<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------------
FORM 10-K
(Mark One)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended DECEMBER 30, 1994
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
Commission file number 0-11879
-------------------------------------
VLSI TECHNOLOGY, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 94-2597282
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
1109 MCKAY DRIVE
SAN JOSE, CALIFORNIA 95131
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (408) 434-3000
-------------------------------------
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Preferred Share Purchase Rights
(Title of Class)
-------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of February 28, 1995 was approximately $478,046,358 based upon
the last sale price reported for such date on the Nasdaq National Market. For
purposes of this disclosure, Common Shares held by persons who hold more than 5%
of the outstanding voting shares and Common Shares held by executive officers
and directors of the Registrant have been excluded in that such persons may be
deemed to be "affiliates" as that term is defined under the rules and
regulations promulgated under the Securities Act of 1933. This determination is
not necessarily conclusive.
As of February 28, 1995, the number of shares of the Registrant's Common
Stock outstanding was 36,809,167.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following document are incorporated by reference in this
Annual Report on Form 10-K: the definitive Proxy Statement for the Registrant's
Annual Meeting of Stockholders to be held April 27, 1995 (the "Proxy
Statement"), (Parts I and III).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
PART I
ITEM 1. BUSINESS
VLSI Technology, Inc., a Delaware corporation ("VLSI" or the "Company"),
was incorporated in May 1987 as a successor to the business of VLSI Technology,
Inc., a California corporation, ("VLSI-California"). The merger of
VLSI-California with and into the Company was consummated on December 31, 1987.
All references herein to "VLSI" or the "Company" include its predecessor
VLSI-California unless specified or unless the context otherwise requires.
OVERVIEW
VLSI designs, manufactures and sells complex application-specific
integrated circuits ("ASICs"), which are custom designed chips for an individual
customer, and application-specific standard products ("ASSPs"), which are
semi-custom chips designed for a particular market application that may be used
by several different customers. Through its majority-owned subsidiary, COMPASS
Design Automation, Inc. ("COMPASS"), VLSI offers an integrated suite of
electronic design automation ("EDA") software tools, foundry-flexible libraries
and support services for use by systems and circuit designers at other
semiconductor and systems design companies in addition to VLSI (see "COMPASS
DESIGN AUTOMATION" below).
VLSI applies its value-added technology to deliver products targeted at
specific segments of the electronics marketplace. These products address a range
of applications in the personal computer ("PC"), communications, workstation,
government, high-performance computer and entertainment markets. VLSI targets a
limited number of key Original Equipment Manufacturer ("OEM") customers who are
leaders in their respective industries. The Company's top customers in 1994
include Compaq Computer Corporation ("Compaq"), Apple Computer, Inc. ("Apple"),
Telefonaktiebolaget LM Ericsson ("Ericsson"), Hewlett-Packard Company
("Hewlett-Packard"), and Digital Equipment Corporation ("DEC"). See "MARKETING
AND CUSTOMERS" below.
The Company has applied a market segment approach to its method of planning
and organizing its business. The Company has targeted a limited number of growth
markets in which it has developed significant expertise utilizing its library of
proprietary cells and highly integrated building blocks to assist customers in
rapidly designing products and bringing them to market.
The Company's objective is to design and manufacture highly-integrated,
complex semiconductor devices that allow its customers to develop and bring to
market higher value-added systems and products. Key elements in its strategy to
achieve this objective include:
Target selected growth markets. VLSI has targeted a limited number of
growth markets in which it has built significant expertise. In these markets,
the Company can utilize its library of proprietary cells and high-level building
blocks to assist customers in designing and bringing the customers' products to
market rapidly. VLSI believes that this allows the Company to offer more value
to the customer at potentially higher gross margins for the Company. VLSI's
target markets include high-end computing applications, wireless and networking
communications applications, entertainment systems and desktop and portable
personal computers.
Develop differentiated products. VLSI seeks to develop differentiated
products that allow a customer both to distinguish the customer's products from
those offered by its competitors and to reduce the customer's product cost. The
Company creates highly complex products that reduce the number of integrated
circuit devices required for a given application and contain advantageous
combinations of features and functionality. VLSI emphasizes high performance
applications where its products are critical elements of complex electronic
systems.
Focus on large, industry-leading OEM customers. VLSI focuses its
manufacturing and research and development resources on products for a limited
number of OEM customers who are leaders in their respective industries. The
Company believes that such large OEM customers provide the Company with
1
<PAGE> 3
significant potential. During the year ended December 30, 1994, approximately
two-thirds of the Company's net revenues were derived from sales to its top 20
customers.
Balance manufacturing. The Company balances its wafer production
between its own facilities and the use of foundry capacity of third party wafer
subcontractors. The Company believes that this strategy improves
cost-effectiveness, responsiveness to customers, access to capacity, ability to
implement leading-edge process technology and time to market, as compared to
semiconductor companies that lack fabrication facilities, while providing a
partial buffer against over-capacity in times of diminished demand. During
1994, VLSI produced approximately three-quarters of its wafer requirements at
its own facilities. The Company believes that when demand exceeds industry-wide
fabrication capacity, its manufacturing strategy also results in enhanced
responsiveness to customers, as compared to semiconductor companies lacking
fabrication facilities. In addition, the Company's fabrication facility in San
Antonio, Texas is designed to permit the Company to significantly increase its
current manufacturing capacity at that facility.
Use FSB(TM) libraries to reduce customers' time to market. VLSI's
Functional System Block(TM) ("FSB") libraries, an expanding collection of
pre-designed cells and high-level building blocks, provides easy design-in of
frequently used integrated circuit functions. The FSB library elements allow
VLSI and its customers to more rapidly design and integrate products, thereby
reducing VLSI's customers' time to market. VLSI's library of FSBs includes
Graphics Controllers (LCD and CRT), a DES Encryption FSB, a PCI FSB, Floppy
Disk Controllers, SCSI Controllers, T1 Controllers and a suite of analog
functions for communications FSBs. VLSI continues to expand its FSB libraries
through internal development and through the acquisition or licensing of
technology from other companies. Technology acquired and/or licensed from other
companies include an ARM RISC-based microprocessor (low power, high performance
embedded control applications), power management, communications (including
standards such as DECT, CT2, GSM and PHS), signal converters, forward error
correction and digital signal processing.
Focus on customer support. The Company seeks to differentiate itself from
its competitors not only through the quality of its products, but also through
the level of its technological support and service. VLSI operates a network of
geographically dispersed Technology Centers where experienced engineers with a
specific technical focus work directly with customers to develop designs for new
products and to provide continuing after-sale customer support.
SILICON OPERATIONS
PRODUCTS AND SERVICES
VLSI has organized its business around targeted market segments,
establishing divisions to address specific silicon markets. Each of the
Company's silicon divisions maintains independent marketing and applications
research and development capabilities.
The Company's market-focused structure permits VLSI to dedicate certain of
its engineers to develop systems expertise in, and experience with issues
peculiar to, applications in a particular market. VLSI believes that this
increased systems expertise allows it to offer more value to the customer
through the development of FSBs to address those specific issues. VLSI's
customers in silicon market segments have a choice of using proprietary
solutions, standard solutions that are shared among multiple customers, or a
combination of both.
The VLSI Product Divisions design, manufacture and market devices for the
computer, communications and entertainment markets, including personal computer
applications (Apple operating system), high-end computing applications (such as
graphics workstations and high-end storage), secure communications, home
entertainment applications (such as interactive television and video game
systems), networking and wireless communications. The Personal Computer Division
designs, manufactures and markets ASSPs for desktop and portable computers
designed on the X86 architectures for 486 and Pentium(TM)-based computers.
2
<PAGE> 4
VLSI Product Divisions
The VLSI Product Divisions ("VPD") consist of market segment divisions: the
Apple Products Division, the Computer and Government Product Divisions, the
Consumer and Industrial Product Divisions, the Network Products Division and the
Wireless Products Division.
The key to the success of VPD is providing customers with timely silicon
solutions optimized for their applications. This approach enables rapid market
introduction of customer products coupled with the ability to customize for
specific customer requirements.
FSB library elements consist of system-level blocks that provide a higher
level of integration than in a traditional design library. These blocks are
designed to be combined with other FSB blocks, random logic and compiled
elements to provide the optimum silicon circuit with minimum customer design
time. FSB cells are intended to speed the development of integrated circuits
("ICs"), resulting in faster time to market for customers.
VPD's competition comes from a wide variety of large, established IC
providers, including, but not limited to, American Telephone & Telegraph Company
("AT&T"), International Business Machines Corporation ("IBM"), LSI Logic
Corporation ("LSI"), Motorola, Inc. ("Motorola"), Texas Instruments Incorporated
("TI") and Toshiba Corporation ("Toshiba").
Apple Products Division
This division produces devices for Apple, its subcontractors and
licensees as well as Apple-compatible peripheral suppliers worldwide. Apple has
been provided with high-performance gate array and cell-based products, which
are used in Apple's older Quadra(TM) and Powerbook(TM) computer lines based on
the Macintosh(R) platform and in a host of printer products. The Company does
not have significant silicon content in Apple's first generation Power
Macintosh(TM) machines. As a result, the 1994 production volumes for Apple were
significantly lower than 1993 levels. Also see "MARKETING AND CUSTOMERS" below.
Computer and Government Product Divisions
The computer product division markets include workstations (from
entry-level through high-end graphic), servers, parallel processors, mass
storage devices and peripherals. Significant customers include Silicon Graphics,
Inc., AT&T, Storage Technology Corporation and DEC.
Target market segments for VPD's government product business involve
commercial applications of technologies developed for military applications,
including Geo-Positioning Satellite ("GPS") systems and entertainment
applications of graphics technology. Secure information technologies in the form
of data encryption strategies are another key area of focus for this division.
This group provides devices to large electronics-related defense contractors but
does not act as a prime contractor on government contracts.
Consumer and Industrial Product Divisions
The consumer and industrial product divisions primarily target high-volume
entertainment-related markets including television and satellite cable
applications, HDTV, and electronic games as well as other miscellaneous
applications including manufacturing and robotics. The customer base for these
divisions includes Sony Corporation, Pioneer Electric Corporation, The 3DO
Company, Scientific Atlanta, Inc., Thompson Consumer Electronics Inc. and the
Allen-Bradley Division of Rockwell International Corporation.
Network Products Division
The network products division supports customers such as DSC Communications
Corporation, Alcatel Alsthom Compagnie Generale d'Electricite and Tellabs
Incorporated in several applications, including digital cross-connect,
transmission, networking/internetworking, switching and multiplexing. Certain
communications-specific FSB cells have been employed as high-level building
blocks and designed to consolidate voice, data, image and video onto single
networks and comply with the relevant industry standards that include high
3
<PAGE> 5
complexity analog, digital and memory functions. Specific solutions for major
customers include FSB cells for various networking standards, including ATM, T1,
E1 and Sonet/SDH.
Wireless Products Division
The wireless products division provides wireless communications voice and
data system solutions. This division uses baseband signal processing technology
developed to support various voice and data standards, including GSM, PHS, DECT
and CDPD solutions. The division supports major wireless telephone
manufacturers, including Ericsson, Orbitel Mobile Communications Ltd., Nokia
Corporation Information Systems, Motorola, DDI Corporation and Nippon Electric
Corporation ("NEC"). Additionally, solutions have been developed for other
markets and standards. Wireless revenues are primarily generated in the European
market; additionally, sales to a single OEM, Ericsson, account for over 60% of
1994 worldwide wireless revenues.
Personal Computer Division
The Personal Computer Division ("PCD"), located in Tempe, Arizona, supplies
system-logic chip sets and peripheral components for desktop and portable
personal computers based on X86 architectures. The product line consists of
highly-integrated core logic and peripheral input/output devices for X86
systems. The division primarily serves a selected set of high-volume market
leaders worldwide, such as Compaq, Hewlett-Packard, AST Research, and Dell
Computer. VLSI's chip sets currently support Intel Corporation ("Intel"),
Advanced Micro Devices, Inc., and other X86 microprocessors.
The PC chip set market has been characterized by intense competition,
resulting in constant pressure to improve pricing and features to maintain
market share. With new PC design cycles occurring every six to twelve months,
this competitive environment requires continuous efforts to develop and
introduce new products into the marketplace. Any delays in the development of a
new chip set can result in substantial loss of both market share and
profitability. While PCD has generally been successful in its development and
introduction of new products in the past, there can be no guarantee that this
success will continue in the future.
PCD's development efforts involve the timely introduction of highly
integrated chip sets, enabling PC manufacturers to supply cost-effective
computing systems to end users within narrow market windows. While PCD works
closely with key customers to identify the correct set of features and functions
to include in its future products, the division must make critical decisions
concerning chip set configurations using imperfect information. If the actual
direction of the PC chip set market takes a turn that is substantially different
from the one anticipated by the division's development team, substantial losses
in market share, gross margin, and profitability may result.
In 1994, the microprocessor architecture used by most PC manufacturers
continued to be the 486 system for which PCD produced its SC483(TM), a low-power
controller. Also during the year, PCD initiated commercial volume production of
a controller chip for Intel's Pentium system, the production of which is
expected to increase throughout 1995. PCD also shipped significant amounts of
its SCAMP IV(TM) chip set for portable PCs, although revenues from the device
are expected to decline in 1995 as the portable market transitions to the
Pentium architecture.
The Technology and Manufacturing Agreement ("Technology Agreement"), signed
by VLSI and Intel in July 1992, provided VLSI with access to Intel's 386SL(TM)
microprocessor technology intended for integration into products for the
handheld computer market. While the development efforts were completed in 1994,
this market failed to materialize at a rate supporting commercial production. As
a result, the Technology Agreement was mutually terminated in November 1994 and,
in January and February 1995, Intel disposed of its ownership of VLSI Common
Stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Factors Affecting Future Results" in Item 7 of Part II
herein.
4
<PAGE> 6
MARKETING AND CUSTOMERS
The Company uses a direct sales force, commissioned representatives and
distributors to sell its silicon products and services. VLSI's silicon
operations have 28 sales offices (20 in the United States, four in Europe, two
in Japan and two in the Asia-Pacific region) as well as 18 Technology Centers
(11 in the United States, four in Europe, two in Japan and one in the
Asia-Pacific region). Direct sales represent the Company's primary distribution
channel. The direct sales force is assisted by VLSI engineers located in its
Technology Centers.
The Company's Technology Centers support VLSI's customers by offering a
range of design services. These services include system definition, complete
logic and circuit design and test program generation. Staffed by system and
integrated circuit designers, the Technology Centers are located near potential
customers.
Approximately two-thirds of the Company's net revenues for 1994 were
derived from sales to the Company's top 20 customers, eight of whom operate in
the personal computer industry. As a result of this concentration of its
customer base, the loss of business from any of these customers, significant
changes in scheduled deliveries to any of these customers or decreases in the
prices of products sold to any of these customers could materially adversely
affect the Company's results of operations. For example, during 1992 and 1993,
Apple was the Company's largest customer, accounting for approximately 15% and
19%, respectively, of the Company's net revenues in those years. In December
1993, Apple postponed and, in some cases, canceled shipments planned for
delivery in 1994, adversely affecting VLSI's results of operations for 1994. The
net effect was that Apple was not a 10% customer in 1994. Significant customers
in 1994 include Compaq, comprising 22% of 1994 net revenues. See also Item 7 of
Part II herein, "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Factors Affecting Future Results."
RESEARCH AND DEVELOPMENT
The Company's research and development ("R&D") is focused on continued
development and improvement of its systems applications expertise, process and
packaging technologies, design libraries and its expertise with cell-based and
gate array ICs. The Company's R&D expenditures for the years 1992, 1993 and 1994
have shown sequential increases with total expenses of $50.4 million, $65.4
million and $78.9 million, respectively.
The Company's future success depends on its ability to develop and
introduce new products that compete effectively on the basis of price and
performance and that satisfy customer requirements. New product development
often requires long-term forecasting of market trends, development and
implementation of new processes and technologies and substantial capital
commitments. For example, the Company invested significant resources toward
developing products for the handheld computer market, which failed to develop as
estimated, thereby postponing, if not permanently deferring, the Company's
recovery of the cost of these development expenditures. If the Company is unable
to design, develop, manufacture and market new products successfully and in a
timely manner, its operating results could be adversely affected. No assurance
can be given that the Company's product and process development efforts will be
successful.
The Company's process technology development activities in 1994
concentrated on the successful development of a 0.5-micron CMOS process, the
initiation of a 0.35-micron CMOS process and for the development of software for
the EDA market. R&D activities in the packaging area focus on high performance,
high pincount advanced packaging solutions and assembly techniques.
Research and development activities are sometimes augmented through
alliances with other companies. Wafer process technology development efforts in
1994 in conjunction with the Company's strategic agreement with Hitachi, Ltd.
include integration of 0.5- and 0.35-micron CMOS process and manufacturing
methodologies in the San Antonio, Texas wafer fabrication facility.
See also "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Factors Affecting Future Results" in Item 7 of Part II
herein.
5
<PAGE> 7
MANUFACTURING
The fabrication of ICs is an extremely complex and precise process
consisting of hundreds of separate steps and requiring production in a highly
controlled, clean environment. Minute impurities, errors in any step of the
fabrication process, defects in the masks used to print circuits on a wafer or a
number of other factors can cause a substantial percentage of wafers to be
rejected or numerous die on each wafer to be nonfunctional.
Semiconductor manufacturing is also highly capital intensive, and capital
costs have tended to significantly increase as geometries have decreased in
size. The marketplace has placed an ongoing emphasis on ever-smaller geometries,
evidenced by increasing demand for deep sub-micron devices (those geometries
under 0.6-micron), requiring the Company to increase its capital investment
requirements to keep abreast of market demand.
The Company's success is partially dependent upon its ability to develop
and implement new manufacturing process technologies. Semiconductor design and
process methodologies are subject to rapid technological change, requiring large
expenditures for research and development. The Company believes that the
transition to smaller geometry process technologies will be important to
remaining competitive. There can be no assurance that the Company will be able
to profitably manufacture devices in geometries smaller than 0.6-micron.
In addition to large R&D expenditures required to develop processes for
deep sub-micron devices, capital expenditure requirements to manufacture at such
small geometries increase rapidly. Decreases in geometries call for
sophisticated design efforts, advanced manufacturing equipment and cleaner
fabrication environments. The Company made significant investments during 1994
into sub-micron manufacturing and expects to continue a high level of investment
in this area in the future.
The majority of the Company's 1994 wafer production utilized a 0.8-micron
CMOS process. The Company balances its wafer manufacturing between its own wafer
fabrication facilities and those of third-party wafer subcontractors. This
strategy provides manufacturing flexibility and the ability to realize economies
of scale by operating the Company-owned fabrication facilities at capacity with
a buffer in case of changes in demand. Approximately 80% of the Company's wafers
in 1992 were manufactured internally. This percentage decreased to approximately
75% during 1993 and 1994, as the demand for the Company's products exceeded the
rate of expansion of internal manufacturing capacity.
