LSI LOGIC CORP, PRE 14A, 1997-02-25

LSI LOGIC CORP
PRE 14A, 1997-02-25
SEMICONDUCTORS & RELATED DEVICES

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<PAGE> 1

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>

LSI LOGIC CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

(2) Aggregate number of securities to which transaction applies:

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):

(4) Proposed maximum aggregate value of transaction:

(5) Total fee paid:

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

(2) Form, Schedule or Registration Statement No.:

(3) Filing Party:

(4) Date Filed:

_
<PAGE> 2

LSI LOGIC CORPORATION

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 6, 1997

To the Stockholders:

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of LSI Logic
Corporation (the "Company"), a Delaware corporation, will be held on May 6, 1997
at 1:00 p.m., local time, at the Company's facility located at 23400 N.E. Glisan
Street, Gresham, Oregon 97030 for the following purposes:

1. To elect directors to serve for the ensuing year and until their
successors are elected.

2. To approve an amendment to the Company's Employee Stock Purchase
Plan (the "Purchase Plan") to increase the number of shares of Common Stock
reserved for issuance pursuant to the Purchase Plan in fiscal 1997 by
.

3. To approve an amendment to the Company's Employee Stock Purchase
Plan (the "Purchase Plan") to increase the number of shares of Common Stock
reserved for issuance pursuant to the Purchase Plan on the first day of
each fiscal year beginning fiscal 1998, by (x) % of the shares of the
Company's Common Stock issued and outstanding on the last day of the
immediately preceding fiscal year less (y) the number of shares available
for future option grants under such Purchase Plan on the last day of the
immediately preceding fiscal year.

4. To approve an amendment to the Company's 1991 Equity Incentive Plan
(the "1991 Incentive Plan") to increase the number of shares of Common
Stock reserved for issuance pursuant to the 1991 Incentive Plan in fiscal
1997 by .

5. To approve an amendment to the Company's 1991 Equity Incentive Plan
(the "1991 Incentive Plan") to increase the number of shares of Common
Stock reserved for issuance pursuant to the 1991 Incentive Plan on the
first day of each fiscal year beginning fiscal 1998, by (x) % of the
shares of the Company's Common Stock issued and outstanding on the last day
of the immediately preceding fiscal year less (y) the number of shares
available for future option grants under such Incentive Plan on the last
day of the immediately preceding fiscal year.

6. To approve an amendment to the Company's Restated Certificate of
Incorporation to increase the number of authorized shares of Common Stock
to 450,000,000 shares.

7. To approve a Performance-Based Bonus Compensation Plan for the
Company's Chief Executive Officer.

8. To ratify the appointment of Price Waterhouse as independent
accountants of the Company for its 1997 fiscal year.

9. To transact such other business as may properly come before the
meeting and any adjournments thereof.

The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
<PAGE> 3

Only stockholders of record at the close of business on March 14, 1997 are
entitled to notice of and to vote at the meeting.

All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign and return the enclosed proxy card as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the meeting may vote in person even if he or she returned a proxy.

Sincerely,

David E. Sanders
Secretary

Milpitas, California
March [24], 1997

YOUR VOTE IS IMPORTANT

IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND
RETURN IT IN THE ENCLOSED ENVELOPE (TO WHICH NO POSTAGE NEED BE AFFIXED IF
MAILED IN THE UNITED STATES).
<PAGE> 4

LSI LOGIC CORPORATION
------------------------

PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING

GENERAL

The enclosed Proxy is solicited on behalf of LSI Logic Corporation (the
"Company") for use at the Annual Meeting of Stockholders to be held on May 6,
1997 at 1:00 p.m., local time, or at any adjournment(s) thereof, for the
purposes set forth herein and in the accompanying Notice of Annual Meeting of
Stockholders. The Annual Meeting will be held at the Company's facility located
at 23400 N.E. Glisan Street, Gresham, Oregon 97030. The Company's principal
executive offices are located at 1551 McCarthy Boulevard, Milpitas, California
95035 and its telephone number is (408) 433-8000.

These proxy solicitation materials were mailed on or about March , 1997
to all stockholders entitled to vote at the meeting.

RECORD DATE

Stockholders of record at the close of business on March 14, 1997 are
entitled to notice of and to vote at the meeting. As of the record date
shares of the Company's Common 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 at any time before its use by delivering to the Company a written
notice of revocation or a duly executed proxy bearing a later date or by
attending the meeting and voting in person.

VOTING AND SOLICITATION

On all matters other than the election of directors, each share has one
vote. See "ELECTION OF DIRECTORS -- REQUIRED VOTE." The cost of soliciting
proxies will be borne by the Company. The Company has retained the services of
Skinner & Co. to aid in the solicitation of proxies from brokers, bank nominees
and other institutional owners. The Company estimates that it will pay Skinner &
Co. a fee not to exceed $4,000 for its services and will reimburse it for
certain out of pocket expenses estimated to be $15,000. In addition, the Company
may reimburse brokerage firms and other persons representing beneficial owners
of shares for their expenses in forwarding solicitation material to such
beneficial owners. Proxies may be solicited by certain of the Company's
directors, officers and regular employees, without additional compensation,
personally or by telephone or telegram.

DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS

Proposals of stockholders of the Company which are intended to be presented
by such stockholders at the Company's 1998 Annual Meeting must be received by
the Company no later than November 25, 1997, and be otherwise in compliance with
applicable laws and regulations in order that such proposals may be included in
the proxy statement and form of proxy relating to that meeting.

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<PAGE> 5

SECURITY OWNERSHIP

PRINCIPAL STOCKHOLDERS

As of March 14, 1997, the following persons were known to the Company to be
beneficial owners of more than 5% of the Company's Common Stock:

<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES OWNED PERCENTAGE OF TOTAL
- ------------------------------------------ ---------------------- -------------------
<S> <C> <C>
The Capital Group Companies, Inc.(1)...... 6,749,380 5.2%
333 S. Hope Street
52nd Floor
Los Angeles, CA 90071
Wilfred J. Corrigan(2).................... 7,149,952 5.4%
1551 McCarthy Blvd.
Milpitas, CA 95035
</TABLE>

- ---------------
(1) Information obtained from a Schedule 13G filed with the Securities and
Exchange Commission and dated February 14, 1997. The Capital Group Companies
is the parent holding company of a group of investment companies that hold
investment power and, in some cases, voting power over the securities
reported in the Schedule 13G. Reported securities include 6,680,000 shares
of the Company beneficially owned by Capital Research and Management
Company, an investment advisor and wholly-owned subsidiary of the Capital
Group Companies, and 69,380 shares resulting from The Capital Group
Companies' anticipated conversion of 5.5% convertible subordinated notes in
the principal amount of $850,000.

(2) Includes 825,000 shares, options for which are presently exercisable or will
become exercisable within 60 days of March 14, 1997.

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<PAGE> 6

SECURITY OWNERSHIP OF MANAGEMENT

The following table sets forth the beneficial ownership of Common Stock of
the Company as of March 14, 1997 (the most recent practicable date) by all
directors, each of the named executive officers set forth in the Summary
Compensation Table (the "Named Executive Officers") and by all directors and
current executive officers as a group:

<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT PERCENTAGE
NAME OWNED OWNED
- --------------------------------------------------------------------- --------- -----------
<S> <C> <C>
Wilfred J. Corrigan(1)............................................... 7,149,952 5.4%
T.Z. Chu(2).......................................................... 54,350 *
Malcolm R. Currie(3)................................................. 127,575 *
James H. Keyes(4).................................................... 73,875 *
R. Douglas Norby(5).................................................. 66,375 *
Cyril F. Hannon(6)................................................... 144,249 *
William R. Marz(7)................................................... 58,535 *
Moshe N. Gavrielov(8)................................................ 82,826 *
David E. Sanders(9).................................................. 73,554 *
All directors and executive officers as a group (10 persons)(10)..... 7,883,291 6.1%
FORMER EXECUTIVE OFFICERS
Albert A. Pimentel(11)............................................... 14,346 *
</TABLE>

- ---------------
* Less than 1%

(1) Includes 825,000 shares, options for which are presently exercisable or
will become exercisable within 60 days of March 14, 1997.

(2) Includes 24,350 shares, options for which are presently exercisable or will
become exercisable within 60 days of March 14, 1997.

(3) Includes 54,375 shares, options for which are presently exercisable or will
become exercisable within 60 days of March 14, 1997.

(4) Includes 34,375 shares, options for which are presently exercisable or will
become exercisable within 60 days of March 14, 1997.

(5) Includes 44,375 shares, options for which are presently exercisable or will
become exercisable within 60 days of March 14, 1997.

(6) Includes 95,000 shares, options for which are presently exercisable or will
become exercisable within 60 days of March 14, 1997. Excludes ownership by
Mr. Hannon of 20,000 shares of common stock of LSI Logic K.K., a 91% owned
affiliate of the Company.

(7) Includes 57,500 shares, options for which are presently exercisable or will
become exercisable within 60 days of March 14, 1997.

(8) Includes 81,250 shares, options for which are presently exercisable or will
become exercisable within 60 days of March 14, 1997.

(9) Includes 54,000 shares, options for which are presently exercisable or will
become exercisable within 60 days of March 14, 1997.

(10) Includes 1,270,225 shares, options for which are presently exercisable or
will become exercisable within 60 days of March 14, 1997. Excludes shares
held by Mr. Pimentel, who was not an executive officer of the Company on
March 14, 1997.

(11) Mr. Pimentel resigned from the Company effective November 1, 1996. The
table reflects Mr. Pimentel's holdings as of that date.

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<PAGE> 7

PROPOSAL ONE

ELECTION OF DIRECTORS

NOMINEES

A board of five directors is to be elected at the meeting. Unless otherwise
instructed, the proxy holders will vote the proxies received by them for the
Company's five nominees named below, all of whom are presently directors of the
Company. If any nominee of the Company is unable or declines to serve as a
director at the time of the Annual Meeting, the proxies will be voted for such
nominee as shall be designated by the present Board of Directors to fill the
vacancy. If additional persons are nominated for election as directors, the
proxy holders intend to vote all proxies received by them in such a manner in
accordance with cumulative voting as will assure the election of as many of the
nominees listed below as possible and, in such event, the specific nominees to
be voted for will be determined by the proxy holders. The term of office of each
person elected as a director will continue until the next Annual Meeting of
Stockholders or until his successor has been elected and qualified.

The names of the nominees for election to the Board of Directors, and
certain information about them, are set forth below.

<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
- -------------------------------------------- --- --------------------------------- --------
<S> <C> <C> <C>
Wilfred J. Corrigan......................... 59 Chairman of the Board of 1981
Directors and Chief Executive
Officer of the Company
James H. Keyes.............................. 56 Chairman and Chief Executive 1983
Officer of Johnson Controls,
Inc.
T.Z. Chu.................................... 62 Retired President of Hoefer 1992
Pharmacia Biotech, Inc.
Malcolm R. Currie........................... 70 Chief Executive Officer, World 1992
Bike, Inc.; Chairman Emeritus,
Hughes Aircraft Co.
R. Douglas Norby............................ 61 Executive Vice President and 1993
Chief Financial Officer of LSI
Logic Corporation
</TABLE>

Except as set forth below, each of the nominees has been engaged in his
principal occupation set forth above during the past five years. There are no
family relationships between or among any directors or executive officers of the
Company.

Mr. Corrigan, a founder of the Company, has served as Chief Executive
Officer and a director of the Company since its organization in January 1981.

Since January 1993, Mr. Keyes has served as Chairman and Chief Executive
Officer of Johnson Controls, Inc., a manufacturer of automated building
controls, batteries, and automotive interiors and seating systems. From January
1988 until January 1993, Mr. Keyes served as President and Chief Executive
Officer of Johnson Controls, Inc. From January 1986 to January 1988, Mr. Keyes
served as President, Chief Operating Officer and a director of Johnson Controls,
Inc. From April 1985 to January 1986, Mr. Keyes served as Executive Vice
President, Chief Operating Officer and a director of Johnson Controls, Inc. From
January 1985 to April 1985, he served as Executive Vice President of Johnson
Controls, Inc.

Mr. Chu served as President of Hoefer Pharmacia Biotech, Inc. from March
1995 until his retirement in February 1997. From August 1993 until March 1995,
Mr. Chu served as President and Chief Executive Officer of Hoefer Scientific
Instruments. From January 1992 until August 1993, Mr. Chu acted as a consultant
to Hambrecht & Quist and to Thermo Instrument Systems, Inc. From 1990 until
December 31, 1991, Mr. Chu served as the President of Finnigan Corporation. From
1969 until 1990, he served as the

4
<PAGE> 8

Principal Executive Officer and Director of Finnigan Corporation at which time
it was acquired by Thermo Instrument Systems, Inc.

