SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_CONFIDENTIAL,]FOR USE OF THE
[_]Preliminary Proxy Statement COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X]Definitive Proxy Statement
[_]Definitive Additional Materials
[_]Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
VITESSE SEMICONDUCTOR CORPORATION
-----------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X]No fee required.
[_]$125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_]$500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_]Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_]Fee paid previously with preliminary materials.
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
VITESSE SEMICONDUCTOR CORPORATION
741 Calle Plano
Camarillo, CA 93012
(805) 388-3700
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
ON JANUARY 26, 1999
DEAR VITESSE SHAREHOLDER:
On TUESDAY, JANUARY 26, 1999, Vitesse Semiconductor Corporation, a Delaware
corporation, will hold its 1999 Annual Meeting of Shareholders at the Hyatt
Westlake Plaza Hotel located at 880 South Westlake Boulevard, Westlake Village,
California 91361. The meeting will begin at 10:30 a.m.
Only shareholders who owned stock at the close of business on DECEMBER 7, 1998
can vote at this meeting or any adjournments that may take place. At the
meeting we will:
1. Elect a Board of Directors.
2. Approve the appointment of our independent auditors for 1999.
3. Attend to other business properly presented at the meeting.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF THE TWO PROPOSALS
OUTLINED IN THIS PROXY STATEMENT.
At the meeting we will also report on Vitesse's 1998 business results and other
matters of interest to shareholders.
Vitesse recently mailed a copy of its 1998 Annual Report to all shareholders.
The approximate date of mailing for this notice, proxy statement and proxy card
is December 17, 1998.
THE BOARD OF DIRECTORS
December 17, 1998
Camarillo, California
VITESSE SEMICONDUCTOR CORPORATION
PROXY STATEMENT
----------------------------------
ANNUAL MEETING OF SHAREHOLDERS
January 26, 1999
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors (the "Board") of Vitesse Semiconductor Corporation (the
"Company") of proxies to be voted at the Annual Meeting of Shareholders to be
held on Tuesday, January 26, 1999, at 10:30 a.m., and at any adjournment that
may take place.
The Annual Meeting will be held at the Hyatt Westlake Plaza Hotel located at
880 South Westlake Boulevard, Westlake Village, California 91361. The Company
anticipates sending the proxy materials to shareholders on or about December
17, 1998.
The following is important information in a question-and-answer format
regarding the Annual Meeting and this Proxy Statement.
Q: WHAT MAY I VOTE ON?
A: (1) The election of five nominees to serve on our Board of Directors;
(2) The approval of the appointment of our independent auditors for 1999;
AND
(3) Any other business properly presented at the meeting.
Q: HOW DOES THE BOARD RECOMMEND I VOTE ON THE PROPOSALS?
A: The Board recommends a vote FOR each of the nominees and FOR the appointment
of KPMG Peat Marwick LLP as independent auditors for 1999.
Q: WHO IS ENTITLED TO VOTE?
A: Shareholders as of the close of business on December 7, 1998 (the "Record
Date") are entitled to vote at the Annual Meeting. Each shareholder is
entitled to one vote for each share of common stock held on the Record Date.
As of the Record Date, 74,212,744 shares of the Company's common stock were
issued and outstanding.
Q: HOW DO I VOTE?
A: You may vote in person at the Annual Meeting or by signing and dating each
proxy card you receive and returning it in the prepaid envelope.
Q: HOW CAN I CHANGE MY VOTE OR REVOKE MY PROXY?
A: You have the right to revoke your proxy and change your vote at any time
before the meeting by notifying the Company's Secretary, or returning a
later-dated proxy card. You may also revoke your proxy and change your vote
by voting in person at the meeting.
Q: WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD?
A: It means you hold shares registered in more than one account. Sign and
return all proxies to ensure that all your shares are voted.
1
Q: WHO WILL COUNT THE VOTE?
A: Representatives of Boston EquiServe, the Company's transfer agent, will
count the votes and act as the inspector of election. The Company believes
that the procedures to be used by the Inspector to count the votes are
consistent with Delaware law concerning voting of shares and determination
of a quorum.
Q: WHAT IS A "QUORUM"?
