<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:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
VLSI Technology, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as specified in its charter)
Registrant
- --------------------------------------------------------------------------------
(Name of person(s) filing proxy statement)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: (A)
(4) Proposed maximum aggregate value of transaction:
- ------------------
(A) Set forth the amount on which the filing fee is calculated and state how
it was determined.
/ / 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
VLSI TECHNOLOGY, INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 5, 1994
9:00 A.M.
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of VLSI
Technology, Inc., a Delaware corporation (the "Company"), will be held on
Thursday, May 5, 1994, at 9:00 a.m., local time, at the Company's offices
located at 1151 McKay Drive, San Jose, California 95131, for the following
purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To ratify and approve amendments to the 1986 Directors' Stock Option
Plan.
3. To ratify the appointment of Ernst & Young as independent auditors of
the Company for the fiscal year ending December 30, 1994.
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on March 11, 1994 are
entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, you are urged to vote,
date, sign and return the enclosed proxy 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,
THOMAS F. MULVANEY, Secretary
San Jose, California
March 28, 1994
<PAGE> 3
VLSI TECHNOLOGY, INC.
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of VLSI Technology, Inc. (the
"Company") for use at the Annual Meeting of Stockholders (the "Annual Meeting")
to be held on May 5, 1994, at 9:00 a.m., local time, or at any adjournment
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting of Stockholders. The meeting will be held at the Company's
offices located at 1151 McKay Drive, San Jose, California 95131. The Company's
principal executive office is located at 1109 McKay Drive, San Jose, California
95131 and its telephone number at that address is (408) 434-3100.
These proxy solicitation materials were mailed on or about March 28, 1994
to all stockholders entitled to vote at the meeting.
RECORD DATE; OUTSTANDING SHARES
Stockholders of record at the close of business on March 11, 1994 (the
"Record Date") are entitled to notice of and to vote at the meeting. The Company
has only one series of Common Shares ("Common Shares") outstanding, which is
designated Common Stock, $.01 par value per share ("Common Stock"). At the
Record Date, 35,385,582 shares of the Company's Common Stock were issued and
outstanding, representing the total number of votes that may be cast at the
meeting. See "Voting and Solicitation" below. The closing price of the Company's
Common Stock on the Record Date, as reported by the National Association of
Securities Dealers, Inc. National Market System ("NASDAQ/NMS"), was $16.00 per
share.
Subsequent to 1993 fiscal year end, all outstanding shares of the Company's
Series B Common Stock, $.01 par value per share ("Junior Common Stock"), a
series of Common Shares, automatically converted into shares of Common Stock on
a one-for-one basis. Such automatic conversion was triggered by the Company's
attainment of certain revenue and pre-tax income milestones specified in the
Company's Certificate of Incorporation, as amended. Accordingly, there were no
shares of Junior Common Stock outstanding on the Record Date.
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 Secretary of the
Company or the transfer agent a written notice of revocation or a duly executed
proxy bearing a later date, or by attending the meeting and voting in person.
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<PAGE> 4
VOTING AND SOLICITATION
Except as provided below with respect to cumulative voting, each share of
Common Stock has one vote on all matters.
Subject to the procedural requirements described below, every stockholder
voting in 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 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 the number of directors to be elected. If cumulative voting
for directors is properly invoked by any stockholder, all stockholders may
cumulate their votes. Stockholders may only cast votes for candidates whose
names have been properly placed in nomination in accordance with the Company's
Bylaws. Any stockholder who desires to cumulate votes in the election of
directors must give advance notice to the Company, in accordance with its
Bylaws, of such stockholder's intention to cumulate his or her votes and must
give notice to the other stockholders at the meeting prior to voting for
directors. The required advance notice to the Company must be received at the
principal executive office of the Company not less than 20 days nor more than 60
days prior to the meeting and must include the stockholder's name and address,
the number of shares of Common Stock beneficially owned and the stockholder's
request for cumulative voting.
The cost of soliciting proxies will be borne by the Company. The Company is
retaining Corporate Investor Communications, Inc. to solicit proxies at a cost
of approximately $5,000, plus out of pocket expenses. In addition, the Company
will reimburse brokerage firms and other persons representing beneficial owners
of shares for their expenses in forwarding solicitation material to such
beneficial owners. Proxies may also be solicited by certain of the Company's
directors, officers and regular employees, without additional compensation,
personally or by telephone, telegram or facsimile.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Annual Meeting
is a majority of the votes eligible to be cast by holders of shares of Common
Stock issued and outstanding on the Record Date. Shares that are voted "FOR",
"AGAINST" or "WITHHELD FROM" a matter are treated as being present at the
meeting for purposes of establishing a quorum and are also treated as shares
entitled to vote at the Annual Meeting (the "Votes Cast") with respect to such
matter.
While there is no definitive statutory or case law authority in Delaware as
to the proper treatment of abstentions, the Company believes that abstentions
should be counted for purposes of determining both (i) the presence or absence
of a quorum for the transaction of business and (ii) the total number of Votes
Cast with respect to a proposal (other than the election of directors). In the
absence of controlling precedent to the contrary, the Company intends to treat
abstentions in this manner. Accordingly, abstentions will have the same effect
as a vote against the proposal.
In a 1988 Delaware case, Berlin v. Emerald Partners, the Delaware Supreme
Court held that, while broker non-votes should be counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
broker non-votes should not be counted for purposes of determining the number of
Votes Cast with respect to the particular proposal on which the broker has
expressly not voted. Accordingly, the Company intends to treat broker non-votes
in this manner. Thus, a broker non-vote will not affect the outcome of the
voting on a proposal.
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<PAGE> 5
SECURITY OWNERSHIP
The following table sets forth the beneficial ownership of Common Stock of
the Company as of the Record Date: (i) by each director; (ii) by each executive
officer listed in the Summary Compensation Table under the heading "EXECUTIVE
OFFICER COMPENSATION"; (iii) by all current directors and executive officers as
a group; and (iv) by all persons known by the Company to be the beneficial
owners of more than five percent (5%) of the voting power of the Company's
outstanding Common Stock:
<TABLE>
<CAPTION>
APPROXIMATE
PERCENTAGE OF
NUMBER OF TOTAL VOTING
NAME OF PERSON OR IDENTITY OF GROUP SHARES POWER
- -------------------------------------------------------------------- --------- -------------
<S> <C> <C>
Intel Corporation(1)................................................ 8,554,569 22.2%
2200 Mission College Boulevard
Santa Clara, California 95052
Ryback Management Corporation(2).................................... 3,041,686 8.5%
7711 Carondelet Avenue, Suite 700
St. Louis, Missouri 63105
Nicholas-Applegate Capital Management(3)............................ 1,920,953 5.4%
600 W. Broadway, 29th Floor
San Diego, California 92101
Pierre S. Bonelli(4)................................................ 5,000 *
Donald L. Ciffone(5)................................................ 32,750 *
Robert P. Dilworth(6)............................................... 15,000 *
Gregory K. Hinckley(7).............................................. 26,500 *
James J. Kim........................................................ 40,000 *
L. Don Maulsby(8)................................................... 23,937 *
Dieter J. Mezger(9)................................................. 124,113 *
Alfred J. Stein(10)................................................. 910,803 2.5%
Horace H. Tsiang(11)................................................ 11,000 *
All directors and executive officers as a group
(12 persons)(4)(5)(6)(7)(8)(9)(10)(11)(12)........................ 1,256,978 3.5%
</TABLE>
- ---------------
* Less than 1%.