The Company has three manufacturing facilities. Its San Jose, California
plant performs wafer fabrication, probe and final test activities. The San
Antonio, Texas facility is dedicated to wafer fabrication and includes four
modules. All of Module A and Module B have been facilitized. Equipping the
remaining component of Module B will allow the Company to potentially double the
Company's production capability at the San Antonio facility. The Tempe, Arizona
site contains design, probe and final test facilities.
The building housing the Company's San Jose wafer fabrication facility,
which currently accounts for approximately 40% of its total internal wafer
production, was purchased by the Company during the first quarter of 1994. The
Class 10 San Jose facility is currently being converted from a 5-inch wafer
process to a 6-inch process in order to significantly increase device production
capacity at this facility. The San Jose wafer fabrication facility is located
near major earthquake faults and in an area that has in the recent past
experienced an extended drought. Additionally, as a 11-year-old fabrication
facility, it faces certain technological limitations. Due to the age of the
Class 10 San Jose facility and other factors, including ground motion, it is
uncertain whether geometries smaller than the 0.8-micron level can ever be
profitably manufactured there.
During 1995, the Company expects to convert its San Antonio wafer
fabrication facility from a predominantly 0.8-micron process to a predominantly
0.6-micron process. The conversion, if successfully completed, will increase
device volume production and lead to lower overall device costs.
In addition to manufacturing in its own facilities, VLSI has wafer
manufacturing arrangements with foreign companies specializing in subcontract
wafer foundry services. These wafer subcontractors are themselves subject to all
of the manufacturing risks that are applicable to VLSI's own wafer manufacturing
operations. In addition, the Company's foreign subcontract manufacturing
arrangements are subject to risks
6
<PAGE> 8
such as changes in government policies, transportation delays, increased
tariffs, fluctuations in foreign exchange rates, and export and tax controls.
Even though the Company utilizes both of its fabrication plants and
multiple subcontractors to manufacture its wafers and has the ability to shift
manufacturing from one plant to another for many of its products, disruption of
operations at either the Company's production facilities or those of its
subcontractors for any reason, such as fire or earthquake, could cause
significant delays in shipments until the Company could shift the products from
an affected facility or subcontractor to another facility.
The Company subcontracts substantially all of its integrated circuit
packaging and approximately 30% of its final testing to third parties. The final
tested circuits are normally returned to the Company for shipment to customers.
Subcontractors include Anam Semiconductor Technology Co. Ltd. in Korea and the
Philippines (see Item 13 in Part III hereof). Although the Company has no
long-term contractual commitments from these suppliers, the Company believes
that these sources of packaging and testing services are relatively reliable
given their level of interdependence with the Company and the overall level of
availability of worldwide subcontract packaging and testing capacity. Any
problems experienced in obtaining acceptable subcontract manufacturing services
could delay shipments of the Company's products and affect the Company's results
of operations.
The principal raw materials used by the Company in the manufacture of its
products are silicon wafers, processing chemicals and gases and certain precious
metals. Subcontractors use ceramic and plastic packages to enclose the devices
produced for the Company. Certain raw materials used for the manufacture of ICs
are available from a limited number of worldwide suppliers. The Company does not
generally depend on long-term fixed-price supply contracts. Shortages could
occur in various essential materials due to interruption of supply or increased
demand in the industry. If VLSI was unable to procure certain of such materials
from any source, it would be required to reduce its manufacturing operations. To
date, the Company has experienced no significant difficulty in obtaining the
necessary raw materials. The Company's operations also depend upon a continuing
adequate supply of electricity, natural gas and water.
See also "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Factors Affecting Future Results" in Item 7 of Part II
herein.
COMPETITION
The semiconductor industry in general and the markets in which the Company
competes in particular are intensely competitive, exhibiting both rapid
technological change and ongoing price erosion as technologies mature. From time
to time, the industry has also experienced significant downturns, often in
connection with, or in anticipation of, declines in general economic conditions.
These downturns, which in some cases have lasted for more than a year, have been
characterized by diminished product demand, production over-capacity and
subsequent accelerated erosion of average sales prices. Competition in the
personal computer market, the Company's largest individual market segment, is
especially intense and is subject to significant shifts in demand and severe
pricing pressures. For example, during the third quarter of 1992, the migration
of the PC market from the 386 to the 486 architecture caused a decline in demand
for 386 chip sets and related devices, resulting in an excess of worldwide
supply of such chip sets and significant price declines as competitors struggled
to maintain market share. A similar occurrence is possible with respect to the
transition from 486 architecture to the Pentium-compatible architecture.
Although this transition has already begun, it is very difficult to predict the
speed and exact timing of this change.
The Company competes with large domestic and foreign companies that have
substantially greater financial, technical, marketing and management resources
than the Company, such as AT&T, LSI, Motorola, TI and Toshiba. Additionally,
VLSI's competitors in the personal computer chip set market are continuously
changing and include Intel, ACC Microelectronics Corporation, OPTi, Inc.,
Silicon Integrated Systems and Cirrus Logic Inc. There is no assurance that the
Company will be able to compete successfully in the future.
Competition is based on such factors as design capabilities (including both
the design tool features and the skills of the design team), quality, delivery
time and price. The Company believes that its competitive
7
<PAGE> 9
strengths include: a growing expertise in systems applications in specific
market segments, its high quality wafer processing technology and fabrication
facilities, its experienced engineering staff, test capabilities, cost
effectiveness, technical design services offered through its network of
Technology Centers and design tools and services, including its proprietary FSB
libraries.
See also "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Factors Affecting Future Results" in Item 7 of Part II
herein.
COMPASS DESIGN AUTOMATION, INC.
The Company's COMPASS subsidiary designs, develops, markets and services
software-based products used by systems or circuit designers to design complex
integrated circuits using either schematic capture, high level design languages,
data path descriptions or state diagrams. These design tools integrate many
steps of the design process, from design specification (beginning with synthesis
and test) through physical layout and verification.
COMPASS product offerings are organized into four main product lines: logic
design and analysis tools, physical design and verification tools, library
development tools and physical libraries. These products are intended to reduce
overall time to market and decrease engineering and production costs for
advanced integrated circuit design.
COMPASS produces a complete set of tools for all levels of design from VHDL
and Verilog down to basic silicon structures. In the top-down design market
segment, COMPASS is focused on VHDL and Verilog-based synthesis and
test-generation tools, along with services to import custom libraries from
various semiconductor vendors to work on the COMPASS toolset. In the physical
design software area, COMPASS develops tools for floorplanning, automatic
place-and-route, a range of symbolic and polygon-based custom layout tools, and
a complete set of physical layout verification tools. In library technology,
COMPASS develops a wide range of Foundry Flexible(TM) libraries, memory and
datapath compilers. It also develops high-productivity tools to automate the
process of library generation.
COMPASS' R&D efforts are focused on making its array of software technology
capable of supporting a wider variety of semiconductor vendor design tools and
semiconductor foundry formats. Product development efforts are focused on the
design environment requirements imposed by deep sub-micron designs. During 1994
and continuing in 1995, the COMPASS product development focus is on deep
sub-micron physical libraries, the associated physical design software tools,
and related EDA tools required by large, complex design projects.
COMPASS competes with other software vendors in the EDA market for
integrated circuit design automation. Competition in the EDA market has come
primarily from a few large established vendors, such as Cadence Design Systems,
Inc., Mentor Graphics Corporation, Viewlogic Systems, Inc., and Synopsys, Inc.
COMPASS is pursuing cooperative relationships with certain of these large EDA
companies to provide complementary solutions to the vendors' offerings.
Competition is based on such factors as design capabilities (including both the
design tool features and the skills of the design team), quality, delivery time
and price. The Company believes that a principal competitive strength of COMPASS
is its expertise and products for deep sub-micron libraries and physical design.
The Company's ability to compete in the EDA market will depend upon the
expansion of vendor libraries available for the logic design system and the
foundries that can fabricate designs using COMPASS libraries. Such vendor
libraries are available from COMPASS as well as other semiconductor vendors,
which include Fujitsu Ltd., General Electric Corporation Ltd.'s Plessey
Division, Gold Star Co., Ltd., Hitachi, Mitsubishi Ltd., NEC and Toshiba.
Additionally, COMPASS Foundry Flexible libraries are supported by VLSI, Taiwan
Semiconductor Manufacturing Company Ltd., Chartered Semiconductor Manufacturing
Pte Ltd., European Silicon Structures BV, and other foundries.
COMPASS uses direct sales, commissioned representatives and distributors to
sell its software products. COMPASS' 19 sales offices (13 in the United States,
four in Europe, one in Japan and one in the Asia-Pacific region) include its
three worldwide development centers. Direct sales represent COMPASS' primary
domestic and
8
<PAGE> 10
European distribution channels, allowing COMPASS to bring to focus the technical
and systems expertise necessary to sell EDA software.
COMPASS generally licenses its design tools under nontransferable,
non-exclusive license agreements and provides postcontract customer and software
revision support. In addition, COMPASS offers training and consulting services
to its customers. COMPASS retains ownership rights to all software that it
develops. COMPASS uses various security schemes to protect its software products
from unauthorized use or copying.
COMPASS does sell its products to U.S. government agencies and defense
related customers. However, such revenues are not currently material, nor are
they expected to be a material part of the COMPASS business in the future.
BACKLOG
The Company's sales are made primarily pursuant to standard purchase orders
for delivery of products, with such purchase orders officially acknowledged by
VLSI according to its own terms and conditions. Due to industry practice with
respect to cancellation of orders, VLSI believes that backlog is a potentially
misleading indicator of future revenue levels.
EMPLOYEES
As of December 30, 1994, the Company and its subsidiaries had approximately
2,700 employees worldwide. Management believes that the future success of VLSI
will depend in part on its ability to attract and retain qualified employees,
including technical and design personnel and high-level executives. The Company
has granted stock options to many of its employees and has implemented stock
purchase and profit sharing programs. In addition, the Company currently has
Management Continuity Agreements with seven of its officers (see Exhibit 10.50
and the information contained in the Proxy Statement under the caption
"Executive Officer Compensation -- Management Continuity Agreements", which
information is incorporated herein by reference).
PATENTS AND LICENSES
The Company has filed a number of patent applications and currently holds
various U.S. patents expiring from 2003 to 2012 covering inventions in the areas
of computer-aided engineering and electronic circuitry. VLSI has also filed
corresponding patent applications in foreign jurisdictions. The Company expects
to file future patent applications from time to time, as appropriate, both in
the United States and abroad. VLSI does not consider the success of its business
to be materially dependent on any single patent or group of patents.
The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights and positions, which have on occasion
resulted in protracted and expensive litigation. The Company is currently one of
four remaining defendants in a major patent infringement suit brought by TI (see
"Legal Proceedings" in Item 3 of Part I herein). A court date for this
proceeding has been set for April 1995. While the outcome of this matter is
currently not determinable, management believes that its ultimate resolution
will not have a material adverse effect on the Company's consolidated financial
position or results of operations. However, should the ultimate outcome of this
matter be unfavorable, VLSI may be required to pay damages and other expenses.
IBM and Motorola have separately contacted the Company concerning its
alleged use of intellectual property belonging to them. The Company does not
believe it is using either of these companies' intellectual property.
There can be no assurance that additional intellectual property claims will
not be made against the Company in the future or that the Company will not be
prohibited from using the technologies subject to such claims or be required to
obtain licenses and make corresponding royalty payments for past or future use.
There can be no assurance that any such licenses could be obtained on
commercially reasonable terms.
9
<PAGE> 11
VLSI has also entered into a number of licensing agreements and technology
exchange agreements with various strategic partners and other third parties in
order to allow VLSI limited access to third party technology, or to allow third
parties limited access to VLSI's technology.
WORKING CAPITAL
Information regarding the Company's working capital practices is
incorporated herein by reference from Item 7 of Part II hereof under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and from Item 8 of Part II hereof
under the heading "Revenues" in Note 1 of Notes to Consolidated Financial
Statements.
FINANCIAL INFORMATION BY BUSINESS SEGMENT
AND GEOGRAPHIC DATA
This information is included in Note 10 of Notes to Consolidated Financial
Statements, which information is incorporated herein by reference to Item 8 of
Part II hereof.
ENVIRONMENTAL ISSUES
The Company is subject to a variety of federal, state and local
governmental regulations related to the storage, use, discharge and disposal of
toxic, volatile or otherwise hazardous chemicals used in its manufacturing
process. Increasing public attention has been focused on the environmental
impact of semiconductor manufacturing operations. The Company's San Jose,
California facilities are located near recently developed residential areas and
a potential elementary school site, which could increase the incidence of
environmental complaints or investigations. There can be no assurance that
changes in environmental regulations will not impose the need for additional
capital equipment or other requirements. Any failure by the Company to control
the use of, or adequately to restrict the discharge of, hazardous substances
under present or future regulations could subject VLSI to substantial liability
or could cause its manufacturing operations to be suspended, which could have a
potentially adverse effect on the Company's operating results.
ITEM 2. PROPERTIES
The Company has three manufacturing facilities located in San Jose,
California, Tempe, Arizona and San Antonio, Texas. In addition, VLSI (including
its subsidiary, COMPASS) has 47 sales offices (33 in the U. S., eight in Europe,
three in Japan and three in the Asia-Pacific region) and 18 Technology Centers
(11 in the U. S., four in Europe, two in Japan and one in the Asia-Pacific
region). The Company purchased two buildings used for wafer fabrication and test
areas at its San Jose site in 1994 and additionally owns its Tempe, Arizona and
San Antonio, Texas facilities. The Company's other properties are occupied under
operating leases that expire from April 1995 through February 2020 with options
to renew in most instances. The Tempe facility is located on land held under a
long-term ground lease, which expires in December 2037, while the Company owns
the land beneath its San Antonio facilities.
The Company's San Jose facility, which includes manufacturing, COMPASS, VPD
marketing and corporate support services such as its computer center, technology
development, primary shipping location and major design center, is located near
major earthquake faults. Should an earthquake cause an interruption in
operations, operating results would be materially adversely affected.
The San Antonio facility began qualified production in 1989 and is
dedicated to wafer fabrication. Module A of four planned modules of class 1
clean room was completed in 1990. Module B was partially facilitized, equipped
and used to augment capacity beginning in 1991 with the balance of
facilitization completed in 1993. As of the end of 1994, approximately
two-thirds of module B has been equipped. The remaining one-third of module B
can be incrementally equipped in order to expand internal fabrication capacity.
Future expansion strategy has not been established for unfacilitized, unequipped
modules C and D at the San Antonio plant.
10
<PAGE> 12
The Tempe site contains the primary research and development resources for
PCD, test facilities, marketing, sales and Technology Center functions. The
facility, occupied in 1987, was expanded on 6.2 acres of immediately adjacent
property in 1992.
VLSI expanded into new leased facilities adjacent to its San Jose
headquarters in 1993 and has leased additional space adjacent to its San Jose
campus in 1994 to augment its near-term space requirements. The Company
anticipates that the lease of the additional space, along with an option
obtained for additional space adjacent to its newly leased facilities in San
Jose, will satisfy the Company's growth needs in the medium term.
ITEM 3. LEGAL PROCEEDINGS
The Company is a named defendant in a lawsuit that claims alleged patent
infringement. In addition, four lawsuits filed in 1993 alleging violations of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), were
dismissed with prejudice in 1994.
Texas Instruments Patent Litigation
In July 1990, TI filed two actions against the Company and four other
defendants, Analog Devices, Inc., Integrated Device Technology, Inc. ("IDT"),
LSI and Cypress Semiconductor Corporation (the Company and such other defendants
are collectively referred to as the "TI Defendants"). IDT settled its cases with
TI in late December 1992.
In the action filed before the United States International Trade Commission
("ITC"), TI sought to exclude from importation into the U.S. all TI Defendants'
products manufactured outside the U.S. that allegedly utilize a plastic
encapsulation process described in U.S. Patent No. 4,043,027 (the "027 patent").
On October 15, 1991, the Administrative Law Judge ("ALJ") found the 027 patent
to be valid and infringed by the Company's old plastic encapsulation gating
process. However, a new plastic encapsulation gating process developed and used
by the TI Defendants was found not to infringe the 027 patent. In December 1991,
the full ITC determined that it would not consider TI's appeal to overturn the
ALJ's decision on noninfringement of the new process. As a result, the Company
believes that the importation of its products containing the new noninfringing
plastic encapsulation gating process will continue unabated. The United States
Court of Appeals for the Federal Circuit affirmed the ITC decision in March
1993.
TI also filed a patent infringement action against the TI Defendants in the
United States District Court for the Northern District of Texas seeking an
injunction against the sale and/or manufacture by the TI Defendants of products
that allegedly infringe the 027 patent. The action also seeks damages for
alleged past infringement of the 027 patent and expired U.S. Patent No.
43,716,764. The motions of both TI and the TI Defendants for Summary Judgment in
this case were both denied in August 1994. A trial date for this matter has been
scheduled for April 1995. If the patent infringement claim is upheld, the
Company believes that licenses will be available for a negotiated fee. If VLSI
is unable to pass any increased costs of manufacturing due to patent license
fees on to its customers, VLSI's gross margins would be adversely affected. No
assurance can be given that TI would offer a license to VLSI, that the terms of
any such license would be favorable, or that any patent dispute will be resolved
without a material adverse impact on the Company. Should licenses be
unavailable, the Company may be required to discontinue its use of certain
processes or the manufacture and sale of certain of its products.
Other Patent Matters
In addition, in the normal course of business, the Company receives and
makes inquiries with regard to other possible patent infringement. Where deemed
advisable, the Company may seek or extend licenses or negotiate settlements. See
"Patents and Licenses" in Item I of Part I herein.
11
<PAGE> 13
Class Action Securities Litigation
The Exchange Act claims were four class action litigation claims filed
during the fourth quarter of 1993 and subsequently consolidated during the first
quarter of 1994 to a single action, Waldron et al. vs. Fiebiger, et al. The
claim related to a decrease in the market price of the Company's Common Stock in
December 1993. On April 25, 1994, the case was dismissed with prejudice as a
result of a stipulation entered into by all parties. No consideration was paid.
The Company will vigorously defend itself in any legal matters and while
the ultimate outcome of such matters is not determinable, management believes
that such actions, either individually or in the aggregate, should not have a
materially adverse impact on its results of operations or consolidated financial
position. However, the ongoing costs of defending lawsuits utilizes cash and
management resources and, should the ultimate outcome of any of the actions be
unfavorable, VLSI may be required to pay damages and other expenses.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of the Company
during the fourth quarter of fiscal 1994, which ended December 30, 1994.