A: A "quorum" is a majority of the outstanding shares. They may be present at
the meeting or represented by proxy. There must be a quorum for the meeting
to be held and action to be validly taken. If you submit a properly executed
proxy card, even if you abstain from voting, then you will be considered
part of the quorum. Abstentions are not counted in the tally of votes FOR or
AGAINST a proposal. A withheld vote is the same as an abstention. If a
broker indicates on a proxy that it does not have discretionary authority as
to certain shares to vote on a particular matter (broker non-votes), those
shares will not be counted as present with respect to that matter for
purposes of establishing a quorum.
Q: WHO CAN ATTEND THE ANNUAL MEETING?
A: All shareholders as of the Record Date can attend. If your shares are held
in the name of a broker or other nominee, please bring proof of share
ownership with you to the Annual Meeting. A copy of your brokerage account
statement or an omnibus proxy (which you can get from your broker) will
serve as proof of share ownership.
Q: HOW WILL VOTING ON ANY OTHER BUSINESS BE CONDUCTED?
A: We do not know of any other business to be considered at the 1999 Annual
Meeting other than the proposals described in this proxy statement. However,
because the Company did not receive notice of any other proposals to be
brought before the meeting by October 28 (45 days prior to the month and day
of last year when proxy materials for the 1998 Annual Meeting were mailed to
stockholders), if any other business is properly presented at the Annual
Meeting, your signed proxy card gives authority to Pierre R. Lamond,
Vitesse's Chairman, and Louis R. Tomasetta, Vitesse's President and Chief
Executive Officer, to vote on such matters at their discretion.
Q: WHO ARE THE LARGEST PRINCIPAL SHAREHOLDERS?
A: Fidelity Management and Research Corporation owned 7,959,000 shares, or
10.8% as of September 30, 1998, according to information provided by
Fidelity Management and Research Corporation. Janus Capital Corporation
owned 7,290,185 shares, or 9.9% as of September 30, 1998, according to
information provided by Janus Capital Corporation.
Q: HOW AND WHEN MAY I SUBMIT PROPOSALS FOR THE 2000 ANNUAL MEETING?
A: To have your proposal included in the Company's proxy statement for the 2000
Annual Meeting, you must submit your proposal in writing by August 19, 1999,
to the Company's Secretary, c/o Vitesse Semiconductor Corporation, 741 Calle
Plano, Camarillo, California 93012.
If you submit a proposal for the 2000 Annual Meeting after November 2,
1999, the proxy for the 2000 Annual Meeting may confer upon management
discretionary authority to vote on your proposal.
2
You should also be aware of certain other requirements you must meet to
have your proposal included in the Company's Proxy Statement for the 2000
Annual Meeting that are explained in Rule 14a-8 promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of
1934.
Q: HOW MUCH DID THIS PROXY SOLICITATION COST?
A: Corporate Investor Communications, Inc. was hired to assist in the
distribution of proxy materials and solicitation of votes for $5,000, plus
certain out-of-pocket expenses. We also reimburse brokerage houses and
persons representing beneficial owners of shares for their reasonable out-
of-pocket expenses in forwarding solicitation materials to such beneficial
owners. Certain of the Company's directors, officers or employees may also
solicit proxies in person or by telephone, but they will not receive any
additional compensation for doing so.
3
PROPOSALS YOU MAY VOTE ON
1.ELECTION OF DIRECTORS
The Company has nominated five (5) candidates for election to the Board
this year. Detailed information on each of the Company's nominees is
provided on page 5. All directors are elected annually and serve a one-year
term until the next Annual Meeting. If any director is unable to stand for
re-election, the Board may reduce the size of the Board, designate a
substitute or leave a vacancy unfilled. If a substitute is designated,
proxies voting on the original director candidate will be cast for the
substituted candidate. We expect that each nominee listed on page 5 will be
able and will not decline to serve as a director.
VOTE REQUIRED; RECOMMENDATION OF THE BOARD OF DIRECTORS
With respect to the election of directors, the five candidates receiving
the highest number of FOR votes shall be elected to the Company's Board of
Directors. An abstention will have the same effect as a vote withheld for
the election of directors, and, pursuant to Delaware law, a broker non-vote
will not be treated as voting in person or by proxy on the proposal.
YOUR BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THESE DIRECTORS.
2.APPROVAL OF THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS INDEPENDENT AUDITORS
The Audit Committee has recommended, and the Board has approved, the
appointment of KPMG Peat Marwick LLP ("KPMG") as our independent auditors
for fiscal 1999 subject to your approval. KPMG has served as our
independent auditors since 1991. Representatives of KPMG will attend the
Annual Meeting to answer appropriate questions. They also may make a
statement.