(1) According to Amendment No. 1 to Schedule 13D dated September 1, 1992, filed
by Intel Corporation ("Intel"), Intel is deemed to have sole voting and
dispositive power with respect to the 5,355,207 shares of Common Stock
held. Includes (i) 2,677,604 shares issuable to Intel upon exercise of a
warrant that expires August 25, 1995 and (ii) a right to acquire (the
"Right") 521,758 shares (offered to Intel as of February 26, 1994) pursuant
to its right to maintain its percentage equity ownership in the Company's
stock, which Right expires March 31, 1994. See "ELECTION OF
DIRECTORS -- Certain Transactions".
(2) As reported in Schedule 13G dated February 4, 1994, filed by Ryback
Management Corporation ("Ryback"), Ryback is deemed to have shared voting
and dispositive power with respect to all of the 3,041,686 shares. Includes
461,686 shares issuable upon conversion of the Company's 7% Convertible
Subordinated Debentures held by Ryback.
(3) As reported in Schedule 13G dated February 14, 1994, filed by
Nicholas-Applegate Capital Management ("Nicholas-Applegate").
Nicholas-Applegate is deemed to have sole voting power with respect to
235,500 shares and sole dispositive power with respect to all of the
1,920,953 shares.
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<PAGE> 6
(4) These 5,000 shares are exercisable within 60 days of the Record Date under
options to purchase an aggregate of 5,000 shares held by Mr. Bonelli.
(5) Includes 31,250 shares exercisable within 60 days of the Record Date under
options to purchase an aggregate of 85,000 shares held by Mr. Ciffone.
(6) Includes 15,000 shares exercisable within 60 days of the Record Date under
options to purchase an aggregate of 35,000 shares held by Mr. Dilworth.
(7) Includes 25,000 shares exercisable within 60 days of the Record Date under
options to purchase an aggregate of 100,000 shares held by Mr. Hinckley.
(8) Includes 23,437 shares exercisable within 60 days of the Record Date under
options to purchase an aggregate of 56,437 shares held by Mr. Maulsby.
(9) Includes 116,700 shares exercisable within 60 days of the Record Date under
options to purchase an aggregate of 121,700 shares held by Mr. Mezger.
(10) Includes 403,750 shares exercisable within 60 days of the Record Date under
options to purchase an aggregate of 545,000 shares held by Mr. Stein.
(11) Includes 10,000 shares exercisable within 60 days of the Record Date under
options to purchase an aggregate of 30,000 shares held by Mr. Tsiang.
(12) Includes 693,512 shares exercisable within 60 days of the Record Date under
options to purchase an aggregate 1,116,512 shares held by four directors
and eight executive officers.
COMPLIANCE WITH SECTION 16(a) FILING REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, officers and beneficial
owners of more than 10% of the Company's Common Stock to file with the
Securities and Exchange Commission (the "SEC") initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Based solely on its review of the copies of such reports received
by it, or written representations from reporting persons, the Company believes
that during the fiscal year ended December 25, 1993, its officers, directors and
holders of more than 10% of the Company's Common Stock complied with all Section
16(a) filing requirements.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's next annual meeting of stockholders must
be received by the Company no later than November 28, 1994 in order that they
may be considered for possible inclusion in the proxy statement and form of
proxy relating to that meeting.
ELECTION OF DIRECTORS
NOMINEES FOR DIRECTOR
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. In the event that any Company nominee is unable or declines to serve as
a director at the time of the meeting, the proxies will be voted for any nominee
who shall be designated by the current Board of Directors to fill the vacancy.
In the event that additional persons are nominated for election as directors and
cumulative voting has been properly invoked, the proxy holders intend to
cumulate their votes and to vote all proxies received by them in accordance with
cumulative voting procedures in such a manner as they believe will ensure the
election of as many of the nominees listed below as possible. In such event, the
specific nominees for whom such votes will be cast will be determined by the
proxy holders. It is not expected that any nominee will be unable or will
decline to serve as a director. 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.
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<PAGE> 7
The names of the nominees, their ages as of the Record Date and certain
information about them are set forth below.
<TABLE>
<CAPTION>
DIRECTOR
NOMINEES AGE PRINCIPAL OCCUPATION SINCE
- ----------------------------------- --- ---------------------------------------- --------
<S> <C> <C> <C>
Pierre S. Bonelli(1)(2)............ 54 Chief Executive Officer, Sema Group, a 1983
software, consulting and market research
firm
Robert P. Dilworth(1)(2)........... 52 President and Chief Executive Officer, 1991
Metricom Inc., an electronic metering
and communications systems company
James J. Kim(1)(2)................. 58 Chairman of the Board and Chief 1982
Executive Officer, AMKOR Electronics,
Inc., a semiconductor assembly and test
company
Alfred J. Stein.................... 61 Chairman of the Board, Chief Executive 1982
Officer and President of the Company
Horace H. Tsiang................... 52 Chief Executive Officer, First 1992
International Computer, Inc., a computer
manufacturing company
</TABLE>
- ---------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
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 any directors or executive officers of the Company.
Mr. Bonelli also serves as a director of Sema Group and Consultronic, Inc.
Mr. Dilworth is also a director of Metricom Inc., Qume Corporation and
Vadem.
Mr. Stein joined the Company in March 1982 as Chairman of the Board and
Chief Executive Officer and also served as President from January 1983 to August
1983 and from August 1993 to the present. Mr. Stein was initially appointed as a
director of the Company in April 1982 pursuant to the terms of his employment
agreement with the Company. Pursuant to such agreement, the Company has agreed
to use its best efforts while he is employed as Chief Executive Officer to cause
the nomination of Mr. Stein to the Board of Directors, to recommend his election
as a director and to continue his appointment as Chairman of the Board so long
as he serves as a director. Mr. Stein is also a director of Applied Materials,
Inc., Qume Corporation and Tandy Corporation.
Prior to joining First International Computer, Inc., a Taiwanese
manufacturer of products for the computer industry, in November 1991, Mr. Tsiang
was employed by Wang Laboratories, Inc., a computer manufacturer, from 1969
through July 1991 in various positions, including Executive Vice President from
1985 to 1991.
VOTE REQUIRED
The five nominees receiving the highest number of affirmative votes of the
shares present or represented and entitled to be voted for them shall be elected
as directors. Votes withheld from any director are counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
but have no other legal effect under Delaware law.
5
<PAGE> 8
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held four meetings during the fiscal
year ended December 25, 1993. During such year, no director attended fewer than
75% of the aggregate of all meetings of the Board of Directors and any
committees upon which he served.
The Board of Directors has a Compensation Committee and an Audit Committee.
The current members of the Compensation and Audit Committees are identified in
the list of directors under "Nominees for Director" above.
The Compensation Committee is authorized to review and approve the
Company's executive compensation policy and to administer the Company's employee
stock option and stock purchase plans. See "REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION". The Compensation Committee
held three meetings in fiscal 1993. The Compensation Committee is composed
solely of non-employee directors.