EXECUTIVE OFFICERS OF THE COMPANY
Information concerning executive officers of the Company who are not also
directors is set forth below:
Mr. John C. Batty, age 40, was elected Vice President and Treasurer in
December 1992. Mr. Batty joined the Company in June 1986 as Financial Manager.
From April 1989 to April 1991, Mr. Batty was the Tempe, Arizona Site Controller.
From April 1991 to December 1992, Mr. Batty was Director, Corporate Financial
Planning.
Mr. Donald L. Ciffone, Jr., age 39, was elected Vice President and General
Manager of the VLSI Product Divisions in August 1992. Mr. Ciffone joined the
Company in November 1991 as Vice President, Primary and Emerging Markets
Division. From March 1991 until joining the Company, Mr. Ciffone was Director of
Marketing for Oasic Technology, an ASIC company. Mr. Ciffone was employed by
National Semiconductor Corporation in various capacities from 1978 until 1991,
most recently as Director of Marketing, ASIC Division.
Mr. Gregory K. Hinckley, age 48, was elected Vice President, Finance and
Chief Financial Officer of the Company in August 1992 upon joining the Company.
From December 1991 until August 1992, he was an independent consultant. From
January 1989 until December 1991, Mr. Hinckley was Senior Vice President and
Chief Financial Officer of Crowley Maritime Corporation, a U.S. shipping
company. Mr. Hinckley is a director of Advanced Molecular Systems.
Mr. Balakrishnan S. Iyer, age 38, joined the Company in April 1993 as Vice
President and Controller. From July 1992 until joining VLSI, Mr. Iyer was
Corporate Controller for Cypress Semiconductor Corporation, a semiconductor
manufacturer. From August 1988 until July 1992, Mr. Iyer was Group Controller at
Advanced Micro Devices, Inc., a semiconductor manufacturer.
Mr. L. Don Maulsby, age 43, was named Vice President and General Manager of
the Personal Computer Division in June 1994. Prior to that time, he was Vice
President, Worldwide Sales and Technology Center Operations, from November 1992.
Mr. Maulsby joined the Company in 1988 as a Regional Sales Manager. Mr. Maulsby
was Area Sales Manager from January 1989 to September 1990. From September 1990
to August 1991, Mr. Maulsby was Vice President, Central U.S. Business Unit; and
from August 1991 to November 1992, Vice President, North American Sales and
Technology Center Operations.
Mr. Dieter J. Mezger, age 51, has been President of the Company's
subsidiary, COMPASS Design Automation, Inc., since its formation in February
1991. Since July 1990, Mr. Mezger has also been Senior Vice President of the
Company. He joined the Company in 1984 as Director and General Manager of the
12
<PAGE> 14
Company's European operations. From December 1988 until March 1991, he was
President of VLSI Technology Europe.
Mr. Thomas F. Mulvaney, Esq., age 46, was elected Vice President and
Secretary of the Company in July 1990. Mr. Mulvaney joined the Company in May
1990 as the Company's General Counsel, in which capacity he continues to serve.
Prior to joining the Company, he was employed at CP National Corporation
("CPN"), a telecommunications concern, from 1981 to May 1990, as Vice President
and General Counsel. He also served as President and Chief Executive Officer of
Control Communications Industries, Inc., CPN's manufacturing entity, from
December 1988 to May 1990.
There are no family relationships among the named officers.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
FINANCIAL INFORMATION BY QUARTER (UNAUDITED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1994 DEC. 30 SEPT. 30 JULY 1 APR. 1
- ----------------------------------------------- -------- -------- ---------- --------
<S> <C> <C> <C> <C>
Net revenues................................... $149,311 $151,609 $ 148,048 $138,123
Gross profit(1)................................ $ 61,107 $ 57,766 $ 60,177 $ 51,183
Net income..................................... $ 9,459 $ 7,540 $ 9,337 $ 5,361
Net income per share........................... $ .25 $ .20 $ .25 $ .15
Market price:(2) High.......................... $ 13 1/8 $15 15/16 $ 15 3/8 $ 16
Low......................... $ 10 1/2 $ 11 $ 12 1/8 $ 9 5/8
</TABLE>
<TABLE>
<CAPTION>
1993 DEC. 25 SEPT. 25 JUNE 26(3) MAR. 27
- ----------------------------------------------- -------- -------- ---------- --------
<S> <C> <C> <C> <C>
Net revenues................................... $133,339 $137,341 $ 127,963 $117,303
Gross profit(1)................................ $ 55,355 $ 52,151 $ 45,523 $ 35,143
Net income (loss).............................. $ 7,565 $ 7,513 $ 2,955 $ (2,150)
Net income (loss) per share.................... $ .21 $ .21 $ .09 $ (.06)
Market price:(2) High.......................... $ 18 5/8 $ 18 5/8 $ 8 7/8 $ 8 7/8
Low......................... $ 9 3/4 $ 9 1/2 $ 6 1/2 $ 6 3/4
</TABLE>
- ---------------
(1) Costs associated with the Company's Technology Centers have been
reclassified from Research and development to Cost of sales and Marketing,
general and administrative. See Note 1 of Notes to Consolidated Financial
Statements in Item 8 of Part II herein.
(2) The Company's Common Stock is traded on the Nasdaq National Market under the
symbol VLSI. The market prices per share represent the highest and lowest
closing prices for VLSI's Common Stock on the Nasdaq National Market during
each quarter. On February 24, 1995, there were approximately 1,878
stockholders of record. The Company has not paid cash dividends and is
currently prohibited from doing so. See Note 2 of Notes to Consolidated
Financial Statements in Item 8 of Part II herein.
(3) Included in operations for the second quarter of 1993 is a special charge of
$1.0 million, representing a charge for purchased in-process research and
development relating to the acquisition of certain assets and development
efforts. See Note 6 of Notes to Consolidated Financial Statements in Item 8
of Part II herein.
During the first quarter of 1994, 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 are no
shares of Junior Common Stock outstanding.
13
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1994 1993(1) 1992(2) 1991 1990(3)
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net revenues........................ $587,091 $515,946 $428,498 $413,376 $324,828
Operating income (loss)............. $ 46,749 $ 27,082 $(19,282) $ 23,173 $ (6,062)
Net income (loss)................... $ 31,697 $ 15,883 $(32,217) $ 9,873 $(12,740)
Net income (loss) per share......... $ .85 $ .45 $ (1.12) $ .37 $ (.52)
Research and development as a
percentage of net revenues(4)..... 13.4% 12.7% 11.8% 9.5% 10.9%
Capital expenditures................ $ 94,446 $ 71,615 $ 40,123 $ 55,432 $ 54,882
Cash, cash equivalents and liquid
investments....................... $103,111 $ 72,636 $ 69,674 $ 48,018 $ 35,230
Working capital..................... $138,704 $114,423 $102,149 $ 76,127 $ 65,960
Long-term debt and non-current
capital lease obligations......... $ 96,804 $ 85,855 $ 83,178 $ 92,633 $ 89,277
Stockholders' equity................ $255,430 $212,508 $185,008 $161,628 $147,110
Total assets........................ $490,216 $412,223 $368,208 $364,018 $327,340
Employees........................... 2,728 2,659 2,379 2,315 2,087
</TABLE>
- ---------------
(1) Included in operations for the second quarter of 1993 is a special charge of
$1.0 million, representing a charge for purchased in-process research and
development relating to the acquisition of certain assets and development
efforts. See Note 6 of Notes to Consolidated Financial Statements in Item 8
of Part II herein.
(2) Included in operations for the fourth quarter of 1992 is a special charge of
$22.5 million related to the deemphasis of older technologies, costs of
streamlining sales distribution channels, costs of relocating certain
offices, writedowns of non-performing assets and costs associated with
intellectual property matters. See Note 6 of Notes to Consolidated Financial
Statements in Item 8 of Part II herein.
(3) Included in operations for the third quarter of 1990 is a charge of $12.8
million, reflecting the estimated cost of corporate reorganization related
to exiting the memory business.
(4) Costs associated with the Company's Technology Centers have been
reclassified from Research and development to Cost of sales and Marketing,
general and administrative. See Note 1 of Notes to Consolidated Financial
Statements in Item 8 of Part II herein.
The Company has never paid any cash dividends and is currently prohibited
from doing so.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the 1994 Consolidated
Financial Statements and Notes thereto in Item 8 of Part II herein.
OVERVIEW
VLSI (the Company) recorded net income of $31.7 million on net revenues of
$587.1 million in 1994, compared to net income of $15.9 million on net revenues
of $515.9 million in 1993 and a net loss of $32.2 million on net revenues of
$428.5 million in 1992. Sequentially improved operating results in 1994 and 1993
reflect gross profit margin improvements on increased shipment volumes as
compared to 1992. Further, 1992 was marked by a $22.5 million special charge for
the write-down of various low and non-performing assets and technologies, costs
of streamlining sales and distribution operations and costs associated with
intellectual property matters.
The Company and Intel Corporation (Intel) terminated the Technology and
Manufacturing Agreement (Technology Agreement) in 1994 as the handheld computing
market did not develop as originally anticipated.
In 1994, VLSI reclassified its Technology Center costs, which had
previously been classified as research and development (R&D) expenses, into cost
of sales and marketing, general and administrative expenses in
14
<PAGE> 16
order to make the presentation of the Company's financial statements more
comparable with the financial statement presentation of its closest competitors
and to better reflect the nature of these costs. The reclassification decreased
R&D expenses for 1994 by $22.7 million, 1993 by $18.4 million and 1992 by $19.1
million. The reclassification increased cost of sales by $17.9 million, $14.2
million and $14.9 million in 1994, 1993 and 1992, respectively, and increased
marketing, general and administrative expenses by $4.8 million, $4.2 million and
$4.2 million, respectively.
The 1994 fiscal year consisted of 53 weeks, while the 1993 and 1992 fiscal
years consisted of 52 weeks. The Company changed its fiscal year end in 1994 to
the last Friday in December from the last Saturday in December.
RESULTS OF OPERATIONS
The Company derives its net revenues from sales of Application-Specific
Integrated Circuits (ASICs) and Application-Specific Standard Products (ASSPs)
through the Company's silicon divisions, the VLSI Product Divisions (VPD) and
the Personal Computer Division (PCD). VPD serves Original Equipment
Manufacturers (OEMs) in the computer, wireless communications, networking,
government, workstation, high-performance computer, industrial and consumer
markets. PCD serves OEM customers engaged in developing and manufacturing
systems using X86 microprocessor architectures. The Company's subsidiary,
COMPASS Design Automation, Inc. (COMPASS), sells software and design libraries
in the Electronic Design Automation (EDA) market, which are intended to allow
systems and chip designers to automate and standardize the integrated circuit
design process.
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Net Revenues....................................... $587,091 $515,946 $428,498
Percentage increase over preceding year............ 14% 20% 4%
</TABLE>
Key contributing factors to the Company's 1994 net revenue growth were
demand for new products designed for portable 486-based personal computers and
for wireless communications devices. However, demand for future shipments of the
Company's devices for portable personal computers dropped off significantly
during the second half of 1994 from the first half of 1994 levels.
Net revenues from the personal computer (PC) market in 1994 were
characterized by a substantial decrease in units shipped for incorporation into
Apple Computer, Inc. (Apple) products, partially offset by increased unit sales
of X86 chip sets. The Company realized higher average sales prices on devices
for personal computers in 1994 through the introduction of portable products and
Pentium-compatible chip sets. Net revenues from the PC market in 1993 increased
over 1992 as the Company increased device shipments to both the X86 and Apple
markets. Additionally, 1992 was a difficult year for the Company and its
competitors in these markets with some of the Company's competitors dropping out
of the market, which had the short-term effect of stabilizing prices on devices
for 486-based systems in early 1993. Net revenues in 1992 were characterized by
the Company's shift away from low-end PC board manufacturers and an emphasis on
top-tier OEMs.
Net revenues from silicon devices intended for markets other than personal
computers increased from 1992 through 1994 primarily reflecting significantly
increased net revenues from wireless and network communications devices. COMPASS
net revenues in the EDA market have increased in 1994 from 1993 levels, which
were slightly above 1992 net revenue results. Software revenues are typically
strongest in the fourth quarter of each year, although this was not the case in
1994 due to delays in new product introductions.
International net revenues (including export sales) have increased at a
rate consistent with the overall growth in net revenues for the Company in 1994,
flattening out from the higher-than-overall rate of net revenue growth noted
during 1993 and 1992. International net revenues were 50% of the 1994 and 1993
totals, above the 45% of net revenues in 1992. Export sales, primarily to the
Asia-Pacific region, increased 28% over 1993 levels, while 1993 was up 54% over
1992 levels, reflecting VLSI's customers' shift of manufacturing efforts to the
Asia-Pacific region. European net revenues increased slightly in 1994 over 1993,
which was up
15
<PAGE> 17
24% over the 1992 net revenues from that region. The growth in European net
revenues reflects the location of the major customers for VLSI's wireless
communications devices. The slower net growth for 1994 European revenues
primarily reflects lower net revenues from the PC marketplace.
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Gross Profits...................................... $230,233 $188,172 $135,106
Percentage of net revenues......................... 39% 36% 32%
</TABLE>
Gross profits as a percentage of net revenues improved to 39% in 1994,
compared to 36% in 1993 and 32% in 1992, as adjusted for the reclassification of
Technology Center costs. This reclassification had the net effect of decreasing
gross profit margins by approximately 3 margin points for each previous period.
Gross profit margin improvement over the three-year period of 1992 through 1994
reflects the implementation of new process technologies that have resulted in
shrinking device geometries, efficient use of internal capacity, lower assembly
costs, improved yields and improved product mix.
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Operating Expenses, before special charges......... $183,484 $160,082 $131,888
Percentage of net revenues......................... 31% 31% 31%
</TABLE>
Operating expenses, prior to special charges and after the reclassification
of Technology Center costs, were approximately 31% of net revenues in the years
1992 through 1994. This overall stability in operating expenses as a percentage
of net revenues reflects sequential increases in R&D expenses from 1992 to 1994
in both dollar amount and as a percentage of net revenues offset by decreases in
marketing, general and administrative expenses as a percentage of net revenues.
R&D expenses in 1994 reflect the Company's focus on expenditures for the
development of new process technologies in smaller geometries and new devices
for the networking, wireless communications and consumer markets and the
development of software for the EDA market. R&D expenses in 1993 focused on the
development of new products for the handheld, desktop and portable segments of
the personal computer market. Handheld development efforts ceased in 1994 with
the termination of the Technology Agreement. R&D investments in 1992 centered on
the EDA market and enhancing the Company's ability to manufacture in sub-micron
geometries and in new process technologies.
Marketing, general and administrative expenses have increased in amount
from 1992 to 1994, while decreasing as a percentage of net revenues. The
increase in expenses reflects the Company's ongoing infrastructure investment to
support higher manufacturing and revenue levels. The Company's objective is to
maintain controls over marketing, general and administrative costs as a
percentage of net revenues.
The Company approved the closure of two offices in the Asia-Pacific region
during 1994, closed its Tempe, Arizona assembly operations and downsized its R&D
efforts in the PC marketplace, primarily related to handheld computing,
resulting in charges of $1.4 million in the second half of 1994.
Impact of Changes in Values of Foreign Currencies/Impact of Inflation
International net revenues comprise approximately 50% of 1994 net revenues.
A substantial portion of international net revenues is billed in U.S. dollars.
Substantially all expenditures of foreign subsidiaries, other than cost of sales
(which are primarily purchased from the parent company in U.S. dollars), are
based in local currency. As a result, fluctuations in currency rates
predominantly affect operating expenses. The Company's expenses were negatively
impacted in 1994 as compared to 1993 by approximately $1.5 million, as the U.S.
dollar weakened against the Japanese Yen and major European currencies. This
situation also occurred in 1992, when the effects of a weakening U.S. dollar
increased expenses. In 1993, the favorable exchange effects of a relatively
stronger dollar marginally decreased expenses.
The Company has designated the local subsidiary currency as the functional
currency of each of its foreign subsidiaries. See Note 1 of Notes to
Consolidated Financial Statements.
16
<PAGE> 18
The Company believes that its financial statements accurately reflect the
impact that inflation has, if any, on the results of operations of the Company
and considers such impact to be immaterial for all periods presented.
Special Charges
VLSI recorded a $1.0 million special charge in the second quarter of 1993
for purchased in-process research and development associated with an asset
acquisition by COMPASS. During the fourth quarter of 1992, following a review of
its operations, the Company recorded a special charge of $22.5 million
reflecting actions and decisions in that quarter regarding the deemphasis of
older technologies, costs of streamlining sales distribution channels, costs of
relocating certain offices, write-downs of non-performing assets and costs
associated with intellectual property matters. Specifically, the Company
terminated a sales representative, resulting in a one-time termination payment,
discontinued certain subcontracted manufacturing and design projects and
approved a plan to relocate certain international and domestic sales offices.
Based on this review and certain decisions made by the Company in connection
with such restructuring activities, the Company determined that there were
certain non-performing manufacturing and technology assets that needed to be
written down to their net realizable value. Finally, costs associated with the
ongoing intellectual property litigation with Texas Instruments Incorporated
(TI) were estimated in conjunction with settlement negotiations with TI, which
were conducted for the first time during the fourth quarter of 1992. The special
charge affected results of operations for the fourth quarter of 1992
significantly, but did not have a material effect on 1993 or 1994 and is not
expected to have a material effect on future operations, as there has been no
change in management's original estimates. The Company's 1993 liquidity and
capital resources were adversely affected by cash paid for the sales
representative termination, subcontractor manufacturing payments and office
relocation expenses. Liquidity in 1994 was not materially affected by remaining
expenditures. Despite establishment of a trial date in April 1995, the effect of
the TI litigation on liquidity and capital resource requirements cannot be
determined at this time. See " -- Factors Affecting Future Results" and Notes 1
and 4 of Notes to Consolidated Financial Statements.
Interest Expense and Other, Net
Interest expense net of interest income and other expenses, net was lower
in 1994 than 1993 which experienced a significant decrease from 1992 levels.
This decrease reflects higher cash, cash equivalent and liquid investment
balances on which the Company earned interest, increased investment return rates
in 1994 and lower litigation costs. These factors were offset slightly by higher
debt and lease balances, generating higher interest expense in 1994. The higher
cash balances are a result of the sale of $50 million of equity and a warrant to
Intel in the third quarter of 1992 and profitable operations in 1993 and 1994.
Lower litigation costs in 1993 and 1994 reflect prior period accruals for the
Texas Instruments litigation and lower ongoing litigation costs (see Notes 1 and
4 of Notes to Consolidated Financial Statements). Since VLSI accrued costs
associated with intellectual property matters in conjunction with the 1992
special charge, the Company does not anticipate that the adjudication of the TI
litigation will materially increase expenses in 1995, although there can be no
assurance of the outcome of any litigation. The Company considers reported
foreign exchange gains and loses immaterial in 1994, 1993 and 1992.
