limitation, the requirements of the Securities Act or the laws of any state or foreign jurisdiction) and the applicable requirements of any securities exchange or similar entity.
(b) The Company shall be under no obligation to any Participant to register for offering or resale or to qualify for exemption under the Securities Act, or to register or qualify under the laws of any state or foreign jurisdiction, any shares of Common Stock, security or interest in a security paid or
issued under, or created by, the Plan, or to continue in effect any such registrations or qualifications if made.
(c) As a condition to the exercise of an Option or any other receipt of Common Stock pursuant to an Award under the Plan, the Company may require (a) the Participant to represent and warrant at the time of any such exercise or receipt that such shares are being purchased or received only for the Participant's own account and without any present intention to sell or distribute such shares and (b) such other action or agreement by the Participant as may from time to time be necessary to comply with the federal, state and foreign securities laws. At the option of the Company, a stop-transfer order against any such shares may be placed on the official stock books and records of the Company, and a legend indicating that such shares may not be pledged, sold or otherwise transferred, unless an opinion of counsel is provided (concurred in by counsel for the Company) stating that such transfer is not in violation of any applicable law or regulation, may be stamped on stock certificates to ensure exemption from registration. The Committee may also require the Participant to execute and deliver to the Company a purchase agreement or such other agreement as may be in use by the Company at such time that describes certain terms and conditions applicable to the shares.
(d) To the extent the Plan or any instrument evidencing an Award provides for issuance of stock certificates to reflect the issuance of shares of Common Stock, the Conversion Priceissuance may be effected on a noncertificated basis, to the extent not prohibited by applicable law or the applicable rules of any stock exchange.
18.3 Indemnification
(a) Each person who is or shall have been a member of the Board, or a committee appointed by the Board, or an officer of the Company to whom authority was delegated in effectaccordance with Section 3, shall be indemnified and held harmless by the Company against and from any loss, cost, liability or expense that may be imposed upon or reasonably incurred by such person in connection with or resulting from any claim, action, suit or proceeding to which such person may be a party or in which such person may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by such person in settlement thereof, with the Company's approval, or paid by such person in satisfaction of any judgment in any such claim, action, suit or proceeding against such person; provided, however, that such person shall give the Company an opportunity, at its own expense, to handle and defend the openingsame before such person undertakes to handle and defend it on such person's own behalf, unless such loss, cost, liability or expense is a result of businesssuch person's own willful misconduct or except as expressly provided by statute.
(b) foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such person may be entitled under the Company's certificate of incorporation or bylaws, as a matter of law, or otherwise, or of any power that the Company may have to indemnify or hold harmless.
18.4 No Rights as a Stockholder
Unless otherwise provided by the Committee or in the instrument evidencing the Award or in a written employment, services or other agreement, no Award, other than a Stock Award or Restricted Stock Award, shall entitle the Participant to any cash dividend, voting or other right of a stockholder unless and until the date of issuance under the Plan of the shares that are the subject of such Award.
18.5 Compliance with Laws and Regulations
(a) In interpreting and applying the provisions of the Plan, any Option granted as an Incentive Stock Option pursuant to the Plan shall, to the extent permitted by law, be construed as an "incentive stock option" within the meaning of Section 422 of the Code.
(b) The Plan and Awards granted under the Plan are intended to be exempt from the requirements of Section 409A to the maximum extent possible, whether pursuant to the short-term deferral exception described in Treasury Regulation Section 1.409A-1(b)(4), the exclusion applicable to stock options, stock appreciation rights and certain other equity-based compensation under Treasury Regulation Section 1.409A-1(b)(5), or otherwise. To the extent Section 409A is applicable to the Plan or any Award granted under the Plan, it is intended that the Plan and any Awards granted under the Plan comply with the deferral, payout and other limitations and restrictions imposed under Section 409A. Notwithstanding any other provision of the Plan or any Award granted under the Plan to the contrary, the Plan and any Award granted under the Plan shall be interpreted, operated and administered in a manner consistent with such intentions. Without limiting the generality of the foregoing, and notwithstanding any other provision of the Plan or any Award granted under the Plan to the contrary, with respect to any payments and benefits under the Plan or any Award granted under the Plan to which Section 409A applies, all references in the Plan or any Award granted under the Plan to the termination of the Participant's employment or service are intended to mean the Participant's "separation from service," within the meaning of Section 409A(a)(2)(A)(i). In addition, if the Participant is a "specified employee," within the meaning of Section 409, then to the extent necessary to avoid subjecting the Participant to the imposition of any additional tax under Section 409A, amounts that would otherwise be payable under the Plan or any Award granted under the Plan during the six-month period immediately following the Participant's "separation from service," within the meaning of Section 409A(a)(2)(A)(i), shall not be paid to the Participant during such period, but shall instead be accumulated and paid to the Participant (or, in the event of the Participant's death, the Participant's estate) in a lump sum on the first business day after the earlier of the date that is six months following the day upon which such subdivision becomes effectiveParticipant's separation from service or the Participant's death. Notwithstanding any other provision of the Plan to the contrary, the Committee, to the extent it deems necessary or advisable in its sole discretion, reserves the right, but shall not be required, to unilaterally amend or modify the Plan and any Award granted under the Plan so that the Award qualifies for exemption from or complies with Section 409A; provided, however, that the Committee makes no representations that Awards granted under the Plan shall be proportionately reduced,exempt from or comply with Section 409A and conversely,makes no undertaking to preclude Section 409A from applying to Awards granted under the Plan.
18.6 Participants in case outstandingOther Countries or Jurisdictions
Without amending the Plan, the Committee may grant Awards to Eligible Persons who are foreign nationals on such terms and conditions different from those specified in the Plan as may, in the judgment of the Committee, be necessary or desirable to foster and promote achievement of the purposes of the Plan and shall have the authority to adopt such modifications, procedures, subplans and the like as may be necessary or desirable to comply with provisions of the laws or regulations of other countries or jurisdictions in which the Company or any Related Company may operate or have employees to ensure the viability of the benefits from Awards granted to Participants employed in such countries or jurisdictions, meet the requirements that permit the Plan to operate in a qualified or tax-efficient manner, comply with applicable foreign laws or regulations and meet the objectives of the Plan.
18.7 No Trust or Fund
The Plan is intended to constitute an "unfunded" plan. Nothing contained herein shall require the Company to segregate any monies or other property, or shares of Common Stock, or to create any trusts, or to make any special deposits for any immediate or deferred amounts payable to any Participant, and no Participant shall have any rights that are greater than those of a general unsecured creditor of the Company.
18.8 Successors
All obligations of the Company under the Plan with respect to Awards shall be combined intobinding on any successor to the Company, whether the existence of such successor is the result of a smaller numberdirect or indirect purchase, merger, consolidation, or otherwise, of all or substantially all the business and/or assets of the Company.
18.9 Severability
If any provision of the Plan or any Award is determined to be invalid, illegal or unenforceable in any jurisdiction, or as to any person, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or, if it cannot be so construed or deemed amended without, in the Committee's determination, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, person or Award, and the remainder of the Plan and any such Award shall remain in full force and effect.
18.10 Choice of Law and Venue
The Plan, all Awards granted thereunder and all determinations made and actions taken pursuant hereto, to the extent not otherwise governed by the laws of the United States, shall be governed by the laws of the State of Delaware without giving effect to principles of conflicts of law. Participants irrevocably consent to the nonexclusive jurisdiction and venue of the state and federal courts located in the State of Delaware.
18.11 Legal Requirements
The granting of Awards and the issuance of shares of Common Stock under the Conversion Price in effect at the opening of business on the day following the day upon whichPlan are subject to all applicable laws, rules and regulations and to such combination becomes effective shallapprovals by any governmental agencies or national securities exchanges as may be proportionately increased,
required.
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SECTION 19. EFFECTIVE DATE
The effective date (the "Effective Date") is the date on which the Plan is adopted by the Board. If the stockholders of Contentsthe Company do not approve the Plan within 12 months after the Board's adoption of the Plan, any Incentive Stock Options granted under the Plan will be treated as Nonqualified Stock Options.