Audit services provided by KPMG during fiscal 1998 included an audit of the
Company's consolidated financial statements, a review of the Company's
Annual Report and certain other filings with the Securities and Exchange
Commission ("SEC") and certain other governmental agencies. In addition,
KPMG provided various non-audit services to the Company during 1998.
VOTE REQUIRED; RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors has conditioned its appointment of the Company's
independent auditors upon the receipt of the affirmative vote of a majority
of the shares represented, in person or by proxy, and voting at the Annual
Meeting, which shares voting affirmatively also constitute at least a
majority of the required quorum. In the event that the shareholders do not
approve the selection of KPMG Peat Marwick LLP, the appointment of the
independent auditors will be reconsidered by the Board of Directors.
YOUR BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF APPOINTMENT OF
KPMG PEAT MARWICK LLP AS INDEPENDENT AUDITORS FOR 1999.
4
NOMINEES FOR THE BOARD OF DIRECTORS
PIERRE R. LAMOND Director since 1987
Age 68
Mr. Lamond has been the Chairman of the Board of Directors since the Company
was founded in February 1987. Since December 1981, he has been a General
Partner of Sequoia Capital, a venture capital firm. Sequoia has financed
companies such as Cypress Semiconductor Corporation, Cisco Systems, Inc., and
C-Cube Microsystems, Inc. Mr. Lamond was founder and Vice President of National
Semiconductor Corporation. He is also a director of CKS Group and CombiChem.
JAMES A. COLE Director since 1987
Age 56
Mr. Cole has been a General Partner of Windward Ventures since 1997 and he has
been a General Partner of Spectra Enterprise Associates since 1986. He was a
founder and Executive Vice President of Amplica, Inc., a GaAs microwave IC and
sub-system company. Mr. Cole also serves as a director of Giga-Tronics, Inc.
and Spectrian Corporation.
ALEX DALY Director since 1998
Age 37
Mr. Daly has been President and Chief Executive Officer of Cygnus Solutions, a
developer of software tools, since February 1998. From 1995 to 1998 he served
as Vice President of Sales & Marketing at C-Cube Microsystems, Inc., a
developer of digital video communications products. From 1990 to 1995, he
served at Intel Corporation, a semiconductor company, most recently as director
of marketing for the mobile computing group.
JOHN C. LEWIS Director since 1990
Age 63
Mr. Lewis is Chairman of the Board of Directors of Amdahl Corporation, a
manufacturer of large, general purpose computer storage systems and software
products where he has been since 1977. Before joining Amdahl in 1977, he was
President of Xerox Business Systems. Mr. Lewis also serves as a director of
Cypress Semiconductor Corporation and Pinnacle Systems.
LOUIS R. TOMASETTA Director since 1987
Age 50
Dr. Tomasetta, a co-founder of the Company, has been President, Chief Executive
Officer and a Director since the Company's inception in February 1987. From
1984 to 1987, he served as President of the integrated circuits division of
Vitesse Electronics Corporation. Prior to that he was the director of the
Advanced Technology Implementation department at Rockwell International
Corporation. Dr. Tomasetta has over 25 years experience in the management and
development of GaAs based businesses, products, and technology.
5
BOARD MEETINGS AND COMMITTEES
The Company's Board usually meets five times a year in regularly scheduled
meetings, but will meet more often if necessary. The Board held five meetings
during fiscal 1998 and all of the directors attended at least 75% of the Board
meetings of which they were members.
The full Board considers all major decisions of the Company. However, the Board
has established the following two standing committees, each of which is chaired
by an outside director:
.COMPENSATION COMMITTEE
The Compensation Committee reviews and approves officers' salaries and
employee compensation programs. During fiscal 1998, the Committee, which
currently consists of James A. Cole, Alex Daly and Pierre R. Lamond, met at
the same times as the Board of Directors met as a whole and all members
attended at least 75% of the meetings.
.THE AUDIT COMMITTEE
The Audit Committee reviews and evaluates the Company's accounting
principles and its system of internal accounting controls. It also
recommends the appointment of the Company's independent auditors and
approves the services performed by the auditors. The Committee, which
currently consists of James A. Cole, Pierre R. Lamond and John C. Lewis,
met four times during fiscal 1998 and all members attended at least 75% of
the meetings.