The Audit Committee selects and recommends to the Board a firm of
independent auditors (whose duty it is to audit the financial statements of the
Company for the fiscal year with respect to which they are appointed) and
monitors the effectiveness of the audit effort and the Company's internal
financial and accounting controls and financial reporting. The Audit Committee
held one meeting in fiscal 1993. The Audit Committee is composed solely of
non-employee directors.
There is no nominating committee nor is there any committee performing the
duties of a nominating committee.
DIRECTOR COMPENSATION
Non-employee members of the Board of Directors ("Outside Directors")
receive an annual retainer of $10,000, a fee of $2,000 per Board meeting
attended and $500 per Board Committee meeting attended (if such meeting is not
held within one day of a Board meeting). During 1993, the annual retainer and
Board meeting fees were increased to the above-stated levels from $5,000 and
$1,000, respectively. The Company also reimburses its directors for certain
expenses incurred by them in their capacity as directors or in connection with
attendance at Board or Committee meetings.
In addition, Outside Directors participate in the 1986 Directors' Stock
Option Plan (the "Directors' Plan"). Certain amendments to the Directors' Plan
(the "Directors' Plan Amendments") are being presented to the stockholders for
approval at the Annual Meeting. See "AMENDMENT OF THE 1986 DIRECTORS' STOCK
OPTION PLAN". The Directors' Plan provides for the automatic grant of
non-statutory options to Outside Directors on an annual basis in order to
motivate them to continue to serve as directors. A total of 300,000 shares of
the Company's Common Stock is reserved for issuance during the 10-year term of
the Plan, which expires in August 1996. The Directors' Plan Amendments would
extend the term of the Directors' Plan for five years to August 2001. The
exercise price of options granted under the Directors' Plan is the fair market
value of the Company's Common Stock on the date of the automatic grant, as
determined in accordance with the Directors' Plan. All options have a term of
five years. The Directors' Plan Amendments would increase the term of options
granted after stockholder approval of the Directors' Plan Amendments to ten
years.
Each Outside Director who was serving as such on the date of adoption of
the Directors' Plan received an automatic grant on such date of an option to
purchase 20,000 shares of Common Stock (an "Initial Option"). An Initial Option
becomes exercisable cumulatively with respect to 5,000 shares on the first day
of each fiscal year following the date of grant. Each person who becomes an
Outside Director subsequent to the date of adoption of the Directors' Plan
receives an automatic grant of an Initial Option on the date of his or her
initial appointment or election to the Board.
After receiving an Initial Option, an Outside Director is automatically
granted an additional option to purchase 5,000 shares under the Directors' Plan
(a "Subsequent Option") on the first day of each fiscal year of the Company.
Each Subsequent Option becomes exercisable in full on the first day of the
fourth fiscal year beginning after the date of grant of such option. The
Directors' Plan Amendments, if approved by stockholders
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<PAGE> 9
at the Annual Meeting, would eliminate the previously existing 40,000 share
limit on the number of shares subject to options granted under the Directors'
Plan to any director. Such amendments would also provide for the grant of an
immediately exercisable replenishment option to purchase up to 20,000 shares to
any director whose Initial Option has expired, or in the future expires,
unexercised.
During the last fiscal year, a Subsequent Option to purchase 5,000 shares
at an exercise price of $7.375 per share was granted under the Directors' Plan
to each of directors Dilworth and Tsiang. As of December 25, 1993, options to
purchase 10,000 shares had been exercised under the Directors' Plan at a net
realized value of $48,125 and 220,000 shares remained available for future
grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of directors Bonelli, Dilworth and Kim.
The Company paid AMKOR (a corporation of which Mr. Kim is an officer,
director and the majority stockholder) or accrued for payment approximately
$38,100,000 in fiscal 1993 for assembly and test services performed for the
Company by ANAM Semiconductor Technology Co. Ltd. (a Korean corporation with
which Mr. Kim is affiliated) under contract with AMKOR.
CERTAIN TRANSACTIONS
INTEL. On August 25, 1992, Intel Corporation ("Intel") invested $50
million (prior to deduction of issuance costs) in the Company to acquire
5,355,207 shares of the Company's Common Stock (the "Intel Shares") plus a
warrant (the "Warrant") to purchase an additional 2,677,604 of the Company's
Common Stock (the "Warrant Shares") at $11.69 per share pursuant to the
Intel/VLSI Stock and Warrant Purchase Agreement (the "Equity Agreement"). In
addition, on July 8, 1992, the Company and Intel entered into a Technology and
Manufacturing Agreement (the "Technology Agreement"). Pursuant to the Technology
Agreement, Intel licensed its 386SL(TM) core to the Company. The Company is
designing, marketing and selling integrated circuits for the handheld personal
computer market, and Intel is manufacturing the Intel core-based microprocessor
products for the Company.
The Equity Agreement provides Intel with certain rights, including a right
of first refusal upon a proposed sale of corporate control of the Company,
demand registration rights with respect to the Intel Shares and the Warrant
Shares, a right of Intel to representation on the Company's Board of Directors,
a right to initiate a tender offer for the Company's stock under certain
circumstances, a right to respond to a third-party tender offer by making its
own tender offer for the Company's stock and a right for Intel to purchase
additional securities in order to maintain its percentage equity ownership.
Regarding Intel's right to maintain its percentage equity ownership, on March 1,
1994, the Company notified Intel of its right to purchase an additional 521,758
shares of the Company's Common Stock at a price of $13.31 per share. Intel has
until March 31, 1994 to exercise this right.
The Equity Agreement also imposes certain restrictions on Intel, including
a limitation on Intel's ability to acquire additional shares of the Company's
voting stock (referred to as a standstill), a requirement that Intel vote its
VLSI shares in the same proportion as other stockholders on matters submitted to
the VLSI stockholders for approval (unless it would be materially adverse to
Intel's interest), restrictions on transfer of the Intel Shares, the Warrant and
the Warrant Shares and a limited right of first refusal by the Company upon a
proposed transfer of the Company's securities by Intel in certain circumstances
following a hostile tender offer.
The Warrant, which expires in August 1995, contains certain antidilution
provisions, including adjustments for future stock issuances at prices below
fair market value. In the event that the Company is acquired (by merger, sale of
assets or otherwise) for consideration other than common stock of the acquiring
corporation during the three-year term of the Warrant, the warrantholder is
entitled to receive minimum consideration from the acquiring corporation. Such
minimum amount, which was equal to $3.25 per Warrant Share as of August 25, 1992
($1.81 at December 25, 1993), decreases on a straight-line daily basis over the
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<PAGE> 10
three-year term of the Warrant to zero. The Warrant does not give the holder
thereof any voting rights prior to exercise of the Warrant and issuance of the
Warrant Shares.
RELOCATION ASSISTANCE. In 1992, to facilitate his relocation, the Company
loaned Dieter J. Mezger $100,000 on an interest-free basis with principal due
three years from the date of the promissory note and $280,000 with interest
payable at the rate of 7% over the one-year term of the promissory note. The due
date on that loan was extended by the Board through July 1994. Both loans are
secured by trust deeds on Mr. Mezger's residence. The largest principal amount
outstanding during the last fiscal year was $380,000 and the principal amount
outstanding at fiscal year end was $380,000.