As used in the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective.Plan,
"
"Award" means any rightsOption, Stock Appreciation Right, Stock Award, Restricted Stock, Stock Unit, Performance Share, Performance Unit, cash-based award or warrants referred toother incentive payable in Section 12.4(d)) to all holders of its outstandingcash or in shares of Common Stock exercisable for not more than 60 days entitling themas may be designated by the Committee from time to subscribe for or purchase sharestime.
"Board" means the Board of Common Stock at a price per share less than the Current Market Price on the Record Date fixed for the determination of stockholders entitled to receive such rights or warrants, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect at the opening of business on the date after such Record Date by a fraction:
"Cause," unless otherwise defined in the instrument evidencing an Award or in a written employment, services or other agreement between the Participant and the Company or a Related Company, means dishonesty, fraud, serious or willful misconduct, unauthorized use or disclosure of shares so offered for subscriptionconfidential information or purchase (or the aggregate conversion price of the convertible securities so offered) would purchase at such Current Market Price; and
Such adjustment shall become effective immediately after the opening of business on the day following the Record Date fixed for determination of stockholders entitled to receive such rights or warrants. To the extent that shares of Common Stock (or securities convertible into Common Stock) are not delivered pursuant to such rights or warrants, upon the expiration or termination of such rights or warrants, the Conversion Price shall be readjusted to the Conversion Price which would then beconduct prohibited by law (except minor violations), in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of the delivery of only the number of shares of Common Stock (or securities convertible into Common Stock) actually delivered. In the event that such rights or warrants are not so issued, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such date fixed for the determination of stockholders entitled to receive such rights or warrants had not been fixed. In determining whether any rights or warrants entitle the holders to subscribe for or purchase shares of Common Stock at less than such Current Market Price, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received for such rights or warrants, the value of such consideration if other than cash, to beeach case as determined by the Board of Directors.
Notwithstanding the foregoing,Company's chief human resources officer or other person performing that function or, in the event thatcase of directors and executive officers, the Company shall make a distribution subject to this Section 12.4(c) the Company may, in lieu of making any adjustment required pursuant to this Section 12.4(c), make proper provision so that each Holder of a Security who converts such Security (or any portion thereof) after the Record Date for such distribution shall be entitled to receive upon such conversion, in addition to the shares of Common Stock issuable upon such conversion, the securities such Holder would have received had such Holder converted such Security (or portion thereof) immediately prior to such Record Date.
"Change in a Board Resolution) on such date ofControl," unless the portion ofCommittee determines otherwise with respect to an Award at the securities so distributed applicable to one share of Common Stock (determined ontime the basis of the number of shares of the Common Stock outstanding on the Record Date); and
Such reduction shall become effective immediately prior to the opening of business on the day following the Record Date. However, in the event that (x) the then fair market value (as so determined) of the portion of the securities so distributed applicable to one share of Common StockAward is equal togranted or greater than the Current Market Price on the Record Date or (y) the
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Current Market Price on the Record Date exceeds the fair market value of such distribution by less than $1.00, then, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive upon conversion of a Security (or any portion thereof) the amount of securities such Holder would have received had such Holder converted such Security (or portion thereof) immediately prior to such Record Date. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not been declared.
If the Board of Directors determines the fair market value of any distributionunless otherwise defined for purposes of this Section 12.4(d) by reference to the actual or when issued trading market for any securities comprising all or part of such distribution, it must in doing so consider the prices in such market over the same period (the “Reference Period”) used in computing the Current Market Price pursuant to Section 12.4(g) to the extent possible, unless the Board of Directorsan Award in a Board Resolution determines in good faith that determiningwritten employment, services or other agreement between the fair market value duringParticipant and the Reference Period would not be inCompany or a Related Company, means the best interestoccurrence of any of the Holders.following events:
Notwithstanding (a) an acquisition by any Entity of beneficial ownership (within the foregoing, inmeaning of Rule 13d-3 promulgated under the event thatExchange Act) of 40% or more of either (1) the Company shall make a distribution subject to this Section 12.4(d) the Company may, in lieu of making any adjustment required pursuant to this Section 12.4(d), make proper provision so that each Holder of a Security who converts such Security (or any portion thereof) after the Record Date for such distribution shall be entitled to receive upon such conversion, in addition to thethen outstanding shares of Common Stock issuable upon suchof the Company (the "Outstanding Company Common Stock") or (2) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"), provided, however, that the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company, other than an acquisition by virtue of the exercise of a conversion privilege where the securities such Holder would have received had such Holdersecurity being so converted such Security (or portion thereof) immediately prior to such Record Date.
Rights or warrants distributedwas not acquired directly from the Company by the party exercising the conversion privilege, (ii) any acquisition by the Company, to all holders of Common Stock entitling the holders thereof to subscribe for or purchase shares of the Company’s capital stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events (“Trigger Event”):
shall be deemed not to have been distributed for purposes of this Section 12.4(d) (and no adjustment to the Conversion Price under this Section 12.4(d) will be required) until the occurrence of the earliest Trigger Event. If such right or warrant is subject to subsequent events, upon the occurrence of which such right or warrant shall become exercisable to purchase different securities, evidences of indebtedness or other assets or entitle the holder to purchase a different number or amount of the foregoing or to purchase any of the foregoing at a different purchase price, then the occurrence of each such event shall be deemed to be the date of issuance and record date with respect to a new right or warrant (and a termination or expiration of the existing right or warrant without exercise by the holder thereof). In addition, in the event of any distribution (or deemed distribution) of rights or warrants, or any Trigger Event or other event (of the type described in the preceding sentence) with respect thereto, that resulted in an adjustment to the Conversion Price under this Section 12.4(d):
For purposes of this Section 12.4(d) and Sections 12.4(a), 12.4(b) and 12.4(c), any dividend or distribution to which this Section 12.4(d) is applicable that also includes shares of Common Stock, a subdivision or combination of Common Stock to which Section 12.4(c) applies, or rights or warrants to subscribe for or purchase shares of Common Stock to which Section 12.4(c) applies (or any combination thereof), shall be deemed instead to be:
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In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not been declared.
(b) a Board Resolution) that combined together with:
exceeds 10% of the product of the Current Market Price as of the last time (the “Expiration Time”) tenders could have been made pursuant to such tender offer (as it may be amended) times the number of shares of Common Stock outstanding (including any tendered shares) on the Expiration Time, then, and in each such case, immediately prior to the opening of business on the day after the date of the Expiration Time, the Conversion Price shall be adjusted soprovided further, however, that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to close of business on the date of the Expiration Time by a fraction:
(ii) the numerator of which shall be the number of shares of Common Stock outstanding (including any tendered shares) at the Expiration Time multiplied by the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time; and
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Such reduction (if any) shall become effective immediately prior to the opening of business on the day following the Expiration Time. In the event that the Company is obligated to purchase shares pursuant to any such tender offer, but the Company is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such tender offer had not been made. If the application of this Section 12.4(f) to any tender offer would result in an increase in the Conversion Price, no adjustment shall be made for such tender offer under this Section 12.4(f).
(i) the “ex” date (as hereinafter defined) for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 12.4(a), (b), (c), (d), (e) or (f)office occurs during such ten consecutive Trading Days, the Trading Price for each Trading Day prior to the “ex” date for such other event shall be adjusted by multiplying such Trading Price by the same fraction by which the Conversion Price is so required to be adjusted as a result of suchor in connection with an actual or threatened election contest with respect to the election or removal of directors or other event;
(ii) the “ex” date for any event (otheractual or threatened solicitation of proxies or consents by or on behalf of an Entity other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 12.4(a), (b), (c), (d), (e) or (f) occurs on or after the “ex” date for the issuance or distribution requiring such computation and prior to the day in question, the Trading Price for each Trading Day on and after the “ex” date for such other eventBoard shall not be adjusted by multiplying such Trading Price by the reciprocalconsidered a member of the fraction by whichIncumbent Board; or
(c) the Conversion Price is so requiredconsummation of a Company Transaction.
"Code" means the Internal Revenue Code of 1986, as amended from time to be adjusted as a result of such other event; andtime.