The Board currently has no nominating committee or committee performing a
similar function.
6
DIRECTOR COMPENSATION
Non-employee directors receive $2,000 for each Board meeting attended in person
and $1,000 for each meeting attended by telephone. Directors are also
reimbursed for customary and usual travel expenses.
Non-employee directors participate in two of the Company's stock option plans.
Messrs. Cole, Lamond and Lewis have been granted options to purchase common
stock under the Company's 1989 Stock Option Plan and all non-employee directors
participate in the 1991 Directors' Stock Option Plan (the "Directors' Plan").
Under the Directors' Plan, upon first becoming a director, each non-employee
director receives non-statutory options to purchase 30,000 shares (except for
the Chairman, who receives options to purchase 45,000 shares). Additionally,
every year on January 1 each director receives options to purchase 30,000
shares (except for the Chairman who receives options to purchase 45,000
shares). The size of the foregoing option grants are adjusted to reflect the
effects of stock splits, stock dividends, stock combinations and the like.
These options are for a ten-year term and become available for purchase in
installments of two percent of the total number of shares granted at the end of
each month beginning January 31 after the date of grant. The exercise price of
the options must be at least 100% of the fair market value of the common stock
on the Nasdaq National Market on the date of grant of the option. The options
may be exercised only (1) while the individual is serving as a director on the
Board, (2) within six months after termination by death or disability, or (3)
within three months after the individual's term as director ends.
During fiscal 1998, Mr. Lamond was granted an option to purchase 45,000 shares
of common stock and Messrs. Cole, Daly and Lewis each were granted an option to
purchase 30,000 shares of common stock at an exercise price of $18.875.
Employee directors receive no additional compensation for serving on the Board.
7
STOCK PERFORMANCE GRAPH
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
The following performance graph compares the cumulative total shareholder
return on the Company's common stock with the NASDAQ Stock Market-U.S. Index
and the NASDAQ Electronic Components Index from market close on the last
trading day in September 1993 through September 30, 1998. The graph is based on
the assumption that $100 was invested in each of the Company's common stock,
the NASDAQ Stock Market-U.S. Index and the NASDAQ Electronic Components Index
on September 30, 1993.
The stock price performance graph depicted below shall not be deemed
incorporated by reference by any general statement incorporating by reference
this proxy statement into any filing under the Securities Act of 1933 or under
the Securities Exchange Act of 1934. The stock price performance on the graph
is not necessarily an indicator of future price performance.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG VITESSE SEMICONDUCTOR CORPORATION, NASDAQ STOCK MARKET
(U.S.) AND NASDAQ ELECTRONIC COMPONENTS
PERFORMANCE GRAPH APPEARS HERE
VITESSE NASDAQ NASDAQ
Measurement Period SEMICONDUCTOR STOCK ELECTRONIC
(Fiscal Year Covered) CORPORATION MARKET (U.S.) COMPONENTS
- ------------------- ------------- ------------- ----------
Measurement Pt- Sept. 1993 $ 100 $100 $100
FYE Sept. 1994 $ 123.53 $100.83 $ 97.28
FYE Sept. 1995 $ 335.29 $139.28 $193.94
FYE Sept. 1996 $ 908.82 $165.24 $230.63
FYE Sept. 1997 $1,749.26 $226.81 $405.45
FYE Sept. 1998 $1,667.65 $231.84 $323.52
*100 INVESTED ON 9/30/93 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING SEPTEMBER 30.
8
PRINCIPAL OWNERSHIP
OF VITESSE SEMICONDUCTOR CORPORATION
COMMON STOCK
The following table shows the number of shares of Company common stock owned as
of September 30, 1998 by the directors, the Named Executive Officers listed on
page 10, all directors and officers as a group, and holders known to the
Company of at least 5% of the Company's common stock.