In 1992, to facilitate his relocation, the Company loaned Dr. James R.
Fiebiger (then an executive officer) $150,000 on an interest-free basis with
principal due one year from the date of the promissory note. The note was
secured by a trust deed on Dr. Fiebiger's residence and was fully repaid during
the second quarter of 1993. The largest principal amount outstanding during the
last fiscal year was $150,000 and there was no outstanding balance at fiscal
year end. In addition, during 1993, the Company also paid Dr. Fiebiger $265,314,
covering expenses associated with his relocation.
SEVERANCE ARRANGEMENTS. On August 27, 1993, Dr. Fiebiger resigned from his
position as President, Chief Operating Officer and a Director of the Company. On
August 26, 1993, the Company and Dr. Fiebiger entered into a letter agreement
pursuant to which Dr. Fiebiger is to receive monies equivalent to his then
current base salary ($28,333 per month) for a 12-month period, outplacement
services, as well as health benefits over the same period. These payments and
benefits would cease earlier if Dr. Fiebiger accepts employment or performs
consulting services for any other entity. The Company received a full release of
liability and a one-year noncompete agreement as consideration.
See also the footnotes to the Summary Compensation Table under the heading
"EXECUTIVE OFFICER COMPENSATION" and the information under the heading "ELECTION
OF DIRECTORS -- Compensation Committee Interlocks and Insider Participation".
8
<PAGE> 11
EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table, together with the footnotes thereto, summarizes the
total compensation for fiscal year 1993 of the Chief Executive Officer and the
four other most highly compensated executive officers of the Company
(collectively, the "Named Officers"), as well as the total compensation paid to
each Named Officer for the Company's two previous fiscal years, if applicable.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
--------------------
AWARDS
ANNUAL COMPENSATION --------------------
----------------------------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
COMPEN- OPTIONS(#)(4) COMPENSATION
SALARY BONUS SATION -------------------- ------------
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($)(2) ($)(3) COMPANY SUBSIDIARY ($)(5)
- ------------------------------------ ---- -------- -------- -------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Alfred J. Stein.................... 1993 $485,009 $300,000 -- 75,000 0 $ 41,222
Chairman of the Board, 1992 484,144 0 -- 150,000 70,000 39,667
Chief Executive Officer 1991 410,004 100,000 -- 40,000 0 --
and President
Dieter J. Mezger.................... 1993 $296,441 $ 30,000 $51,699 0 0 $ 16,156
Senior Vice President 1992 300,625 0 39,607 0 100,000 15,668
of the Company and 1991 302,812 10,030 -- 20,000 0 --
President, COMPASS
Design Automation, Inc.
Gregory K. Hinckley(1)(b)........... 1993 $225,000 $ 75,000 $121,809 0 25,000 $ 1,792
Vice President, Finance and 1992 60,577 0 15,361 100,000 0 448
Chief Financial Officer
L. Don Maulsby(1)(c)................ 1993 $185,000 $ 71,000 0 20,000 0 $ 853
Vice President, 1992 183,268 20,000 -- 30,000 10,000 809
Worldwide Sales and
Technology Center
Operations
Donald L. Ciffone(1)(b)............. 1993 $184,385 $ 76,000 0 35,000 0 $ 714
Vice President and 1992 155,961 0 0 50,000 10,000 743
General Manager,
VLSI Product Divisions
</TABLE>
- ---------------
(1) (a) The amounts disclosed in this column include amounts deferred by the
Named Officers pursuant to the Company's 401(k)Investment Retirement
Plan (the "401(k) Plan").
(b) Messrs. Ciffone and Hinckley became executive officers in August 1992.
(c) Mr. Maulsby became an executive officer in November 1992.
(2) The amounts disclosed in this column represent:
(a) Payments made by the Company under its Executive Performance Incentive
Plan. See "REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS ON EXECUTIVE COMPENSATION".
(b) Commissions earned by Mr. Maulsby in 1992 under the Company's sales
incentive program.
(3) Amounts for fiscal 1991 have been omitted as permitted by SEC rules. Amounts
for fiscal 1992 and 1993 exclude perquisites if the aggregate amount of the
Named Officer's perquisites was less than the lesser of $50,000 or 10% of
such Named Officer's salary plus bonus. The amounts in the "Other Annual
Compensation" column include:
(a) Payment by the Company of certain 1992 and 1993 relocation costs to Mr.
Mezger in the amount of $26,016 and $39,226, respectively.
9
<PAGE> 12
(b) Payment by the Company of certain 1992 and 1993 relocation costs to Mr.
Hinckley in the amount of $15,361 and $121,809, respectively.
(4) The stock option grants listed in the table include options to purchase
Common Stock of the Company and options to purchase Common Stock of a
subsidiary, COMPASS Design Automation, Inc. ("COMPASS"). In 1992 and 1993,
the Company's subsidiary, COMPASS, granted stock options to purchase COMPASS
common stock to virtually all of the COMPASS employees and certain VLSI
employees, including the Named Officers, pursuant to the COMPASS 1992 Stock
Option Plan (the "COMPASS Stock Plan"). See "EXECUTIVE OFFICER
COMPENSATION -- Stock Options" below for additional information regarding
options to purchase stock of COMPASS granted in fiscal 1992 and 1993.
(5) The amounts in the "All Other Compensation" column for fiscal year 1993
include:
(a) Company contributions in fiscal 1993 under the 401(k) Plan in the
following amounts: Alfred J. Stein -- $300; Gregory K. Hinckley -- $400;
L. Don Maulsby -- $200; Donald L. Ciffone -- $300.
(b) Payment by the Company of 1993 premiums for term life insurance for the
Named Officers in the following amounts: Alfred J. Stein -- $12,932;
Dieter J. Mezger -- $1,786; Gregory K. Hinckley -- $1,392; L. Don
Maulsby -- $653; Donald L. Ciffone -- $414.
(c) Payment by the Company of 1993 premiums for life insurance policies for
Mr. Stein in the amount of $27,990.
(d) Payment by the Company of 1993 premiums for disability insurance
policies for Mr. Mezger in the amount of $14,370.
MANAGEMENT CONTINUITY AGREEMENTS
The Company is a party to management continuity agreements with certain of
its officers, including all of the Named Officers, which agreements are designed
to ensure the officers' continued services to the Company in the event of a
"change in control". Benefits are payable only if the officer's employment is
terminated by the Company or the officer is constructively discharged within two
years following a "change in control". For purposes of the agreement, a "change
in control" is deemed to have occurred in the event of (1) Company stockholder
approval of (i) a merger or consolidation of the Company with any other
corporation or (ii) a plan of liquidation or dissolution; (2) the sale, lease or
exchange of more than 50% of the Company's assets; (3) acquisition by any person
of beneficial ownership of more than 50% of the combined voting power of the
Company's then outstanding securities; or (4) a change of the majority of the
Board of Directors within a three-year period.
If, within two years after a "change in control", an officer's employment
is terminated by the Company or the officer is constructively discharged, the
officer will receive: (1) a severance benefit equal to two times his or her
current annual base salary; (2) full and immediate vesting of all unvested stock
options; and (3) 24 months continuation of other incidental benefits.