(iii) "Committee" has the “ex” date for the issuance or distribution requiring such computation is prior to the day in question, after taking into account any adjustment required pursuant to clause (i) or (ii) of this proviso, the Trading Price for each Trading Day on or after such “ex” date shall be adjusted by adding thereto the amount of any cash and the fair market value (as determined by the Board of Directors in a manner consistent with any determination of such value for purposes of Section 12.4(d) or (f), whose determination shall be conclusive andmeaning set forth in a Board Resolution) of the evidences of indebtedness, shares of capital stock or assets being distributed applicable to one share of Section 3.1.
"Common Stock as of the close of business on the day before such “ex” date.
For purposes of any computation under Section 12.4(f), the Current Market Price of the Common Stock on any date shall be deemed to be the average of the daily Trading Prices per share of Common Stock for such day and the next two succeeding Trading Days; provided, however, that if the “ex” date for any event (other than the tender offer requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 12.4(a), (b), (c), (d), (e) or (f) occurs on or after the Expiration Time for the tender or exchange offer requiring such computation and prior to the day in question, the Trading Price for each Trading Day on and after the “ex” date for such other event shall be adjusted by multiplying such Trading Price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such other event. For purposes of this paragraph, the term “ex” date, when used:
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Notwithstanding the foregoing, whenever successive adjustments to the Conversion Price are called for pursuant to this Section 12.4, such adjustments shall be made to the Current Market Price as may be necessary or appropriate to effectuate the intent of this Section 12.4 and to avoid unjust or inequitable results as determined in good faith by the Board of Directors.
To the extent permitted by applicable law, the Company from time to time may reduce the Conversion Price by any amount for any period of time if the period is at least 20 days and the reduction is irrevocable during the period and the Board of Directors determines in good faith that such reduction would be in the best interests of the Company, which determination shall be conclusive and set forth in a Board Resolution; provided, however, that the Board of Directors shall not be permitted to reduce the Conversion Price pursuant to this sentence in such a manner that will violate NASD Rule 4350(i) or any similar or successor rule then in effect. Whenever the Conversion Price is reduced pursuant to the preceding sentence, the Company shall mail to the Trustee and each Holder at the address of such Holder as it appears in the Register a notice of the reduction at least 15 days prior to the date the reduced Conversion Price takes effect, and such notice shall state the reduced Conversion Price and the period during which it will be in effect.
(j) "In any caseCompany" means Vitesse Semiconductor Corporation, a Delaware corporation.
"Company Transaction," unless the Committee determines otherwise with respect to an Award at the time the Award is granted or unless otherwise defined for purposes of an Award in which this Section 12.4 provides that an adjustment shall become effective immediately after a Record Date for an event,written employment, services or other agreement between the Participant and the Company may defer until the occurrence of such event (i) issuing to the Holder of any Security converted after such Record Date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (ii) paying to such Holder any amount in cash in lieu of any fraction pursuant to Section 12.3.or a Related Company, means consummation of:
(a) a merger or consolidation of the Company but shall include shares issuablewith or into any other company;
(b) a sale in respectone transaction or a series of scrip certificates issued in lieutransactions undertaken with a common purpose of fractions of shares of Common Stock. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasuryall of the Company.
(c) a sale, lease, exchange or other transfer in the Company’s rights agreement, if any, occurs prior to the date a Security is converted, and the Holder of the Security who converts such Security after the distribution date is not entitled to receive the rights that would otherwise be attached (but for the date of conversion) to the shares of Common Stock received upon such conversion, then an adjustment shall be made to the Conversion Price pursuant to Section 12.4(b) as if the rights were being distributed to the holders of Common Stock immediately prior to such conversion. If such an adjustment is made and the rights are later redeemed, invalidated or terminated, then a corresponding reversing adjustment shall be made to the Conversion Price, on an equitable basis, to take account of such event.
Whenever the Conversion Price is adjusted as herein provided (other than in the case of an adjustment pursuant to the second paragraph of Section 12.4(h) for which the notice required by such paragraph has been provided), the Company shall promptly file with the Trustee and any Conversion Agent other than the Trustee an Officers’ Certificate setting forth the
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adjusted Conversion Price and showing in reasonable detail the facts upon which such adjustment is based. The Company shall also issue a press release through Dow Jones & Company, Inc, Business Wire or Bloomberg Business News (or, if such organizations are not in existence at the time of issuance of such press release, such other news or press organization as is reasonably calculated to broadly disseminate the relevant information to the public) containing the relevant information and make such information available on the Company’s web site or through another public medium as the Company may use at such time. Unless and until the Trustee and any Conversion Agent other than the Trustee receive an Officer’s Certificate setting forth an adjustment to the Conversion Price, the Trustee and such Conversion Agent may assume without inquiry that the Conversion Price has not and is not required to be adjusted and that the last Conversion Price of which the Trustee and such Conversion Agent have knowledge remains in effect. Promptly after delivery of such Officers’ Certificate, the Company shall prepare a notice stating that the Conversion Price has been adjusted and setting forth the adjusted Conversion Price and the date on which each adjustment becomes effective, and shall mail such notice to each Holder at the address of such Holder as it appears in the Register within 20 days of the effective date of such adjustment. Failure to deliver such notice shall not affect the legality or validity of any such adjustment.
In case at any time after the date hereof:
excluding, however, in each case, a transaction pursuant to which
(i) the Entities who are the beneficial owners of the Company;Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Company Transaction will beneficially own, directly or
(ii) no Entity (other than the Company, shall causeany employee benefit plan (or related trust) of the Company, a Related Company or a Successor Company) will beneficially own, directly or indirectly, 50% or more of, respectively, the outstanding shares of common stock of the Successor Company or the combined voting power of the outstanding voting securities of the Successor Company entitled to be filed at each office or agency maintained forvote generally in the purposeelection of conversiondirectors unless such ownership resulted solely from ownership of securities pursuant to Section 9.2, and shall cause to be provided toof the Trustee and all Holders in accordance with Section 15.2, at least 20 days (or 10 days in any case specified in clause (1) or (2) above)Company prior to the applicable record or effectiveCompany Transaction; and
(iii) individuals who were members of the Incumbent Board will immediately after the consummation of the Company Transaction constitute at least a majority of the members of the board of directors of the Successor Company.
Where a series of transactions undertaken with a common purpose is deemed to be a Company Transaction, the date hereinafter specified, a notice stating:
"Compensation Committee" means the Compensation Committee of the Board.
"Covered Employee" means a record"covered employee" as that term is defined for purposes of Section 162(m)(3) of the Code or any successor provision.
"Disability," unless otherwise defined by the Committee for purposes of the Plan in the instrument evidencing an Award or in a written employment, services or other agreement between the Participant and the Company or a Related Company, means a mental or physical impairment of the Participant that is expected to result in death or that has lasted or is expected to last for a continuous period of 12 months or more and that causes the Participant to be takenunable to perform his or her material duties for the purposeCompany or a Related Company and to be engaged in any substantial gainful activity, in each case as determined by the Company's chief human resources officer or other person performing that
function or, in the case of such dividend, distribution, rightsdirectors and executive officers, the Compensation Committee, whose determination shall be conclusive and binding.
"Effective Date" has the meaning set forth in Section 19.
"Eligible Person" means any person eligible to receive an Award as set forth in Section 5.
"Entity" means any individual, entity or warrants,group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act).
"Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time.
"Fair Market Value" means the closing price for the Common Stock on any given date during regular trading, or if a record is not to be taken,trading on that date, such price on the last preceding date as ofon which the holders of Common Stock was traded, unless determined otherwise by the Committee using such methods or procedures as it may establish.
"Grant Date" means the later of record to be entitled to such dividend, distribution, rights or warrants are to be determined; or
"Incentive Stock Option" means an Option granted with the intention that it qualify as an "incentive stock option" as that term is defined for purposes of which it is expected that holdersSection 422 of the Code or any successor provision.
"Nonqualified Stock Option" means an Option other than an Incentive Stock Option.
"Option" means a right to purchase Common Stock granted under Section 7.
"Option Expiration Date" means the last day of record shall be entitledthe maximum term of an Option.
"Outstanding Company Common Stock" has the meaning set forth in the definition of "Change in Control."
"Outstanding Company Voting Securities" has the meaning set forth in the definition of "Change in Control."
"Parent Company" means a company or other entity which as a result of a Company Transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries.
"Participant" means any Eligible Person to exchange theirwhom an Award is granted.
"Performance Award" means an Award of Performance Shares or Performance Units granted under Section 11.