Mr. Currie serves as Chief Executive Officer of World Bike, Inc. Mr. Currie
served as Chairman and Chief Executive Officer of Hughes Aircraft Company from
March 1988 until his retirement in July 1992. From January 1976 until March
1988, Mr. Currie served as President and Chief Executive Officer of Delco
Electronics. He presently serves on the boards of directors of Unocal
Corporation, Investment Company of America, U.S. Electricar and Moltech Corp.,
and as President of the Board of Trustees of the University of Southern
California.

Mr. Norby has served as Executive Vice President and Chief Financial
Officer of the Company since November 1996. From September 1993 until November
1996, Mr. Norby served as Senior Vice President and Chief Financial Officer of
Mentor Graphics Corporation. From July 1992 until September 1993, Mr. Norby
served as President and Chief Executive Officer of Pharmetrix Corporation, a
health care company located in Menlo Park, California. Mr. Norby served as
President and Chief Operating Officer of Lucasfilm, Ltd. from February 1985
until May 1992. Additionally, from 1989 until May 1992, Mr. Norby served as
Chairman, President and Chief Executive Officer of LucasArts Entertainment
Company, a subsidiary of Lucasfilm, Ltd. Mr. Norby serves on the board of
directors of Epitope, Inc.

BOARD MEETINGS AND COMMITTEES

The Board of Directors of the Company held a total of 4 meetings during the
fiscal year ended December 31, 1996. The Board of Directors has an Audit
Committee and a Compensation Committee. The Board of Directors does not have a
separate nominating committee.

The Audit Committee, which consists of Mr. Currie (who serves as its
chairman), Mr. Keyes and Mr. Chu, held 3 meetings during the last fiscal year.
The Audit Committee recommends engagement of the Company's independent
accountants, and is primarily responsible for approving the services performed
by the Company's independent accountants and for reviewing and evaluating the
Company's accounting principles and its system of internal accounting controls.
The Compensation Committee, which consists of Mr. Keyes (who serves as its
chairman), Mr. Chu and Mr. Currie, held 3 meetings during the last fiscal year.
The Compensation Committee reviews and approves the Company's executive
compensation policy and makes recommendations concerning the Company's employee
benefit plans. During 1996, Mr. Norby served on the Audit Committee and the
Compensation Committee. In November 1996, when Mr. Norby became Executive Vice
President and Chief Financial Officer for the Company, he resigned from both
committees.

During the fiscal year ended December 31, 1996, all incumbent directors
attended at least 75% of the aggregate number of meetings of the Board of
Directors and meetings of the committees of the Board on which they served.

COMPENSATION OF DIRECTORS

Members of the Board of Directors who are not employees of the Company
receive an annual fee of $20,000 paid on a prorated basis and $1,250 for each
meeting they attend, plus expenses. The Company's 1995 Director Option Plan (the
"1995 Director Plan"), as adopted by the Board of Directors and approved by the
stockholders, provides for the grant of nonstatutory stock options to
non-employee directors of the Company ("Outside Director"). Each Outside
Director shall be granted an option to purchase 15,000 shares of Common Stock
(the "First Option") on the date on which he or she first becomes an Outside
Director; provided, however, that no Outside Director who was an Outside
Director immediately prior to the effective date of the 1995 Director Plan (June
1, 1995) will receive a First Option. In addition, on April 1 of each year
(commencing in 1996), each Outside Director shall automatically be granted an
option to purchase 7,500 shares of Common Stock of the Company (a "Subsequent
Option"), if on such date he or she shall have served on the Board of Directors
for at least six months. The 1995 Director Plan provides for neither a maximum
nor a minimum number of option shares that may be granted to any one
non-employee director but does provide for the number of shares which may be
included in any grant and the method of making a grant. Options granted pursuant
to the 1995 Director Plan may be exercised only while the optionee is a director
of

5
<PAGE> 9

the Company or within 12 months after death or within three months after the
optionee ceases to serve as a director of the Company but in no event after its
ten year term has expired.

REQUIRED VOTE

Directors shall be elected by a plurality of the votes of the shares of the
Company's Common Stock entitled to vote and represented in person or by proxy at
the Annual Meeting. Every stockholder voting for the election of directors may
cumulate such stockholder's votes and give one candidate a number of votes equal
to the number of directors to be elected multiplied by the number of votes to
which the stockholder's shares are entitled, or may distribute the stockholder's
votes on the same principle among as many candidates as the stockholder thinks
fit, provided that votes cannot be cast for more than five candidates. However,
no stockholder shall be entitled to cumulate votes unless the candidate's name
has been placed in nomination prior to the voting and the stockholder, or any
other stockholder, has given notice at the meeting prior to the voting of the
intention to cumulate the stockholder's votes. The Company will exercise
discretionary authority to cumulate votes in the event that additional persons
are nominated at the Annual Meeting for election of directors.

While there is no definitive statutory or case law in Delaware as to the
proper treatment of abstentions in the election of directors, the Company
believes that abstentions should be counted for purposes of determining whether
a quorum is present at the annual meeting for the transaction of business. In
the absence of controlling precedent to the contrary, the Company intends to
treat abstentions with respect to the election of directors in this manner. In a
1988 Delaware case, Berlin v. Emerald Partners, the Delaware Supreme Court held
that broker non-votes may be counted as present or represented for purposes of
determining the presence or absence of a quorum for the transaction of business.
Accordingly, the Company intends to treat broker non-votes with respect to the
election of directors in this manner. Votes against, votes withheld and broker
non-votes have no legal effect on the election of directors due to the fact that
such elections are by a plurality.

MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES LISTED ABOVE.

PROPOSAL TWO

APPROVAL OF AMENDMENT TO EMPLOYEE STOCK PURCHASE PLAN

The Employee Stock Purchase Plan (the "Purchase Plan") was adopted by the
Board of Directors and approved by the stockholders in April 1983 and a total of
225,000 shares of Common Stock were initially reserved for issuance thereunder.
From time to time since April 1983, the Board of Directors and stockholders have
approved amendments to the Purchase Plan to increase the number of shares
reserved for issuance thereunder to an aggregate of shares, and
to make certain additional amendments to the Purchase Plan. As of March 14,
1997, of the 15,450,000 shares reserved for issuance under the Purchase Plan
(without giving effect to this amendment), 13,960,748 shares had been issued.
The Company estimates that it will utilize a substantial portion of the
1,489,252 remaining available shares in the exercise periods ending March 31,
1997 and September 30, 1997, leaving an inadequate number of shares available
for issuance thereafter.

AMENDMENT TO INCREASE THE NUMBER OF SHARES RESERVED FOR ISSUANCE UNDER THE
PURCHASE PLAN IN
FISCAL YEAR 1997

Stockholder approval is hereby being sought for an amendment approved by
the Board of Directors on February 7, 1997, increasing the number of shares of
Common Stock reserved for issuance under the Purchase Plan in 1997 by
. The total number of shares of Common Stock reserved for issuance
under the Purchase Plan is 15,450,000. If the proposed amendment is approved,
the total number of shares of Common Stock reserved for issuance under the
Purchase Plan will be .

A description of the Purchase Plan follows Proposal 3.

6
<PAGE> 10

REQUIRED VOTE

The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock represented and voting, in person or by proxy, and
entitled to vote at the Annual Meeting will be required to approve PROPOSAL TWO.
Votes against are counted for purposes of determining the presence or absence of
a quorum for the transaction of business. Votes against are also counted for
purposes of determining the total number of votes required to pass the proposal
and whether such number of votes has been obtained.

While there is no definitive statutory or case law in Delaware as to the
proper treatment of abstentions in the counting of votes with respect to a
proposal such as the amendment to the Purchase Plan, the Company believes that
abstentions should be counted for purposes of determining both the presence or
absence of a quorum for the transaction of business and the total number of
shares present or represented and entitled to vote on the proposal. In the
absence of controlling precedent to the contrary, the Company intends to treat
abstentions on this proposal in this manner. In a 1988 Delaware case, Berlin v.
Emerald Partners, the Delaware Supreme Court held that, while broker non-votes
may be counted as present or represented for purposes of determining the
presence or absence of a quorum for the transaction of business, broker
non-votes may not be counted for purposes of determining the number of shares
entitled to vote with respect to the particular proposal for which authorization
to vote was withheld. Accordingly, broker non-votes with respect to this
proposal will not be considered shares entitled to vote and will not be counted
in determining whether this proposal passes.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT OF THE PURCHASE PLAN.
THE EFFECT OF AN ABSTENTION IS THE SAME AS THAT OF A VOTE AGAINST THE AMENDMENT
OF THE PURCHASE PLAN.

PROPOSAL THREE

APPROVAL OF ADDITIONAL AMENDMENT
TO EMPLOYEE STOCK PURCHASE PLAN

The Company's Board of Directors is also seeking stockholder approval for
an additional amendment to the Purchase Plan approved by the Directors on
February 7, 1997 automatically increasing the number of shares of Common Stock
reserved for issuance under the Purchase Plan on the first day of each fiscal
year during the term of the Purchase Plan beginning fiscal 1998 by an amount
equal to (x) % of the Company's Common Stock issued and outstanding on the
last day of the immediately preceding fiscal year less (y) the number of shares
available for future option grants under the Purchase Plan on the last day of
the immediately preceding fiscal year (the "Annual Replenishment"). In other
words, the number of shares available for grant under the Purchase Plan at the
beginning of each fiscal year will equal % of the Company's Common Stock
then issued and outstanding.

The number of shares of Common Stock reserved for issuance under the
Purchase Plan, as amended by this proposal, is anticipated to be sufficient to
meet the Company's requirements for the duration of the Purchase Plan if the
Company continues to issue shares under the Purchase Plan at rates approximating
historical levels.

A description of the Purchase Plan follows this Proposal 3.

REQUIRED VOTE

The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock represented and voting, in person or by proxy, and
entitled to vote at the Annual Meeting will be required to approve PROPOSAL
THREE. Votes against are counted for purposes of determining the presence or
absence of a quorum for the transaction of business. Votes against are also
counted for purposes of determining the total number of votes required to pass
the proposal and whether such number of votes has been obtained.

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<PAGE> 11

believes that abstentions should be counted for purposes of determining both the
presence or absence of a quorum for the transaction of business and the total
number of shares present or represented and entitled to vote on the proposal. In
the absence of controlling precedent to the contrary, the Company intends to
treat abstentions on this proposal in this manner. In a 1988 Delaware case,
Berlin v. Emerald Partners, the Delaware Supreme Court held that, while broker
non-votes may be counted as present or represented for purposes of determining
the presence or absence of a quorum for the transaction of business, broker
non-votes may not be counted for purposes of determining the number of shares
entitled to vote with respect to the particular proposal for which authorization
to vote was withheld. Accordingly, broker non-votes with respect to this
proposal will not be considered shares entitled to vote and will not be counted
in determining whether this proposal passes.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT OF THE PURCHASE PLAN.
THE EFFECT OF AN ABSTENTION IS THE SAME AS THAT OF A VOTE AGAINST THE AMENDMENT
OF THE PURCHASE PLAN.

SUMMARY OF THE PURCHASE PLAN

The essential features of the Purchase Plan are outlined below.

Purpose

The purpose of the Purchase Plan is to provide employees of the Company and
its majority-owned subsidiaries designated by the Board of Directors who
participate in the Purchase Plan with an opportunity to purchase Common Stock of
the Company through payroll deductions.

Administration

The Purchase Plan is administered by the Board of Directors or a committee
appointed by the Board, and is currently being administered by the Board of
Directors. All questions of interpretation or application of the Purchase Plan
are determined in the sole discretion of the Board of Directors or its
committee, and its decisions are final and binding upon all participants.
Members of the Board of Directors who are eligible employees are permitted to
participate in the Purchase Plan but may not vote on any matter affecting the
administration of the Purchase Plan or the grant of any option pursuant to the
Purchase Plan. No member of the Board of Directors who is eligible to
participate in the Purchase Plan may be a member of the committee appointed to
administer the Purchase Plan. No charges for administrative or other costs may
be made against the payroll deductions of a participant in the Purchase Plan.
Members of the Board of Directors receive no additional compensation for their
services in connection with the administration of the Purchase Plan.

Eligibility

Any person who is employed by the Company (or by any of its majority-owned
subsidiaries designated by the Board of Directors) for at least 20 hours per
week and more than five months in a calendar year is eligible to participate in
the Purchase Plan. As of January 1, 1997, approximately 2,286 employees were
eligible to participate in the Purchase Plan and approximately 1,907 of such
eligible employees were participating.

Offering Dates

The Purchase Plan is implemented by consecutive 24-month offering periods.
The offering periods commence April 1 and October 1 of each year. Each offering
period is composed of four six-month exercise periods. The Board of Directors
has the power to alter the duration of the offering periods without stockholder
approval if such change is announced 15 days prior to the scheduled beginning of
the first offering period to be affected.