10
<PAGE> 13
STOCK OPTIONS
The following table presents information with respect to options to
purchase the Company's Common Stock and options to purchase COMPASS Common Stock
granted during fiscal 1993 to the Named Officers. No stock appreciation rights
("SARs") have been granted by the Company or COMPASS.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
- --------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE
----------------------------------------------------- VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(2)
OPTIONS IN FISCAL PRICE EXPIRATION -----------------------------
NAME OR GROUP GRANTED(#) YEAR ($/SH) DATE 5%($) 10%($)
- --------------------------- ---------- ---------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Alfred J. Stein............ 75,000 7.91% $6.875 5/3/2003 $ 324,274 $ 821,773
Dieter J. Mezger........... 0 -- -- -- -- --
Gregory K. Hinckley........ 25,000* 4.34%* .10* 5/3/2003 1,572 3,984
L. Don Maulsby............. 20,000 2.11% 6.875 5/3/2003 86,473 219,340
Donald L. Ciffone.......... 35,000 3.69% 6.875 5/3/2003 151,328 383,494
All Stockholders........... N/A N/A N/A N/A 215,153,856 545,242,115
</TABLE>
- ---------------
* Denotes options to purchase Common Stock of the Company's subsidiary, COMPASS.
(1) (a) All options to purchase the Company's Common Stock granted in 1993 to
the Named Officers have ten-year terms and become exercisable in annual
25% increments commencing on the first anniversary of the original grant
date, with full exercisability occurring on the fourth anniversary date.
The per share exercise price is the closing price for the Company's
Common Stock on NASDAQ/NMS on the date of the grant. The options were
granted under the Company's 1992 Stock Plan (the "Stock Plan"), which is
currently administered by the Compensation Committee. Such committee has
broad discretion and authority to amend outstanding options and to
reprice options, whether through an exchange of options or an amendment
thereto. The Stock Plan provides for the automatic acceleration of
vesting of all outstanding options (such that they become exercisable in
full) in the event of a "change in control", as defined in the Stock
Plan.
(b) In 1992 and 1993, the Company's subsidiary, COMPASS, granted stock
options to purchase COMPASS common stock to certain of the Named
Officers pursuant to the COMPASS Stock Plan (the "COMPASS Plan"). All
optionees under the COMPASS Plan, including such Named Officers,
received option grants having an exercise price of $.10 per share, which
represents the estimated fair value of COMPASS common stock as
determined by the COMPASS Board of Directors. Subject to certain
conditions, these options become exercisable cumulatively as follows:
second anniversary of date of the grant -- 33 1/3%; third anniversary of
the date of the grant -- additional 33 1/3%; fourth anniversary of the
date of the grant -- remaining 33 1/3%. Subject to certain conditions,
most of these options, including all those granted to the Named
Officers, contain additional rights and obligations, including the right
of a COMPASS Plan participant to put shares of COMPASS common stock
acquired through the COMPASS Plan back to COMPASS or the Company; the
Company's right to buy back COMPASS common stock issued under the
COMPASS Plan; and a right of first refusal by COMPASS or the Company to
purchase COMPASS common stock issued under the COMPASS Plan which is
being offered for sale to any third party.
(2) For the Named Officers, the potential realizable value is calculated based
on the fair market value (or estimated fair value for COMPASS options) on
the date of grant, which is equal to the exercise price of options granted
in fiscal 1993, assuming that the relevant stock (i.e., the Company's or
COMPASS') appreciates in value from the date of grant until the end of the
option term at the annual rate specified (5% and 10%). For "All
Stockholders", the potential value is calculated based on $9.75 per share,
11
<PAGE> 14
the closing price of the Common Stock on the last trading day of the
Company's 1993 fiscal year, December 23, 1993, assuming the same annual
rates of appreciation for ten years, multiplied by the outstanding shares of
Common Stock at fiscal year end. Potential realizable value listed for the
Named Officers and "All Stockholders" is net of the option exercise price or
fiscal year end price, respectively. The assumed rates of appreciation are
specified in SEC rules and do not represent the Company's estimate or
projection of future stock prices. Actual gains, if any, resulting from
stock option exercises and Common Stock holdings are dependent on the future
performance of the Common Stock and the option holders' continued employment
through the vesting period. There can be no assurance that the amounts
reflected in this table will be achieved.
The number of shares of Company and COMPASS stock issued upon exercise of
options and the value realized from any such exercise during the year ended
December 25, 1993 and the number of exercisable and unexercisable options held
and their value at December 25, 1993 for the Named Officers of the Company are
set forth in the following table.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
- ----------------------------------------------------------------------------------------------------------------
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FY-END(#) AT FY-END($)(2)
------------------- ----------------------
SHARES ACQUIRED VALUE REALIZED EXERCISABLE/ EXERCISABLE/
ON EXERCISE(#) ($)(1) UNEXERCISABLE UNEXERCISABLE
---------------- ------------------ ------------------- ----------------------
NAME VLSI COMPASS VLSI COMPASS VLSI COMPASS VLSI COMPASS
- ----------------------- ------ ------- -------- ------- --------- ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alfred J. Stein........ 0 0 -- -- 325,000/ 0/ $1,520,000/ $0/
220,000 70,000 $ 603,125 $0
Dieter J. Mezger....... 0 0 -- -- 105,450/ 0/ 507,363/ 0/
16,250 100,000 39,063 0
Gregory K. Hinckley.... 0 0 -- -- 25,000/ 0/ 68,750/ 0/
75,000 25,000 206,250 0
L. Don Maulsby......... 2,937 0 $24,011 -- 12,500/ 0/ 40,625/ 0/
43,937 10,000 128,544 0
Donald L. Ciffone...... 0 0 -- -- 20,000/ 0/ 27,813/ 0/
65,000 10,000 154,063 0
</TABLE>
- ---------------
(1) Market value of underlying securities on the date of exercise, minus the
exercise price.
(2) Market value of underlying securities at fiscal year end (for in-the-money
options only) minus the exercise price. All COMPASS stock options described
in footnote (1)(b) to the table entitled "Option Grants in Last Fiscal Year"
remained outstanding, were unexercisable and were not in-the-money at 1993
fiscal year end.
12
<PAGE> 15
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
COMPENSATION PRINCIPLES
The Company firmly believes that the compensation of its employees,
including its executive officers, should be guided by the following principles:
- Attract, retain and motivate well-qualified employees who contribute to
the long-term success of the Company.
- Strongly encourage the development and achievement of strategic
objectives that enhance long-term stockholder value.
- Relate compensation levels to the overall success of the Company, which
includes sound financial results for its stockholders, providing quality
products and services useful to its customers and fostering an
environment based on teamwork, enabling its employees to achieve both
strategic and tactical objectives.
The Compensation Committee is considering the potential future effects on
the Company of newly adopted Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code") (which limits the deductibility by corporations of
certain executive compensation in excess of $1 million for any individual) and
expects to adopt a policy during fiscal 1994 with respect to whether or not the
Company will seek to qualify some or all of the compensation paid to its
executive officers for an exemption from the deductibility limitations of
Section 162(m). The Company believes that the stock option and purchase plans in
which executive officers are eligible to participate comply with Rule 16b-3
promulgated under the Exchange Act and therefore the options and stock purchase
rights granted thereunder qualify for a temporary exemption from Section 162(m)
based on the transition provisions until the earlier to occur of 1997 or a
material modification of the relevant plan. In addition, the non-equity-based
compensation paid to the Named Officers in fiscal 1993, and expected to be paid
in fiscal 1994, does not exceed $1 million for any individual.