"Performance Criteria" has the meaning set forth in Section 16.1.
"Performance Share" means an Award of units denominated in shares of Common Stock for securities,granted under Section 11.1.
"Performance Unit" means an Award of units denominated in cash or property other property deliverable upon such reclassification, merger, consolidation, statutory share exchange, sale, transfer, dissolution, liquidation or winding up.
Neither the failure to give such notice nor any defect therein shall affect the legality or validitythan shares of the proceedings or actions described in clauses (1) through (4) of this Section 12.6.
The Company shall at all times after the Shareholder Vote use its best efforts to reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock forgranted under Section 11.2.
"Plan" means the purposeVitesse Semiconductor Corporation 2010 Incentive Plan.
"Related Company" means any entity that is directly or indirectly controlled by, in control of effectingor under common control with the conversion of Securities, the full number of shares of fully paid and nonassessable CommonCompany.
"Restricted Stock then issuable upon the conversion of all Outstanding Securities.
Except as provided in the next sentence, the Company will pay any and all taxes (other than taxes on income) and duties that may be payable in respect of the issue or delivery" means an Award of shares of Common Stock on conversiongranted under Section 10, the rights of Securities pursuant hereto. A Holder delivering a Security for conversion shall be liable for and will be requiredownership of which are subject to pay any tax or duty
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Table of Contentsrestrictions prescribed by the Committee.
which may be payable in respect of any transfer involved "Retirement," unless otherwise defined in the issue and delivery of shares of Common Stockinstrument evidencing the Award or in a name other than that of the Holder of the Security or Securities to be converted, and no such issue or delivery shall be made unless the Person requesting such issue has paid to the Company the amount of any such tax or duty, or has established to the satisfaction of the Company that such tax or duty has been paid.
The Company covenants that all shares of Common Stock which may be issued upon conversion of Securities will upon issuance be fully paid and nonassessable and that the Company will pay all taxes, liens and charges with respect to the issuance thereof, except (1) as provided in Section 12.8 or (2) with respect to any liens or charges created by or imposed upon such Common Stock by the Holder of the Security or Securities to be converted.
All Securities delivered for conversion shall be delivered to the Trustee to be canceled by or at the direction of the Trustee, which shall dispose of the same as provided in Section 2.15.
If any of following events occur, namely:
the Company or the successor or purchasing corporation,a Related Company, means "Retirement" as the case may be, shall execute with the Trustee a supplemental indenture (which shall comply with the TIA as in force at the date of execution of such supplemental indenture if such supplemental indenture is then required to so comply) providing that each Holder shall have the right to convert its Securities into the kind and amount of shares of stock and other securities or property or assets (including cash) receivable on such reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance by a Holder of the Common Stock immediately prior to such reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance. In the event the Holders have the opportunity to elect the form of consideration to be received in such reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance, the Company will make adequate provisions whereby the Holders of the Securities shall have, on a timely basis, the right to determine the form of consideration into which all Securities, treated as a single class, shall be convertible. The form of consideration into which all Securities, treated as a single class, shall be convertible shall be determined by the Holders of a majority of the Securities (based on principal outstanding thereunder) who have made an election as to such form of consideration and shall be subject to any limitations to which all of the holders of Common Stock are subject, such as pro rata reductions or fractional share limitations applicable to any portion of the consideration paid. To the extent a majority of the Holders did not make such election on or prior to the date that is 10 days after receipt of notice that such election is required, thendefined for purposes of this Section 12.11 the kindPlan by the Committee or amount of securities, cashthe Company's chief human resources officer or other property receivable upon such merger, consolidation, statutory share exchange, sale or conveyance shall be deemed to be the kind and amount so receivable per share by the holders of a plurality of the Common Stock. Such supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 12. If, in the case of any such reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance, the stock or other securities and assets receivable thereupon by a holder of shares of Common Stock includes shares of stock or other securities and assets of a corporation other than the successor or purchasing corporation, as the case may be, in such reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance, then such supplemental indenture shall also be executed by such other corporation and shall contain such additional provisions to protect the interests of the Holders of the Securities as the Board of Directors shall reasonably consider necessary by reason of the foregoing, including to the extent practicable the provisions providing for the Repurchase Rights set forth in Article 11.
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The Company shall cause notice of the execution of such supplemental indenture to be mailed to each Holder, at the address of such Holder as it appears on the Register, within 20 days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of such supplemental indenture.
The above provisions of this Section shall similarly apply to successive reclassifications, mergers, consolidations, statutory share exchanges, combinations, sales and conveyances.
If this Section 12.11 applies to any event or occurrence, Section 12.4 shall not apply.
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The “Applicable Stock Price” means, in respect of a Determination Date, the average Closing Sale Price (as defined below) of the Common Stock over the 20 Trading Day period (the “Cash Settlement Averaging Period”):
(i)ending on the second Trading Day preceding the Redemption Date, if the Company has called the Securities for redemption pursuant to Article 10;
(ii)ending on the second Trading Day preceding the Repurchase date, if a Fundamental Change has occurred;
(iii)subject to the succeeding clause (iii), beginning on the Trading Day following the Company’s receipt of the Holder’s conversion notice, if the Company has irrevocably elected to make a cash payment of principal upon conversion;
(iv)ending on the second Trading Day preceding the Maturity Date, with respect to conversion notices received during the period beginning 25 Trading Days preceding the Maturity Date and ending one Trading Day preceding the Maturity Date; and
(v)beginning on the Trading Day following the final Trading Day of the Conversion Retraction Period, in all other cases.
The “Closing Sale Price” of any share of Common Stock on any Trading Day means the closing sale price of such security (or if no closing sale price is reported, the average of the closing bid and closing ask pricesfunction or, if more than one in either case, the averagenot so defined, means Termination of the average closing bid and the average closing ask prices)Service on such date as reported in composite transactions for the principal United States securities exchange on which the Common Stock is traded or if the Common Stock is not listed on a United States national or regional securities exchange, as reported by the Nasdaq System or by the National Quotation Bureau Incorporated. In the absence of such a quotation, the Company shall determine the Closing Sale Price on the basis it considers appropriate.
"Securities Act" means the Company makes such election, the Company shall notify the Trustee and the Holders at their addresses shown in the Register kept by the Registrar.
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TableSecurities Act of Contents1933, as amended from time to time.
If the Company irrevocably elects to pay the principal amount "Section 409A" means Section 409A of the Securities in cash upon conversion,Code.
"Stock Appreciation Right" or "SAR" means a right granted under Section 9.1 to receive the settlement amount shall be computed as follows:
"Stock Award" means an Award of Securities to be converted divided by (ii) the Applicable Stock Price.
The Trustee, subject to the provisions of Section 5.1, and any Conversion Agent shall not at any time be under any duty or responsibility to any Holder of Securities to determine whether any facts exist which may require any adjustment of the Conversion Price, or with respect to the nature or intent of any such adjustments when made, or with respect to the method employed, or herein or in any supplemental indenture provided to be employed, in making the same. Neither the Trustee, subject to the provisions of Section 5.1, nor any Conversion Agent shall be accountable with respect to the validity or value (of the kind or amount) of any Common Stock, or of any other securities or property, which may at any time be issued or delivered upon the conversion of any Security; and it or they do not make any representation with respect thereto. Neither the Trustee, subject to the provisions of Section 5.1, nor any Conversion Agent shall be responsible for any failure of the Company to make any cash payment or to issue, transfer or deliver any shares of stock or share certificates or other securities or property upon the surrender of any Security for the purpose of conversion; and the Trustee, subject to the provisions of Section 5.1, and any Conversion Agent shall not be responsible or liable for any failure of the Company to comply with any of the covenants of the Company contained in this Article.
"Stock Unit" means an Award denominated in units of Common Stock granted under Section 10.
"Substitute AwardsAny" means Awards granted or shares of Common Stock issued by the Company toin substitution or exchange for awards previously granted by an Acquired Entity.