Eligible employees become participants in the Purchase Plan by delivering
to the Company's personnel office a subscription agreement authorizing payroll
deductions. An eligible employee may participate in an offering period only if,
as of the enrollment date of such offering period, such employee is not
participating in

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<PAGE> 12

any prior offering period which is continuing at the time of such proposed
enrollment. An employee who becomes eligible to participate in the Purchase Plan
after the commencement of an offering may not participate in the Purchase Plan
until the commencement of the next offering period.

Purchase Price

The purchase price per share at which shares are sold under the Purchase
Plan is the lower of 85% of the fair market value of a share of Common Stock on
the date of commencement of the offering period or 85% of the fair market value
of a share of Common Stock on the applicable exercise date within such offering
period. The fair market value of the Common Stock on a given date shall be
determined by the Board of Directors based upon the closing sales price as
reported by the New York Stock Exchange on such date.

Payment of Purchase Price; Payroll Deductions

The purchase price of the shares is accumulated by payroll deductions
during the offering period. The deductions may not exceed 10% of a participant's
eligible compensation, which is defined in the Purchase Plan to include the
regular straight time salary as of each payday during the offering period,
exclusive of any payments for overtime, bonuses, commissions or incentive
compensation. A participant may institute decreases in the rate of payroll
deductions at any time and such decreases are immediately effective. Increases
in the rate of payroll deductions are effective as of the commencement of any
exercise period within the offering period.

All payroll deductions are credited to the participant's account under the
Purchase Plan; no interest accrues on the payroll deductions. All payroll
deductions received or held by the Company may be used by the Company for any
corporate purpose and such payroll deductions need not be segregated.

Purchase of Stock; Exercise of Option

At the beginning of each offering period, by executing a subscription
agreement to participate in the Purchase Plan, each employee is in effect
granted an option to purchase shares of Common Stock. The maximum number of
shares placed under option to a participant in an offering period is determined
by dividing the compensation which such participant has elected to have withheld
during the exercise period by 85% of the fair market value of the Common Stock
at the beginning of the offering period or on the applicable exercise date,
whichever is lower; provided that such number shall not exceed 200% of the
number of shares determined by dividing 10% of the employee's compensation to be
accumulated over the offering period (determined as of the enrollment date) by
85% of the fair market value of a share of the Company's Common Stock on the
enrollment date. Notwithstanding the foregoing, no employee may make aggregate
purchases of stock of the Company and its majority-owned subsidiaries under the
Purchase Plan and any other employee stock purchase plans qualified as such
under Section 423(b) of the Internal Revenue Code of 1986, as amended (the
"Code") in excess of $25,000 (determined using the fair market value of the
shares at the time the option is granted) during any calendar year.

Withdrawal

While each participant in the Purchase Plan is required to sign a
subscription agreement authorizing payroll deductions, a participant may
terminate his or her participation in the Purchase Plan at any time by signing
and delivering to the Company a notice of withdrawal from the Purchase Plan. All
of the participant's accumulated payroll deductions will be paid to the
participant promptly after receipt of his or her notice of withdrawal and his or
her participation in the current offering period will be automatically
terminated, and no further payroll deductions for the purchase of shares will be
made during the offering period. No resumption of payroll deductions will occur
on behalf of such participant unless such participant re-enrolls in the Purchase
Plan by delivering a new subscription agreement to the Company during the
applicable open enrollment period preceding the commencement of a subsequent
offering period. A participant's withdrawal from the Purchase Plan during an
offering period does not have any effect upon such participant's eligibility to
participate in subsequent offering periods under the Purchase Plan.

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<PAGE> 13

Termination of Employment

Termination of a participant's employment for any reason, including
retirement or death, cancels his or her participation in the Purchase Plan
immediately. In such event, the payroll deductions credited to the participant's
account will be returned to such participant or, in the case of death, to the
person or persons entitled thereto as specified by the employee in the
subscription agreement.

Capital Changes

If any change is made in the capitalization of the Company, such as stock
splits or stock dividends, which results in an increase or decrease in the
number of shares of Common Stock outstanding without receipt of consideration by
the Company, appropriate adjustments will be made by the Company in the number
of shares subject to purchase and in the purchase price per share, subject to
any required action by the stockholders of the Company. In the event of the
proposed dissolution or liquidation of the Company, the offering period then in
progress will terminate immediately unless otherwise provided by the Board of
Directors. In the event of the proposed sale of all or substantially all of the
assets of the Company or the merger of the Company with or into another
corporation, each outstanding option shall be assumed or an equivalent option
shall be substituted by the successor corporation, unless the Board of Directors
determines, in its discretion, to accelerate the exercisability of all
outstanding options under the Purchase Plan. The Board of Directors may also
make provisions for adjusting the number of shares subject to the Purchase Plan
and the purchase price per share if the Company effects one or more
reorganizations, recapitalizations, rights offerings or other increases or
reductions of shares of the Company's outstanding Common Stock.

Amendment and Termination of the Purchase Plan

The Board of Directors may at any time amend or terminate the Purchase
Plan, except that such termination shall not affect options previously granted
nor may any amendment make any change in an option granted prior thereto which
adversely affects the rights of any participant. No amendment may be made to the
Purchase Plan without prior approval of the stockholders of the Company if such
amendment would increase the number of shares reserved under the Purchase Plan,
permit payroll deductions at a rate in excess of 10% of a participant's
compensation, modify the eligibility requirements or materially increase the
benefits which may accrue to participants under the Purchase Plan.

Certain United States Federal Income Tax Information

The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Sections 421 and 423
of the Code. Under these provisions, no income will be taxable to a participant
at the time of grant of the option or purchase of shares. Upon disposition of
the shares, the participant will generally be subject to tax and the amount of
the tax will depend upon the holding period. If the shares have been held by the
participant for more than two years after the offering date and more than one
year after the exercise date, the lesser of: (a) the excess of the fair market
value of the shares at the time of such disposition over the option price, or
(b) the excess of the fair market value of the shares at the time the option was
granted over the option price (which option price will be computed as of the
grant date) will be treated as ordinary income, and any further gain will be
treated as long-term capital gain. If the shares are disposed of before the
expiration of these holding periods, the excess of the fair market value of the
shares on the exercise date over the option price will be treated as ordinary
income, and any further gain or any loss on such disposition will be long-term
or short-term capital gain or loss, depending on the holding period. Different
rules may apply with respect to participants subject to Section 16(b) of the
Securities Exchange Act of 1934, as amended. The Company is not entitled to a
deduction for amounts taxed as ordinary income or capital gain to a participant
except to the extent of ordinary income reported by participants upon
disposition of shares prior to the expiration of the two holding periods
described above.

The foregoing is only a summary of the effect of federal income taxation
upon the participant and the Company with respect to the grant and exercise of
options under the Purchase Plan, does not purport to be complete, and does not
discuss the income tax laws of any municipality, state or foreign country in
which a

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<PAGE> 14

participant may reside. It is advisable that a participant contact his or her
own tax advisor concerning the application of these tax laws.

PROPOSAL FOUR

AMENDMENT TO THE 1991 EQUITY INCENTIVE PLAN TO INCREASE
THE NUMBER OF SHARES RESERVED FOR ISSUANCE THEREUNDER

GENERAL

The 1991 Equity Incentive Plan (the "1991 Incentive Plan") was adopted by
the Board of Directors and approved by the stockholders in May of 1991 and a
total of 2,000,000 shares of Common Stock were initially reserved for issuance
thereunder. From time to time since May 1991, the Board of Directors and
stockholders have approved amendments to the 1991 Incentive Plan to increase the
number of shares reserved for issuance thereunder to an aggregate of 15,000,000
shares and to make certain additional amendments to the 1991 Incentive Plan.

As of March 14, 1997, shares had been issued pursuant to the
exercise of options granted under the 1991 Incentive Plan and options to
purchase shares had been granted leaving only of the
15,000,000 shares reserved for issuance under the 1991 Incentive Plan (without
giving effect to this amendment) available for future grants.

PROPOSED AMENDMENT TO INCREASE THE NUMBER OF SHARES RESERVED FOR ISSUANCE UNDER
THE
1991 INCENTIVE PLAN

Stockholder approval is hereby being sought for an amendment approved by
the Board of Directors on February 7, 1997, increasing the number of shares of
Common Stock reserved for issuance under the 1991 Incentive Plan in 1997 by
. The total number of shares of Common Stock reserved for issuance
under the 1991 Incentive Plan is 15,000,000. If the proposed amendment is
approved, the total number of shares of Common Stock reserved for issuance under
the 1991 Incentive Plan will be .

A description of the 1991 Incentive Plan follows Proposal 5.

REQUIRED VOTE

The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock represented and voting, in person or by proxy, and
entitled to vote at the Annual Meeting will be required to approve PROPOSAL
FOUR. Votes against are counted for purposes of determining the presence or
absence of a quorum for the transaction of business. Votes against are also
counted for purposes of determining the total number of votes required to pass
the proposal and whether such votes have been obtained.

While there is no definitive statutory or case law in Delaware as to the
proper treatment of abstentions in the counting of votes with respect to a
proposal such as the amendment to the 1991 Incentive Plan, the Company believes
that abstentions should be counted for purposes of determining both the presence
or absence of a quorum for the transaction of business and the total number of
shares present or represented and entitled to vote on the proposal. In the
absence of controlling precedent to the contrary, the Company intends to treat
abstentions on this proposal in this manner. In a 1988 Delaware case, Berlin v.
Emerald Partners, the Delaware Supreme Court held that, while broker non-votes
may be counted as present or represented for purposes of determining the
presence or absence of a quorum for the transaction of business, broker
non-votes may not be counted for purposes of determining the number of shares
entitled to vote with respect to the particular proposal for which authorization
to vote was withheld. Accordingly, broker non-votes with respect to

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<PAGE> 15

this proposal will not be considered shares entitled to vote and therefore will
not be counted in determining whether this proposal passes.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT OF THE 1991 INCENTIVE
PLAN TO INCREASE THE NUMBER OF SHARES RESERVED FOR ISSUANCE THEREUNDER. THE
EFFECT OF AN ABSTENTION IS THE SAME AS THAT OF A VOTE AGAINST THE AMENDMENT OF
THE 1991 INCENTIVE PLAN.

PROPOSAL FIVE

ADDITIONAL AMENDMENT TO THE 1991 EQUITY INCENTIVE PLAN

The Company's Board of Directors is also seeking stockholder approval for
an additional amendment to the 1991 Incentive Plan approved by the Directors on
February 7, 1997 automatically increasing the number of shares of Common Stock
reserved for issuance under the 1991 Incentive Plan on the first day of each
fiscal year during the term of the 1991 Incentive Plan beginning fiscal 1998 by
an amount equal to (x) % of the Company's Common Stock issued and
outstanding on the last day of the immediately preceding fiscal year less (y)
the number of shares available for future option grants under the 1991 Incentive
Plan on the last day of the immediately preceding fiscal year. In other words,
the number of shares available for grant under the 1991 Incentive Plan at the
beginning of each fiscal year will equal % of the Company's Common Stock
then issued and outstanding.

The effect of this amendment to the 1991 Incentive Plan will be to maintain
the number of shares available for issuance in each fiscal year from 1998 until
the Plan's termination at % of the shares issued and outstanding on the
last day of the immediately preceding fiscal year. Options issued in any year
over the life of the 1991 Incentive Plan have averaged 3.1% of the shares
outstanding at the beginning of the year of issue.

The Board of Directors believes that the Company's 1991 Incentive Plan is
an important factor in attracting and retaining the high caliber employees and
consultants essential to the success of the Company and in aligning their
long-term interests with those of the stockholders. Competition for highly
qualified individuals in the Company's industry is intense. Employers, including
those companies that anticipate an initial public offering, with which the
Company competes for such highly qualified individuals, frequently offer grants
of substantial numbers of stock options as part of a comprehensive compensation
package. Accordingly, management believes that to successfully attract the best
candidates and to successfully retain key employees, the Company must offer a
competitive stock option incentive program as an essential component of its
compensation packages.

The Board of Directors further believes that stock options serve an
important role in motivating recipients to contribute to the Company's continued
growth and profitability. The proposed amendment to the 1991 Incentive Plan is
intended to ensure that the Plan will continue to have available a reasonable
number of shares to meet these needs for the remainder of its term.

The number of shares of Common Stock reserved for issuance under the 1991
Incentive Plan, as amended by this proposal, is anticipated to be sufficient to
meet the Company's requirements for the duration of the 1991 Incentive Plan if
the Company continues to issue options under the 1991 Incentive Plan at rates
approximating historical levels.

A description of the 1991 Incentive Plan follows this Proposal 5.

REQUIRED VOTE

The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock represented and voting, in person or by proxy, and
entitled to vote at the Annual Meeting will be required to approve PROPOSAL
FIVE. Votes against are counted for purposes of determining the presence or
absence of a quorum for the transaction of business. Votes against are also
counted for purposes of determining the total number of votes required to pass
the proposal and whether such votes have been obtained.