<TABLE>
<CAPTION>
1994 1993 1992
------- ------ ----
(THOUSANDS)
<S> <C> <C> <C>
Provision for Taxes on Income............................. $10,010 $4,648 $600
Percentage of pre-tax income (loss)....................... 24% 23% (2%)
</TABLE>
The 1994 and 1993 tax provisions at 24% and 23% of pre-tax income,
respectively, reflect benefits from operating loss and credit carryforwards from
prior years, although the Company was unable to fully utilize its carryforwards
in these years. Income tax expense was recorded in 1992 even though the Company
operated at a loss, primarily because of taxes on income from foreign
operations. The Company estimates that its overall effective tax rate will
increase in 1995 as the Company, if profitable in 1995, could exhaust its
available tax carryforward benefits. The level of future tax rates will be
dependent on the overall operating results of the Company, the level of income
in certain high-tax rate jurisdictions and the Company's ability to use the tax
17
<PAGE> 19
carryforward benefits. The Company would expect to eliminate the valuation
reserve for U.S. deferred taxes in 1995; however, it expects to continue to
reserve foreign deferred tax assets.
Adoption of New Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (FAS 115),
and Statement of Financial Accounting Standards No. 119, "Disclosure About
Derivative Financial Instruments and Fair Value Financial Instruments" (FAS 119)
in fiscal 1994. Adoption of FAS 115 and FAS 119 did not have a material effect
on the Company's consolidated financial statements.
The Company must adopt Statement of Position 93-7, "Reporting on
Advertising Costs" (SOP 93-7) in fiscal 1995. Adoption of SOP 93-7 will not have
a material effect on the Company's consolidated financial statements.
FACTORS AFFECTING FUTURE RESULTS
As described by the following factors, as well as other factors affecting
the Company's operating results, past financial performance should not be
considered to be a reliable indicator of future performance, and investors
should not use historical trends to anticipate results or trends in future
periods.
The semiconductor industry has a history of cyclicality and is
characterized by short product life cycles, continuous evolution of process
technology, high fixed costs, additions of manufacturing capacity in large
increments and wide fluctuations in product supply and demand. In addition,
competition is particularly intense in core logic X86 chip sets where Intel has
become a major supplier of personal computer chip sets and motherboards. The
Company's products are susceptible to severe pricing pressures and the Company
continually attempts to pursue cost reductions, including process enhancements
and other manufacturing cost reductions, in order to maintain favorable gross
profit margins. Future gross profits will also vary with the general condition
of the economy, customer acceptance of new technologies and products, product
functionality and capabilities, shifts in product mix, manufacturing yields and
the effect of ongoing manufacturing cost reduction activities.
The Company expects to continue to invest in the research and
development of new products for all of its market segments in 1995. New product
development often requires long-term forecasting of markets, market trends,
development and implementation of new processes and technologies and a
substantial capital commitment. No assurance can be given that the Company's
product and process development efforts will be successful, that new product
introductions will achieve market acceptance or that the markets in question
will develop. For example, the Company expended considerable financial and
technical resources during 1993 through the second quarter of 1994 toward the
development of its Polar(TM) product, a device intended for the handheld
computer market integrating Intel's 386SL(TM) microprocessor. Due to the
handheld market developing more slowly than initial expectations, the Company
and Intel, its partner in the Polar development effort, canceled production of
the Polar product and, in early November 1994, terminated the amended July 8,
1992 Technology Agreement between the companies. In January and February 1995,
Intel sold all of the VLSI Common Stock Intel acquired in the third quarter of
1992. See Note 5 of Notes to Consolidated Financial Statements.
The Company's results in the PC market are dependent in part on the rate
and timing of the adoption by major OEMs of the Pentium architecture. The
Company expects that it will be among the first chip set vendors to transition
out of the 486 market. The Company is subject to risks related to revenues and
possible inventory exposures depending on the timing of widespread PC market
adoption of the Pentium microprocessor.
During 1994, 1993 and 1992, VLSI's top 20 customers represented
approximately 68%, 68% and 57%, respectively, of the Company's net revenues.
Additionally, approximately 47% of the Company's net revenues were derived from
the personal computer market in 1994, as compared to 58% in 1993 and 55% in
1992. Shipments to a single customer in the personal computer business, Compaq
Computer Corporation
18
<PAGE> 20
(Compaq), accounted for 22% of net revenues in 1994, as compared to less than
10% in both 1993 and 1992. As a result of the concentration of the Company's
customer base, loss or cancellation of business from any of these customers,
significant changes in scheduled deliveries to any of these customers or
decreases in the prices of products sold to any of these customers could
materially adversely affect the Company's results of operations. For example, in
the fourth quarter of 1993, Apple, which accounted for 19% of 1993 net revenues,
postponed and, in certain cases, canceled approximately $20 million of shipments
originally planned for delivery in 1994, adversely affecting VLSI's 1994 results
of operations.
The Company sells its ASSPs under terms and conditions customarily found in
the semiconductor industry. Sales of these products are subject to customer
cancellation with limited advance notice prior to shipment. Due to the Company's
relatively narrow customer base for certain ASSPs and the short product life
cycles of such products, the Company could be unexpectedly left with significant
inventory exposure, which could have a material adverse effect on the Company's
operating results.
Software net revenues are subject to various factors, including pricing
pressure and customers' capital budget approval cycles, which create a high
degree of variability between quarters. Due to the high gross profit margin
content of software revenues and the size of certain transactions, such
variability can lead to unpredictability of financial and operating results of
the Company for any given period.
The Company is continually expanding and upgrading its manufacturing
capacity. These activities require significant investments in capital equipment
and facilities. Any significant expansion or upgrade of semiconductor
manufacturing capacity has attendant risks. Specifically, the Company has
recently begun a program to expand and upgrade its manufacturing facility in San
Jose, California to convert production to a 6-inch CMOS wafer process.
Additionally, the Company's San Antonio facility, which is currently using both
0.6-micron and 0.8-micron processes, is being converted to 100% 0.6-micron CMOS
process. The work effort associated with the changes to these facilities could
result in a disruption to the facilities' manufacturing cycles, thereby lowering
the output of the facilities as well as wafer yields. The lack of success of the
Company's facilities conversion efforts could have a material adverse impact on
future operating results.
The Company is subject to a variety of federal, state and local
governmental regulations related to the storage, use, discharge and disposal of
toxic, volatile or otherwise hazardous chemicals used in its manufacturing
process. Increasing public attention has been focused on the environmental
impact of semiconductor manufacturing operations. The Company's San Jose,
California facilities are located near recently developed residential areas and
a potential elementary school site, which could increase the incidence of
environmental complaints or investigations. There can be no assurance that
changes in environmental regulations will not impose the need for additional
capital equipment or other requirements. Any failure by the Company to control
the use of, or adequately to restrict the discharge of, hazardous substances
under present or future regulation, could subject it to substantial liability or
could cause its manufacturing operations to be suspended, which could have a
material adverse effect on the Company's operating results.
The Company's San Jose facility, which includes manufacturing, COMPASS, VPD
Marketing and corporate support services such as its computer center, technology
development, primary shipping location and a major design center, is located
near earthquake faults. Should an earthquake cause an interruption in
operations, operating results could be materially adversely affected.
Current material pending litigation is set forth in Note 4 of Notes to
Consolidated Financial Statements. While the Company cannot accurately predict
the eventual outcome of the matter, management believes the eventual outcome
will not result in a material adverse effect on VLSI's consolidated financial
position, results of operations or cash flows. An unfavorable outcome could have
an adverse effect on VLSI's future operations and/or liquidity and could be
material to any particular quarter's results of operations. Additionally, the
ongoing effort of defending the Company against lawsuits utilizes cash and
management resources.
19
<PAGE> 21
LIQUIDITY AND CAPITAL RESOURCES
VLSI generates cash from operations, equipment financings and sales of its
securities. Principal uses of cash include purchases of capital equipment needed
for semiconductor manufacturing and engineering and payments of debt and lease
obligations.
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Cash, cash equivalents and liquid investments...... $103,111 $ 72,636 $ 69,674
Working capital.................................... $138,704 $114,423 $102,149
Stockholders' equity............................... $255,430 $212,508 $185,008
</TABLE>
At December 30, 1994, total cash, cash equivalents and liquid investments
increased $30.5 million from the 1993 year-end balance due to cash provided from
operations, loan borrowings, the timing of fixed asset purchases and payments of
debt and capital leases during 1994. The balance of liquid investments have
decreased at December 30, 1994 from December 25, 1993 levels as the Company's
current investment strategy emphasizes liquidity in an environment of rising
interest rates. Working capital increased to $138.7 million at December 30,
1994, compared to $114.4 million at December 25, 1993.
During the year ended December 30, 1994, the Company generated $103.5
million of cash from operations, a 61% increase over the $64.4 million of cash
generated from operations for the year ended December 25, 1993 and a 156%
increase over the $40.4 million generated for the year ended December 26, 1992.
Accounts receivable were $9.8 million higher at December 30, 1994 than at
December 25, 1993 reflecting higher sales volume. Accounts receivable decreased
$2.8 million in 1993 compared to 1992 reflecting improved sales linearity in the
last quarter of 1993. Inventory levels have declined $2.4 million from December
25, 1993 levels, which were high due to anticipated demand for standard products
in early 1994, but have increased $6.9 million from December 26, 1992 when
increased sales demand late in that year reduced overall inventory levels.
Accounts payable and accrued liabilities have increased by $18.0 million since
December 25, 1993 as a result of the timing of payments for higher levels of
spending for fixed assets and for increases in production volumes, as well as
increases in accrued compensation and benefits and other liabilities. Accounts
payable and accrued liabilities increased in 1993 by $11.8 million over 1992
year-end levels, reflecting higher levels of accrued compensation and benefits.
Sequential increases in deferred income over the three-year period primarily
reflect a higher base of software maintenance revenues.
Cash used for investing activities was $43.9 million for the year ended
December 30, 1994, as compared to $84.1 million for the year ended December 25,
1993 and $31.2 million for the year ended December 26, 1992. VLSI invested $94.4
million in property, plant and equipment during 1994 compared to $71.6 million
in 1993 and $40.1 million in 1992. Capital additions during 1994, 1993 and 1992
were financed by cash, equipment loans and capital leases. The 1994, 1993 and
1992 investments in property, plant and equipment included acquisition of
equipment for sub-micron wafer fabrication, upgrades to manufacturing and office
facilities and computers and software to support research and development
activity. As part of 1994 capital purchases, VLSI acquired the land and
buildings associated with the wafer fabrication and test areas at its San Jose,
California headquarters for approximately $6.0 million. In each of the years
1992 through 1994, the Company has expanded office facilities for its growing
engineering and support space requirements. The Company expects current
facilities will be adequate through 1995. The Company expects to continue to
utilize debt and/or lease financing for portions of its future capital
expenditures.
Cash used for financing activities was $7.9 million in 1994 compared to
$8.5 million in 1993 and $12.4 million cash generated from financing activities
in 1992. The change in 1994 from 1993 reflects lower debt service and a
relatively consistent level of proceeds from the sale of stock under various
employee stock plans. Cash generated from financing activities in 1992 reflects
the sale of Common Stock and a warrant to Intel for $49.4 million, net of
issuance costs. Unused committed credit facilities approximated $66.6 million at
February 24, 1995.
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
(THOUSANDS)
<S> <C> <C> <C>
Capital expenditures.................................. $94,446 $71,615 $40,123
</TABLE>
20
<PAGE> 22
VLSI currently estimates that total capital expenditures for 1995 will
exceed $100 million and will include expenditures for the conversion of the San
Jose facility to a 6-inch wafer processing facility and for further increases in
0.6-micron wafer fabrication capability. As VLSI pursues these large projects in
ever increasingly complex technologies, more elapsed time is needed to bring
manufacturing capabilities online. Accordingly, VLSI expects to capitalize
interest on the increasing costs of capital projects. Of such planned 1995
capital expenditures, the level of which could change as necessary during the
year, VLSI had outstanding commitments for purchases of equipment of
approximately $48.3 million at December 30, 1994.
VLSI believes that its existing cash balances, cash flows from operations
and available credit facilities will be sufficient to meet its liquidity and
capital expenditure needs through 1995. While the Company believes that its
current capital resources are sufficient to meet its near-term needs, in order
to meet its longer-term needs, VLSI continues to investigate the possibility of
generating financial resources through technology or manufacturing partnerships,
additional equipment financings and offerings of debt or equity securities.
21
<PAGE> 23
ITEM 8. FINANCIAL STATEMENTS AND FINANCIAL DATA
The chart entitled "Financial Information by Quarter (Unaudited)" contained
in Item 5 of Part II hereof is hereby incorporated by reference into this Item 8
of Part II of this Form 10-K.
VLSI TECHNOLOGY, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 30, 1994
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
Consolidated Financial Statements Included in Item 8:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... 23
Consolidated Statements of Operations for each of the three years in the period ended
December 30, 1994................................................................... 24
Consolidated Statements of Stockholders' Equity for each of the three years in the
period ended December 30, 1994...................................................... 25
Consolidated Balance Sheets at December 30, 1994 and December 25, 1993................ 26
Consolidated Statements of Cash Flows for each of the three years in the period ended
December 30, 1994................................................................... 27
Notes to Consolidated Financial Statements............................................ 28
Consent of Ernst & Young LLP, Independent Auditors.................................... 46
Schedule for each of the three years in the period ended December 30, 1994 included in
Item 14(d):
II Valuation and Qualifying Accounts and Reserves............................... 47
</TABLE>
Schedules other than those listed above have been omitted since the
required information is not present or not present in amounts sufficient to
require submission of the schedule, or because the information required is
included in the consolidated financial statements or the notes thereto.
22
<PAGE> 24
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
of VLSI Technology, Inc.
We have audited the accompanying consolidated balance sheets of VLSI
Technology, Inc. as of December 30, 1994 and December 25, 1993, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three fiscal years in the period ended December 30, 1994. Our audits
also included the financial statement schedule listed in the index at Item
14(a)(2). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of VLSI
Technology, Inc. at December 30, 1994 and December 25, 1993, and the
consolidated results of its operations and its cash flows for each of the three
fiscal years in the period ended December 30, 1994, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ ERNST & YOUNG LLP
--------------------------------------
ERNST & YOUNG LLP
San Jose, California
January 17, 1995
23
<PAGE> 25
VLSI TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE YEARS ENDED DECEMBER 30, 1994 1994 1993 1992
- --------------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Net revenues............................................. $587,091 $515,946 $428,498
Cost of sales(1)(2)...................................... 356,858 327,774 293,392
-------- -------- --------
Gross profit................................... 230,233 188,172 135,106
-------- -------- --------
Operating expenses:
Research and development(2)............................ 78,889 65,431 50,442
Marketing, general and administrative(2)............... 104,595 94,651 81,446
Special charges........................................ -- 1,008 22,500
-------- -------- --------
Operating income (loss).................................. 46,749 27,082 (19,282)
Interest income and other expenses, net.................. 3,301 1,512 (3,282)
Interest expense......................................... (8,343) (8,063) (9,053)
-------- -------- --------
Income (loss) before provision for taxes on income....... 41,707 20,531 (31,617)
Provision for taxes on income............................ 10,010 4,648 600
-------- -------- --------
Net income (loss)........................................ $ 31,697 $ 15,883 $(32,217)
======== ======== ========
Net income (loss) per share.............................. $ 0.85 $ 0.45 $ (1.12)
======== ======== ========
Weighted average common and common equivalent shares
outstanding............................................ 37,446 35,276 28,865
======== ======== ========
</TABLE>
- ---------------
(1) See Note 9 for related party disclosures.
(2) See Note 1 for reclassifications of Technology Center costs.
See accompanying Notes to Consolidated Financial Statements.
24
<PAGE> 26
VLSI TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
COMMON SHARES ADDITIONAL EARNINGS STOCKHOLDERS' TOTAL
THREE YEARS ENDED DECEMBER 30, --------------- PAID-IN (ACCUMULATED NOTES STOCKHOLDERS'
1994 SHARES AMOUNT CAPITAL DEFICIT) RECEIVABLE EQUITY
- ---------------------------------- ------- ------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 28, 1991..... 26,492 $265 $ 153,887 $ 7,798 $ (322) $161,628
------- ------ ---------- ------------ ------------ ------------
Issuance of Common Shares under:
Employee stock purchase plan.... 914 9 3,185 -- -- 3,194
Stock option plans, including
related tax benefits......... 540 5 3,045 -- -- 3,050
Issuance of Common Shares and
Warrant to Intel, net of
issuance costs.................. 5,355 54 49,299 -- -- 49,353
Net loss.......................... -- -- -- (32,217) -- (32,217)
------- ------ ---------- ------------ ------------ ------------
BALANCES AT DECEMBER 26, 1992..... 33,301 333 209,416 (24,419) (322) 185,008
------- ------ ---------- ------------ ------------ ------------
Issuance of Common Shares under:
Employee stock purchase plan.... 766 8 3,934 -- -- 3,942
Stock option plans, including
related tax benefits......... 1,189 12 7,663 -- -- 7,675
Net income........................ -- -- -- 15,883 -- 15,883
------- ------ ---------- ------------ ------------ ------------
BALANCES AT DECEMBER 25, 1993..... 35,256 353 221,013 (8,536) (322) 212,508
------- ------ ---------- ------------ ------------ ------------
Issuance of Common Shares under:
Employee stock purchase plan.... 960 10 6,851 -- -- 6,861
Stock option plans, including
related tax benefits......... 469 4 4,038 -- -- 4,042
Repayment of stockholders' notes
receivable...................... -- -- -- -- 322 322
Net income........................ -- -- -- 31,697 -- 31,697
------- ------ ---------- ------------ ------------ ------------
BALANCES AT DECEMBER 30, 1994..... 36,685 $367 $ 231,902 $ 23,161 $-- $255,430
====== ====== ======== ========== ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
25
<PAGE> 27
VLSI TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 25,
1994 1993
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 93,310 $ 41,536
Liquid investments............................................... 9,801 31,100
Accounts receivable, net of allowance for doubtful accounts and
customer returns of $2,300 ($2,250 in 1993)................... 80,500 70,666
Inventories:
Raw materials................................................. 5,277 8,831
Work-in-process............................................... 43,123 39,178
Finished goods................................................ 11,296 14,103
------------ ------------
Total inventories................................................ 59,696 62,112
Deferred and refundable income taxes............................. 17,963 11,966
Prepaid expenses and other current assets........................ 4,966 5,066
------------ ------------
Total current assets..................................... 266,236 222,446
------------ ------------
Property, plant and equipment:
Land............................................................. 12,197 9,187
Buildings and leasehold improvements............................. 67,171 61,654
Machinery and equipment.......................................... 346,268 280,005
Assets leased under capital leases............................... 63,029 61,847
Construction in progress......................................... 16,058 --
------------ ------------
504,723 412,693
Accumulated depreciation and amortization........................ (285,593) (228,767)
------------ ------------
Net property, plant and equipment............................. 219,130 183,926
Other assets....................................................... 4,850 5,851
------------ ------------
$ 490,216 $ 412,223
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable(1).............................................. $ 52,789 $ 39,446
Accrued compensation and benefits................................ 20,512 15,762
Deferred income.................................................. 10,276 9,121
Reserve for special charges...................................... 7,335 7,866
Other accrued liabilities........................................ 21,104 21,222
Current capital lease obligations................................ 7,882 8,314
Current portion of long-term debt................................ 7,634 6,292
------------ ------------
Total current liabilities................................ 127,532 108,023
------------ ------------
Non-current capital lease obligations.............................. 5,017 10,944
Long-term debt..................................................... 91,787 74,911
Deferred income taxes.............................................. 10,450 5,837
Commitments and contingencies
Stockholders' equity:
Preferred Shares, $.01 par value; 2,000 shares authorized........ -- --
Common Stock, $.01 par value; 54,000 shares authorized, 36,685
shares issued and outstanding in 1994 (35,089 in 1993)........ 367 351
Junior Common Stock, $.01 par value; 1,000 shares authorized, no
shares issued and outstanding in 1994 (167 in 1993)........... -- 2
Additional paid-in capital....................................... 231,902 221,013
Retained earnings (accumulated deficit).......................... 23,161 (8,536)
Stockholders' notes receivable................................... -- (322)
------------ ------------
Total stockholders' equity............................... 255,430 212,508
------------ ------------
$ 490,216 $ 412,223
========== ==========
</TABLE>
- ---------------
(1) See Note 9 for related party disclosures.