EXECUTIVE COMPENSATION PRACTICES
The Company's executive compensation program consists primarily of cash and
equity-based components. Salary and, if warranted, annual awards under the
Executive Performance Incentive Plan (the "Incentive Plan") comprise the cash
components. Grants of options under the Company's stock option plans and the
COMPASS Plan and participation in the Company's employee stock purchase plan
comprise the equity-based components. The Company also provides health and
welfare benefits to the Named Officers through programs that are generally
available to all employees.
CASH COMPONENTS
Salary levels are reviewed periodically and Incentive Plan target levels
are established annually for executive officers by the Compensation Committee
after a review of compensation surveys for electronic manufacturing companies,
including integrated circuit manufacturers. For 1993, the survey group consisted
of 19 companies in the semiconductor industry, including U.S. semiconductor
companies having annual revenues of up to approximately $2 billion and
semiconductor operations of foreign multi-national corporations. Of these
companies, six are included in the Hambrecht & Quist Technology index (See
"STOCK PRICE PERFORMANCE GRAPH"). In years that the Company exhibits superior
financial performance, cash compensation is designed to be above average
competitive levels. When financial performance is below plan, cash compensation
is designed to be below average competitive levels. It is the Company's intent
to maintain a total compensation program that can attract, motivate and retain
high-performance executives who are critical to the long-term success of the
Company. During 1993, salary adjustments for the Named Officers were limited in
order to tie the Named Officers' total compensation to Company performance
through the Incentive Plan.
13
<PAGE> 16
Employees, including executive officers, who participate in the 401(k) Plan
may receive a Company matching contribution into their respective 401(k) Plan
accounts of up to $400 per year.
The Incentive Plan provides for annual awards, which are paid after the end
of the fiscal year, based upon achievement of pre-established annual goals (the
"Goals"), including revenue and operating profit goals for the Company's
financial performance, department or business unit goals and individual
performance goals. Each element is weighted by percentage, but the weighting can
be varied in the discretion of the Compensation Committee. The Compensation
Committee establishes targets for revenue, gross margin and operating profit on
a Company-wide and business unit basis at the beginning of each fiscal year, and
also sets individual objectives, such as new product development milestones and
key product launch dates. During 1993, no awards were to be paid if the
Company's performance fell below an operating profit target. Once the Company's
operating profit targets were met, individual incentive plan payouts were
awarded based on achievement of the Goals. Awards are prorated for participation
for less than one year, but awards are not generally paid for less than six
months of participation, except at the discretion of the Compensation Committee.
Employees with other bonus arrangements or contracts (including commission
arrangements) are generally excluded from participation in the Incentive Plan,
unless otherwise directed by the Compensation Committee. The Incentive Plan may
be modified from time to time, or discontinued, at the discretion of the
Compensation Committee.
EQUITY-BASED COMPONENTS
The Company utilizes equity-based compensation in the form of stock options
and discount stock purchases under the employee stock purchase plan for its
employees (including the Named Officers) because it provides a close tie between
management and the stockholder by focusing employees and management on creating
and enhancing long-term stockholder value. The actual value of such equity-based
compensation correlates directly to the Company's stock price performance.
Stock options are an essential element of the Company's compensation
package. This component is intended to retain all employees receiving options,
including the Named Officers, and to motivate them to improve long-term stock
market performance. Some 1,185 employees (or approximately 45% of all employees
at December 25, 1993) participate in the various stock option plans. Stock
options are currently outstanding under the 1982 Incentive Stock Option Plan
(the "1982 Plan"), which expired in May 1992, the 1992 Stock Plan (the "1992
Plan") and the COMPASS Plan.
In determining the number of shares subject to options to be granted to
executive officers, the Compensation Committee considers survey data on options
granted to executives with comparable positions at other companies, the number
of shares subject to options previously granted to the executive, the number of
unvested shares subject to outstanding options held by the executive (which is
an indicator of the retention value of the outstanding options) and an
evaluation of the executive's prior year individual performance. In 1993, the
Compensation Committee focused on retention and individual performance as the
critical factors in determining the number of options to grant to executives.
The options granted in 1993 under the 1992 Plan had exercise prices of not
less than the fair market value (the NASDAQ/NMS closing price) of the Common
Stock on the grant date and will only have value if the stock price increases
subsequent to the date of grant. These options become exercisable cumulatively
at an annual rate of 25% of the total shares granted commencing one year from
the date of grant. Both the 1982 Plan and the 1992 Plan provide for full vesting
of options in the event there is a change of control of the Company.
Options to purchase common stock of COMPASS granted under the COMPASS Plan
in 1993 had exercise prices of not less than the estimated fair value, as
determined by the COMPASS and Company Board of Directors, on the grant date.
Subject to certain conditions, these options become exercisable cumulatively as
follows: second anniversary of the grant date -- 33 1/3%; third anniversary of
the grant date -- additional 33 1/3%; fourth anniversary of the grant
date -- remaining 33 1/3%. No option under the COMPASS Plan may be exercised
after 10 years and one month from the date of the grant.
14
<PAGE> 17
The Company has not issued any stock appreciation rights (SARs), stock
purchase rights, long-term performance awards in stock or stock bonus awards to
any Named Officer or any other person under the 1982 Plan, the 1992 Plan or the
COMPASS Plan.
1993 CHIEF EXECUTIVE COMPENSATION
Mr. Stein, in his capacity as the Chairman of the Board, Chief Executive
Officer and President, participates in the same compensation programs as the
other Named Officers. The Compensation Committee has based Mr. Stein's total
compensation, including compensation derived from the Incentive Plan and the
stock option plans, at a level it believes is competitive with the average
amount paid by other electronics companies based on survey data.
Mr. Stein's salary has not been increased since December 1991. Mr. Stein's
Incentive Plan award for 1993 was based on the Company achieving and surpassing
an operating profit target set by the Compensation Committee. The 1993 stock
option grant to Mr. Stein was primarily made as a retention vehicle in view of
the relatively small number of unvested options held by Mr. Stein and the
growing competition for top executive talent in the semiconductor industry. Mr.
Stein also receives additional life insurance benefits and income tax
preparation services.
This report of the Compensation Committee shall not be deemed incorporated
by reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933 or under the Exchange
Act (collectively, the "Acts"), except to the extent that the Company
specifically incorporates this report by reference, and shall not otherwise be
deemed filed under such Acts.
SUBMITTED BY THE
COMPENSATION COMMITTEE:
James J. Kim, Chairman
Pierre S. Bonelli
Robert P. Dilworth
15
<PAGE> 18
STOCK PRICE PERFORMANCE GRAPH
The following graph shows a five-year comparison of cumulative total
stockholder returns for the Company, the Standard & Poor's 500 index (the "S&P
500") and the Hambrecht & Quist Technology index ("H&Q Technology"). The H&Q
Technology index is composed of approximately 200 companies in the electronics
and technology industry, including semiconductors, health care and related
service industries. Historic stock price performance is not necessarily
indicative of future stock price performance.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
[CAMERA READY CHART]
Assumes $100 invested on December 25, 1988
*Total return assumes reinvestment of dividends
Note: Total returns for the S&P 500 index and for the H&Q Technology index
are weighted based on market capitalization.