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<PAGE> 16

While there is no definitive statutory or case law in Delaware as to the
proper treatment of abstentions in the counting of votes with respect to a
proposal such as the amendment to the 1991 Incentive Plan, the Company believes
that abstentions should be counted for purposes of determining both the presence
or absence of a quorum for the transaction of business and the total number of
shares present or represented and entitled to vote on the proposal. In the
absence of controlling precedent to the contrary, the Company intends to treat
abstentions on this proposal in this manner. In a 1988 Delaware case, Berlin v.
Emerald Partners, the Delaware Supreme Court held that, while broker non-votes
may be counted as present or represented for purposes of determining the
presence or absence of a quorum for the transaction of business, broker
non-votes may not be counted for purposes of determining the number of shares
entitled to vote with respect to the particular proposal for which authorization
to vote was withheld. Accordingly, broker non-votes with respect to this
proposal will not be considered shares entitled to vote and therefore will not
be counted in determining whether this proposal passes.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT OF THE 1991 INCENTIVE
PLAN TO AUTOMATICALLY INCREASE THE NUMBER OF SHARES RESERVED FOR ISSUANCE
THEREUNDER. THE EFFECT OF AN ABSTENTION IS THE SAME AS THAT OF A VOTE AGAINST
THE AMENDMENT OF THE 1991 INCENTIVE PLAN.

SUMMARY OF THE 1991 INCENTIVE PLAN

The essential features of the 1991 Incentive Plan are outlined below.

Purpose

The purpose of the 1991 Incentive Plan is to enable the Company to provide
an incentive to eligible employees, including officers, and consultants whose
present and potential contributions are important to the continued success of
the Company, to afford them an opportunity to acquire a proprietary interest in
the Company and to enable the Company to enlist and retain in its employ the
best available talent for the successful conduct of its business.

Eligibility

Employees, including officers, and consultants of the Company and its
majority-owned subsidiaries (as well as majority-owned subsidiaries of the
Company's majority-owned subsidiaries) whom the Board deems to have the
potential to contribute to the future success of the Company are eligible to
receive awards under the 1991 Incentive Plan.

Administration

The 1991 Incentive Plan shall be administered by (i) the Board of Directors
if the Board may administer the 1991 Incentive Plan in compliance with Rule
16b-3 ("Rule 16b-3") promulgated under the Securities Exchange Act of 1934 (the
"Exchange Act") or (ii) a committee appointed by the Board and constituted so as
to permit the 1991 Incentive Plan to comply with the provisions of Rule 16b-3.
If permitted by Rule 16b-3, the 1991 Incentive Plan may be administered by
different bodies with respect to employees who are directors, non-director
officers, employees who are neither directors nor officers and consultants. For
the purposes of this plan description, the term "Committee" shall mean either
the committee appointed by the Board or the Board, whichever is administering
the 1991 Incentive Plan. All questions of interpretation or application of the
1991 Incentive Plan are determined in the sole discretion of the Committee, and
its decisions are final and binding upon all participants. Members of the Board
who are eligible employees are permitted to participate in the 1991 Incentive
Plan but may not be a member of a committee appointed to administer the 1991
Incentive Plan. Members of the Board receive no additional compensation for
their services in connection with the administration of the 1991 Incentive Plan.

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<PAGE> 17

Stock Options

The 1991 Incentive Plan permits the granting of stock options that either
are intended to qualify as Incentive Stock Options ("ISOs") or are not intended
to so qualify ("Nonstatutory Stock Options" or "NSOs").

The option exercise price for each share covered by an option may be less
than the fair market value of a share of Common Stock on the date of grant of
such option. However, in the case of an ISO, the option exercise price shall be
no less than 100% of the fair market value of a share of Common Stock on the
date such option is granted, subject to certain additional conditions set forth
in the 1991 Incentive Plan with respect to grants to 10% stockholders. In the
case of an NSO, the option exercise price shall be no less than 50% of the fair
market value of the Common Stock on the date the option is granted. The number
of shares of Common Stock for which options or rights may be granted at less
than the fair market value on the date of grant shall not exceed three percent
of the total number of shares authorized under the 1991 Incentive Plan;
provided, however, that the price shall not be less than 50% of the fair market
value on the date of grant.

The term of each option will be fixed by the Board but may not exceed ten
years from the date of grant in the case of ISOs (five years in the case of ISOs
granted to an optionee who, at the time of grant, owns Common Stock possessing
more than 10% of the total combined voting power of the Company or of any
subsidiary). The Committee will determine the time or times each option may be
exercised. Options may be made exercisable in installments, and the
exercisability of options may be accelerated by the Committee.

The exercise price of options granted under the 1991 Incentive Plan,
including applicable withholding, must be paid in full on the exercise date. The
method of payment shall be determined by the Committee and may consist of cash,
check, promissory note, other shares of Common Stock having a fair market value
on the date of exercise equal to the aggregate exercise price of the option,
delivery of a properly executed exercise notice and irrevocable instructions to
a broker to promptly deliver to the Company the amount of sale or loan proceeds
required to pay the exercise price, delivery of an irrevocable subscription
agreement for the shares which obligates the optionee to take and pay for the
shares not more than 12 months after the date of delivery of the subscription
agreement, any combination of the foregoing methods of payment or such other
consideration and method of payment for the issuance of shares to the extent
permitted under the Delaware General Corporation Law.

Under the 1991 Incentive Plan, if an employee's employment terminates for
any reason, including retirement, an option may thereafter be exercised (to the
extent it was then exercisable) within such time period as is determined by the
Committee (which shall be no more than 90 days in the case of an ISO), subject
to the stated term of the option. If the Committee has determined that an
employee was discharged for just cause (as defined in the 1991 Incentive Plan),
such employee shall have no further rights under the 1991 Incentive Plan or
under any option granted to him or her under the plan. If an optionee's
employment is terminated by reason of the optionee's death, the option will be
exercisable for six months following the date of death or such period as is
determined by the Committee, subject to the stated term of the option. Options
granted to consultants shall have such terms and conditions with respect to the
effect of termination of the consulting relationship (including upon the death
of the consultant) as the Committee shall determine in each case.

To qualify as ISOs, options must meet additional federal tax requirements
under the Internal Revenue Code of 1986, as amended (the "Code"). Under current
law, these requirements include limits on the value of ISOs that may become
first exercisable annually with respect to any optionee, and a shorter exercise
period and a higher minimum exercise price in the case of stockholders having a
10% equity interest in the Company.

Stock Appreciation Rights

Although no stock appreciation rights ("SARs") have ever been granted under
the 1991 Incentive Plan, the Committee may also grant SARs, either in connection
with the grant of options or independent of the grant of options. Upon exercise
of an SAR granted in connection with an option, the holder is entitled to
receive an amount of cash, Common Stock of the Company or any combination
thereof (as determined by the

14
<PAGE> 18

Committee) equal in value to the excess of the fair market value of the shares
covered by the surrendered portion of the related option on the date of exercise
over the aggregate exercise price of the shares covered by the surrendered
portion of the related option. Notwithstanding the foregoing, the Committee may
limit the amount that may be paid to the optionee upon exercise of an SAR;
provided, however, that such limit shall not restrict the exercisability of the
related option. The exercise of an SAR will result in cancellation of the
related option, to the extent surrendered on exercise of the SAR. An SAR granted
in connection with an option shall be exercisable only when and to the extent
that the related option is exercisable and shall expire no later than the date
on which the related option expires.

SARs granted without related options entitle the holder, upon exercise of
the SAR, to receive an amount of cash, Common Stock of the Company or any
combination thereof (as determined by the Committee) equal in value to the
excess of the fair market value of the shares covered by the exercised portion
of the SAR on the date of exercise over the fair market value of the shares
covered by the exercised portion of the SAR as of the date of grant of the SAR;
provided, however, that the Committee may limit the amount that may be paid to
the holder upon exercise of such SAR. An SAR granted independent of options
shall be exercisable, in whole or in part, at such times as the Committee shall
determine.

Stock Purchase Rights

The 1991 Incentive Plan provides for the grant of stock purchase rights to
purchase Common Stock of the Company either alone, in addition to, or in tandem
with other awards under the 1991 Incentive Plan and/ or cash awards made outside
of the 1991 Incentive Plan. The Committee shall determine the terms of each
stock purchase right, including the number of shares of Common Stock that the
purchaser shall be entitled to purchase, the price to be paid for the shares
(which price in the case of persons subject to Section 16 of the Exchange Act
shall not exceed the par value of the Company's Common Stock) and the time
within which the right must be exercised, which shall in no event exceed 60 days
from the date the stock purchase right was granted. At the time of exercise of a
stock purchase right, the purchaser and the Company will enter into a Restricted
Stock Purchase Agreement pursuant to which the Company shall have a right to
repurchase, at the original purchase price, any unvested shares in the event of
the purchaser's voluntary or involuntary termination of employment or consulting
relationship, including by reason of death or disability.

Stock Bonuses

The 1991 Incentive Plan also provides for the award of stock bonuses to
employees and consultants. Stock bonuses may be granted either alone or in
addition to other awards under the 1991 Incentive Plan. Stock bonuses are
generally granted in consideration of past services rendered to the Company or
its subsidiaries. The Committee shall determine, in its sole discretion, the
terms of each stock bonus, and shall determine the performance or
employment-related factors to be considered in granting stock bonuses and the
extent to which such stock bonuses have been earned.

Adjustments for Recapitalizations and Reorganizations

In the event of a stock dividend, stock split combination or similar event,
the number of shares of Common Stock available for issuance under the 1991
Incentive Plan shall be increased or decreased proportionately, as the case may
be, and the number of shares of Common Stock deliverable in connection with any
outstanding option, SAR, stock purchase right or stock bonus, and, where
applicable, the exercise price thereof, shall be proportionately adjusted.

In the event of a merger, reorganization, liquidation or similar event, the
Board of Directors shall, with respect to outstanding options, SARs, stock
purchase rights or stock bonuses either provide for the assumption or
substitution of such awards or provide that the options or rights must be
exercised within 30 days. In either case, the Board or the Committee may, in its
discretion, provide for accelerated vesting of such awards.

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<PAGE> 19

Amendment and Termination

The Board may amend, alter, suspend or discontinue the 1991 Incentive Plan
at any time, but such amendment, alteration, suspension or discontinuation shall
not impair the rights of any participant in the 1991 Incentive Plan, without the
participant's consent. In addition, no ISO may be granted under the 1991
Incentive Plan after March 8, 2001. Subject to the specific terms of the 1991
Incentive Plan, the Committee may accelerate any award or option or waive any
conditions or restrictions pertaining to such award or option at any time.

In addition, to the extent necessary and desirable to comply with Rule
16b-3 under the Exchange Act or under Section 422A of the Internal Revenue Code
of 1986, as amended (the "Code") (or any other applicable law or regulation),
the Company shall obtain stockholder approval of any 1991 Incentive Plan
amendment, in such a manner and to such a degree as required to comply with such
laws or regulations.

Certain United States Federal Income Tax Information

The following is only a brief summary of the effect of federal income
taxation upon the participant and the Company under the 1991 Incentive Plan
based upon the Code. This summary does not purport to be complete and does not
discuss the income tax laws of any municipality, state or country outside of the
United States in which a participant may reside. It is advisable that a
participant contact his or her own tax advisor concerning the application of
these tax laws.

Stock Options. If an option granted under the 1991 Incentive Plan is an
ISO, the optionee will recognize no income upon grant of the ISO and will incur
no tax liability due to the exercise unless the optionee is subject to the
alternative minimum tax. The Company will not be allowed a deduction for federal
income tax purposes as a result of the exercise of an ISO regardless of the
applicability of the alternative minimum tax. Upon the sale or exchange of the
shares at least two years after grant of the ISO and one year after exercise by
the optionee, any gain (or loss) will be treated as capital gain (or loss). If
these holding periods are not satisfied, the optionee will recognize ordinary
income equal to the difference between the exercise price and the lower of the
fair market value of the stock at the date of the option exercise or the sale
price of the stock. A different rule for measuring ordinary income upon such
premature disposition may apply if the optionee is subject to Section 16 of the
Exchange Act. The Company will be entitled to a deduction in the same amount as
the ordinary income recognized by the optionee. Any gain (or loss) recognized on
such a premature disposition of the shares in excess of the amount treated as
ordinary income will be characterized as capital gain (or loss).