See accompanying Notes to Consolidated Financial Statements.
26
<PAGE> 28
VLSI TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE YEARS ENDED DECEMBER 30, 1994 1994 1993 1992
- ----------------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Increase (decrease) in cash and cash equivalents
Operating activities:
Net income (loss)........................................ $ 31,697 $ 15,883 $(32,217)
Adjustments to reconcile net income (loss) to cash
generated by operations:
Depreciation and amortization......................... 61,761 49,500 47,022
Deferred income taxes................................. 4,613 5,837 --
Special charges....................................... -- 1,008 22,500
Changes in operating assets and liabilities:
Accounts receivable................................. (9,834) 2,826 (6,901)
Inventories......................................... 2,416 (10,397) 14,335
Deferred and refundable income taxes................ (5,997) (11,966) --
Accounts payable, accrued liabilities and deferred
income........................................... 20,283 10,984 484
Other............................................... (1,400) 740 (4,807)
-------- -------- --------
Cash generated by operations..................... 103,539 64,415 40,416
-------- -------- --------
Investing activities:
Purchases of liquid investments.......................... (64,570) (53,109) (4,955)
Proceeds from sale of liquid investments................. 85,870 22,009 4,955
Purchases of property, plant and equipment............... (64,622) (51,824) (30,937)
Other.................................................... (550) (1,145) (225)
-------- -------- --------
Net cash flow used for investing activities...... (43,872) (84,069) (31,162)
-------- -------- --------
Financing activities:
Decrease in bank borrowings.............................. -- -- (23,000)
Payments on debt and capital lease obligations........... (17,965) (18,421) (19,595)
Issuance of Common Shares and Warrant, net of issuance
costs................................................. 10,072 9,937 54,997
-------- -------- --------
Net cash flow provided by (used for) financing
activities..................................... (7,893) (8,484) 12,402
-------- -------- --------
Net increase (decrease) in cash and cash equivalents....... 51,774 (28,138) 21,656
Cash and cash equivalents, beginning of period............. 41,536 69,674 48,018
-------- -------- --------
Cash and cash equivalents, end of period................... $ 93,310 $ 41,536 $ 69,674
======== ======== ========
Supplemental disclosure:
Cash outflows for property, plant and equipment.......... $ 64,622 $ 51,824 $ 30,937
Add: Secured equipment loans.......................... 26,072 11,651 9,186
Add: Capital lease obligations incurred............... 3,752 8,140 --
-------- -------- --------
Property, plant and equipment additions.......... $ 94,446 $ 71,615 $ 40,123
======== ======== ========
Interest paid............................................ $ 8,100 $ 8,319 $ 8,702
Income taxes paid, net................................... $ 9,615 $ 3,889 $ 1,205
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
27
<PAGE> 29
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 30, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The consolidated financial statements include the
accounts of VLSI Technology, Inc. (VLSI or the Company) and its majority-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated.
FISCAL YEAR. In 1994, the Company changed its fiscal year to end on the
last Friday in December; in prior years, the Company's fiscal year ended on the
last Saturday in December. Fiscal years 1994, 1993 and 1992 ended December 30,
25 and 26, respectively. Fiscal year 1994 consisted of 53 weeks, while all other
years presented herein consisted of 52 weeks.
CASH EQUIVALENTS AND LIQUID INVESTMENTS. Cash equivalents reflect highly
liquid short-term investments with maturities at date of purchase of three
months or less. These investments are readily convertible to known amounts of
cash, while investments with maturities of between three and twelve months are
considered liquid investments.
Liquid investments consist of commercial paper and are valued at fair
value.
CONCENTRATIONS OF CREDIT RISK. Financial instruments that potentially
subject VLSI to concentration of credit risk consist principally of cash
equivalents, liquid investments and trade receivables. VLSI places its
investments with high-credit-quality financial institutions and, by policy,
limits the amount of credit exposure to any one financial institution. A
majority of VLSI's trade receivables are derived from sales to manufacturers of
computer systems, with the remainder spread across various other industries.
Management believes that any risk of accounting loss is significantly reduced
due to the diversity of its products, end customers and geographic sales areas.
VLSI performs ongoing credit evaluations of its customers' financial condition
and requires collateral, such as letters of credit and bank guarantees, whenever
deemed necessary.
INVENTORIES. Inventories are stated at the lower of cost or market. Cost
is computed on a currently adjusted standard basis (which approximates average
cost on a FIFO basis); market is based upon estimated net realizable value.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are stated at
cost. Depreciation and amortization are provided on the straight-line method for
financial reporting purposes and on accelerated methods for tax purposes. Assets
leased under capitalized leases are recorded at the present value of the lease
obligations and amortized on a straight-line basis over the lease term.
CAPITALIZATION OF SOFTWARE DEVELOPMENT COSTS. Capitalization of software
costs begins when technological feasibility is established. Such costs are
stated at the lower of unamortized cost or net realizable value. Amortization is
computed using (a) the straight-line method based on the estimated economic life
of each product, or (b) the ratio of each product's current gross revenue for
that product to the total of current and anticipated gross revenue for that
product, whichever is greater. Software development costs of $0.6 million, $0.8
million and $0.2 million were capitalized in 1994, 1993 and 1992, respectively,
and $0.7 million, $0.8 million and $0.5 million were amortized to cost of sales
in 1994, 1993 and 1992, respectively.
REVENUES. Revenues from silicon product sales to customers other than
distributors are recognized upon shipment. Certain sales made to distributors
are under agreements allowing the right of return and price protection on
merchandise not sold by the distributors. Accordingly, the Company defers
recognition of revenue and profit until the merchandise is sold by the
distributors.
Revenues associated with software system sales and software licenses are
generally recognized at the time of shipment. Postcontract customer support
revenues are recognized ratably over the term of the related agreements.
Training and consulting revenues are recognized as the related services are
performed.
28
<PAGE> 30
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 30, 1994
Revenues relating to the licensing of technology are generally recognized
when the significant contractual obligations have been fulfilled and the fees
are billable.
TRANSLATION OF FOREIGN CURRENCIES. VLSI translates accounts denominated in
foreign currencies using the respective local subsidiary currency as the
functional currency. Thus, results from foreign operations are subject to
exchange rate fluctuations and foreign currency transaction costs. Net foreign
currency transaction losses included in interest income and other expenses, net,
were not material in 1994, 1993 and 1992. Foreign translation gains and losses
and the effect of foreign currency exchange rate fluctuations on cash flows in
all years have not been material.
FOREIGN EXCHANGE CONTRACTS. The Company's policy is to hedge all material
monetary assets, liabilities and commitments denominated in currencies other
than the functional currency of the Company's subsidiaries. This activity is
primarily performed using forward contracts. This policy of hedging is intended
to minimize the effect of fluctuating foreign currencies on reported income on a
going-forward basis. No high correlation hedging activities are performed, as
all currency risks are hedged with instruments using the same currency. The
forward contracts qualify as hedges for financial reporting purposes and
accordingly, are reported at market value with gains and losses on such hedges
included in other current assets or accrued liabilities and offset against
foreign exchange gains or losses on the exposures hedged. The forward contracts
position at December 30, 1994, all of which relate solely to hedging foreign
currency net asset positions, consist of 1) foreign exchange forward contracts
to sell $18.9 million in foreign currency and buy $21.8 million in foreign
currency and 2) cross currency contracts to exchange 23.2 million French francs
for Deutsche marks. These contracts were with major international financial
institutions, matured through January 1995 resulting in a net gain of $0.4
million and included no deferred gains or losses. The realized gain on the
contracts substantially equaled the offsetting loss of the underlying exposure.
FAIR VALUE DISCLOSURES. The following estimated fair values have been
determined by the Company using available market information and appropriate
valuation methodologies:
Cash, cash equivalents and liquid investments -- The carrying amounts
of these items are their fair value.
Debt (See Note 2) -- Quoted market prices of the Company's Convertible
Subordinated Debentures are currently available. Interest rates that are
currently available to the Company for issuance of debt similar to existing
secured equipment loans are used to estimate the fair value of remaining
maturities of existing secured equipment loans.
Foreign currency contracts -- The estimated fair value of foreign
currency contracts is based on quoted market prices obtained from dealers.
The carrying amount and fair value of the Company's financial instruments
at December 30, 1994 and December 25, 1993 are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- -------
(THOUSANDS)
<S> <C> <C>
1994
-----------------------------------------------------------------
Cash and cash equivalents........................................ $ 93,310 $93,310
Liquid investments............................................... $ 9,801 $ 9,801
Short-term debt.................................................. $ 7,634 $ 7,213
Long-term debt................................................... $ 91,787 $81,582
Foreign currency contracts....................................... $ -- $ 187
</TABLE>
29
<PAGE> 31
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 30, 1994
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- -------
(THOUSANDS)
<S> <C> <C>
1993
-----------------------------------------------------------------
Cash and cash equivalents........................................ $ 41,536 $41,536
Liquid investments............................................... $ 31,100 $31,100
Short-term debt.................................................. $ 6,292 $ 6,417
Long-term debt................................................... $ 74,911 $70,697
Foreign currency contracts....................................... $ -- $ 184
</TABLE>
The fair value estimates presented are based on pertinent information
available to management as of December 30, 1994 and December 25, 1993,
respectively. Although management is not aware of any factors that would
significantly affect the estimated fair value amounts, such amounts have not
been comprehensively revalued for purposes of these financial statements since
such dates, and current estimates of fair value may differ significantly from
the amounts presented.
Effective December 26, 1993, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (FAS 115), which creates certain classification categories
for such investments, based on the nature of the securities and the intent and
investment goals of the Company. FAS 115 has been adopted on a prospective
basis, and the financial statements of prior years have not been restated. The
cumulative effect of the change was not material.
Under FAS 115, management classifies investments as available-for-sale or
held-to-maturity at the time of purchase and reevaluates such designation as of
each balance sheet date. Debt securities are classified as held-to-maturity when
the Company has the positive intent and ability to hold the securities to
maturity. Held-to-maturity securities are stated at amortized cost with
corresponding premiums or discounts amortized over the life of the investment to
interest income. Marketable equity securities, and debt securities not
classified as held-to-maturity, are classified as available-for-sale and
reported at fair value. Unrecognized gains or losses on available-for-sale
securities are included, net of tax, in equity until their disposition. Realized
gains and losses and declines in value judged to be other-than-temporary on
available-for-sale securities are included in interest income. The cost of
securities sold is based on the specific identification method.
All investments at December 30, 1994 are classified as available-for-sale
securities. Such investments, which mature through April 1995, are categorized
in the following table.
<TABLE>
<CAPTION>
GROSS
UNREALIZED
AMORTIZED -------------- ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ----- ------ ----------
(THOUSANDS)
<S> <C> <C> <C> <C>
Liquid investments -- Commercial paper............... $ 9,800 $ 2 $ 1 $ 9,801
Cash equivalents:
Commercial paper..................................... 61,814 10 59 61,765
EuroDollar time deposits............................. 6,000 1 -- 6,001
Money market funds................................... 13,357 -- -- 13,357
--------- ----- ------ ----------
Total........................................... $90,971 $13 $ 60 $ 90,924
======= ==== ===== ========
</TABLE>
There were no gains or losses on sales of available-for-sale securities
during 1994. Unrealized holding losses on available-for-sale securities included
in stockholders' equity in 1994 were immaterial.
INTEREST EXPENSE AND OTHER, NET. Interest expense net of interest income
and other expenses, net include costs associated with material litigation, such
as that brought by Texas Instruments Incorporated (TI)
30
<PAGE> 32
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 30, 1994
(See Note 4). Such litigation costs were immaterial in 1994 and 1993 and $3.2
million in 1992. Also included in interest income and other expenses, net, in
1992 is $0.9 million associated with a stockholder class action lawsuit
settlement regarding alleged violations of federal securities and certain state
laws. Of total interest expenditures in 1994 of $8.7 million, the Company
capitalized $0.4 million. Amounts subject to capitalization in prior years were
not material.
INCOME TAXES. Effective December 27, 1992, the Company adopted Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS
109), for the 1993 and subsequent fiscal years. The cumulative effect of the
adoption of FAS 109 was not material. Prior to the adoption of FAS 109, income
taxes were accounted for under FAS 96.
NET INCOME (LOSS) PER SHARE. Net income (loss) per share is computed using
the weighted average number of shares of outstanding Common Stock and dilutive
common equivalent shares -- shares issuable under the stock option plans and a
warrant held by Intel Corporation (Intel). The Convertible Subordinated
Debentures are not included, because the effect would be antidilutive. Fully
diluted earnings per share have not been presented, because the amounts would be
antidilutive.
RECLASSIFICATIONS. During 1994, the Company reclassified costs associated
with its Technology Centers from research and development to cost of sales and
marketing, general and administrative in order to make the presentation of the
Company's financial statements more comparable with the financial statements of
its closest competitors and to better reflect the nature of these costs. Amounts
reclassified in 1994, 1993 and 1992 total $22.7 million, $18.4 million and $19.1
million, respectively. Cost of sales were increased $17.9 million, $14.2 million
and $14.9 million for 1994, 1993 and 1992, respectively. Marketing, general and
administrative expenses were increased $4.8 million, $4.2 million and $4.2
million for 1994, 1993 and 1992, respectively.
Certain other prior year amounts previously reported have been reclassified
to conform to the 1994 presentation.
The Company must adopt Statement of Position 93-7, "Reporting on
Advertising Costs" (SOP 93-7) in fiscal 1995. Adoption of SOP 93-7 will not have
a material effect on the Company's consolidated financial statements.
2. LONG-TERM DEBT
Total debt at December 30, 1994 and December 25, 1993 consists of the
following:
<TABLE>
<CAPTION>
1994 1993
------- -------
(THOUSANDS)
<S> <C> <C>
Secured equipment loans, with interest at various rates
(7.8% to 10.6%; 9.2% weighted average at December 30, 1994),
due through December 2001...................................... $41,921 $23,703
7% Convertible Subordinated Debentures, due 2012................. 57,500 57,500
------- -------
Total debt....................................................... 99,421 81,203
Less current portion............................................. 7,634 6,292
------- -------
Long-term portion................................................ $91,787 $74,911
======= =======
</TABLE>
As of December 30, 1994, VLSI had unsecured domestic and foreign
uncommitted credit facilities plus committed credit, lease and secured equipment
financing aggregating $81.4 million ($67.0 million available). Interest on
short-term borrowing facilities was based on market rates. Interest on long-term
borrowing facilities is generally payable quarterly at contractual rates based
on U.S. Treasury securities. Certain secured
31
<PAGE> 33
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 30, 1994
equipment loans require adherence to certain financial covenants, one of which
prohibits payment of cash dividends.
In 1994, the Company entered a two-year committed Credit Agreement (the
Credit Agreement) with a syndicate of banks providing for borrowings of up to
$52,500,000 at various rates of interest. All borrowings under the Credit
Agreement are due no later than June 7, 1996. The Credit Agreement has various
covenants that preclude the Company from, among other things, paying dividends
and also limit the Company's ability to purchase its own stock, dispose of its
properties and make certain investments. The Company is required to maintain
certain financial ratios as defined in the Credit Agreement. The Credit
Agreement also calls for a variable limit on the Company's dollar amount of
capital spending. Annual commitment fees, which the Company believes are
immaterial, are charged on the unused portion of the committed credit amount.
There are no compensating balance requirements. Borrowings outstanding under the
Credit Agreement are unsecured. At December 30, 1994, the Company had no
outstanding borrowings on the Credit Agreement.
Interest on the Convertible Subordinated Debentures (Debentures) is payable
semi-annually on November 1 and May 1 of each year. The Debentures are
convertible into Common Stock of the Company at any time prior to maturity,
unless previously redeemed, at a conversion price of $22.00 per share, subject
to adjustment under certain conditions. Required annual sinking fund payments
commencing May 1, 1998 will retire 70% of the Debentures prior to maturity. At
December 30, 1994, the Debentures were redeemable at the Company's option at
102.1% of the principal amount and at diminishing prices thereafter. The
Debentures are subordinated in right of payment to senior indebtedness as
defined.
Maturities of debt are as follows: 1995 -- $7.6 million, 1996 -- $7.4
million, 1997 -- $6.0 million, 1998 -- $8.2 million, 1999 -- $5.6 million and
thereafter (starting in 2000) -- $64.6 million.
3. LEASES AND OTHER COMMITMENTS
Obligations under capital leases represent the present value of future
rental payments under various agreements to lease manufacturing equipment. The
Company has options to purchase leased assets at the end of the lease terms for
their fair market values or at stipulated values up to 30% of original cost.
Accumulated amortization of these leased assets was $54.6 million and $47.8
million at December 30, 1994 and December 25, 1993, respectively.
The Company rents certain equipment and manufacturing and office facilities
under operating lease agreements which expire through 2037 and contain renewal
options and provisions adjusting the lease payments, based upon changes in the
Consumer Price Index or in fixed increments. VLSI is generally responsible for
taxes, insurance and utilities under these leases.