"Successor Company" means the Holders:
In the event that a Fundamental Change occurs prior to the Capital Increase, the Holders shall have right, at the Holder’s option, to require the Company to repurchase for cash, and upon exercise of such right, the Company shall purchase all of such Holder’s Securities at a purchase price equal to value of (i) the as-converted amount of the shares that would have been issued to the Holder had the Capital Increase occurred and such Holder had exercised its conversion option through a Fundamental Change Conversion Notice (which amount will include the Make-Whole Premium) that would have been applicable, if such Holder had exercised its conversion right. The cash value and settlement of the as-converted amount of such shares (including shares attributable to the Make-Whole Premium) will be determined pursuant to 12.12, as if Holders
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had elected to convert on the date Holders request payment pursuant to the Section, and the Company had elected to settle the conversion request in cash.
(a)In addition to the consideration received pursuant to Article 12, if any Holder exercises its conversion right under Section 12.1 prior to October 30, 2012, the Company shall, upon such conversion, pay to such Holder an amount equal to the sum of (i) any accrued and unpaid interest as of the date of such election and (ii) interest that would have been payable from the conversion date through October 30, 2012 had the Holder not exercised its conversion rights hereunder (the “Make-Whole Amount”); provided, however, that such amounts to be paid pursuant to this Section 13.1(a) shall not exceed 16% of the principal amount of the Securities exercised by such Holder.
(b)Any amounts payable under clause (a) shall be payable by the Company at its option either (i) in cash or (ii) in shares of Common Stock (such shares of Common Stock to meet the conditions set forth in Section 12.14). The Company shall provide notice to the Holder of the manner of payment no later than two Trading Days following the conversion date and, in the event the Company opts to pay in shares of Common Stock, such shares shall be valued at 95% of the average daily volume weighted average price per share for the 10 Trading Days beginning on the first Trading Day after receipt by the Holders of such notice. Payment in cash shall be settled as soon as practical after the Company has elected to pay the Make-Whole Amount in Cash; payment in shares shall be settled as soon as practicable after the determination of the number of shares required to satisfy the Make-Whole Amount.
"Termination of Service" means a termination of employment or service relationship with the Company or a Related Company for any reason, whether voluntary or involuntary, including by an additional numberreason of sharesdeath, Disability or Retirement. Any question as to whether and when there has been a Termination of Common Stock (the “Additional Shares”) as described in Section 13.1(c)(iii) below.
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Additional Shares Upon Fundamental Change(shares per $1,000 face value of bond)
STOCK PRICE |
| |||||||||||||||||||||||||||||||||||||||||||||||||||
Effective Date |
| $ | 0.16 |
| $ | 0.18 |
| $ | 0.20 |
| $ | 0.22 |
| $ | 0.24 |
| $ | 0.26 |
| $ | 0.28 |
| $ | 0.30 |
| $ | 0.32 |
| $ | 0.34 |
| $ | 0.36 |
| $ | 0.38 |
| $ | 0.40 |
| $ | 0.50 |
| $ | 0.60 |
| $ | 0.70 |
| $ | 0.80 |
|
Nov. 15, 2009 |
| 2,500 |
| 2,222 |
| 2,000 |
| 1,818 |
| 1,667 |
| 1,538 |
| 1,429 |
| 1,333 |
| 750 |
| 706 |
| 667 |
| 632 |
| 600 |
| 480 |
| 400 |
| 343 |
| 300 |
| |||||||||||||||||
Nov. 15, 2010 |
| 2,000 |
| 1,778 |
| 1,600 |
| 1,455 |
| 1,333 |
| 1,231 |
| 1,143 |
| 1,067 |
| 500 |
| 471 |
| 444 |
| 421 |
| 400 |
| 320 |
| 267 |
| 229 |
| 200 |
| |||||||||||||||||
Nov. 15, 2011 |
| 1,500 |
| 1,333 |
| 1,200 |
| 1,091 |
| 1,000 |
| 1,000 |
| 923 |
| 857 |
| 800 |
| 250 |
| 235 |
| 222 |
| 200 |
| 160 |
| 133 |
| 114 |
| 100 |
| |||||||||||||||||
Nov. 15, 2012 |
| 1,000 |
| 889 |
| 800 |
| 727 |
| 667 |
| 615 |
| 571 |
| 533 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| |||||||||||||||||
Nov. 15, 2013 |
| 500 |
| 444 |
| 400 |
| 364 |
| 333 |
| 308 |
| 286 |
| 267 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| |||||||||||||||||
Nov. 15, 2014 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| |||||||||||||||||
The exact Stock Price and Effective Date may not be set forth on the table. In such event if the Stock Price is between two Stock Prices on the table or the Effective Date is between two dates on the table, the Additional Premium will be determined by straight-line interpolation between Additional Premium amounts set forth for the higher and lower Stock Prices and the two dates, as applicable, based on a 365-day year.
A calculation agent (not the Trustee) appointed from time to time by the Company (the “Calculation Agent”) shall, on behalf of and on request by the CompanyCompany's chief human resources officer or the Trustee, calculate (A) the Stock Price and (B) the Make-Whole Premiumother person performing that function or, with respect to such Stock Price, based on the Effective Date specifieddirectors and executive officers, by the CompanyCompensation Committee, whose determination shall be conclusive and binding. Transfer of a Participant's employment or the Trustee, and shall deliver its calculation of the Stock Price and Make-Whole Premium toservice relationship between the Company and the Trustee within three Business Days of the request by the Company or the Trustee. In addition, the Calculation Agent shall, on behalf of and upon request by the Company or the Trustee no less than three Business Days prior to a Repurchase Date, make the determinations described in Section 13.1(e)(i) above and deliver its calculations to the Company or the Trustee by 9 p.m. (New York City time) on the Trading Day preceding the Repurchase Date. The Company, or at the Company’s request, the Trustee in the name and at the expense of the Company, (X) shall notify the Holders of the Stock Price and Make-Whole Premium per $1,000 original principal amount of Securities with respect to a Fundamental Change as part of the Repurchase Event Purchase Notice delivered in connection with the Fundamental Change and (Y) shall notify the Holders promptly by 9 a.m. (New York City time) on the Repurchase Date of the number or amount of such securities, assets or property into which the shares of Common Stock have been converted or exchanged as of the Effective Date to be paid in respect of the Make-Whole Premium in connection with such Fundamental Change, in the manner provided in Section 15.2, and theany Related Company shall also publicly announce such information and publish it on the Company’s web site. Any notice so given shallnot be conclusively presumed to have been duly given, whether or not the Holder receives such notice.
Whenever the Conversion Price shall be adjusted from time to time by the Company pursuant to Section 12.4, the Stock Price Threshold and the Stock Price Cap shall be adjusted and eachconsidered a Termination of the Stock Prices set forth in the Make-Whole Table shall be adjusted by multiplying each such amount by a fraction, the numerator of which is the Conversion Price as so adjusted and the denominator of which is the Conversion Price immediately prior to such adjustments.
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The liens and security interest granted to the Collateral AgentService for the benefit of the Holders pursuant to the Second Lien Security Documents and the exercise of any rights or remedies by the Collateral Agent or any Holder thereunder are subject to the provisions of the Intercreditor Agreement. The Company covenants and agrees, and each Holder of the Securities, by its acceptance thereof covenants and agrees, that the Security Interest securing the Securities is hereby expressly subordinated and junior, to the extent and in the manner set forth in the Intercreditor Agreement, to any Liens securing Senior Secured Indebtedness permissible under this Indenture. Each Holder of Securities, by its acceptance thereof, authorizes and directs the Trustee on such Holder’s behalf to take such actions as may be necessary or appropriate to effectuate the subordination provision provided in this Article 14.
This Indenture is subject to the provisions of the TIA which are required to be part of this Indenture, and shall, to the extent applicable, be governed by such provisions.
Any notice or communication to the Company or the Trustee is duly given if in writing and delivered in person or mailed by first-class mail to the address set forth below:
Vitesse Semiconductor Corporation741 Calle PlanoCamarillo, California 93012Attention: Chief Financial Officer
with a copy to:
Perkins Coie LLP101 Jefferson Drive
Menlo Park, CA 94025
Attention: Bruce McNamara, Esq.
U.S. Bank National AssociationEP-MN-WS3C60 Livingston AvenueSt. Paul, Minnesota 55107-2292Attention: Corporate Trust Department
The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications.