PRINCIPAL STOCK OWNERSHIP
TOTAL SHARES
SHARES BENEFICIALLY OWNED
EXERCISABLE PLUS EXERCISABLE
NAME OF INDIVIDUALS OR SHARES OWNED WITHIN 60 DAYS OF WITHIN 60 DAYS OF PERCENT
IDENTITY OF GROUP BENEFICIALLY SEPT. 30, 1998 SEPT. 30, 1998 OF TOTAL
- ---------------------- ------------ ----------------- ------------------ --------
Fidelity Management and
Research Corporation 7,959,000 -- 7,959,000 10.8%
82 Devonshire Street
Boston, MA 02109-3614
Janus Capital
Corporation 7,290,185 -- 7,290,185 9.9%
100 Fillmore Street
Denver, CO 80206-4928
Louis R. Tomasetta(/1/) 437,109 117,656 554,765 *
Neil J. Rappaport 110,606 137,500 248,106 *
Pierre R. Lamond 80,000 19,800 99,800 *
John C. Lewis 49,998 46,800 96,798 *
James A. Cole 16,850 67,200 84,050 *
Michael S. Millhollan 24,667 37,960 62,627 *
Eugene F. Hovanec 37,645 16,494 54,139 *
Robert R. Nunn 36,939 5,248 42,187 *
Alex Daly 0 6,000 6,000 *
All executive officers
and directors as a
group (16 persons) 1,186,041 991,718 2,177,759 3.0%
* Less than 1%
(/1/Includes)an aggregate of 10,500 shares held by Dr. Tomasetta as custodian
for James L. Tomasetta, and 33,500 shares held for each of Kathleen A. and
Susan A. Tomasetta, pursuant to the Transfer to Minors Act and as to which
Dr. Tomasetta has voting and investment power.
9
COMPENSATION OF EXECUTIVE OFFICERS
The following is a summary of information regarding compensation paid to the
Chief Executive Officer and the four most highly compensated executive officers
other than the Chief Executive Officer who were serving as executive officers
as of September 30, 1998. These five individuals are the "Named Executive
Officers."
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------- ------------
NUMBER OF
SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING
POSITION YEAR SALARY BONUS COMPENSATION(/3/) OPTIONS
- ------------------ ---- -------- -------- ----------------- ------------
LOUIS R. TOMASETTA 1998 $200,000 $139,600(/1/) -- 450,000
President & Chief 1997 200,000 67,200(/1/) -- 300,000
Executive Officer 1996 160,000 2,168(/1/) $36,923(/4/) 150,000
EUGENE F. HOVANEC 1998 180,000 111,694(/1/) -- 105,000
Vice President, Finance 1997 180,000 63,000(/1/) -- 60,000
& Chief Financial
Officer 1996 150,000 2,019(/1/) -- 90,000
NEIL J. RAPPAPORT 1998 150,000 166,288(/2/) 28,615(/4/) 90,000
Vice President, Sales 1997 150,000 194,693(/2/) -- 60,000
1996 125,000 115,235(/2/) 9,985(/4/) 90,000
MICHAEL S. MILLHOLLAN 1998 150,000 89,745(/1/) -- 90,000
Vice President & General 1997 150,000 58,800(/1/) -- 60,000
Manager, Data
Communications 1996 140,000 1,885(/1/) -- 75,000
ROBERT R. NUNN 1998 147,115 77,796(/1/) -- 90,000
Vice President & General 1997 150,000 58,800(/1/) -- 60,000
Manager,
Telecommunications 1996 140,000 1,897(/1/) -- 75,000
(/1/Represents)amounts paid under the Company's bonus plan.
(/2/Represents)bonuses paid to Mr. Rappaport under the Company's sales
commission plan.
(/3/Excludes)certain expenses which, for any Named Executive Officer, did not
exceed the lesser of $50,000 or 10% of the compensation reported in the
above table, and which, for all Named Executive Officers as a group, did
not exceed the lesser of $50,000 times the number of Named Executive
Officers or 10% of all Named Executive Officers' annual salaries and
bonuses reported in the above table.
(/4/Primarily)represents payment of accrued vacation to Mr. Rappaport and Mr.
Tomasetta.
10
OPTION GRANT TABLE
The following table presents additional information concerning the option
awards shown in the Summary Compensation Table for fiscal year 1998. These
options to purchase common stock were granted to the Named Executive Officers
under the Company's 1989 and 1991 Employee Stock Option Plans.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE ASSUMED ANNUAL
RATE OF
STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(/1/)
- ----------------------------------------------------------------- ----------------------
% OF TOTAL
OPTIONS
GRANTED TO EXERCISE
NUMBER EMPLOYEES OR BASE
OF OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED YEAR PER SHARE DATE 5% 10%
- ---- ---------- ---------- --------- ---------- ---------- -----------
Louis R. Tomasetta 450,000 15.15% $18.875 01/01/08 $5,341,674 $13,536,850
Eugene F. Hovanec 105,000 3.54% 18.875 01/01/08 1,246,391 3,158,598
Neil J. Rappaport 90,000 3.03% 18.875 01/01/08 1,068,335 2,707,370
Michael S. Millhollan 90,000 3.03% 18.875 01/01/08 1,068,335 2,707,370
Robert R. Nunn 90,000 3.03% 18.875 01/01/08 1,068,335 2,707,370
(/1/These)dollar amounts are not intended to forecast future appreciation of
the common stock price. Named Executive Officers will not benefit unless
the common stock price increases above the stock option exercise price. Any
gain to the Named Executive Officers resulting from common stock price
appreciation would benefit all shareholders of the common stock.