32
<PAGE> 34
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 30, 1994
Future minimum lease payments under capital leases, together with the
present value of those payments and the aggregate annual rental commitments
under noncancelable operating leases as of December 30, 1994, are shown as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(THOUSANDS)
<S> <C> <C>
YEAR ENDING DECEMBER
----------------------------------------------------------------
1995............................................................ $ 8,814 $ 8,599
1996............................................................ 2,057 6,653
1997............................................................ 1,482 6,007
1998............................................................ 1,594 5,092
1999............................................................ 1,021 3,453
2000 and thereafter............................................. -- 15,927
------- ---------
Total minimum lease payments.................................... $14,968 $45,731
=======
Less amount representing interest............................... (2,069)
-------
Present value of future minimum lease payments.................. $12,899
=======
</TABLE>
Rental expense was approximately $9.0 million in 1994 ($11.3 million in
1993 and $10.7 million in 1992).
OTHER COMMITMENTS. Commitments for purchase of equipment totaled
approximately $48.3 million at December 30, 1994.
4. LITIGATION AND CONTINGENCIES
The Company is a named defendant in a lawsuit alleging patent infringement.
In 1990, patent infringement claims were filed by TI against the Company
and four other defendants with the International Trade Commission (ITC) and the
U.S. District Court for the Northern District of Texas, Dallas Division
(District Court), seeking to preclude importation into the U.S. of, and an
injunction against the sale and/or manufacture of, parts using the allegedly
protected process and seeking unspecified damages, respectively. During 1991,
the Company developed an alternate process and discontinued use of the allegedly
protected process. In February 1992, the ITC determined that the Company
infringed the original patented process, but found the alternate process to be
non-infringing. The Court of Appeal, for the Federal Circuit, affirmed the ITC
decision in 1993.
At the request of the District Court, the parties filed Motions for Summary
Judgment and responses thereto in the first quarter of 1994, all of which were
denied in August 1994. A trial date for TI's patent infringement action in the
District Court case has been set for April 1995. If the patent infringement is
upheld relative to the Company's products that used the old process, damages for
past infringement may be assessed. If the alternate process is found to be
infringing and the patent infringement claim is upheld, the Company believes
that licenses will be available for a negotiated fee. No assurance can be given
that the terms of any offered license will be favorable, or that any patent
dispute will be resolved without an adverse effect on the Company. If VLSI is
unable to pass any increased costs of manufacturing due to patent license fees
on to its customers, VLSI's gross margins would be adversely affected. Should
licenses be unavailable, the Company may be required to discontinue its use of
certain processes and/or the manufacture and sale of certain of its products.
The Company is vigorously defending itself against the TI claims. However,
should the ultimate outcome of this matter be unfavorable, VLSI may be required
to pay damages and other expenses.
33
<PAGE> 35
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 30, 1994
In addition, in the normal course of business, the Company receives and
makes inquiries with regard to other possible patent infringement. Where deemed
advisable, the Company may seek or extend licenses or negotiate settlements.
While the outcome of this matter is currently not determinable, management
believes that the ultimate resolution of this matter will not have a material
adverse effect on the Company's consolidated financial position or results of
operations. However, should the ultimate outcome of this matter be unfavorable,
VLSI may be required to pay damages and other expenses.
Four shareholder claims filed in December 1993 for alleged violations of
federal securities laws were consolidated into one action and dismissed with
prejudice during 1994.
5. STOCKHOLDERS' EQUITY
The Company's amended certificate of incorporation authorizes 57,000,000
shares of Capital Stock for issuance, 55,000,000 shares of which are designated
Common Shares and 2,000,000 shares of which are designated Preferred Shares. The
Common Shares are authorized to be issued in series, with the first series
designated Common Stock and consisting of 54,000,000 shares. All other series of
Common Shares (other than Common Stock) are designated, as a group, Junior
Common Stock and consist of 1,000,000 shares. The Board of Directors (Board) has
authorized an increase of 45,000,000 Common Shares, subject to stockholder
approval. The Board has the authority to issue the Preferred Shares and the
Common Shares (other than Common Stock) in series, the rights, preferences and
privileges of which can be determined by the Board without stockholder approval.
INTEL AGREEMENTS. On August 25, 1992, Intel invested $50 million in VLSI
to acquire 5,355,207 shares of the Company's Common Stock (Intel Shares) plus a
warrant (Warrant) to purchase an additional 2,677,604 shares of the Company's
Common Stock (Warrant Shares) at $11.69 per share pursuant to the Intel/VLSI
Stock and Warrant Purchase Agreement (Equity Agreement). In addition, on July 8,
1992, VLSI and Intel entered into a Technology and Manufacturing Agreement
(Technology Agreement). Pursuant to the Technology Agreement, the two companies
were working together to manufacture -- with VLSI responsible for designing,
marketing and selling -- chips that would enable manufacturers to build handheld
computers on the standardized system platform to be developed by the companies.
The development efforts were completed in 1994, however the market for handheld
computers developed more slowly than originally anticipated. As a result, in
November 1994, the Company and Intel terminated the Technology Agreement, and in
January and February 1995, Intel sold all of the Intel Shares.
The Equity Agreement currently provides Intel with demand registration
rights with respect to the Warrant Shares. The Equity Agreement also imposes
certain restrictions on Intel, including a limitation on Intel's ability to
acquire additional shares of VLSI voting stock (referred to as a standstill) and
a requirement that Intel vote its VLSI stock 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). All other significant
rights of, and restrictions on, Intel under the Equity Agreement have
terminated.
The Warrant, which expires in August 1995, contains certain antidilution
provisions and provisions for minimum payment to the Warrant holder in the event
VLSI is acquired. As of December 30, 1994, such minimum amount was equal to
$0.72 per Warrant Share and decreases on a straight-line daily basis over the
three-year term of the Warrant to zero. The Warrant does not give the holder any
voting rights prior to exercise of the Warrant and issuance of the Warrant
Shares.
STOCKHOLDERS' RIGHTS PLAN. In August 1992, the Board of Directors approved
the adoption of the First Amended and Restated Rights Agreement (Restated Rights
Agreement), which replaces the Common Shares Rights Agreement dated as of
November 7, 1989 (Prior Rights Agreement) and amends the
34
<PAGE> 36
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 30, 1994
outstanding rights issued pursuant to the Prior Rights Agreement (Rights). Among
other things, the Restated Rights Agreement provides that each Right will now
relate to a fraction of a share of Series A Participating Preferred Stock of the
Company (a Unit), which is economically equivalent to one share of Common Stock.
On August 24, 1992, the Board of Directors further amended the Restated Rights
Agreement for the purpose of excepting certain transactions contemplated by the
Equity Agreement between the Company and Intel from operation of the Restated
Rights Agreement. The Rights can be transferred or exercised (initially at a
price of $45 per Unit) only upon the occurrence of certain events involving
substantial transfers of ownership of Common Shares. The Rights are redeemable,
in whole but not in part, at VLSI's option at $.01 per Right, at any time prior
to becoming exercisable and in certain other circumstances. The Rights expire no
later than November 7, 1999.
DIRECTORS' STOCK OPTION PLAN. Under the Directors' Stock Option Plan,
which expires in 2001, options having ten-year terms are automatically granted
annually to non-employee directors. At December 30, 1994, non-employee directors
held options to purchase 110,000 shares of Common Stock at exercise prices
ranging from $6.75 to $14.25 per share, of which 70,000 were exercisable. In
addition, 175,000 shares were available for future grant under this Plan.
EMPLOYEE STOCK PURCHASE PLAN. Under VLSI's Employee Stock Purchase Plan,
qualified employees are entitled to purchase shares of Common Stock at 85% of
the fair market value at certain specified dates. Of the 6,600,000 shares
authorized to be issued under this Plan, 6,076,162 shares have been issued
through December 30, 1994. The Board has authorized an increase of 2,400,000
shares under this Plan, subject to stockholder approval.
STOCK OPTION PLANS. Employees and consultants may be granted options to
purchase shares of VLSI's authorized but unissued Common Stock, as well as
certain other awards under the Company's 1992 Stock Plan. Additionally,
employees and consultants may exercise options to purchase shares of VLSI Common
Stock previously granted under the 1982 Incentive Stock Option Plan. No new
options may be granted under the 1982 Incentive Stock Option Plan. Options
granted under these Plans may either be "incentive stock options" or
"nonstatutory" options. All outstanding options have exercise prices equal to
the fair market value on the date of grant. Generally, outstanding options
expire ten years from date of grant and become exercisable at a rate of 25% per
year from date of grant. At December 30, 1994, 48,703 shares were available for
grant under the 1992 Stock Plan. This Plan expires in 2002. The Board has
authorized an increase of 2,500,000 shares under this Plan, subject to
stockholder approval. The Board has also amended this Plan to limit the total
number of shares that may be granted under the Plan to any one individual to
500,000 shares per annum for both new and existing employees, subject to
stockholder approval.
Additional information relative to the Plans is as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
-----------------------
NUMBER OF AGGREGATE
SHARES PRICE
--------- ---------
(THOUSANDS)
<S> <C> <C>
Outstanding number of options at:
December 25, 1993............................................ 3,538 $23,174
December 30, 1994............................................ 3,788 $29,972
Options exercisable at:
December 25, 1993............................................ 1,565 $ 8,440
December 30, 1994............................................ 1,779 $10,478
</TABLE>
During 1994, VLSI recorded a tax benefit related to options exercised under
the Plans, resulting in a $1,200,000 increase in stockholders' equity
($1,680,000 in 1993 and $600,000 in 1992).
35
<PAGE> 37
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 30, 1994
6. SPECIAL CHARGES
The special charge in 1993 of $1.0 million represents a charge for
purchased in-process research and development relating to the acquisition of
certain assets and development efforts of Open Solutions, Inc. and its
subsidiary, CAD Language Systems, Inc., by COMPASS Design Automation, Inc., a
Company subsidiary, in June 1993. The acquisition was accounted for as a
purchase. Results of operations from the effective date to year-end are included
in the statement of operations. The aggregate purchase price totaled $2.4
million, including assumption of liabilities.
During the fourth quarter of 1992, the Company recorded a special charge of
$22.5 million related to the deemphasis of older technologies, costs of
streamlining sales distribution channels, costs of relocating certain offices,
write-downs of non-performing assets and costs associated with intellectual
property matters. There have been no changes to the amounts estimated in the
special charge. Except for reserves for intellectual property matters,
substantially all cash disbursements associated with this charge have been made.
The remaining unpaid reserves are included in reserve for special charges and
will be paid based on the resolution of the litigation discussed in Note 4.
7. EMPLOYEE BENEFIT PLANS
The Company accrued approximately $5,043,000, $3,751,000 and $206,000 in
1994, 1993 and 1992, respectively, for its Employee Profit Sharing Plan,
Executive Performance Incentive Plan and Performance Recognition Plan. The
Company's contribution expenses associated with its 401(k) plan were
approximately $647,000, $548,000 and $480,000 in 1994, 1993 and 1992,
respectively.
8. INCOME TAXES
The provision for taxes on income is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
-----------------------------
1994 1993 1992
------- ------- -----
(THOUSANDS)
<S> <C> <C> <C>
Federal:
Current............................................... $ 6,933 $ 4,464 $(269)
Deferred.............................................. (1,468) (2,400) 423
------- ------- -----
5,465 2,064 154
State:
Current............................................... 970 295 17
Foreign:
Current............................................... 3,265 2,441 494
Deferred.............................................. 310 (152) (65)
------- ------- -----
3,575 2,289 429
------- ------- -----
Total.............................................. $10,010 $ 4,648 $ 600
======= ======= =====
</TABLE>
Pre-tax income (loss) from foreign operations was $4.5 million in 1994,
$1.2 million in 1993 and $(3.0) million in 1992.
36
<PAGE> 38
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 30, 1994
The provision for taxes reconciles with the amount computed by applying the
U.S. statutory rate to income (loss) before provision for taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
--------------------------------
1994 1993 1992
------- ------- --------
(THOUSANDS)
<S> <C> <C> <C>
Income (loss) before provision for taxes............. $41,707 $20,531 $(31,617)
U.S. statutory rates................................. 35% 35% 34%
Computed expected tax (credit)....................... 14,597 7,186 (10,750)
R&D and investment tax credits....................... (5,048) (4,572) --
Valuation of temporary differences................... (1,252) 260 10,517
Net operating loss carryforward benefit.............. -- (229) (104)
State taxes.......................................... 631 192 11
Foreign withholding taxes............................ -- 658 --
Unbenefited foreign loss............................. 1,326 1,059 650
Other, net........................................... (244) 94 276
------- ------- --------
Provision for taxes on income........................ $10,010 $ 4,648 $ 600
======= ======= ========
Total effective tax rate............................. 24.0% 22.6% n/a
======= ======= ========
</TABLE>
Deferred income taxes reflect tax credits and loss carryforwards and the
tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes.
Significant components of the Company's deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
-----------------------
1994 1993
-------- --------
(THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Depreciation and amortization expense...................... $(10,450) $ (9,230)
Other...................................................... (93) (399)
-------- --------
Total deferred tax liabilities.......................... (10,543) (9,629)
-------- --------
Deferred tax assets:
Tax credit and loss carryforward........................... 11,589 14,196
Special charge and other reserves.......................... 9,522 9,228
Inventory reserves and adjustment.......................... 10,492 6,080
Warranty and deferred revenues............................. 2,851 5,485
-------- --------
Total deferred tax assets............................... 34,454 34,989
-------- --------
Valuation allowance for deferred tax assets.................. (18,309) (20,828)
-------- --------
Net deferred taxes...................................... $ 5,602 $ 4,532
======== ========
</TABLE>
The valuation allowance decreased $462,000 during 1993. Approximately $4.4
million of the December 30, 1994 valuation reserve is related to benefits of
stock option deductions, which will be allocated directly to additional paid-in
capital when realized.
The 1992 deferred tax provision of $358,000 consisted of individually
immaterial items.
37
<PAGE> 39
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 30, 1994
For U.S. tax purposes, at December 30, 1994, VLSI had general business and
alternative minimum tax credit carryforwards of approximately $6.0 million.
Foreign subsidiaries have tax loss carryforwards of approximately $10.5 million.
Such credit and loss carryforwards expire in various years beginning in 1997.
The Company's federal income tax returns have been examined by the Internal
Revenue Service (IRS) for all years through 1990. All issues have been resolved
with no material effect, and the IRS has closed those years.
Certain foreign subsidiaries have accumulated earnings of $8.1 million, on
which no U.S. deferred taxes have been provided. There is no intention to
distribute these earnings. If distributed, there would be minimal incremental
income taxes.
9. RELATED PARTIES
As of December 30, 1994, VLSI had received advances of $5.5 million from
Intel in accordance with the Technology Agreement, of which $3.3 million and
$2.2 million was amortized to income in 1994 and 1993, respectively, in
accordance with the terms of the Technology Agreement.
VLSI purchased $27.6 million, $38.1 million and $23.3 million in 1994, 1993
and 1992, respectively, of production, assembly and test services from a company
with whom a director of the Company is affiliated. Outstanding amounts payable
to that company were $1.9 million and $2.3 million in 1994 and 1993,
respectively.
10. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
VLSI operates in a single industry segment and designs, manufactures and
markets primarily custom and semicustom integrated circuits of high complexity,
along with associated integrated circuit computer-aided engineering and design
software and systems. The Company distributes its products through worldwide
direct sales, commissioned representatives and distributors.
In 1994, Compaq Computer Corporation accounted for 22% of net revenues. In
1993 and 1992, Apple Computer, Inc. accounted for 19% and 15%, respectively, of
net revenues.
Major operations outside the United States include sales offices and
technology centers in Western Europe, Japan and Asia-Pacific. Foreign operations
are subject to risks of political instability and foreign currency exchange rate
fluctuations.
Transfers between geographic areas are accounted for at amounts that are
generally above cost and consistent with the rules and regulations of governing
tax authorities. Such transfers are eliminated in the consolidated financial
statements. Identifiable assets are those assets that can be directly associated
with a particular geographic area and thus do not include assets used for
general corporate purposes, such as cash, cash equivalents and liquid
investments.
38
<PAGE> 40
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 30, 1994
The following is a summary of operations located within the indicated
geographic areas for the three years ended December 30, 1994:
<TABLE>
<CAPTION>
NET REVENUES TRANSFERS
FROM BETWEEN OPERATING
UNAFFILIATED GEOGRAPHICAL NET INCOME IDENTIFIABLE
CUSTOMERS AREAS REVENUES (LOSS) ASSETS
------------ ------------ -------- --------- ------------
(THOUSANDS)
<S> <C> <C> <C> <C> <C>
1994
-------------------------
United States............ $447,233 $ 87,153 $534,386 $ 42,815 $366,040
Europe................... 121,250 -- 121,250 7,557 38,832
Japan.................... 18,426 -- 18,426 (3,877) 6,430
Asia-Pacific............. 182 -- 182 197 1,274
Corporate................ -- -- -- -- 103,111
Eliminations............. -- (87,153) (87,153) 57 (25,471)
------------ ------------ -------- --------- ------------
Consolidated........ $587,091 $ -- $587,091 $ 46,749 $490,216
========== ========= ======== ======== ========
1993
-------------------------
United States............ $382,620 $ 83,828 $466,448 $ 26,112 $327,942
Europe................... 118,542 -- 118,542 4,551 32,002
Japan.................... 14,582 -- 14,582 (3,111) 5,759
Asia-Pacific............. 202 -- 202 152 1,944
Corporate................ -- -- -- -- 72,636
Eliminations............. -- (83,828) (83,828) (622) (28,060)
------------ ------------ -------- --------- ------------
Consolidated........ $515,946 $ -- $515,946 $ 27,082 $412,223
========== ========= ======== ======== ========
1992
-------------------------
United States............ $318,128 $ 62,654 $380,782 $ (17,506) $287,606
Europe................... 95,723 -- 95,723 860 28,133
Japan.................... 14,474 -- 14,474 (3,637) 5,404
Asia-Pacific............. 173 -- 173 38 1,310
Corporate................ -- -- -- -- 69,674
Eliminations............. -- (62,654) (62,654) 963 (23,919)
------------ ------------ -------- --------- ------------
Consolidated........ $428,498 $ -- $428,498 $ (19,282) $368,208
========== ========= ======== ======== ========
</TABLE>
U.S. export revenues, primarily to the Asia-Pacific region, were
approximately $162.1 million, $126.7 million and $82.2 million in 1994, 1993 and
1992, respectively.
39
<PAGE> 41
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors appearing under the caption "Election of
Directors -- Nominees for Director" in the Proxy Statement is hereby
incorporated herein by reference.
Information regarding executive officers who are not also directors is
incorporated herein by reference from Part I hereof under the heading "Executive
Officers of the Company" immediately following Item 4 in Part I hereof.
Information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934, as amended, is hereby incorporated herein by reference
from the section entitled "Information Concerning Solicitation and
Voting -- Compliance with Section 16(a) Filing Requirements" in the Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference from the Proxy Statement under the
captions "Election of Directors -- Nominees for Director", "Election of
Directors -- Director Compensation", "Election of Directors -- Compensation
Committee Interlocks and Insider Participation" and "Executive Officer
Compensation" .