<TABLE>
<CAPTION>
12/25/88 12/31/89 12/29/90 12/28/91 12/26/92 12/25/93
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
VLSI..................................... $ 100.00 $ 86.76 $ 52.94 $ 89.71 $ 95.59 $ 126.47
S & P 500................................ $ 100.00 $ 131.69 $ 127.60 $ 166.47 $ 179.15 $ 197.21
H & Q TECHNOLOGY......................... $ 100.00 $ 108.47 $ 99.16 $ 146.60 $ 168.62 $ 184.01
</TABLE>
The Stock Price Performance Graph shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement into any filing under the Acts, except to the extent that the Company
specifically incorporates this performance graph by reference, and shall not
otherwise be deemed filed under such Acts.
16
<PAGE> 19
AMENDMENT OF THE 1986 DIRECTORS' STOCK OPTION PLAN
The 1986 Directors' Stock Option Plan (the "Directors' Plan") was adopted
by the Board of Directors of the Company in August 1986 and has been amended
several times since then. A total of 300,000 shares of the Company's Common
Stock are reserved for issuance under the Directors' Plan. The Directors' Plan
provides an opportunity for all non-employee members of the Board of Directors
to become stockholders of the Company.
PROPOSED AMENDMENTS
In August 1993 and March 1994, the Board approved amendments to the
Directors' Plan (collectively, the "Amendments"), subject to stockholder
approval, in order to: (1) increase the term of options granted in the future
under the Directors' Plan from five years to ten years; (2) remove the
limitation that no director could be granted options to purchase in the
aggregate more than 40,000 shares of Company Common Stock under the Directors'
Plan; (3) delete the provisions previously contained in the Directors' Plan by
which options could be suspended or terminated in the event of certain
misconduct by the optionee; (4) add a provision by which certain options granted
under the Directors' Plan that had expired unexercised in the past (or that may
expire unexercised in the future) are replenished through the grant of an
additional option; and (5) extend the term of the Directors' Plan until August
6, 2001. The effectiveness of the Amendments is subject to stockholder approval.
Accordingly, pending such stockholder approval, (1) no Subsequent Option (as
defined below) will be granted to any Outside Director who has been granted
options to purchase 40,000 shares in the aggregate, (2) no Replenishment Options
(as defined below) will be granted to any director, and (3) all options will
have five-year terms.
At the Annual Meeting, the stockholders are being requested to ratify and
approve the Amendments to the Directors' Plan. The Board believes that the
continued service of its outside directors is extremely valuable to the Company
and recommends approval of the Amendments, which are intended both to recognize
past service and to provide additional incentive for non-employee directors to
continue serving on the Company's Board of Directors.
VOTE REQUIRED
Affirmative votes constituting a majority of the Votes Cast will be
required to ratify and approve the proposed Amendments to the Directors' Plan.
Management recommends voting "FOR" ratification and approval of the Amendments
to the Directors' Plan.
DESCRIPTION OF THE DIRECTORS' PLAN, AS AMENDED
GENERAL. Options granted under the Directors' Plan are nonstatutory
options. See "Tax Information" below for information concerning the tax
treatment of nonstatutory stock options. The purposes of the Directors' Plan are
to attract and retain the best available personnel for service as directors of
the Company, to provide additional incentive to the non-employee directors of
the Company (the "Outside Directors") and to encourage their continued service
on the Board.
ADMINISTRATION. The Directors' Plan is administered by the Board of
Directors. The interpretation and construction of any provisions of the
Directors' Plan shall be within the sole discretion of the Board, whose
determination shall be final and conclusive.
ELIGIBILITY. The Directors' Plan provides that options may be granted only
to Outside Directors. There are currently four eligible Outside Directors. All
grants are automatic and are not subject to the discretion of any person. No
option is granted under the Directors' Plan to an Outside Director who holds
other options or warrants not granted under the Directors' Plan that have not
yet become exercisable.
AUTOMATIC GRANT OF OPTIONS. Each Outside Director who was serving as such
on the date of adoption of the Directors' Plan (August 6, 1986) received an
automatic grant on such date of an option to purchase 20,000 shares of Common
Stock (the "Initial Option"). Each Outside Director who becomes a director
subsequent to the date of adoption of the Directors' Plan receives an automatic
grant of an Initial Option on
17
<PAGE> 20
the date of his or her appointment or election to the Board. An Initial Option
becomes exercisable cumulatively with respect to 5,000 shares on the first day
of each fiscal year following the date of grant.
After receiving an Initial Option, an Outside Director is automatically
granted an additional option to purchase 5,000 shares under the Directors' Plan
(the "Subsequent Option") on the first day of each fiscal year of the Company.
The Subsequent Option becomes exercisable in full on the first day of the fourth
fiscal year beginning after the date of grant of such option.
After an Outside Director is granted an Initial Option and upon the later
to occur of (A) the date of approval by the stockholders of the Amendments (the
"Effective Date") or (B) the date on which such Outside Director's First Option
or a Replenishment Option (as defined below) expires unexercised, such Outside
Director shall be automatically granted an option (a "Replenishment Option") to
purchase a number of shares equal to 20,000 minus the aggregate number of
shares, if any, that were issued to such Outside Director upon exercise of his
or her Initial Option and any previously granted Replenishment Options. A
Replenishment Option is exercisable in full on the date of grant.
TERMS AND CONDITIONS OF OPTIONS. All options granted under the Directors'
Plan prior to the Effective Date have a term of five years; options granted on
or after the Effective Date will have a ten-year term from the date of grant.
The options become exercisable as described above under "Automatic Grant of
Options". Payment for shares issued upon exercise of an option may consist of
cash or other shares of Common Stock having a fair market value on the date of
surrender equal to the aggregate exercise price, or any combination thereof. The
exercise price of options granted under the Directors' Plan is the fair market
value of the Company's Common Stock on the date of grant. The Directors' Plan
provides that, if the Outside Director ceases to serve as a director due to
death or permanent disability, options may be exercised at any time within six
months after termination of service. Following termination of service as a
director for any other reason, options may be exercised within 30 days after
such termination. An option is nontransferable by the optionee, other than by
will or the laws of descent and distribution or pursuant to a Qualified Domestic
Relations Order as defined by the Code, or Title I of the Employee Retirement
Income Security Act ("ERISA"), or the rules thereunder, and may be exercised,
during the lifetime of the optionee, only by the optionee or by a permitted
transferee.
CAPITAL CHANGES. In the event any change, such as a stock split or payment
of a stock dividend, is made in the Company's capitalization that results in an
exchange of Common Stock for a greater or lesser number of shares without
receipt of consideration by the Company, appropriate adjustment shall be made in
the exercise price and in the number of shares subject to options outstanding
under the Directors' Plan, as well as in the number of shares reserved for
issuance under the Directors' Plan. In the event of the proposed dissolution or
liquidation of the Company, all options will terminate immediately prior to the
consummation of such proposed action. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, all options shall be assumed by such successor
corporation.