All other options which do not qualify as ISOs are taxed as NSOs. An
optionee will not recognize any taxable income at the time he or she is granted
an NSO. However, upon the exercise of an NSO, the optionee will recognize
ordinary income measured by the excess of the then fair market value of the
shares over the option price. In certain circumstances, where the shares are
subject to a substantial risk of forfeiture when acquired or where the optionee
is subject to Section 16 of the Exchange Act, the date of taxation may be
deferred unless the optionee files an election with the Internal Revenue Service
under Section 83(b) of the Code. The income recognized by an optionee who is
also an employee of the Company will be subject to tax withholding by the
Company by payment in cash or out of the current earnings paid to the optionee.
Upon resale of such shares by the optionee, any difference between the sales
price and the exercise price, to the extent not recognized as ordinary income as
provided above, will be treated as capital gain (or loss). The Company will be
entitled to a tax deduction in the same amount as the ordinary income recognized
by the optionee with respect to shares acquired upon exercise of an NSO.

Stock Appreciation Rights. A recipient will not recognize any taxable
income in connection with the grant of an SAR. On exercise of an SAR for cash,
the recipient will generally recognize ordinary income in the year of exercise
in an amount equal to the difference between the exercise price (if any) of the
SAR and the fair market value of the SAR (computed with reference to the Common
Stock of the Company) at the time of exercise. If the recipient is an employee,
such amount will be subject to withholding by the Company. As a general rule,
the Company will be entitled to a tax deduction in the amount and at the time
the recipient recognizes ordinary income with respect to the SAR.

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<PAGE> 20

If the recipient receives shares of Common Stock of the Company upon
exercise of an SAR, the tax consequences on purchase and sale of such shares
will be the same as those discussed above for NSOs. See "Special Rules
Applicable to Corporate Insiders."

Stock Purchase Rights. Stock purchase rights will generally be subject to
the tax consequences discussed above for NSOs.

Stock Bonus Awards. A recipient who receives fully vested shares of Common
Stock pursuant to a stock bonus award will generally recognize ordinary income
in the year of receipt equal to the fair market value of the stock on the date
of grant. If the recipient receives stock subject to vesting pursuant to a stock
bonus award, the recipient will recognize ordinary income equal to the fair
market value of the stock at the time the award vests (unless a Section 83(b)
election is timely filed at the time of grant). Different timing rules may apply
if the recipient is subject to Section 16(b) of the Exchange Act.

If the recipient is an employee, any amount included in income will be
subject to withholding by the Company. As a general rule, the Company will be
entitled to a tax deduction in the amount and at the time the recipient
recognizes ordinary income with respect to the stock bonus award.

Special Rules Applicable to Corporate Insiders. In the case of an
individual who could be subject to suit under Section 16(b) of the Exchange Act
in the event he or she disposes of the shares acquired upon exercise of a stock
option, an SAR, or any other incentive right granted under the 1991 Incentive
Plan ("Insider"), such Insider will not recognize ordinary income at the time of
exercise of the option or right. Instead, the time of taxation and withholding
requirements will be generally deferred until the date that the insider would no
longer be subject to suit upon disposition of such shares. The Insider will
recognize ordinary income at that time in an amount equal to the excess of the
then fair market value of the shares over the purchase price (if any).

If the recipient is an employee, any amount included in income will be
subject to withholding by the Company. An Insider can avoid this deferral
provision by filing a Section 83(b) election within 30 days after exercise of
the option or right.

Capital Gains. Under current law the tax on long-term capital gains is
capped at 28%. Short-term capital gain is fully included in gross income and
taxed at the same rates as ordinary income. Capital losses are allowed in full
against capital gains plus $3,000 of other income.

Stock Price

The closing price of a share of the Common Stock on the New York Stock
Exchange on March 14, 1997 was $ -- .

PROPOSAL SIX

APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION

GENERAL

The Restated Certificate of Incorporation of the Company, as currently in
effect, provides that authorized capital stock shall consist of 250,000,000
shares of Common Stock, $0.01 par value, and 2,000,000 shares of Preferred
Stock. The proposed amendment would increase the number of shares of Common
Stock authorized for issuance by 200,000,000 to a total of 450,000,000 shares.
As more fully described below, the proposed amendment is intended to provide the
Company flexibility to meet its future needs for unreserved Common Stock.

17
<PAGE> 21

REASONS FOR THE PROPOSED AMENDMENT

The Company's number of authorized shares of Common Stock, currently at
250,000,000, was increased to that number in 1995 from 73,500,000, by approval
of the Company's stockholders. Since the increase in the Company's authorized
capital in 1995, the Company has issued a total of additional shares,
which resulted from a 100% stock dividend (two-for-one stock split) and the
issuance of new shares pursuant to various capital transactions, including
employee and director benefit plan transactions. At March 14, 1997, the
Company's market capitalization was approximately $ .

As of March 14, 1997, shares of the Common Stock were issued
and outstanding; shares were reserved for issuance upon conversion of
certain convertible notes; and shares were reserved for issuance
under the Company's employee stock benefit plans, leaving only shares
of Common Stock available for future issuance. The number of shares remaining
available is not considered adequate for the Company's future possible
requirements.

Although the Company has no firm plans to use the additional authorized
shares of Common Stock other than as described above, the Company's Board of
Directors believes that it is prudent to increase the number of authorized
shares of Common Stock to the proposed level in order to provide a reserve of
shares available for issuances in connection with possible future actions. Such
actions may include, but are not limited to stock splits or stock dividends if
the Board of Directors, for example, were to determine that it would be
desirable to facilitate a broader base of shareholders. The Company's Board of
Directors also believes that the increased number of shares will provide the
flexibility to effect other possible actions such as financings, corporate
mergers, acquisitions of property, employee benefit plans and for other general
corporate purposes. For example, in 1994 and 1995 the Company raised
approximately $143,000,000 and $405,000,000 respectively, through the issuance
of notes convertible into the Company's Common Stock and the issuance of Common
Stock, respectively, pursuant to these transactions. On February 21, 1997, the
Company issued a notice of redemption of the convertible notes issued in 1994.
By reference to the current market price of the Company's Common Stock, the
company anticipates that the Notes will be fully converted into the Company's
Common Stock in accordance with their terms. Further, the semiconductor industry
is capital intensive and in order to remain competitive, the Company must
continue to make significant investments in new facilities and capital
equipment, for which the remaining number of unreserved shares would likely be
inadequate. Having such additional authorized Common Stock available for
issuance in the future would allow the Board of Directors to issue shares of
Common Stock without the delay and expense associated with seeking stockholder
approval. Elimination of such delays and expense occasioned by the necessity of
obtaining stockholder approval will better enable the Company, among other
things, to engage in financing transactions and acquisitions as well as to take
advantage of changing market and financial conditions on a more competitive
basis as determined by the Board of Directors.

POSSIBLE EFFECTS OF THE AMENDMENT

If the proposed amendment is approved, the Board of Directors may cause the
issuance of additional shares of Common Stock without further vote of
stockholders of the Company, except as provided under Delaware corporate law or
under the rules of any national securities exchange on which shares of Common
Stock of the Company are then listed. Current holders of Common Stock have no
pre-emptive or like rights, which means that current stockholders do not have a
prior right to purchase any new issue of capital stock of the Company in order
to maintain their proportionate ownership thereof. The effects of the
authorization of additional shares of Common Stock may also include dilution of
the voting power of currently outstanding shares and reduction of the portion of
dividends and of liquidation proceeds payable to the holders of currently
outstanding Common Stock.

In addition, the Board of Directors could use authorized but unissued
shares to create impediments to a takeover or a transfer of control of the
Company. Accordingly, an effect of the increase in the number of authorized
shares of Common Stock may be to deter a future takeover attempt which holders
of Common Stock may deem to be in their best interest or in which holders of
Common Stock may be offered a premium for their shares over the market price.

18
<PAGE> 22

In November 1988, the Board of Directors established a Shareholder Rights
Plan ("Rights Plan") and issued under the Rights Plan as a dividend to the
holders of Common Stock, rights to purchase Series A Participating Preferred
Stock. In the event the rights become exercisable, the Company might have to
issue a substantial number of new shares of Common Stock in order to effectuate
the Rights Plan. Although under the Rights Plan the Company is not now obligated
to reserve shares of Common Stock for issuance thereunder, a failure to have
sufficient authorized shares available could result in a delay or failure of
implementation of all aspects of the Rights Plan. A copy of the Rights Agreement
was filed with the Securities and Exchange Commission on November 21, 1988 as an
exhibit to the Registration Statement on Form 8-A pursuant to Section 12(a) of
the Securities Exchange Act of 1934. The foregoing brief description of the
Rights Plan is qualified in its entirety by reference to the text of the Rights
Agreement.

The Board of Directors is not currently aware of any attempt to take over
or acquire the Company. While it may be deemed to have potential anti-takeover
effects, the proposed amendment to increase the authorized Common Stock is not
prompted by any specific effort or takeover threat currently perceived by
management. Moreover, management does not currently intend to propose additional
anti-takeover measures in the foreseeable future.

REQUIRED VOTE

The affirmative vote of a majority of the outstanding shares of Common
Stock will be required to approve PROPOSAL SIX. If the proposed amendment to the
Restated Certificate of Incorporation is approved by the stockholders, such
amendment will become effective upon filing an amendment to the Restated
Certificate of Incorporation with the Delaware Secretary of State. If the
amendment is authorized, the text of the first paragraph of Article 4 of the
Company's Restated Certificate of Incorporation will be as follows:

"This corporation is authorized to issue two classes of shares designated,
respectively, "Common Stock" and "Preferred Stock." The total number of shares
which this corporation shall have authority to issue is Four Hundred Fifty-Two
Million (452,000,000) of which Four Hundred Fifty Million (450,000,000) shall be
Common Stock with a par value of $0.01 per share and Two Million (2,000,000)
shall be Preferred Stock with a par value of $0.01 per share."

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE
AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION.
THE EFFECT OF AN ABSTENTION IS THE SAME AS THAT OF A VOTE AGAINST
THE AMENDMENT OF THE CERTIFICATE.

PROPOSAL SEVEN

APPROVAL OF PERFORMANCE-BASED BONUS COMPENSATION

The Compensation Committee (the "Committee") of the Board of Directors has
adopted, subject to stockholder approval, a performance-based bonus compensation
plan (the "Plan") for the Chief Executive Officer ("CEO") of the Company. Each
year, a specific bonus payment to the CEO under the Plan will depend upon the
Company's performance in achieving pre-established levels of annual operating
income, which in no event may exceed $2,000,000 (the "Bonus"). Stockholder
approval of the Bonus is necessitated by Section 162(m) of the Internal Revenue
Code of 1986, as amended, which provides a $1,000,000 cap on tax deductibility
for certain compensation paid to the CEO by publicly-held corporations.

The only eligible participant under the Plan is the CEO. The Plan is
designed to recognize the contribution of the CEO to the Company's successful
performance in accordance with the prespecified operating income results
approved by the Committee.

The Bonus is to be paid in cash upon approval by the Committee. The
Committee will be responsible for certifying the results achieved to determine
the amount of the Bonus.

The amount payable under the Plan is contingent upon the achievement of
operating income targets and therefore is not presently determinable.

19
<PAGE> 23

A copy of the Plan is attached hereto as Appendix A.

REQUIRED VOTE

Approval of the Performance-Based Bonus Compensation Plan requires the
affirmative vote of the holders of a majority of the shares of the Company's
Common Stock represented and voting, in person or by proxy, and entitled to vote
at the Annual Meeting. Votes against are counted for purposes of determining the
presence or absence of a quorum for the transaction of business. Votes against
are also counted for purposes of determining the total number of votes required
to pass the proposal and whether such number of votes has been obtained.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
PERFORMANCE-BASED BONUS COMPENSATION PLAN

PROPOSAL EIGHT

RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS

The Board of Directors has selected Price Waterhouse, independent
accountants, to audit the consolidated financial statements of the Company for
its 1997 fiscal year and recommends that the stockholders vote for ratification
of such appointment. If there is a negative vote on such ratification, the Board
of Directors will reconsider its selection. Price Waterhouse has audited the
Company's consolidated financial statements since the fiscal year ended December
31, 1981. Representatives of Price Waterhouse are expected to be present at the
Annual Meeting with the opportunity to make a statement if they desire to do so,
and are expected to be available to respond to appropriate questions.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION
OF THE APPOINTMENT OF PRICE WATERHOUSE AS THE INDEPENDENT
ACCOUNTANTS FOR THE 1997 FISCAL YEAR. THE EFFECT OF AN ABSTENTION
IS THE SAME AS THAT OF A VOTE AGAINST THE RATIFICATION OF THE
APPOINTMENT OF THE INDEPENDENT ACCOUNTANTS.

EXECUTIVE COMPENSATION

The following table shows, as to (i) the Chief Executive Officer, (ii) each
of the four other most highly compensated executive officers whose salary plus
bonus exceeded $100,000, and (iii) one additional individual who would have been
one of the four most highly compensated executive officers but for the fact that
such individual was not serving as executive officers of the Company on December
31, 1996, information concerning all reportable compensation awarded to, earned
by or paid to each for services to the Company in all capacities during the
fiscal year ended December 31, 1996, as well as such compensation for each such

20
<PAGE> 24

individual for the Company's previous two fiscal years (if such person was the
Chief Executive Officer or an executive officer, as the case may be, during any
part of such fiscal year).