Any notice or communication to a Holder shall be mailed by first-class mail to his address shown on the Register kept by the Registrar. Failure to mail a notice or communication to a Holder or any defect in such notice or communication shall not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed or sent in the manner provided above within the time prescribed, it is duly given as of the date it is mailed, whether or not the addressee receives it, except that notice to the Trustee shall only be effective upon receipt thereof by the Trustee.
If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee at the same time.
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Holders may communicate pursuant to Section 312(b) of the TIA with other Holders with respect to their rights under the Securities or this Indenture. The Company, the Trustee, the Registrar and anyone else shall have the protection of Section 312(c) of the TIA.
Except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments or record or both are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments and record (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the “Act” of the Holders of Securities signing such instrument or instruments and so voting at such meeting. Proof of execution of any such instrument or of a writing appointing any such agent or proxy, or of the holding by any Person of a Security, shall be sufficient for any purpose of this Indenture and (subject to Section 5.1) conclusive in favor of the Trustee and the Company if made in the manner provided in this Section. The record of any meeting of Holders of Securities shall be proved in the manner provided in Section 8.6.
In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.
Any certificate or opinionpurposes of an officerAward. Unless the Compensation Committee determines otherwise, a Termination of the Company may be based, insofar as it relates to legal matters, upon an Opinion of Counsel, unless such officer knows, or in the exercise of reasonable care should know, that the Opinion of Counsel with respect to the matters upon which such certificate or opinion is based is erroneous. Any such Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.
Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers’ Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that
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in the opinion of such Counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished.
Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include:
(1)a statement that each individual signing such certificate or opinion on behalf of the Company has read such covenant or condition and the definitions herein relating thereto;
(2)a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
(3)a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and
(4)a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with.
The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.
All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not.
In case any provision in this Indenture or the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
Nothing contained in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, the holders of Senior Debt and the Holders of Securities, any benefit or legal or equitable right, remedy or claim under this Indenture.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
Each of the parties irrevocably agrees that any legal action or proceeding arising out of or relating to this Indenture brought by the other party or its successors or assigns shall be brought and determined in any New York State or federal court sitting in the Borough of Manhattan in The City of New York (or, if such court lacks subject matter jurisdiction, in any appropriate New York State or federal court), and each of the parties hereby irrevocably submits to the exclusive jurisdiction of the aforesaid courts for itself and with respect to its property, generally and unconditionally, with regard to any such action or proceeding arising out of or relating to this Indenture and the transactions contemplated hereby. Each of the parties agrees not to commence any action, suit or proceeding relating thereto except in the courts described above in New York, other than actions in any court of competent jurisdiction to enforce any judgment, decree or award rendered by any such court in New York as described herein. Each of the parties further agrees that notice as provided herein shall constitute sufficient service of process and the parties further waive any argument that such service is insufficient. Each of the parties hereby irrevocably and unconditionally waives, and agrees not to assert, by way of motion or as a defense, counterclaim or otherwise, in any action or proceeding arising out of or relating to this Indenture or the transactions contemplated hereby, (a) any claim that it
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is not personally subject to the jurisdiction of the courts in New York as described herein for any reason, (b) that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise) and (c) that (i) the suit, action or proceeding in any such court is brought in an inconvenient forum, (ii) the venue of such suit, action or proceeding is improper or (iii) this Indenture, or the subject matter hereof, may not be enforced in or by such courts.
This instrument may be executed in any number of counterparts, each of which when so executedService shall be deemed to beoccur if the Participant's employment or service relationship is with an original but all such counterparts shall together constitute but one and the same instrument.
In any case where any Interest Payment Date, Redemption Date, Repurchase Date or Stated Maturity of any Security or the last day on which a Holder of a Securityentity that has a rightceased to convert such Security shall not be a Business Day at any Place of Payment or Place of Conversion, then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest or principal or premium, if any, or conversion of the Securities, need not be made at such Place of Payment or Place of Conversion on such day, but may be made on the next succeeding Business Day at such Place of Payment or Place of Conversion with the same force and effect as if made on the Interest Payment Date, Redemption Date, Repurchase Date or at the Stated Maturity or on such last day for conversion; provided, however, thatRelated Company. A Participant's change in the case that payment is made on such succeeding Business Day, no interest shall accrue on the amount so payable for the periodstatus from and after such Interest Payment Date, Redemption Date, Repurchase Date or Stated Maturity, as the case may be.
No recourse for the payment of the principal of or premium, if any, or interest on any Security, or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, shareholder, officer or director, as such, past, present or future,an employee of the Company or of any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance thereof and as part of the consideration for the issue thereof, expressly waived and released.
The payment of the principal of and interest and premium, if any, on the Notes when due, whether on an interest payment date, at maturity, by acceleration, repurchase, redemption or otherwise and whether by the Company pursuant to the Notes or by the Guarantor pursuant to its Guaranty, the payment and the performance of all other obligations of the Company and the Guarantors under the Indenture, the Notes and the Guaranty are secured as provided in the Second Lien Security Documents which the Company and the Guarantor have entered into on the date hereof and will be secured by Second Lien Security Documents hereafter delivered as required or permitted by the Indenture. The Company shall, and shall cause each Guarantor to, and each Guarantor shall, make all filings (including filings of continuation statements and amendments to UCC financing statements that may be necessary to continue the effectiveness of such UCC financing statements) and all other actions as are necessary or required by the Second Lien Security Documents to maintain (at the sole cost and expense of the Company and the Guarantors) the security interest created by the Second Lien Security Documents in the Collateral (other than with respect to any Collateral the security interest in which is not required to be perfected under the Security Documents) as a perfected security interest subject only to Permitted Liens.
Subject to Section 5.1, neither the Trustee nor the Collateral Agent nor any of their respective officers, directors, employees, attorneys or agents will be responsible or liable for the existence, genuineness, value or protection of any Collateral, for the legality, enforceability, effectiveness or sufficiency of the Second Lien Security Documents, for the creation, perfection, priority, sufficiency or protection of Security Interest, or for any defect or deficiency as to any such
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matters, or for any failure to demand, collect, foreclose or realize upon or otherwise enforce any of the Second Priority Liens or Second Lien Security Documents or any delay in doing so.
(a) The Company represents that it has caused or will promptly cause to be executed and delivered, filed and recorded and covenants that it will promptly cause to be executed and delivered and filed and recorded, all instruments and documents, and represents that it has done and will do or will cause to be done all such acts and other things, at the Company’s expense, as applicable, as are necessary to subject the applicable Collateral to valid Security Interests and to perfect those Security Interests to the extent contemplated by the Second Lien Security Documents.
(b) The Company shall furnish to the Trustee and the Collateral Agent upon the execution and delivery of this Indenture an Opinion of Counsel either (i) stating that in the opinion of such counsel all action has been taken with respect to the recording, registering and filing of this Indenture, financing statements or other instruments or otherwise necessary to make effective the Security Interests intended to be created by the Second Lien Security Documents and reciting the details of such action, or (ii) stating that, in the opinion of such counsel, no such action is necessary to make such Lien effective. Such Opinion of Counsel may contain such qualifications, assumptions and limitations as are customary for such opinions.
(c) The Company shall furnish to the Trustee and the Collateral Agent within three months after each anniversary of the date hereof, an Opinion of Counsel, dated as of such date, stating either that (i) in the opinion of such counsel, all action has been taken with respect to the recording, filing, re-recording, and re-filing of the Indenture and related financing statements, continuation statements and other instruments and documents as is necessary to maintain the effectiveness of the Security Interests intended to be created by the Second Lien Security Documents and reciting the details of such action or (ii) in the opinion of such counsel, no such action is necessary to maintain the effectiveness of such Security Interests. Such Opinion of Counsel may contain such qualifications, assumptions and limitations as are customary for such opinons.
(d) The Company and the Subsidiary Guarantors shall otherwise comply with the provisions of § 314(b) and, as applicable §§ 314(c), (d) and (e) of the TIA.
Collateral may be released from the Security Interest at any time or from time to time in accordance with the provisions of the TIA, the Second Lien Security Documents and the Intercreditor Agreement. The applicable assets included in the Collateral shall be released at the Company’s sole cost and expense.