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference from the Proxy Statement under the caption
"Information Concerning Solicitation and Voting -- Security Ownership".
ITEM 13. CERTAIN TRANSACTIONS AND RELATED TRANSACTIONS
Incorporated herein by reference from the Proxy Statement under the
captions "Election of Directors -- Compensation Committee Interlocks and Insider
Participation", "Election of Directors -- Certain Transactions" and "Executive
Officer Compensation".
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The financial statements (including the notes thereto) listed in the
accompanying index to financial statements and financial statement schedules are
filed within this Annual Report on Form 10-K.
2. Financial Statement Schedules
The financial statement schedule listed in the accompanying Index to
Consolidated Financial Statements and Financial Statement Schedule are filed as
part of this Annual Report on Form 10-K.
3. Exhibits
The exhibits listed under Item 14(c) hereof are filed as part of this
Annual Report on Form 10-K.
(b) Reports on Form 8-K.
There were no filings on Form 8-K during the fourth quarter ended December
30, 1994.
40
<PAGE> 42
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<C> <S>
3.1 Restated Certificate of Incorporation filed with the Secretary of State of the
State of Delaware on September 16, 1987. Incorporated by reference from Exhibit to
Annual Report on Form 10-K for the fiscal year ended December 27, 1987.
3.2 Certificate of Designation of Rights, Preferences and Privileges of Series A
Participating Preferred Stock filed with the Secretary of State of the State of
Delaware on August 12, 1992. Incorporated by reference from Exhibit to Quarterly
Report on Form 10-Q for the fiscal quarter ended September 26, 1992.
3.3 Certificate of Amendment of Restated Certificate of Incorporation filed with the
Secretary of State of the State of Delaware on August 20, 1992. Incorporated by
reference from Exhibit to Quarterly Report on Form 10-Q for the fiscal quarter
ended September 26, 1992.
3.4 Restated Bylaws of the Company, as amended, effective August 27, 1993. Incorporated
by reference from Exhibit to Quarterly Report on Form 10-Q for the fiscal quarter
ended September 25, 1993.
4.1 The Company hereby agrees to file upon request of the Commission a copy of all
instruments, not otherwise filed, with respect to long-term debt of the Company or
any of its subsidiaries for which the total amount of debt authorized under such
instrument does not exceed 10% of the total assets of the Company and its
subsidiaries on a consolidated basis.
4.2 See Exhibits 3.1, 3.2 and 3.3.
4.3 Indenture, dated as of May 1, 1987, between the Company and Citibank N.A., Trustee,
with respect to issuance of $57,500,000 of 7% Convertible Subordinated Debentures
due May 1, 2012. Incorporated by reference from Exhibit to Registration Statement
on Form S-3, No. 33-13463.
4.4 Form of 7% Convertible Subordinated Debenture due May 1, 2012. Incorporated by
reference from Exhibit to Registration Statement on Form S-3, No. 33-13463.
4.5 Common Shares Rights Agreement, dated as of November 7, 1989, by and between the
Company and the First National Bank of Boston, as Rights Agent, including the form
of Rights Certificate attached as Exhibit A thereto. Incorporated by reference from
Exhibit to Registration Statement on Form 8-A filed with the Securities and
Exchange Commission on November 20, 1989.
4.6 First Amended and Restated Rights Agreement (the "Restated Rights Agreement") by
and between the Company and First National Bank of Boston, dated August 12, 1992,
including form of Rights Certificate. Incorporated by reference from Exhibit to
Quarterly Report on Form 10-Q for the fiscal quarter ended September 26, 1992.
4.7 Amendment Number 1 to the Restated Rights Agreement, dated August 24, 1992.
Incorporated by reference from Exhibit to Quarterly Report on Form 10-Q for the
fiscal quarter ended September 26, 1992.
10.1* Letter Agreement between the Company and Alfred J. Stein, dated February 12, 1982.
Incorporated by reference from Exhibit to Registration Statement on Form S-1, No.
2-81485.
10.2* 1982 Incentive Stock Option Plan, as amended May 9, 1991, and form of option
agreement used thereunder. Incorporated by reference from Exhibit to Annual Report
on Form 10-K for the fiscal year ended December 28, 1991.
10.3* 1983 Junior Incentive Stock Plan, as amended, and form of agreement used
thereunder. Incorporated by reference from Exhibit to Annual Report on Form 10-K
for the fiscal year ended December 25, 1983.
10.4* Registration Rights Agreement dated as of January 16, 1984 among the Company and
certain security holders of the Company. Incorporated by reference from Exhibit to
Registration Statement on Form S-1, No. 2-81485.
10.5* Executive Performance Incentive Plan. Incorporated by reference from Exhibit to
Annual Report on Form 10-K for the fiscal year ended December 29, 1985.
</TABLE>
41
<PAGE> 43
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<C> <S>
10.6* 1986 Directors' Stock Option Plan, as amended, and Forms of Option Agreement for
use with such plan. Said document is included as an Exhibit to this Annual Report
on Form 10-K for the fiscal year ended December 30, 1994.
10.7* 1992 Stock Plan, as amended, and form of option agreement used thereunder. Said
document, which is subject to stockholder approval, is included as an Exhibit to
this Annual Report on Form 10-K for the fiscal year ended December 30, 1994.
10.8 COMPASS Design Automation, Inc. Series A Preferred Stock and Common Stock Purchase
Agreement, dated December 27, 1991. Incorporated by reference from Exhibit to
Annual Report on Form 10-K for the fiscal year ended December 28, 1991.
10.9* Amended and Restated Employee Stock Purchase Plan, as amended. Said document, which
is subject to stockholder approval, is included as an Exhibit to this Annual Report
on Form 10-K for the fiscal year ended December 30, 1994.
10.10* COMPASS Design Automation, Inc. 1992 Stock Option Plan, as amended. Said document
is included as an Exhibit to this Annual Report on Form 10-K for the fiscal year
ended December 30, 1994.
10.11 Proprietary Software OEM License between the Company and Xidak, Inc., dated January
1, 1987. Incorporated by reference from Exhibit to Annual Report on Form 10-K for
the fiscal year ended December 27, 1987.
10.12 Joint Venture and Shareholder Agreement, dated as of November 28, 1990, between
Advanced RISC Machines Holdings Limited, Acorn Computers Limited, Apple Computer
(UK) Limited and the Company. Incorporated by reference from Exhibit to Annual
Report on Form 10-K for the fiscal year ended December 29, 1990.
10.13 Intercompany Agreement between COMPASS Design Automation, Inc. and the Company,
dated July 1, 1991. Incorporated by reference from Exhibit to Annual Report on Form
10-K for the fiscal year ended December 28, 1991.
10.14 Technology and Software License Agreement dated September 18, 1991 between Raytheon
Company and the Company and COMPASS Design Automation, Inc. Incorporated by
reference from Exhibit to Annual Report on Form 10-K for the fiscal year ended
December 28, 1991.
10.15 Intel/VLSI Stock and Warrant Purchase Agreement between the Company and Intel
Corporation ("Intel"), dated July 8, 1992, including form of Warrant. Incorporated
by reference from Exhibit to Quarterly Report on Form 10-Q for the fiscal quarter
ended September 26, 1992.
10.16** Technology and Manufacturing Agreement between Intel Corporation and the Company,
dated July 8, 1992, as amended by Addendum Number 1. Incorporated by reference from
Exhibit to Amendment Number 1 to Annual Report on Form 10-K for the fiscal year
ended December 26, 1992.
10.17** Amendment Number 2 to the Technology and Manufacturing Agreement between Intel
Corporation and the Company, dated December 2, 1993. Incorporated by reference from
Exhibit to Annual Report on Form 10-K for the fiscal year ended December 25, 1993.
10.18 Letter dated July 18, 1994 from Intel Corporation to the Company waiving certain
rights under the Intel/VLSI Stock and Warrant Purchase Agreement dated July 8,
1992. Incorporated by reference from Exhibit to Quarterly Report on Form 10-Q for
the fiscal quarter ended July 1, 1994.
10.19 Termination Agreement dated November 7, 1994 between Intel Corporation and the
Company. Incorporated by reference from Exhibit to Quarterly Report on Form 10-Q
for the fiscal quarter ended September 30, 1994.
10.20 Acquisition and Participation Agreement and Escrow Instructions dated April 22,
1994 between Brazos Asset Management, Inc. and the Company. Incorporated by
reference from Exhibit to Quarterly Report on Form 10-Q for the fiscal quarter
ended July 1, 1994.
</TABLE>
42
<PAGE> 44
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<C> <S>
10.21 Net Building Space Lease dated February 15, 1985 between Mariani Financial Company
and the Company for a property located at 1865 Lundy Drive, San Jose, California.
Incorporated by reference from Exhibit to Annual Report on Form 10-K for the fiscal
year ended December 30, 1984.
10.22 Ground Sublease between Price-Elliott Research Park, Inc., and ADIMIC Limited
Partnership, dated October 1, 1986, for property in Tempe, Arizona. Incorporated by
reference from Exhibit to Annual Report on Form 10-K for the fiscal year ended
December 27, 1987.
10.23 Ground Sublease between Price-Elliott Research Park, Inc., and ADIMIC Limited
Partnership, dated July 1, 1987, for property in Tempe, Arizona. Incorporated by
reference from Exhibit to Annual Report on Form 10-K for the fiscal year ended
December 27, 1987.
10.24 Agreement between ADIMIC Limited Partnership and the Company assigning interest of
lessee under the two Ground Subleases referred to in Exhibits 10.22 and 10.23.
Incorporated by reference from Exhibit to Annual Report on Form 10-K for the fiscal
year ended December 27, 1987.
10.25 ASU Research Park Ground Sublease, dated as of December 18, 1990, between
Price-Elliott Research Park, Inc. and the Company. Incorporated by reference from
Exhibit to Annual Report on Form 10-K for the fiscal year ended December 29, 1990.
10.26 Lease dated as of May 6, 1988, between Bank Building Partnership and the Company
for property located at 1117 and 1125 McKay Drive, San Jose, California.
Incorporated by reference from Exhibit to Annual Report on Form 10-K for the fiscal
year ended December 25, 1988.
10.27 First Amendment to Lease dated as of December 29, 1988, between Bank Building
Partnership and the Company for property located at 1117 and 1125 McKay Drive, San
Jose, California. Incorporated by reference from Exhibit to Annual Report on Form
10-K for the fiscal year ended December 25, 1988.
10.28 Second Amendment to Lease dated as of November 20, 1989, between Bank Building
Partnership and the Company for property located at 1117 and 1125 McKay Drive, San
Jose, California. Incorporated by reference from Exhibit to Annual Report on Form
10-K for the fiscal year ended December 31, 1989.
10.29 Third Amendment to Lease dated as of March 20, 1990, between Bank Building
Partnership and the Company for property located at 1117 and 1125 McKay Drive, San
Jose, California. Incorporated by reference from Exhibit to Annual Report on Form
10-K for the fiscal year ended December 31, 1989.
10.30 Revised Exhibit A to Lease dated May 6, 1988 between Bank Building Partnership and
the Company. Incorporated by reference from Exhibit to Annual Report on Form 10-K
for the fiscal year ended December 31, 1989.
10.31 Lease dated as of August 12, 1991, between Callahan-Pentz Properties, Ringwood
Court One and the Company for property located at 1110 Ringwood Court, San Jose,
California. Incorporated by reference from Exhibit to Annual Report on Form 10-K
for the fiscal year ended December 28, 1991.
10.32 Lease dated as of February 15, 1993, between Sumitomo Life Realty (N.Y.), Inc. and
the Company for property located at 67 South Bedford Street, Suite 304-W,
Burlington, Massachusetts. Incorporated by reference from Exhibit to Quarterly
Report on Form 10-Q for the fiscal quarter ended March 27, 1993.
10.33 Lease dated as of July 20, 1993, between Callahan-Pentz Properties and the Company
for property located at 1120 Ringwood Court, San Jose, California. Incorporated by
reference from Exhibit to Annual Report on Form 10-K for the fiscal year ended
December 25, 1993.
10.34 Leasing Agreement dated September 21, 1994 between Sobrato-Sobrato Interests, as
Lessor, and the Company, as lessee, for property located at 1240 McKay Drive, San
Jose, California. Incorporated by reference from Exhibit to Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30, 1994.
</TABLE>
43
<PAGE> 45
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<C> <S>
10.35 The First National Bank of Boston Line of Credit for the Company and its
subsidiaries, dated November 30, 1988. Incorporated by reference from Exhibit to
Annual Report on Form 10-K for the fiscal year ended December 25, 1988.
10.36 Amendment to First National Bank of Boston Line of Credit for the Company and its
subsidiaries, dated November 30, 1989. Incorporated by reference from Exhibit to
Annual Report on Form 10-K for the fiscal year ended December 31, 1989.
10.37 Credit Agreement dated June 6, 1994 between Continental Bank N.A., as Agent, and
the Company. Incorporated by reference from Exhibit to Form 10-Q/A Amendment Number
1 to Quarterly Report on Form 10-Q for the fiscal quarter ended July 1, 1994.
10.38 Equipment Financing Agreement between New England Capital Corporation and the
Company, dated August 12, 1991. Incorporated by reference from Exhibit to Annual
Report on Form 10-K for the fiscal year ended December 28, 1991.
10.39 Master Security Agreement between The CIT Group/Equipment Financing, Inc. and the
Company, dated December 19, 1991. Incorporated by reference from Exhibit to Annual
Report on Form 10-K for the fiscal year ended December 28, 1991.
10.40 Loan and Security Agreement between Household Bank and the Company, dated March 25,
1992. Incorporated by reference from Exhibit to Annual Report on Form 10-K for the
fiscal year ended December 26, 1992.
10.41 Loan and Security Agreement between Household Bank and the Company, dated June 24,
1992. Incorporated by reference from Exhibit to Annual Report on Form 10-K for the
fiscal year ended December 26, 1992.
10.42 Loan and Security Agreement between AT&T and the Company, dated September 24, 1993.
Incorporated by reference from Exhibit to Annual Report on Form 10-K for the fiscal
year ended December 25, 1993.
10.43 Loan and Security Agreement and Promissory Note between CIT Group and the Company,
dated December 15, 1993. Incorporated by reference from Exhibit to Annual Report on
Form 10-K for the fiscal year ended December 25, 1993.
10.44 Term Loan and Security Agreement dated June 17, 1994 and Promissory Notes dated
June 17 and June 30, 1994 between Heller Financial, Inc. and the Company.
Incorporated by reference from Exhibit to Form 10-Q/A Amendment Number 1 to
Quarterly Report on Form 10-Q for the fiscal quarter ended July 1, 1994.
10.45 Equipment Leasing Agreement between NEMLC Leasing Associates, No. 3 and the
Company, dated December 19, 1988. Incorporated by reference from Exhibit to Annual
Report on Form 10-K for the fiscal year ended December 25, 1988.
10.46 Equipment Lease, dated as of March 26, 1990, between BA Leasing and Capital
Corporation and the Company. Incorporated by reference from Exhibit to Annual
Report on Form 10-K for the fiscal year ended December 29, 1990.
10.47 Master Lease Agreement between Sentry Financial Corporation and the Company, dated
January 2, 1991. Incorporated by reference from Exhibit to Annual Report on Form
10-K for the fiscal year ended December 28, 1991.
10.48 Master Lease 2094759 Lease Renewal Contracts with Guaranteed Purchase Options
between Ellco Leasing Corporation and the Company, each dated December 30, 1992,
relating to Schedules 034, 037, 038, 041 & 043 and Schedules 044, 045, 046, 048,
049, 050, 051, 052 & 053, respectively. Incorporated by reference from Exhibit to
Annual Report on Form 10-K for the fiscal year ended December 26, 1992.
10.49 Master Lease 2304202 Lease Renewal Contract with Guaranteed Purchase Option between
GE Capital Corp. and the Company, dated December 30, 1992, relating to Schedules
002, 003, 004 & 007. Incorporated by reference from Exhibit to Annual Report on
Form 10-K for the fiscal year ended December 26, 1992.
</TABLE>
44
<PAGE> 46
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<C> <S>
10.50* Form of Management Continuity Agreement by and between the Company and each of the
following officers of the Company: Donald L. Ciffone, Gregory K. Hinckley, L. Don
Maulsby, Dieter J. Mezger, Thomas F. Mulvaney, C. Clifford Roe and Alfred J. Stein.
Incorporated by reference from Exhibit to Annual Report on Form 10-K for the fiscal
year ended December 26, 1992.
11 Calculation of Earnings Per Share (for the three fiscal years ending December 30,
1994).
21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP, Independent Auditors (see page 46).
24 Power of Attorney (see page 48).
27 Financial Data Schedule.
</TABLE>
- ---------------
* Denotes a compensation plan in which an executive officer participates.
** Denotes a document for which confidential treatment has been granted for
selected portions.
(d) Financial Statement Schedules
See Item 14(a)(2) above.
45
<PAGE> 47
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Forms S-8 Nos. 2-86600, 2-90890, 33-4797, 33-12909, 33-21116, 33-27872,
33-39653, 33-52908, 33-62068, 33-57433 and 33-57991) pertaining to the Employee
Stock Purchase Plan, 1992 Stock Plan, 1982 Incentive Stock Option Plan, 1983
Incentive Junior Stock Plan and 1986 Directors' Stock Option Plan of VLSI
Technology, Inc. and in the related Prospectuses, of our report dated January
17, 1995, with respect to the consolidated financial statements and schedules of
VLSI Technology, Inc. included in this Annual Report (Form 10-K) for the year
ended December 30, 1994.
/s/ ERNST & YOUNG LLP
--------------------------------------
ERNST & YOUNG LLP
San Jose, California
March 20, 1995
46
<PAGE> 48
0
VLSI TECHNOLOGY, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE AT
BEGINNING CHARGED END
OF YEAR TO INCOME DEDUCTIONS OF YEAR
---------- --------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts and customer
returns(1):
Year ended December 26, 1992................... $ 1,782 $ 1,154 $ (553) $ 2,383
Year ended December 25, 1993................... $ 2,383 $ 458 $ (591) $ 2,250
Year ended December 30, 1994................... $ 2,250 $ 107 $ (57) $ 2,300
Reserve for special charges:
Year ended December 26, 1992................... $ -- $22,500 $(10,619) $ 11,881
Year ended December 25, 1993................... $ 11,881 $ 1,008 $ (5,023) $ 7,866
Year ended December 30, 1994................... $ 7,866 $ 1,400 $ (1,931) $ 7,335
</TABLE>
- ---------------
(1) Deductions represent amounts written off against the allowance for doubtful
accounts and customer returns.
47
<PAGE> 49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
VLSI TECHNOLOGY, INC.