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------------------------
ANNUAL COMPENSATION
--------------------------------------- AWARDS PAYOUTS
OTHER ---------- -------
ANNUAL RESTRICTED LTIP ALL OTHER
COMPEN- STOCK OPTIONS/ PAYOUTS COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) SATION($)(1) AWARD($)(2) SARS(#)(3) ($)(4) SATION($)(5)
- ------------------------------ ----- -------- -------- ---------- ---------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Wilfred J. Corrigan........... 1996 $685,577 $ -0- $ 10,400 -0- -0- -0- $ 13,807
Chief Executive Officer 1995 $600,769 $730,000 $ 13,100 -0- 1,400,000 -0- $ 37,823
1994 $563,846 $575,000 $ 9,600 -0- -0- -0- $ 41,351
William R. Marz............... 1996 $332,077 $ 30,000 $ 9,100 -0- 175,000 -0- $ 7,562
Executive Vice President, 1995 $ 80,760 $ -0- $ 2,100 -0- 125,000 -0- $ 85,607
Geographic Marketing 1994 $ -0- $ -0- $ -0- -0- -0- -0- $ -0-
Cyril F. Hannon............... 1996 $322,500 $ 35,000 $ 9,100 -0- 120,000 -0- $ 9,917
Executive Vice President, 1995 $291,923 $250,000 $ 9,479 -0- 100,000 -0- $ 21,637
Worldwide Operations 1994 $279,615 $175,000 $ 8,400 -0- 30,000 -0- $ 23,313
Moshe M. Gavrielov............ 1996 $293,461 $ 50,000 $121,272 -0- 255,000 -0- $ 4,127
Executive Vice President, 1995 $226,923 $165,000 $172,014 -0- 40,000 -0- $ 13,353
LSI Logic Products Group 1994 $186,038 $100,000 $ 7,200 -0- 20,000 -0- $ 10,606
David E. Sanders.............. 1996 $202,154 $ 14,000 $ 9,600 -0- 55,000 -0- $ 15,265
Vice President, General 1995 $173,385 $ 80,000 $ 8,400 -0- 20,000 -0- $ 11,798
Counsel and Secretary 1994 $161,692 $ 70,000 $ 8,400 -0- 20,000 -0- $ 9,426
Albert A. Pimentel (6)........ 1996 $251,135 $ -0- $ 7,090 -0- 50,000 -0- $ 4,188
Former Senior Vice President 1995 $251,923 $200,000 $ 8,400 -0- 40,000 -0- $ 15,165
and Chief Financial Officer 1994 $236,923 $160,000 $ 9,295 -0- 20,000 -0- $ 15,336
</TABLE>

- ---------------
(1) Includes amounts paid for car allowance, tax planning, and in the case of
Mr. Gavrielov, foreign relocation payments.

(2) The Company has not granted any restricted stock rights.

(3) The Company has not granted any stock appreciation rights. The number of
options granted has been adjusted for a two-for-one stock split in the form
of a stock dividend declared for stockholders of record on May 23, 1995. The
number of options granted in 1996 reflects options granted pursuant to an
option repricing opportunity offered in that year to all employees, except
certain executive officers.

(4) The Company does not have any Long Term Incentive Plans as that term is
defined in the regulations.

(5) "All Other Compensation" is itemized as follows:

- In 1996, Mr. Corrigan received $7,265 for profit sharing and $6,542 for
group term life insurance. In 1995, Mr. Corrigan received $31,523 for
profit sharing, and $6,300 for group term life insurance. In 1994, Mr.
Corrigan received $34,301 for profit sharing, $750 for a patent award,
and $6,300 for group term life insurance.

- In 1996, Mr. Marz received $3,375 for profit sharing and $4,187 for group
term life insurance. In 1995, Mr. Marz received $9,522 for profit
sharing, $1,085 for group term life insurance and 75,000 as a hire-on
bonus.

- In 1996, Mr. Hannon received $3,375 for profit sharing and $6,542 for
group term life insurance. In 1995, Mr. Hannon received $15,337 for
profit sharing and $6,300 for group term life insurance. In 1994, Mr.
Hannon received $17,013 for profit sharing and $6,300 for group term life
insurance.

- In 1996, Mr. Gavrielov received $2,644 for profit sharing and $1,483 for
group term life insurance. In 1995, Mr. Gavrielov received $11,925 for
profit sharing and $1,428 for group term life insurance. In 1994, Mr.
Gavrielov received $9,245 for profit sharing and $1,361 for group term
life insurance.

21
<PAGE> 25

- In 1996, Mr. Sanders received $2,048 for profit sharing and $2,568 for
group term life insurance and $10,649 in exchange for the cancellation of
stock options granted by LSI Logic Corporation of Canada, Inc. In 1995,
Mr. Sanders received $9,558 for profit sharing and $2,240 for group term
life insurance. In 1994, Mr. Sanders received $7,349 for profit sharing
and $2,077 for group term life insurance.

- In 1996, Mr. Pimentel received $2,925 for profit sharing and $1,263 for
group term life insurance. In 1995, Mr. Pimentel received $13,737 for
profit sharing and $1,428 for group term life insurance. In 1994, Mr.
Pimentel received $14,412 for profit sharing and $924 for group term life
insurance.

(6) Mr. Pimentel resigned from the Company effective November 1, 1996.

STOCK OPTION GRANTS AND EXERCISES

The following tables set forth the stock options granted to the Named
Executive Officers under the Company's stock option plans and the options
exercised by such Named Executive Officers during the fiscal year ended December
31, 1996.

The Option/SAR Grant Table sets forth hypothetical gains or "option
spreads" for the options at the end of their respective ten-year terms, as
calculated in accordance with the rules of the Securities and Exchange
Commission. Each gain is based on an arbitrarily assumed annualized rate of
compound appreciation of the market price at the date of grant of 5% and 10%
from the date the option was granted to the end of the option term. Actual
gains, if any, on option exercises are dependent on the future performance of
the Company's Common Stock and overall market conditions.

OPTION/SAR(1) GRANTS IN LAST FISCAL YEAR

LSI LOGIC CORPORATION 1991 EQUITY INCENTIVE PLAN(2)

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- --------------------------------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE
TOTAL ASSUMED ANNUAL RATES OF
OPTIONS/ STOCK PRICE
SARS GRANTED APPRECIATION
TO EMPLOYEES EXERCISE OR FOR OPTION TERM
OPTIONS/SARS IN FISCAL BASE PRICE EXPIRATION -----------------------
NAME GRANTED (#) YEAR ($/SHARE) DATE 5% 10%
- ------------------------ ------------ ------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Wilfred J. Corrigan..... -0- 0.00% N/A N/A $ -0- $ -0-
Cyril F. Hannon......... 50,000 0.69% $ 32.13 02/16/06 $1,010,162 $2,559,949
20,000 0.28% $ 22.38 08/16/06 $ 281,430 $ 713,200
50,000 0.69% $ 30.50 11/15/06 $ 959,064 $2,430,457
Moshe N. Gavrielov...... 50,000 0.69% $ 32.13 02/16/06 $1,010,162 $2,559,949
75,000 1.04% $ 34.38 05/10/06 $1,621,369 $4,108,867
50,000 0.69% $ 22.38 08/16/06 $ 703,576 $1,782,999
80,000 1.11% $ 30.50 11/15/06 $1,534,503 $3,888,732
William R. Marz......... 75,000 1.04% $ 32.13 02/16/06 $1,515,243 $3,839,923
30,000 0.41% $ 34.38 05/10/96 $ 648,548 $1,643,547
50,000 0.69% $ 22.38 08/16/06 $ 703,576 $1,782,999
20,000 0.28% $ 30.50 11/15/06 $ 383,626 $ 972,183
David E. Sanders........ 20,000 0.28% $ 32.13 02/16/06 $ 404,065 $1,023,980
20,000(3) 0.28% $ 22.38 08/16/06 $ 281,430 $ 713,200
15,000 0.21% $ 30.50 11/15/06 $ 287,719 $ 729,137
Albert A. Pimentel(4)... 30,000 0.42% $ 32.13 02/16/06 $ 606,097 $1,535,969
20,000 0.28% $ 22.38 08/16/06 $ 281,430 $ 713,200
</TABLE>

- ---------------
(1) The Company has not granted any stock appreciation rights.

(2) The material terms of the grants (other than those set forth in the table)
are: (a) The exercise price of the options is the fair market value of
Common Stock as of the date of grant; (b) The options vest cumulatively in
equal 25% increments on each of the first four anniversaries of the date of
grant; (c) To the extent unexercised, the options lapse after ten years; (d)
The options are non-transferable and are

22
<PAGE> 26

only exercisable during the period of employment of the optionee (or within
three months following termination of employment), subject to limited exceptions
in the cases of certain terminations, death or permanent disability of the
optionee.

(3) These options were granted pursuant to an option repricing opportunity
offered to all employees, except certain executive officers, on August 16,
1996. The transaction is described below in the section entitled "Option
Repricing."

(4) Mr. Pimentel resigned from the Company effective November 1, 1996.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND YEAR-END VALUE(1)

LSI LOGIC CORPORATION 1991 EQUITY INCENTIVE PLAN

<TABLE>
<CAPTION>
NUMBER OF VALUE(2) OF
SECURITIES UNDERLYING UNEXERCISED IN-THE-MONEY
NUMBER OF UNEXERCISED OPTIONS HELD OPTIONS HELD AT FISCAL
SHARES AT FISCAL YEAR END YEAR END
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Wilfred J. Corrigan....... -0- $ -0- 412,500 1,112,500 $ 2,089,063 $ 3,532,813
Cyril F. Hannon........... 70,000 $1,672,188 25,000 235,000 $ 51,563 $ 1,050,938
Moshe N. Gavrielov........ 31,750 $ 866,984 40,000 335,000 $ 189,375 $ 883,750
William R. Marz........... -0- $ -0- 31,250 268,750 $ -0- $ 250,000
David E. Sanders.......... -0- $ -0- 40,500 63,500 $ 775,000 $ 382,813
Albert A. Pimentel(3)..... 10,000 $ 66,875 172,500 -0- $ 4,126,563 $ -0-
</TABLE>

- ---------------
(1) The Company has not granted any stock appreciation rights.

(2) Value of vested options is based on the difference between the fair market
value of Company's Common Stock of $27.375 per share as of December 30,
1996, the last day of the last completed fiscal year and the exercise price
of the unexercised options. Values of in-the-money unexercised options at
fiscal year-end reflect the August 16, 1996 repricing of Mr. Sanders'
options.

(3) Mr. Pimentel resigned from the Company effective November 1, 1996.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

Overview and Philosophy

The Compensation Committee (the "Committee") of the Board of Directors
establishes the overall executive compensation strategies of the Company and
approves compensation elements of the chief executive officer and other
executive officers. The Committee periodically reviews its approach to executive
compensation.

The Committee is comprised of all of the outside, non-employee members of
the Board of Directors (three), none of whom has interlocking relationships as
defined by the Securities and Exchange Commission. In November 1996, Mr. Douglas
Norby, who had been a member of the Committee prior to that time, resigned from
the Committee when he accepted the position of Executive Vice President and
Chief Financial Officer for the Company. The Committee has available to it such
external compensation advice and data as the Committee deems appropriate to
obtain.

The compensation philosophy of the Committee is to provide a comprehensive
compensation package for each executive officer that is well suited to support
accomplishment of the Company's business strategies, objectives and initiatives.
For incentive-based compensation, the Committee considers the desirability of
structuring such compensation arrangements so as to qualify for deductibility
under section 162(m) of the Internal Revenue Code. As the Committee applies this
compensation philosophy in determining appropriate

23
<PAGE> 27

executive compensation levels and other compensation factors, the Committee
reaches its decision with a view towards the Company's overall financial
performance.

Executive Officer Compensation

The Committee's approach is based upon a belief that a substantial portion
of aggregate annual compensation for executive officers should be contingent
upon the Company's performance and an individual's contribution to the Company's
success. In addition, the Committee strives to align the interest of the
Company's executive officers with the long-term interests of stockholders
through stock option grants that can result in ownership of the Company's Common
Stock. The Committee endeavors to structure each executive officer's overall
compensation package to be consistent with this approach and to enable the
Company to attract, retain and reward personnel who contribute to the success of
the Company.

The Company's compensation program for executive officers is based on the
following guidelines:

- Establishment of salary levels and participation in generally available
employee benefit programs based on competitive compensation package
practices.

- Utilization of a performance-based, cash incentive plan.

- Inclusion of equity opportunities that create long-term incentives based
upon increases in stockholder return.