AMENDMENT, TERMINATION AND TERM OF THE DIRECTORS' PLAN. The Board of
Directors may amend the Directors' Plan from time to time or may terminate it
without approval of the stockholders of the Company. However, effective
September 1, 1994 (or later, if permitted by the rules of the Securities and
Exchange Commission) the provisions of the Directors' Plan that relate to the
amount, price and timing of options granted under the Directors' Plan may not be
amended more than once every six months, other than to comport with changes in
the Code, ERISA or the rules thereunder. Furthermore, stockholder approval is
required for any amendment that increases the number of shares subject to the
Directors' Plan, changes the designation of persons eligible for grants under
the Directors' Plan, materially increases the benefits that may accrue to
participants under the Directors' Plan or changes the number of shares subject
to options granted under the Directors' Plan or the terms thereof. However, no
such action by the Board of Directors or stockholders may unilaterally alter or
impair any option previously granted under the Directors' Plan without the
consent of the optionee. In any event, the Directors' Plan will expire by its
terms in August 1996 (August 2001 if the Amendments are approved by the
stockholders).
18
<PAGE> 21
PARTICIPATION IN THE DIRECTORS' PLAN. The grant of options under the
Directors' Plan is automatic, as described above. Only non-employee directors
are eligible to receive options under the Directors' Plan; executive officers
(including the Named Officers) are not eligible. The following table sets forth
information with respect to the grant of options under the Directors' Plan, as
proposed to be amended, to the Outside Directors since the beginning of the last
fiscal year through and including the date of the Annual Meeting (assuming
stockholder approval of the Amendments):
<TABLE>
<CAPTION>
AMENDED PLAN BENEFITS
1986 DIRECTORS' STOCK OPTION PLAN
- --------------------------------------------------------------------------------------------------
NUMBER OF SHARES
UNDERLYING DOLLAR
NAME OF INDIVIDUAL OR IDENTITY OF GROUP AND POSITION OPTIONS GRANTED VALUE($)(2)
- ---------------------------------------------------------------- ---------------- -----------
<S> <C> <C>
Pierre S. Bonelli, Outside Director............................. 25,000(1) $ 43,125
Robert P. Dilworth, Outside Director............................ 35,000 264,375
James J. Kim, Outside Director.................................. 20,000(1) 0
Horace H. Tsiang, Outside Director.............................. 30,000 259,375
---------------- -----------
All Outside Directors as a Group................................ 110,000 $ 566,875
---------------- -----------
---------------- -----------
</TABLE>
- ---------------
(1) Includes 20,000 shares subject to a Replenishment Option to be granted upon
stockholder approval of the Amendments.
(2) Represents the spread (if any) between the exercise price and the fair
market value (the NASDAQ/ NMS closing price of the Company's Common Stock)
on the Record Date ($16.00 per share), multiplied by the number of shares
subject to the option. Excludes Replenishment Options, which will be granted
with exercise prices equal to fair market value on the date of the Annual
Meeting, assuming stockholder approval.
TAX INFORMATION
GENERAL RULES. An optionee will not recognize any taxable income at the
time he or she is granted a nonstatutory option under the Directors' Plan. Upon
exercise of the option, the optionee will recognize compensation income for
federal tax purposes generally measured by the excess, if any, of the fair
market value of the shares over the exercise price.
GAIN OR LOSS ON RESALE. Upon a resale of such shares by the optionee, any
difference between the sale price and the fair market value of the shares on the
date of exercise of the nonstatutory option will be treated as capital gain or
loss. Capital losses are allowed in full against capital gains plus $3,000 of
other income.
COMPANY TAXATION. The Company will be entitled to a tax deduction in the
amount that an optionee recognizes ordinary income with respect to shares
acquired upon exercise of a nonstatutory option granted under the Directors'
Plan.
TAX SUMMARY. The foregoing summary of the effect of federal income
taxation upon the optionee and the Company with respect to the grant of options
and purchase of shares under the Directors' Plan does not purport to be
complete. In addition, this summary does not discuss the consequences of an
optionee's death or the provisions of the income tax laws of any municipality,
state or foreign country in which the participant may reside.
RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors has appointed Ernst & Young, independent auditors,
to audit the consolidated financial statements of the Company for the fiscal
year ending December 30, 1994 and recommends that stockholders vote "FOR"
ratification of such appointment. In the event of a negative vote on such
ratification, the Board of Directors will reconsider its selection.
19
<PAGE> 22
Ernst & Young has audited the Company's financial statements since 1980.
Representatives of Ernst & Young are expected to be present at the meeting, will
have the opportunity to make a statement if they desire to do so, and are
expected to be available to respond to appropriate questions.
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 proxy card to vote the shares they represent as
the Company may recommend.
BY ORDER OF THE BOARD OF DIRECTORS
Thomas F. Mulvaney, Secretary
Date: March 28, 1994
20
<PAGE> 23
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
VLSI TECHNOLOGY, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of VLSI Technology, Inc., a Delaware
corporation, hereby acknowledges receipt of the 1993 Annual Report to
Stockholders and the Notice of Annual Meeting of Stockholders and Proxy
Statement for the Annual Meeting of Stockholders of VLSI Technology, Inc. to be
held on Thursday, May 5, 1994 at 9:00 a.m. local time, at the Company's offices
located at 1151 McKay Drive, San Jose, California 95131, and hereby appoints
Alfred J. Stein and Thomas F. Mulvaney, and each 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 such meeting, and at
any adjournment or adjournments thereof, and to vote all shares of Common Stock
that the undersigned would be entitled to vote if then and there personally
present on the matters set forth below:
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL OF THE COMPANY'S
NOMINEES FOR DIRECTOR AND FOR PROPOSALS 2 AND 3.
1. ELECTION OF DIRECTORS.
<TABLE>
<S> <C>
FOR all nominees listed below WITHHOLD AUTHORITY to vote
(except as marked to the contrary below) /
/ for all nominees below / /
</TABLE>
Pierre S. Bonelli, Robert P. Dilworth, James J. Kim, Alfred J. Stein and Horace
H. Tsiang.
2. PROPOSAL TO RATIFY AND APPROVE AMENDMENTS TO THE 1986 DIRECTORS' STOCK
OPTION PLAN.
/ / FOR / / AGAINST / / ABSTAIN
(Continued on back)
(Continued from front)
3. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG AS INDEPENDENT
AUDITORS FOR 1994.
/ / FOR / / AGAINST / / ABSTAIN
4. IN THEIR DISCRETION, THE PROXIES AND ATTORNEYS-IN-FACT ARE AUTHORIZED TO
VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING,
AND ANY ADJOURNMENT OR ADJOURNMENTS THEREOF.
Either of such proxies and attorneys-in-fact, or their substitutes, as shall
be present and shall act at said meeting or any adjournment or adjournments
thereof shall have and may exercise all the powers of said proxies and
attorneys-in-fact hereunder.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder(s).
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3.
Signature
------------------------------------------ Date
---------------------------------
Signature
------------------------------------------ Date
---------------------------------
(This Proxy should be dated, signed by the stockholder(s) exactly as his or
her name(s) appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate.
I do / /do not / /plan to attend the Annual Meeting in person.