11
AGGREGATED OPTION EXERCISES AND YEAR-END VALUES
The following table shows information for the Named Executive Officers
concerning stock options exercised during fiscal 1998 and stock options
unexercised at the end of fiscal year 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF VALUE OF UNEXERCISED
NUMBER OF UNEXERCISABLE IN-THE-MONEY
SHARES OPTIONS AT FY-END OPTIONS AT FY-END
ACQUIRED VALUE(/1/) ------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------- ----------- ------------- ----------- -------------
Louis R. Tomasetta 180,500 $4,569,655 117,656 862,500 $1,840,045 $8,899,200
Eugene F. Hovanec 125,000 2,474,218 16,494 236,670 215,318 2,878,496
Neil J. Rappaport 37,136 786,691 137,500 225,000 2,849,783 2,873,430
Michael S. Millhollan 78,750 1,944,033 37,960 240,000 641,955 3,221,708
Robert R. Nunn 95,002 2,187,453 5,248 239,998 104,304 3,221,668
(/1/Value)realized is the difference between the option exercise price and the
fair market value of the Company's common stock at the date of exercise
multiplied by the number of options exercised.
12
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors consists of three non-
employee directors. The Committee reviews and approves salaries, bonuses and
other benefits payable to the Company's executive officers. It also administers
the Company's employee stock option plans.
COMPENSATION GOALS
The Compensation Committee establishes compensation for executive officers to
align with business objectives and performance and to attract, retain and
reward executive officers who contribute to the long-term success of the
Company. The Company's compensation programs, including those for executive
officers, share these characteristics:
. The Company pays competitively. The Company offers a compensation program,
including competitive base salaries and, where appropriate, relocation
benefits, to attract and retain the best people in the industry. To ensure
that pay is competitive, the Company reviews the compensation practices of
other leading companies in the industry.
. The Company pays for relative sustained performance. Executive officers are
rewarded based upon corporate, departmental, and individual performance.
Corporate and departmental performance are evaluated by reviewing whether
strategic and business plan goals are met. Individual performance is
evaluated by measuring organizational progress against set objectives.
. The Company strives for fairness to achieve a balance in compensation paid
to the executives within the Company and in comparable companies. It
believes that the contributions of each member of the executive staff are
vital to the success of the Company.
. The Company believes that employees should understand the performance
evaluation and compensation programs. At the beginning of the performance
cycle, key quarterly and annual objectives are set for each officer. The
chief executive officer gives ongoing feedback on performance to each
officer. At the end of the performance cycle, the Compensation Committee
evaluates the accomplishments of the key objectives in making its decisions
on merit increases and stock option grants.
COMPENSATION COMPONENTS
The Company's compensation program, which consists of cash- and equity-based
compensation, allows the Company to attract and retain highly skilled officers,
provide useful products and services to customers, enhance shareholder value,
motivate technological innovation, and reward executive officers and other
employees. The components are:
Cash-Based Compensation:
. Salary The Committee sets base salary for officers by reviewing the
compensation levels for similar positions in comparable companies in the
industry.
. Bonus Under the Company's 1998 bonus plan, bonuses for eligible executive
officers are to be paid as a percentage of their base salary and on the
basis of the achievement of certain corporate financial goals. The bonuses
actually earned by each individual during fiscal 1998 are to be paid in
fiscal 1999 and 2000.
13
. Commission The Vice President of Sales participates in the Company's sales
commission plan along with most of the Company's sales personnel. Under this
plan, participants receive commissions based on achieving certain billings
targets.
Equity-Based Compensation:
Stock options provide additional incentives to officers to work to maximize
shareholder value. The options become available for purchase over a defined
period to encourage officers to continue their employment with the Company. In
line with its compensation philosophy, the Company grants stock options to
employees at all levels of the organization based on each individual's
contribution to the Company.