The Company had a cash incentive plan during 1996 that provided for bonus
awards to be made to the executive officers and other members of senior
management subject to an aggregate budget for all awards under the plan. The
plan established a minimum level of operating income to be achieved by the
Company for the year before any payments would be made under the plan. The plan
also allowed upward adjustments in awards to be made if the minimum operating
income target was exceeded. In addition, per the plan's provisions, except as to
his own eligibility for an award under the plan, the CEO was authorized to
determine individual bonus award amounts pursuant to his judgment of each
participant's relative personal contributions to the Company's performance,
subject to the approval of the Committee of awards to executive officers. Since
the Company's operating income for 1996 did not exceed the threshold target
established under the plan, no payments under the plan were made.

However, for 1996 the Committee approved and made discretionary cash
incentive awards to certain executive officers and approved a budget amount from
which the CEO made individual discretionary cash incentive awards to other
members of senior management. These awards were designed to reflect the
contributions of the award recipients to the Company's profitability during 1996
and the Company's performance on a basis relative to general industry conditions
for the year.

During 1996 the Committee approved a budget for increases in executive
officers' base salary levels, which reflected the compensation guidelines
described previously in this report. Increased in base salary amounts for
individual executive officers were then made pursuant to the CEO's judgment and
discretion in satisfying the Company's compensation philosophy set forth above,
which increases, in the aggregate, were within the budget that had been approved
by the Committee. The general level of compensation of the Company's executive
officers is in the median of ranges of compensation information sources against
which the Company makes competitive comparisons.

The Company maintains a set of guidelines for use in making recommendations
to the Committee on individual grants of stock options, including the size of
such grants, to executive officers. Options to purchase the Common Stock of the
Company were granted to the executive officers by reference to the guidelines.
These guidelines are developed by reference to external published surveys and
other information that are believed to fairly reflect the competitive
environment in which the Company operates and which are consistent with the
compensation principles set forth above.

24
<PAGE> 28

Repricing of Options

During 1996, the Committee approved a stock option exchange arrangement,
which allowed the repricing of certain stock option grants to certain
participants in the 1991 Equity Incentive Plan, including three individuals who
were executive officers at the date of the option repricing. Options that had
been granted having exercise prices of $30.00 per share or greater were allowed
to be exchanged for new options at the then current market price of $22.375 per
share. In exchange, the vesting periods were reset to start over for the
repriced options. The basis for the determination to provide the repricing was
that (i) the interest of the Company in providing a compensation incentive
through the use of stock options would be adversely impacted as to employees
whose stock options had exercise prices substantially in excess of the market
price of the Company's Common Stock ("Underwater Options"); (ii) in the
Company's competitive environment, employees holding Underwater Options were
seen to be vulnerable to being recruited by other employers who offer a more
attractive incentive by granting stock options at current market prices; and
(iii) the disruption to the Company's operations from the loss of key employees
was perceived to be likely to have an adverse effect on the Company.
Accordingly, extending the arrangement for stock option repricing was believed
to be in the best interests of the Company.

Chief Executive Officer Compensation

Mr. Corrigan has been CEO of the Company since its founding in 1981. His
base salary prior to the beginning of fiscal 1995 was $625,000, which was
increased to $675,000 during 1996, based upon reference to external competitive
pay practices, the above-described compensation approach to executive officers
and an independent assessment by this Committee of Mr. Corrigan's performance.

Mr. Corrigan did not receive a cash bonus for 1996. Mr. Corrigan did not
participate in the stock option exchange and repricing arrangements described
elsewhere in this report.

The Committee believes Mr. Corrigan has managed the Company well, and has
achieved distinguished results, including in terms of revenue, gross margin,
operation income and net income.

MEMBERS OF THE COMPENSATION COMMITTEE

James H. Keyes
T.Z. Chu
Malcolm R. Currie

February 7, 1997

25
<PAGE> 29

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Compensation Committee are set forth in the preceding
section as well as in Proposal One. There are no members of the Compensation
Committee who were: officers or employees of the Company or any of its
subsidiaries during the fiscal year, formerly officers of the Company, or had
any relationship otherwise requiring disclosure hereunder.

OPTION REPRICING

In August 1996, the Compensation Committee (the "Committee") of the Board
of Directors approved a stock option exchange arrangement, which was extended to
all participants in the Company's 1991 Equity Incentive Plan, with the
exceptions of the Chief Executive Officer and those executive officers who had
been the four most highly compensated executive officers in the prior year. As
further addressed in the foregoing Compensation Committee Report on Executive
Compensation, the stock option arrangement allowed option holders to exchange
previously-granted options having an exercise price of $30.00 or greater for new
options having an exercise price of $22.375, the then-current market value for
the Company's Common Stock. In addition, the vesting periods were reset to start
over for the new, repriced stock options.

While neither the Committee nor the Board of Directors has an intention to
reprice stock options in the future, the Company has repriced stock options in
the past as noted in the Table of Ten-Year Option Repricings set forth below.
That table sets forth the option repricings for the last ten years for all
executive officers.

26
<PAGE> 30

LSI LOGIC CORPORATION

TEN-YEAR OPTION REPRICINGS
FROM 1/1/87 TO 12/30/96

<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF ORIGINAL
SECURITIES OPTION TERM
UNDERLYING MARKET PRICE OF REMAINING AT
OPTIONS STOCK AT TIME EXERCISE NEW EXERCISE DATE OF
NAME DATE REPRICED(1) OF REPRICING PRICE PRICE REPRICING
- ------------------------- --------- ---------- ---------------- -------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
EXECUTIVE OFFICERS
Wilfred J. Corrigan,..... 11/05/91 200,000 $ 3.69 $ 5.43 $ 4.06 3 yrs. 221 days
Chairman and Chief 10/26/87 100,000 3.38 4.82 3.71 3 yrs. 270 days
Executive Officer 10/26/87 200,000 3.38 5.09 3.71 3 yrs. 360 days
Cyril F. Hannon,......... 11/05/91 30,000 3.69 4.25 3.69 9 yrs. 102 days
Executive Vice 02/09/90 169,470 3.63 3.92 3.63 4 yrs. 147 days
President Worldwide 02/09/90 70,000 3.63 5.56 3.63 9 yrs. 102 days
Operations 02/09/90 25,530 3.63 3.92 3.63 4 yrs. 147 days
10/26/87 19,671 3.38 5.08 3.38 7 yrs. 95 days
10/26/87 10,329 3.38 5.08 3.38 7 yrs. 95 days
10/26/87 60,000 3.38 4.38 3.38 8 yrs. 271 days
10/26/87 60,000 3.38 7.38 3.38 9 yrs. 177 days

David E. Sanders,........ 08/16/96 20,000 22.38 32.13 22.38 9 yrs. 184 days
Vice President, 11/05/91 14,000 3.69 5.44 3.69 9 yrs. 185 days
General Counsel and
Secretary

Lewis C. Wallbridge,..... 08/16/96 25,000 22.38 32.13 22.38 9 yrs. 184 days
Vice President 11/05/91 20,000 3.69 4.81 3.69 8 yrs. 181 days
Human Resources 11/05/91 24,000 3.69 4.25 3.69 9 yrs. 102 days
02/09/90 10,000 3.63 5.56 3.63 9 yrs. 177 days
10/26/87 12,000 3.38 4.17 3.38 6 yrs. 264 days
10/26/87 33,000 3.38 4.17 3.38 6 yrs. 264 days
10/26/87 15,000 3.69 4.25 3.69 7 yrs. 95 days

FORMER EXECUTIVE
OFFICERS(2)
Robert N. Blair (1991)... 11/05/91 40,000 3.69 4.81 3.69 8 yrs. 181 days
Senior Vice President 02/09/90 40,000 3.63 3.94 3.63 7 yrs. 276 days
U.S. ASIC Marrketing 02/09/90 40,000 3.63 5.63 3.63 8 yrs. 97 days
02/09/90 30,000 3.63 5.56 3.63 9 yrs. 77 days
02/09/90 30,000 3.63 4.17 3.63 4 yrs. 158 days
10/26/87 30,000 3.38 4.38 3.38 8 yrs. 271 days
10/26/87 40,000 3.38 7.38 3.38 9 yrs. 177 days

Perry C. Constantine..... 02/09/90 30,000 3.63 4.17 3.63 4 yrs. 158 days
(1991) 02/09/90 60,000 3.63 4.38 3.63 6 yrs. 165 days
Senior Vice President 02/09/90 20,000 3.63 5.69 3.63 8 yrs. 355 days
Rest of World
Markets

Bruce L. Entin (1996).... 08/16/96 20,000 22.38 32.13 22.38 9 yrs. 184 days
Vice President 11/05/91 20,000 3.69 4.81 3.69 8 yrs. 181 days
Investor Relations 11/05/91 10,000 3.69 4.25 3.69 9 yrs. 102 days
and Corporate 02/09/90 19,671 3.63 5.08 3.63 4 yrs. 354 days
Communications 02/09/90 4,329 3.63 5.08 3.63 4 yrs. 354 days
02/09/90 9,000 3.63 4.38 3.63 6 yrs. 165 days
02/09/90 30,000 3.63 5.63 3.63 8 yrs. 97 days
02/09/90 10,000 3.63 5.56 3.63 9 yrs. 77 days
10/26/87 30,000 3.38 4.38 3.38 8 yrs. 271 days
10/26/87 20,000 3.38 7.38 3.38 9 yrs. 177 days
</TABLE>

27
<PAGE> 31

Patrick S. Jones
(1992)................. 11/05/91 150,000 3.69 4.50 3.69 9 yrs. 133 days
Vice President and
Chief Financial
Officer

James S. Koford (1993)... 11/05/91 40,000 3.69 4.25 3.69 9 yrs. 102 days
Senior Vice President 11/05/91 20,000 3.69 4.81 3.69 8 yrs. 181 days
and Chief Technical 10/26/87 92,094 3.38 4.67 3.38 6 yrs. 228 days
Officer 10/26/87 147,906 3.38 4.38 3.38 8 yrs. 271 days
10/26/87 30,000 3.38 7.38 3.38 9 yrs. 177 days

Murray L. McLachlan...... 11/05/91 24,000 3.69 4.25 3.69 9 yrs. 102 days
(1992) 02/09/90 10,000 3.63 5.56 3.63 9 yrs. 77 days
Vice President and
Chief Development
Officer

D. Scott Mercer (1990)... 02/09/90 30,000 3.63 5.56 3.63 9 yrs. 77 days
Vice President and 10/26/87 20,064 3.38 7.17 3.38 6 yrs. 84 days
Chief Financial 10/26/87 9,936 3.38 4.67 3.38 6 yrs. 228 days
Officer 10/26/87 21,000 3.38 5.08 3.38 7 yrs. 95 days
10/26/87 60,000 3.38 4.38 3.38 8 yrs. 271 days
10/26/87 40,000 3.38 7.38 3.38 9 yrs. 177 days

William J. O'Meara....... 10/26/87 60,000 3.38 5.08 3.38 7 yrs. 95 days
(1988) 10/26/87 87,906 3.38 4.38 3.38 8 yrs. 271 days
Vice President, Chief 10/26/87 40,000 3.38 7.38 3.38 9 yrs. 177 days
Marketing Officer

Horst G. Sandfort........ 11/05/91 90,000 3.69 4.25 3.69 9 yrs. 102 days
(1994) 11/05/91 100,000 3.69 5.44 3.69 9 yrs. 185 days
President, LSI Logic
Europe plc

Robert M. Skinner........ 11/05/91 16,000 3.69 4.25 3.69 9 yrs. 102 days
(1991) 11/05/91 20,000 3.69 4.81 3.69 8 yrs. 181 days
Vice President, U.S. 02/09/90 20,000 3.69 3.94 3.63 7 yrs. 276 days
Sales 02/09/90 20,000 3.63 5.63 3.63 8 yrs. 97 days
02/09/90 20,000 3.63 5.69 3.63 8 yrs. 355 days
8 yrs. 165 days

Charles H. Smith
(1991)................. 11/05/91 170,000 3.69 4.38 3.69 8 yrs. 165 days
Vice President Customer
Service and Logistics

Gerald B. Thomas (1990).. 02/09/90 100,000 3.63 4.25 3.63 7 yrs. 354 days
President, LSI Logic 02/09/90 40,000 3.63 5.69 3.63 8 yrs. 355 days
Europe plc

Robert M. Walker (1988).. 10/26/87 20,000 3.38 7.38 3.38 9 yrs. 177 days
Vice President, Chief
Engineering Officer
</TABLE>

28
<PAGE> 32

Albert Travis White
(1992)................. 11/05/91 20,000 3.69 4.25 3.69 9 yrs. 102 days
President LSI Logic
Corporation of Canada,
Inc.

Keiske Yawata (1993)..... 02/09/90 40,000 3.63 5.69 3.63 8 yrs. 355 days
President, LSI Logic K.K. 10/26/87 90,000 3.38 4.38 3.38 8 yrs. 271 days
</TABLE>

- ---------------
(1) The number of securities stated reflects adjustment for stock splits.