The Company shall not, and shall not permit any Subsidiary to, form or acquire any corporation which would thereby become a Domestic Subsidiary unless such Domestic Subsidiary simultaneously executes and delivers to the Collateral Agent, (a) a Joinder Agreement in the form of Exhibit A to the Guaranty, (b) a Joinder Agreement in the form of
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Exhibit A to the Guarantor Security Agreement, (c) such additional documents reasonably required by the Collateral Agent, and (d) no Default of Event of Default shall result from the joinder contemplated herein.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed all as of the day and year first above written.
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FORM OF SECURITY
[FACE OF SECURITY]
[GLOBAL SECURITY LEGEND](1)
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE REFERRED TO HEREIN. THIS GLOBAL SECURITY MAY NOT BE EXCHANGED OR TRANSFERRED, IN WHOLE OR IN PART, FOR A SECURITY REGISTERED IN THE NAME OF ANY PERSON OTHER THAN DTC OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES SET FORTH IN THE INDENTURE. BENEFICIAL INTERESTS IN THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT IN ACCORDANCE WITH THE INDENTURE.
(1)Insert if the Security is a Global Security.
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VITESSE SEMICONDUCTOR CORPORATION
8.0% Convertible Second Lien Debenture due 2014
(the “Debentures”)
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VITESSE SEMICONDUCTOR CORPORATION, a Delaware corporation (the “Company”, which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to or its registered assigns, the principal sum listed on the Schedule of Increases or Decreases in Global Security attached hereto on , 2014.
Interest Payment Dates: April 1 and October 1, commencing April 1, 2010
Regular Record Dates: March 15 and September 15
Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Security to be duly executed manually or by facsimile by its duly authorized officers.
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(2)Insert if the Security is a Global Security.
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[REVERSE OF SECURITY]
VITESSE SEMICONDUCTOR CORPORATION
8.00% Convertible Second Lien Debenture due 2014
Capitalized terms used herein but not defined shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated.
1. Principal and Interest.
Vitesse Semiconductor Corporation, a Delaware corporation (the “Company”), promises to pay interest on the principal amount of this Security at the Interest Rate from October 30, 2009 until repayment at Maturity, redemption or repurchase. The Company will pay interest on this Security semiannually in arrears on April 1 and October 1 of each year (each an “Interest Payment Date”), commencing April 1, 2010.
Interest on the Securities shall be computed (i) for any full semiannual period for which a particular Interest Rate is applicable on the basis of a 360-day year of twelve 30-day months and (ii) for any period for which a particular Interest Rate is applicable shorter than a full semiannual period for which interest is calculated, on the basis of a 30-day month and, for such periods of less than a month, the actual number of days elapsed over a 30-day month.
A Holder of any Security at the close of business on a Regular Record Date shall be entitled to receive interest on such Security on the corresponding Interest Payment Date. A Holder of any Security which is converted after the close of business on a Regular Record Date and prior to the corresponding Interest Payment Date (other than any Security whose Maturity is prior to such Interest Payment Date) shall be entitled to receive interest on the principal amount of such Security, notwithstanding the conversion of such Security prior to such Interest Payment Date. However, any such Holder which surrenders any such Security for conversion during the period between the close of business on such Regular Record Date and ending with the opening of business on the corresponding Interest Payment Date shall be required to pay the Company an amount equal to the interest on the principal amount of such Security so converted, which is payable by theRelated Company to such Holder on such Interest Payment Date, at the time such Holder surrenders such Security for conversion. Notwithstanding the foregoing, any such Holder which surrenders for conversion any Security which has been called for redemption by the Company on a date that is after a Record Date but prior to the corresponding Interest Payment Date in a notice of redemption given by the Company pursuant to Section 10.4 of the Indenture shall be entitled to receive (and retain) such interest and need not pay the Company an amount equal to the interest on the principal amount of such Security so converted at the time such Holder surrenders such Security for conversion.
2. Method of Payment.
Interest on any Security which is payable, and is punctually paidnonemployee director, consultant, advisor, or duly provided for, on any Interest Payment Date shall be paid to the person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest.
Principal of, and premium, if any, and interest on, Global Securities will be payable to the Depositary in immediately available funds.
Principal and premium, if any, on Physical Securities will be payable at the office or agency of the Company maintained for such purpose, initially the Corporate Trust Office of the Trustee. Interest on Physical Securities will be payable by (i) U.S. Dollar check mailed to the address of the Person entitled thereto as such address shall appear in the Register, or (ii) upon application to the Registrar not later than the relevant Record Date by a Holder of an aggregate principal amount in excess of $5,000,000, wire transfer in immediately available funds to an account within the United States, which application will remain in effect until the Holder notifies, in writing, the Registrar to the contrary.
3. Paying Agent and Registrar.
Initially, U.S. Bank National Association, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change the Paying Agent or Registrar without notice to any Holder.
4. Indenture.
The Company issued this Security under an Indenture, dated as of October 30, 2009 (the “Indenture”), between the Company and U.S. Bank National Association, as trustee (the “Trustee”). The terms of the Security include those stated
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in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the “TIA”). This Security is subject to all such terms, and Holders are referred to the Indenture and the TIA for a statement of all such terms. To the extent permitted by applicable law, in the event of any inconsistency between the terms of this Security and the terms of the Indenture, the terms of the Indenture shall control.
5. Optional Redemption.
On or after October 30, 2011, the Company may, at its option, redeem this Security in whole at any time or in part from time to time, on any date prior to Maturity, upon notice as set forth in Section 10.4 of the Indenture, at the Redemption Price (as defined in the Indenture) plus any interest accrued and unpaid to, but excluding, the Redemption Date; if the closing sale price of the Company’s Common Stock (the “Common Stock”) has been at least 130% of the Conversion Price then in effect for at least 20 Trading Days (as defined in the Indenture) during any 30 consecutive Trading Day period.
Securities in original denominations larger than $1,000 may be redeemed in part. If any Security selected for partial redemption is converted in part before termination of the conversion right with respect to the portion of the Security so selected, the converted portion of such Security shall be deemed to be the portion selected for redemption (provided, however, that the Holder of such Security so converted and deemed redeemed shall not be entitled to any additional interest payment as a result of such deemed redemption than such Holder would have otherwise been entitled to receive upon conversion of such Security). Securities which have been converted during a selection of Securities to be redeemed may be treated by the Trustee as Outstanding for the purpose of such selection.
On and after the Redemption Date, interest ceases to accrue on Securities or portions of Securities called for redemption, unless the Company defaults in the payment of the Redemption Price.
Notice of redemption will be given by the Company to the Holders as provided in the Indenture.
6. Repurchase at the Option of a Holder upon a Fundamental Change.
In the event that a Fundamental Change (as defined in the Indenture) (a “Repurchase Event”) shall occur, each Holder shall have the right, at the Holder’s option, but subject to the provisions of Section 12.4 of the Indenture, to require the Company to repurchase, and upon the exercise of such right the Company shall repurchase, all of such Holder’s Securities not previously called for redemption, or any portion of the principal amount thereof that is equal to $1,000 or an integral multiple thereof as directed by such Holder pursuant to Section 11.3 of the Indenture (provided that no single Security may be repurchased in part unless the portion of the principal amount of such Security to be Outstanding after such repurchase is equal to $1,000 or an integral multiple thereof), on a date (the “Repurchase Date”) that is not less than 25 nor more than 35 Business Days after the date of the Repurchase Event Notice (as defined in the Indenture) for an amount equal to the sum of (i) the Repurchase Price plus accrued and unpaid interest, to, but excluding, the Purchase Date (as defined in the Indenture) and (ii) the Make-Whole Premium (as defined in the Indenture) if any; provided, however, that installments of interest on Securities whose Stated Maturity is prior to or on the Fundamental Change Purchase Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such on the relevant Regular Record Date according to their terms and the provisions of Section 2.1 of the Indenture.
The Repurchase Price payable in the event of a Fundamental Change shall be payable by the Company in cash.
7. Conversion Rights.
Subject to and upon compliance with the provisions of the Indenture including the Make-Whole Amount (if applicable), the Holder of Securities is entitled, at such Holder’s option, at any time before the close of business on the Business Day immediately preceding October 30, 2014, to convert the Holder’s Securities (or any portion of the principal amount hereof which is an integral multiple of $1,000), at the principal amount thereof or of such portion, into duly authorized, fully paid and nonassessable shares of Common Stock at the Conversion Price in effect at the time of conversion.