CHIEF EXECUTIVE OFFICER COMPENSATION
Louis R. Tomasetta has been President and Chief Executive Officer of the
Company since its incorporation in 1987. His total compensation consists of
base salary, bonus and employee stock options. In determining Mr. Tomasetta's
compensation, the Committee evaluates:
.Corporate performance
.His individual performance
.Compensation paid to other executive officers of the Company
.Compensation paid to chief executive officers of comparable companies
For fiscal year 1998, Mr. Tomasetta's salary was $200,000. He received non-
statutory options to purchase 450,000 shares of common stock under the
Company's 1989 and 1991 Stock Option Plans at an exercise price of $18.875.
These options are for a ten-year term and become available to purchase in
annual installments of 16.67% of the total number of shares granted beginning
on January 1, 1999. Mr. Tomasetta's equity ownership in the Company includes of
437,109 shares of common stock and stock options to purchase an additional
980,156 shares. He shares significantly in the success of the Company's
business with the other shareholders.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Pierre R. Lamond
James A. Cole
Alex Daly
14
OTHER MATTERS
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of non-employee directors only. Pierre R.
Lamond, Chairman of the Board of the Company, was Chairman of the Board of
Directors and a member of the Compensation Committee of the Board of Directors
of Cypress Semiconductor Corporation ("Cypress") until his retirement in June
1998. Thurman J. Rodgers, President and Chief Executive Officer of Cypress, was
a member of the Company's Board until his retirement in April 1998. Neither the
Company nor Cypress treats Chairman of the Board as an officer of the
corporation for compensation purposes. Mr. Lamond is a general partner of a
venture capital firm that invested in the Company prior to its initial public
offering in 1991.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on a review of forms filed or written notice that no annual forms were
required, the Company believes that from October 1, 1997 to September 30, 1998,
all SEC filings of its officers, directors and ten percent shareholders
complied with the requirements of Section 16 of the Securities Exchange Act.
OTHER
The Company knows of no other matters to be presented for consideration at the
meeting. If any other matters properly come before the meeting, the persons
named in the enclosed proxy card intend to vote the shares they represent as
the Company may recommend.
THE BOARD OF DIRECTORS
Camarillo, California
December 17, 1998
15
PROXY
VITESSE SEMICONDUCTOR CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 26, 1999
The undersigned shareholder of Vitesse Semiconductor Corporation, a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement, each dated December 17, 1998, and hereby
appoints Louis R. Tomasetta and Eugene F. Hovanec, and each of them, with full
power of substitution, as Proxy or Proxies, to vote all shares of the Common
Stock of the undersigned at the Annual Meeting of Shareholders of Vitesse
Semiconductor Corporation to be held on January 26, 1999, and at any
adjournments thereof, upon the proposals set forth on this form of proxy and
described in the Proxy Statement, and in their discretion with respect to such
other matters as may be properly brought before the meeting or any adjournments
thereof.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR THE
NOMINEES NAMED IN PROPOSAL 1 AND FOR PROPOSAL 2, AS MORE SPECIFICALLY DESCRIBED
IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS PROXY WILL
BE VOTED IN ACCORDANCE THEREWITH.
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
[X] PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR NAMED BELOW
AND A VOTE FOR PROPOSAL 2.
1. To elect five directors of the Company to serve for the ensuing one year
until the Company's 2000 Annual Meeting of Shareholders and until their
successors are elected.
Nominees: Pierre R. Lamond, James A. Cole, Alex Daly, John C. Lewis,
Louis R. Tomasetta
FOR [_] [_] WITHHELD
[_] ______________________________________
For all nominees except as noted above
2. To ratify the selection of KPMG Peat Marwick LLP as the Company's
independent auditor for the fiscal year ending September 30, 1999.
FOR AGAINST ABSTAIN
[_] [_] [_]
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [_]
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE
WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
Please sign exactly as your name appears hereon. If the stock is registered in
the names of two or more persons, each should sign. Executors, administrators,
trustees, guardians and attorneys-in-fact should add their titles. If the signer
is a corporation, please give full corporate name and have a duly authorized
officer sign stating title. If the signer is a partnership, please sign in
partnership name by authorized person.
Signature:______________ Date:________ Signature:_______________ Date:________