(2) The above information pertains to individuals who were executive officers of
the Company at the time(s) of the repricings for which information is
provided in the above table. The year following the individual's name
indicates when such individual ceased to be an executive officer of the
Company. With the exception of Mr. Entin, none of the individuals mentioned
are currently employed with the Company.

29
<PAGE> 33

PERFORMANCE GRAPH

The stock price performance shown on the graph following is not necessarily
indicative of future price performance.

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG LSI LOGIC CORPORATION*, S&P 500 INDEX
AND HAMBRECHT & QUIST TECHNOLOGY INDEX

LOGO

* The Company operates on a 52/53 week fiscal year which ends on the Sunday
closest to December 31. Accordingly, the Company's last trading day of its
fiscal year may vary. For consistent presentation and comparison to the
industry indices shown herein, the Company has calculated its stock
performance graph assuming a December 31 year end.

CERTAIN TRANSACTIONS

In January 1997, the Company loaned to R. Douglas Norby, Executive Vice
President, Chief Financial Officer, $350,000 pursuant to an unsecured promissory
note. The purpose of the loan was to assist Mr. Norby with bridge financing
relating to the relocation of his personal residence to California upon
acceptance of employment with the Company. Pursuant to the terms of the
promissory note, the loan bore interest at 5.55% per annum and was due for
repayment on or before January 16, 1998, without penalty for prepayment. The
note was repaid in full by Mr. Norby on January 31, 1997.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Company's executive
officers, directors, and persons who own more than ten percent of a registered
class of the Company's equity securities to file reports of ownership and
changes in ownership with the Securities and Exchange Commission (the "SEC") and
the New York

30
<PAGE> 34

Stock Exchange. Executive officers, directors and greater than ten percent
stockholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file.

Based solely on its review of the copies of such forms received by it and
written representations received from those reporting persons recognized by the
Company as being subject to filing requirements that they have complied with the
relevant filing requirements, the Company believes that all other filing
requirements applicable to its executive officers and directors were complied
with as of December 31, 1996.

OTHER MATTERS

The Company knows of no other matters to be submitted to the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of Proxy to vote the shares they represent as
the Board of Directors may recommend.

THE BOARD OF DIRECTORS

March 24, 1997

31
<PAGE> 35

APPENDIX A

LSI LOGIC CORPORATION

CHIEF EXECUTIVE OFFICER INCENTIVE PLAN

1. Purposes of the Plan. The purpose of the LSI Logic Corporation Chief
Executive Officer Plan (the "Plan") is to motivate and reward the chief
executive officer of the Company by making a significant portion of his cash
compensation directly dependent upon achieving operating income objectives. It
is the Company's intention that the compensation paid hereunder will qualify as
"performance-based" within the meaning of Section 162(m) of the Internal Revenue
Code of 1986, as amended, and will thereby be deductible by the Company.

2. Definitions.

(a) "AWARD" means, with respect to the CEO, the award determined
pursuant to Section 6 below for a Plan Year. Each Award is determined by a
formula for a Plan Year, subject to the Committee's authority under Section
7(d) to reduce the Award otherwise payable.

(b) "BOARD" means the Board of Directors of the Company.

(d) "COMMITTEE" means the Compensation Committee of the Board, or a
sub-committee of the Compensation Committee, which shall consist solely of
two or more members of the Board who are not employees of the Company and
who otherwise qualify as "outside directors" within the meaning of Section
162(m).

(e) "COMPANY" means LSI Logic Corporation.

(f) "PERFORMANCE-BASED COMPENSATION" means compensation that is
intended to qualify as "performance-based compensation" within the meaning
of Section 162(m).

(g) "PLAN" means this LSI Logic Corporation Chief Executive Officer
Incentive Plan.

(h) "PLAN YEAR" means the Company's fiscal year.

(i) "SECTION 162(M)" means Section 162(m) of the Internal Revenue Code
of 1986, as amended, or any successor to Section 162(m), as that Section
may be interpreted from time to time by the Internal Revenue Service,
whether by regulation, notice or otherwise.

3. Administration of the Plan.

(a) The Committee shall be responsible for the general administration
and interpretation of the Plan and for carrying out its provisions. The
Committee may delegate specific administrative tasks to Company employees
or others as appropriate for proper administration of the Plan. Subject to
the limitations on Committee discretion imposed under Section 162(m), the
Committee shall have such powers as may be necessary to discharge its
duties hereunder, including, but not by way of limitation, the following
powers and duties, but subject to the terms of the Plan:

(i) discretionary authority to construe and interpret the terms of
the Plan, and to determine eligibility, Awards and the amount, manner
and time of payment of any Awards hereunder;

(ii) to prescribe forms and procedures for purposes of Plan
participation and distribution of Awards; and

(iii) to adopt rules, regulations and bylaws and to take such
actions as it deems necessary or desirable for the proper administration
of the Plan.

(b) Any rule or decision by the Committee that is not inconsistent
with the provisions of the Plan shall be conclusive and binding.

A-1
<PAGE> 36

4. Eligibility. The Company's chief executive officer shall be the only
employee eligible to participate in the Plan for a given Plan Year.

5. Performance Targets. For each Plan Year the Committee shall establish
Company operating income objectives as provided herein. Such objectives shall be
established in writing in advance of such date as is permitted by Section
162(m). The CEO's bonus opportunity shall become payable based upon the extent
to which the Company meets or exceeds such pre-established objectives.

6. Award Determination. For each Plan Year, the Committee shall establish
a target operating income objective that reflects the organizational structure
and competitive pay opportunities for the CEO. The Committee may request or may
be provided market data to substantiate the appropriateness of the target
operating income objective. The Committee shall also establish incentive awards,
stated as a percentage of CEO base salary as of the commencement of the Plan
Year, for achieving operating income objectives that are greater or lesser than
the target operating income objective.

7. Award Payment.

(a) Certification. The Committee shall certify in writing that all of
the applicable performance criteria have been met prior to any payments
under this Plan.

(b) Form of Distributions. The Company shall distribute all Awards to
the CEO in cash, less applicable withholding.

(c) Timing of Distributions. Subject to Section 7(d) below, the
Company shall distribute amounts payable to the CEO as soon as is
practicable following the determination of the Award for a Plan Year under
Section 6 hereof.

(d) Limitations. The maximum bonus that the CEO may receive under the
Plan in any one fiscal year is $2,000,000. The Committee may not increase
an Award, but may, in its sole discretion, decrease an Award.

8. Term of Plan. The Plan shall first apply to the Company's 1997 Plan
Year. The Plan shall continue until terminated under Section 9 of the Plan.

9. Amendment and Termination of the Plan. The Committee may amend, modify,
suspend or terminate the Plan, in whole or in part, at any time, including the
adoption of amendments deemed necessary or desirable to correct any defect or to
supply omitted data or to reconcile any inconsistency in the Plan or in any
Award granted hereunder or to account for a change in the equity or
capitalization structure of the Company through merger, consolidation,
reorganization, recapitalization, significant change in strategic direction or
otherwise; provided, however, that no amendment, alteration, suspension or
discontinuation shall be made which would (i) impair any payments to the CEO
made prior to such amendment, modification, suspension or termination; provided
further, however, that in no event may such an amendment or modification result
in an increase in the amount of compensation payable pursuant to such Award or
(ii) cause compensation that is, or may become, payable hereunder to fail to
qualify as Performance-Based Compensation. To the extent necessary or advisable
under applicable law, including Section 162(m), Plan amendments shall be subject
to shareholder approval. At no time before the actual distribution of funds to
the CEO under the Plan shall any CEO accrue any vested interest or right
whatsoever under the Plan except as otherwise stated in this Plan.

10. Termination of Employment.

(a) In the event that a CEO's employment with the Company terminates
by reason of the CEO's retirement, total and permanent disability or death,
the Committee may, in its discretion, pay to the CEO or the CEO's
representative, as the case may be, all or a portion of the Award for the
Plan Year in which such termination occurs.

(b) No Award shall be paid to a CEO whose employment terminates during
a Plan Year except as provided in Section 10(a) above.

A-2
<PAGE> 37

11. Withholding. Distributions pursuant to this Plan shall be subject to
all applicable federal and state tax and withholding requirements.

12. Employment. This Plan does not constitute a contract of employment or
compensation or impose on either the CEO or the Company any obligation to retain
the CEO as an employee. This Plan does not change the status of the CEO as an
employee at-will, the policies of the Company regarding termination of
employment, nor guarantee further continuing participation in the Plan.

13. Successors. The provisions of this Plan shall inure to the benefit of,
and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties hereto. The Plan replaces any other variable
compensation plan for the CEO.

14. Nonassignment. The rights of a CEO under this Plan shall not be
assignable or transferable by the CEO except by will or the laws of intestacy.

15. Governing Law. The Plan shall be governed by the laws of the State of
California.

A-3
<PAGE> 38
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS
LSI LOGIC CORPORATION
1997 ANNUAL MEETING OF SHAREHOLDERS

P
R
O
X
Y

The undersigned stockholder of LSI Logic Corporation, a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated March [24], 1997, and hereby
appoints Wilfred J. Corrigan and David E. Sanders, or either of them, proxies
and attorneys-in-fact, with full power to each of substitution, on behalf and in
the name of the undersigned, to represent the undersigned at the 1997 Annual
Meeting of Stockholders of LSI Logic Corporation to be held on May 6, 1997, at
1:00 p.m., local time, at the Company's facility located at 23400 N.E. Glisan
Street, Gresham, Oregon, 97030, and at any adjournment(s) thereof, and to vote
all shares of Common Stock which the undersigned would be entitled to vote if
then and there personally present, on the matters set forth on the reverse side.

CONTINUED AND TO BE SIGNED ON REVERSE SIDE

SEE REVERSE
SIDE

<PAGE> 39

/X/ Please mark votes as in this example.

THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR APPROVAL OF AN AMENDMENT TO THE
EMPLOYEE STOCK PURCHASE PLAN, APPROVAL OF AN ADDITIONAL AMENDMENT TO THE
EMPLOYEE STOCK PURCHASE PLAN, APPROVAL OF AN AMENDMENT TO THE 1991 EQUITY
INCENTIVE PLAN TO INCREASE THE NUMBER OF SHARES RESERVED FOR ISSUANCE
THEREUNDER, APPROVAL OF AN AMENDMENT TO THE CERTIFICATE OF INCORPORATION,
APPROVAL OF PERFORMANCE-BASED BONUS COMPENSATION FOR RATIFICATION OF THE
APPOINTMENT OF THE COMPANY'S INDEPENDENT ACCOUNTANTS, AND AS SAID PROXIES DEEM
ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING AND ANY
ADJOURNMENT(S) THEREOF.

<TABLE>
<S> <C>
1. ELECTION OF DIRECTORS 2. APPROVAL OF AMENDMENT
TO EMPLOYEE STOCK PURCHASE
NOMINEES: Wilfred J. Corrigan; PLAN TO INCREASE THE NUMBER OF
James H. Keyes, Malcolm R. Currie SHARES RESERVED FOR ISSUANCE
T.Z. Chu; R. Douglas Norby THEREUNDER.

FOR WITHHELD FOR AGAINST ABSTAIN
/ / / / / / / / / /
/ /--------------------------------------
For all nominees except as noted above

3. APPROVAL OF ADDITIONAL AMENDMENT 4. AMENDMENT TO THE 1991 EQUITY
TO EMPLOYEE STOCK PURCHASE PLAN TO INCENTIVE PLAN TO INCREASE THE
INCREASE THE NUMBER OF SHARES RESERVED NUMBER OF SHARES RESERVED FOR
FOR ISSUANCE THEREUNDER IN FUTURE YEARS. ISSUANCE THEREUNDER.

FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
/ / / / / / / / / / / /

5. ADDITIONAL AMENDMENT TO THE 1991 6. APPROVAL OF AMENDMENT TO
EQUITY INCENTIVE PLAN TO INCREASE THE CERTIFICATE OF INCORPORATION
NUMBER OF SHARES RESERVED FOR ISSUANCE TO INCREASE AUTHORIZED SHARES
THEREUNDER IN FUTURE YEARS. OF COMMON STOCK

FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
/ / / / / / / / / / / /

7. APPROVAL OF PERFORMANCE-BASED 8. RATIFICATION OF APPOINTMENT OF
BONUS COMPENSATION PLAN FOR CEO INDEPENDENT ACCOUNTANTS

FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
/ / / / / / / / / / / /

/ / MARK HERE FOR ADDRESS CHANGE
AND NOTE AT RIGHT
</TABLE>

(This Proxy should be marked, dated, signed by the stockholder(s) exactly as his
or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)

Signature: _______________ Date: _______ Signature:______________ Date:_______