In the case of a Security (or a portion thereof) called for redemption, such conversion right in respect of the Security (or such portion thereof) so called, shall expire at the close of business on the second Business Day preceding the Redemption Date, unless the Company defaults in making the payment due upon redemption; provided, that in no event shall any Holder have less than 20 Business Days from receipt of a notice of redemption to exercise its conversion right in respect of the Security or the portion so called. In the case of a Fundamental Change for which the Holder exercises its Repurchase Right with respect to a Security (or a portion thereof), such conversion right in respect of the Security (or portion thereof) shall expire at the close of business on the Business Day preceding the Repurchase Date.
The Conversion Price shall be initially equal to $.225 per share of Common Stock. The Conversion Price shall be adjusted under certain circumstances as provided in the Indenture.
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To exercise the conversion right, the Holder must surrender the Security (or portion thereof) duly endorsed or assigned to the Company or in blank, at the office of the Conversion Agent, accompanied by a duly signed conversion notice to the Company, with a copy to the Trustee. Any Security surrendered for conversion during the period from the close of business on any Regular Record Date to the opening of business on the corresponding Interest Payment Date (other than any Security whose Maturity is prior to such Interest Payment Date), shall also be accompanied by payment in New York Clearing House funds or other funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of the Securities being surrendered for conversion.
No fractional shares of Common Stock will be issued upon conversion of any Securities. Instead of any fractional share of Common Stock which would otherwise be issued upon conversion of such Securities, the Company shall pay a cash adjustment as provided in the Indenture.
8. Intercreditor Agreement.
The Indebtedness evidenced by this Security is secured by a second priority lien subject only to the liens securing the First Lien Loan Agreement and Permitted Liens. Each Holder of this Security, by accepting the same, agrees to and shall be bound by the provisions of the Intercreditor Agreement.
9. Denominations; Transfer; Exchange.
The Securities are issuable in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000 in excess thereof. A Holder may register the transfer or exchange of Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture.
In the event of a redemption in part, the Company will not be required (a) to register the transfer of, or exchange, Securities for a period of 15 Business Days immediately preceding the date notice is given identifying the serial numbers of the Securities called for such redemption, or (b) to register the transfer of, or exchange, any such Securities, or portion thereof, called for redemption.
In the event of redemption, conversion or repurchase of the Securities in part only, a new Security or Securities for the unredeemed, unconverted or unrepurchased portion thereof will be issued in the name of the Holder hereof.
10. Persons Deemed Owners.
The registered Holder of this Security shall be treated as its owner for all purposes.
11. Unclaimed Money.
The Trustee and the Paying Agent shall pay to the Company any money held by them for the payment of principal, premium, if any, or interest that remains unclaimed for two years after the date upon which such payment shall have become due. After payment to the Company, Holders entitled to the money must look to the Company for payment as general creditors unless an applicable abandoned property law designates another Person, and all liability of the Trustee and such Paying Agent with respect to such money shall cease.
12. Discharge Prior to Redemption or Maturity.
Subject to certain conditions contained in the Indenture, the Company may discharge its obligations under the Securities and the Indenture if (1) (a) all of the Outstanding Securities shall become due and payable at their scheduled Maturity within one year or (b) all of the Outstanding Securities are scheduled for redemption within one year, and (2) the Company shall have deposited with the Trustee money and/or U.S. Government Obligations sufficient to pay the principal of, and premium, if any, and interest on, all of the Outstanding Securities on the date of Maturity or redemption, as the case may be.
13. Amendment; Supplement; Waiver.
The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Outstanding Securities (or such lesser amount as shall have acted at a meeting pursuant to the provisions of the Indenture). The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities at the time Outstanding, on behalf of the Holders of all the Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the
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Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security or such other Security.
No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and premium, if any, and interest on this Security at the times, places and rate, and in the coin or currency, herein prescribed or to convert this Security (or pay cash in lieu of conversion) as provided in the Indenture.
14. Defaults and Remedies.
The Indenture provides that an Event of Default with respect to the Securities occurs when any of the following occurs:
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15. Authentication.
This Security shall not be valid untilconsidered a Termination of Service.
"Vesting Commencement Date" means the Trustee (or authenticating agent) executes the certificate of authentication on theGrant Date or such other side of this Security.
16. Abbreviations.
Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors Act).
17. [Intentionally Omitted].
18. CUSIP Numbers.
Pursuant to a recommendation promulgateddate selected by the Committee on Uniform Security Identification Procedures,as the Company has caused CUSIP numbersdate from which an Award begins to be printed on this Security and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on this Security or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon.
19. Governing Law.vest.
The Indenture and this Security shall be governed by, and construed in accordance with, the law of the State of New York.
20. Successor Corporation.
In the event a successor corporation assumes all the obligations of the Company under this Security, pursuant to the terms hereof and of the Indenture, the Company will be released from all such obligations.
21. Counterparts.
This Security may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original but all such counterparts shall together constitute but one and the same instrument.
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ASSIGNMENT FORM
To assign this Security, fill in the form below and have your signature guaranteed:(I) or (we) assign and transfer this Security to:
(Insert assignee’s soc. sec. or tax I.D. no.)
(Print or type assignee’s name, address and zip code)
and irrevocably appoint to transfer this Security on the books of the Company. The agent may substitute another to act for him.
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The Trustee or other Registrar shall not be obligated to register this Security in the name of any Person other than the Holder hereof unless the conditions to any such transfer of registration set forth herein and in Sections 2.7, 2.8 and 2.9 of the Indenture shall have been satisfied.
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*Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).
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FORM OF REPURCHASE EVENT PURCHASE NOTICE
TO:VITESSE SEMICONDUCTOR CORPORATION741 Calle PlanoCamarillo, California 93012Attn: Chief Financial Officer
The undersigned registered owner of this Security hereby irrevocably acknowledges receipt of a notice from Vitesse Semiconductor Corporation (the “Company”) as to the occurrence of a Fundamental Change with respect to the Company and requests and instructs the Company to repay the entire principal amount of this Security, or the portion thereof (the principal amount of which is an integral multiple of $1,000) below designated, in accordance with the terms of the Indenture referred to in this Security, together with interest accrued and unpaid to, but excluding, such date, to the registered Holder hereof.
The undersigned represents that, immediately following the repurchase described above, the undersigned will not own outstanding shares constituting more than 9.99% of the outstanding shares of Common Stock.
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*Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).
B-74
FORM OF CONVERSION NOTICE
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The undersigned registered owner of this Security hereby irrevocably exercises the option to convert this Security, or the portion hereof (the principal amount of which is an integral multiple of $1,000) below designated, into shares of Common Stock in accordance with the terms of the Indenture referred to in this Security, and directs that the shares issuable and deliverable upon such conversion, together with any check in payment for fractional shares and any Securities representing any unconverted principal amount hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If shares or any portion of this Security not converted are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Any amount required to be paid to the undersigned on account of interest accompanies this Security.
The undersigned represents that, immediately following the conversion described above, the undersigned will not own outstanding shares constituting more than 9.99% of the outstanding shares of Common Stock.
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Fill in for registration of shares (if to be issued) and Securities (if to be delivered) other than to and in the name of the registered holder:
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*Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).
B-75
FORM OF FUNDAMENTAL CHANGE NOTICE
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The undersigned registered owner of this Security hereby irrevocably exercises the option to convert this Security, or the portion hereof (the principal amount of which is an integral multiple of $1,000) below designated, into shares of Common Stock in accordance with the terms of the Indenture referred to in this Security, and directs that the shares issuable and deliverable upon such conversion, together with any check in payment for fractional shares and any Securities representing any unconverted principal amount hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If shares or any portion of this Security not converted are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Any amount required to be paid to the undersigned on account of interest accompanies this Security.
The undersigned represents that, immediately following the conversion described above, the undersigned will not own outstanding shares constituting more than 9.99% of the outstanding shares of Common Stock.
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Fill in for registration of shares (if to be issued) and Securities (if to be delivered) other than to and in the name of the registered holder:
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*Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).
B-76
The initial principal amount of this Global Security is $ . The following increases or decreases of a part of this Global Security have been made:
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B-77
Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. X |
PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. Notice of |