(Registrant)
By /s/ ALFRED J. STEIN
------------------------------------
Alfred J. Stein,
Chairman of the Board,
Chief Executive Officer
and President
Date: March 1, 1995
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Alfred J. Stein and Gregory K. Hinckley,
jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Annual Report on Form 10-K, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------- ---------------
<C> <S> <C>
Chairman of the Board, Chief March 1, 1995
/s/ ALFRED J. STEIN Executive Officer, President
- --------------------------------------------- (Principal Executive Officer)
(Alfred J. Stein) and Director
/s/ GREGORY K. HINCKLEY Vice President, Finance and March 1, 1995
- --------------------------------------------- Chief Financial Officer
(Gregory K. Hinckley) (Principal Financial Officer)
/s/ BALAKRISHNAN S. IYER Vice President and Controller March 1, 1995
- --------------------------------------------- (Principal Accounting Officer)
(Balakrishnan S. Iyer)
/s / PIERRE S. BONELLI Director March 1, 1995
- ---------------------------------------------
(Pierre S. Bonelli)
/s/ ROBERT P. DILWORTH Director March 1, 1995
- ---------------------------------------------
(Robert P. Dilworth)
/s/ JAMES J. KIM Director March 1, 1995
- ---------------------------------------------
(James J. Kim)
/s/ HORACE H. TSIANG Director March 1, 1995
- ---------------------------------------------
(Horace H. Tsiang)
</TABLE>
48
<PAGE> 50
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------- --------------------------------------------------------------------- ------------
<S> <C> <C>
3.1 Restated Certificate of Incorporation filed with the Secretary of
State of the State of Delaware on September 16, 1987. Incorporated by
reference from Exhibit to Annual Report on Form 10-K for the fiscal
year ended December 27, 1987.
3.2 Certificate of Designation of Rights, Preferences and Privileges of
Series A Participating Preferred Stock filed with the Secretary of
State of the State of Delaware on August 12, 1992. Incorporated by
reference from Exhibit to Quarterly Report on Form 10-Q for the
fiscal quarter ended September 26, 1992.
3.3 Certificate of Amendment of Restated Certificate of Incorporation
filed with the Secretary of State of the State of Delaware on August
20, 1992. Incorporated by reference from Exhibit to Quarterly Report
on Form 10-Q for the fiscal quarter ended September 26, 1992.
3.4 Restated Bylaws of the Company, as amended, effective August 27,
1993. Incorporated by reference from Exhibit to Quarterly Report on
Form 10-Q for the fiscal quarter ended September 25, 1993.
4.1 The Company hereby agrees to file upon request of the Commission a
copy of all instruments, not otherwise filed, with respect to
long-term debt of the Company or any of its subsidiaries for which
the total amount of debt authorized under such instrument does not
exceed 10% of the total assets of the Company and its subsidiaries on
a consolidated basis.
4.2 See Exhibits 3.1, 3.2 and 3.3.
4.3 Indenture, dated as of May 1, 1987, between the Company and Citibank
N.A., Trustee, with respect to issuance of $57,500,000 of 7%
Convertible Subordinated Debentures due May 1, 2012. Incorporated by
reference from Exhibit to Registration Statement on Form S-3, No.
33-13463.
4.4 Form of 7% Convertible Subordinated Debenture due May 1, 2012.
Incorporated by reference from Exhibit to Registration Statement on
Form S-3, No. 33-13463.
</TABLE>
<PAGE> 51
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------- --------------------------------------------------------------------- ------------
<S> <C> <C>
4.5 Common Shares Rights Agreement, dated as of November 7, 1989, by and
between the Company and the First National Bank of Boston, as Rights
Agent, including the form of Rights Certificate attached as Exhibit A
thereto. Incorporated by reference from Exhibit to Registration
Statement on Form 8-A filed with the Securities and Exchange
Commission on November 20, 1989.
4.6 First Amended and Restated Rights Agreement (the "Restated Rights
Agreement") by and between the Company and First National Bank of
Boston, dated August 12, 1992, including form of Rights Certificate.
Incorporated by reference from Exhibit to Quarterly Report on Form
10-Q for the fiscal quarter ended September 26, 1992.
4.7 Amendment Number 1 to the Restated Rights Agreement, dated August 24,
1992. Incorporated by reference from Exhibit to Quarterly Report on
Form 10-Q for the fiscal quarter ended September 26, 1992.
10.1* Letter Agreement between the Company and Alfred J. Stein, dated
February 12, 1982. Incorporated by reference from Exhibit to
Registration Statement on Form S-1, No. 2-81485.
10.2* 1982 Incentive Stock Option Plan, as amended May 9, 1991, and form of
option agreement used thereunder. Incorporated by reference from
Exhibit to Annual Report on Form 10-K for the fiscal year ended
December 28, 1991.
10.3* 1983 Junior Incentive Stock Plan, as amended, and form of agreement
used thereunder. Incorporated by reference from Exhibit to Annual
Report on Form 10-K for the fiscal year ended December 25, 1983.
10.4* Registration Rights Agreement dated as of January 16, 1984 among the
Company and certain security holders of the Company. Incorporated by
reference from Exhibit to Registration Statement on Form S-1, No.
2-81485.
10.5* Executive Performance Incentive Plan. Incorporated by reference from
Exhibit to Annual Report on Form 10-K for the fiscal year ended
December 29, 1985.
</TABLE>
<PAGE> 52
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------- --------------------------------------------------------------------- ------------
<S> <C> <C>
10.6* 1986 Directors' Stock Option Plan, as amended, and Forms of Option
Agreement for use with such plan. Said document is included as an
Exhibit to this Annual Report on Form 10-K for the fiscal year ended
December 30, 1994.
10.7* 1992 Stock Plan, as amended, and form of option agreement used thereunder.
Said document, which is subject to stockholder approval, is included
as an Exhibit to this Annual Report on Form 10-K for the fiscal
year ended December 30, 1994.
10.8 COMPASS Design Automation, Inc. Series A Preferred Stock and Common
Stock Purchase Agreement, dated December 27, 1991. Incorporated by
reference from Exhibit to Annual Report on Form 10-K for the fiscal
year ended December 28, 1991.
10.9* Amended and Restated Employee Stock Purchase Plan, as amended. Said
document, which is subject to stockholder approval, is included as an
Exhibit to this Annual Report on Form 10-K for the fiscal year ended
December 30, 1994.
10.10* COMPASS Design Automation, Inc. 1992 Stock Option Plan, as amended.
Said document is included as an Exhibit to this Annual Report on
Form 10-K for the fiscal year ended December 30, 1994.
10.11 Proprietary Software OEM License between the Company and Xidak, Inc.,
dated January 1, 1987. Incorporated by reference from Exhibit to
Annual Report on Form 10-K for the fiscal year ended December 27,
1987.
10.12 Joint Venture and Shareholder Agreement, dated as of November 28,
1990, between Advanced RISC Machines Holdings Limited, Acorn
Computers Limited, Apple Computer (UK) Limited and the Company.
Incorporated by reference from Exhibit to Annual Report on Form 10-K
for the fiscal year ended December 29, 1990.
10.13 Intercompany Agreement between COMPASS Design Automation, Inc.and the
Company, dated July 1, 1991. Incorporated by reference from Exhibit
to Annual Report on Form 10-K for the fiscal year ended December 28,
1991.
10.14 Technology and Software License Agreement dated September 18, 1991
between Raytheon Company and the Company and COMPASS Design
Automation, Inc. Incorporated by reference from Exhibit to Annual
Report on Form 10-K for the fiscal year ended December 28, 1991.
10.15 Intel/VLSI Stock and Warrant Purchase Agreement between the Company
and Intel Corporation ("Intel"), dated July 8, 1992, including form
of Warrant. Incorporated by reference from Exhibit to Quarterly
Report on Form 10-Q for the fiscal quarter ended September 26, 1992.
</TABLE>
<PAGE> 53
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------- --------------------------------------------------------------------- ------------
<S> <C> <C>
10.16** Technology and Manufacturing Agreement between Intel Corporation and
the Company, dated July 8, 1992, as amended by Addendum Number 1.
Incorporated by reference from Exhibit to Amendment Number 1 to
Annual Report on Form 10-K for the fiscal year ended December 26,
1992.
10.17** Amendment Number 2 to the Technology and Manufacturing Agreement
between Intel Corporation and the Company, dated December 2, 1993.
Incorporated by reference from Exhibit to Annual Report on Form 10-K
for the fiscal year ended December 25, 1993.
10.18 Letter dated July 18, 1994 from Intel Corporation to the Company
waiving certain rights under the Intel/VLSI Stock and Warrant
Purchase Agreement dated July 8, 1992. Incorporated by reference from
Exhibit to Quarterly Report on Form 10-Q for the fiscal quarter ended
July 1, 1994.
10.19 Termination Agreement dated November 7, 1994 between Intel
Corporation and the Company. Incorporated by reference from Exhibits
to Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1994.
10.20 Acquisition and Participation Agreement and Escrow Instructions dated
April 22, 1994 between Brazos Asset Management, Inc. and the Company.
Incorporated by reference from Exhibit to Quarterly Report on Form
10-Q for the fiscal quarter ended July 1, 1994.
10.21 Net Building Space Lease dated February 15, 1985 between Mariani
Financial Company and the Company for a property located at 1865
Lundy Drive, San Jose, California. Incorporated by reference from
Exhibit to Annual Report on Form 10-K for the fiscal year ended
December 30, 1984.
10.22 Ground Sublease between Price-Elliott Research Park, Inc., and ADIMIC
Limited Partnership, dated October 1, 1986, for property in Tempe,
Arizona. Incorporated by reference from Exhibit to Annual Report on
Form 10-K for the fiscal year ended December 27, 1987.
10.23 Ground Sublease between Price-Elliott Research Park, Inc., and ADIMIC
Limited Partnership, dated July 1, 1987, for property in Tempe,
Arizona. Incorporated by reference from Exhibit to Annual Report on
Form 10-K for the fiscal year ended December 27, 1987.
10.24 Agreement between ADIMIC Limited Partnership and the Company
assigning interest of lessee under the two Ground Subleases referred
to in Exhibits 10.22 and 10.23. Incorporated by reference from
Exhibit to Annual Report on Form 10-K for the fiscal year ended
December 27, 1987.
</TABLE>
<PAGE> 54
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------- --------------------------------------------------------------------- ------------
<S> <C> <C>
10.25 ASU Research Park Ground Sublease, dated as of December 18, 1990,
between Price-Elliott Research Park, Inc. and the Company.
Incorporated by reference from Exhibit to Annual Report on Form 10-K
for the fiscal year ended December 29, 1990.
10.26 Lease dated as of May 6, 1988, between Bank Building Partnership and
the Company for property located at 1117 and 1125 McKay Drive, San
Jose, California. Incorporated by reference from Exhibit to Annual
Report on Form 10-K for the fiscal year ended December 25, 1988.
10.27 First Amendment to Lease dated as of December 29, 1988, between Bank
Building Partnership and the Company for property located at 1117 and
1125 McKay Drive, San Jose, California. Incorporated by reference
from Exhibit to Annual Report on Form 10-K for the fiscal year ended
December 25, 1988.
10.28 Second Amendment to Lease dated as of November 20, 1989, between Bank
Building Partnership and the Company for property located at 1117 and
1125 McKay Drive, San Jose, California. Incorporated by reference
from Exhibit to Annual Report on Form 10-K for the fiscal year ended
December 31, 1989.
10.29 Third Amendment to Lease dated as of March 20, 1990, between Bank
Building Partnership and the Company for property located at 1117 and
1125 McKay Drive, San Jose, California. Incorporated by reference
from Exhibit to Annual Report on Form 10-K for the fiscal year ended
December 31, 1989.
10.30 Revised Exhibit A to Lease dated May 6, 1988 between Bank Building
Partnership and the Company. Incorporated by reference from Exhibit
to Annual Report on Form 10-K for the fiscal year ended December 31,
1989.
10.31 Lease dated as of August 12, 1991, between Callahan-Pentz Properties,
Ringwood Court One and the Company for property located at 1110
Ringwood Court, San Jose, California. Incorporated by reference from
Exhibit to Annual Report on Form 10-K for the fiscal year ended
December 28, 1991.
10.32 Lease dated as of February 15, 1993, between Sumitomo Life Realty
(N.Y.), Inc. and the Company for property located at 67 South Bedford
Street, Suite 304-W, Burlington, Massachusetts. Incorporated by
reference from Exhibit to Quarterly Reports on Form 10-Q for the
fiscal quarter ended March 27, 1993.
</TABLE>
<PAGE> 55
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------- --------------------------------------------------------------------- ------------
<S> <C> <C>
10.33 Lease dated as of July 20, 1993, between Callahan-Pentz Properties
and the Company for property located at 1120 Ringwood Court, San
Jose, California. Incorporated by reference from Exhibit to Annual
Report on Form 10-K for the fiscal year ended December 25, 1993.
10.34 Leasing Agreement dated September 21, 1994 between Sobrato-Sobrato
Interests, as Lessor, and the Company, as lessee, for property
located at 1240 McKay Drive, San Jose, California. Incorporated by
reference from Exhibit to Quarterly Report on form 10-Q for the
fiscal quarter ended September 30, 1994.
10.35 The First National Bank of Boston Line of Credit for the Company and
its subsidiaries, dated November 30, 1988. Incorporated by reference
from Exhibit to Annual Report on Form 10-K for the fiscal year ended
December 25, 1988.
10.36 Amendment to First National Bank of Boston Line of Credit for the
Company and its subsidiaries, dated November 30, 1989. Incorporated
by reference from Exhibit to Annual Report on Form 10-K for the
fiscal year ended December 31, 1989.
10.37 Credit Agreement dated June 6, 1994 between Continental Bank N.A., as
Agent, and the Company. Incorporated by reference from Exhibit to
Form 10-Q/A Amendment Number 1 to Quarterly Report on Form 10-Q for
the fiscal quarter ended July 1, 1994.
10.38 Equipment Financing Agreement between New England Capital Corporation
and the Company, dated August 12, 1991. Incorporated by reference
from Exhibit to Annual Report on Form 10-K for the fiscal year ended
December 28, 1991.
10.39 Master Security Agreement between The CIT Group/Equipment Financing,
Inc. and the Company, dated December 19, 1991. Incorporated by
reference from Exhibit to Annual Report on Form 10-K for the fiscal
year ended December 28, 1991.
10.40 Loan and Security Agreement between Household Bank and the Company,
dated March 25, 1992. Incorporated by reference from Exhibit to
Annual Report on Form 10-K for the fiscal year ended December 26,
1992.
10.41 Loan and Security Agreement between Household Bank and the Company,
dated June 24, 1992. Incorporated by reference Exhibit to Annual
Report on Form 10-K for the fiscal year ended December 26, 1992.
</TABLE>
<PAGE> 56
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------- --------------------------------------------------------------------- ------------
<S> <C> <C>
10.42 Loan and Security Agreement between AT&T and the Company, dated
September 24, 1993. Incorporated by reference from Exhibit to Annual
Report on Form 10-K for the fiscal year ended December 25, 1993.
10.43 Loan and Security Agreement and Promissory Note between CIT Group and
the Company, dated December 15, 1993. Incorporated by reference from
Exhibit to Annual Report on Form 10-K for the fiscal year ended
December 25, 1993.
10.44 Term Loan and Security Agreement dated June 17, 1994 and Promissory
Notes dated June 17 and June 30, 1994 between Heller Financial, Inc.
and the Company. Incorporated by reference from Exhibit to Form
10-Q/A Amendment Number 1 to Quarterly Report on Form 10-Q for the
fiscal quarter ended July 1, 1994.
10.45 Equipment Leasing Agreement between NEMLC Leasing Associates, No. 3
and the Company, dated December 19, 1988. Incorporated by reference
from Exhibit to Annual Report on Form 10-K for the fiscal year ended
December 25, 1988.
10.46 Equipment Lease, dated as of March 26, 1990, between BA Leasing and
Capital Corporation and the Company. Incorporated by reference from
Exhibit to Annual Report on Form 10-K for the fiscal year ended
December 29, 1990.
10.47 Master Lease Agreement between Sentry Financial Corporation and the
Company, dated January 2, 1991. Incorporated by reference from
Exhibit to Annual Report on Form 10-K for the fiscal year ended
December 28, 1991.
10.48 Master Lease 2094759 Lease Renewal Contracts with Guaranteed Purchase
Options between Ellco Leasing Corporation and the Company, each dated
December 30, 1992, relating to Schedules 034, 037, 038, 041 & 043 and
Schedules 044, 045, 046, 048. 049, 050, 051, 052 & 053, respectively.
Incorporated by reference from Exhibit to Annual Report on Form 10-K
for the fiscal year ended December 26, 1992.
10.49 Master Lease 2304202 Lease Renewal Contract with Guaranteed Purchase
Option between GE Capital Corp. and the Company dated December 30,
1992, relating to Schedules 002, 003, 004 & 007. Incorporated by
reference from Exhibit to Annual Report on Form 10-K for the fiscal
year ended December 26, 1992.
</TABLE>
<PAGE> 57
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------- --------------------------------------------------------------------- ------------
<S> <C> <C>
10.50* Form of Management Continuity Agreement by and between the Company
and each of the following officers of the Company: Donald L. Ciffone,
Gregory K. Hinckley, L. Don Maulsby, Don Maulsby, Dieter J. Mezger,
Thomas F. Mulvaney, C. Clifford Roe and Alfred J. Stein. Incorporated
by reference from Exhibit to Annual Report on Form 10-K for the
fiscal year ended December 26, 1992.
11 Calculation of Earnings Per Share (for the three fiscal years ending
December 30, 1994).
21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP, Independent Auditors
(see page 46).
24 Power of Attorney (see page 48).
27 Financial Data Schedule.
</TABLE>
* Denotes a compensation plan in which an executive officer participates.
** Denotes a document for which confidential treatment has been granted
selected portions.
<PAGE> 1
EXHIBIT 10.6
VLSI TECHNOLOGY, INC.
1986 DIRECTORS' STOCK OPTION PLAN
(As adopted by the Board of
Directors on August 6, 1986 and amended
January 15, 1987, August 5, 1993 and March 11, 1994
and approved by the stockholders on
April 22, 1987 and May 5, 1994)
1. Purposes of the Plan. The purposes of this Directors' Stock Option
Plan are to attract and retain the best available personnel for service as
Directors of the Company, to provide additional incentive to the Outside
Directors of the Company to serve as Directors, and to encourage their continued
service on the Board.
All options granted hereunder shall be "non-statutory stock options".
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Board" shall mean the Board of Directors of the
Company.
(b) "Common Stock" shall mean the Common Stock of the
Company.
(c) "Code" shall mean the Internal Revenue Code of 1986,
as amended.
(d) "Company" shall mean VLSI Technology, Inc., a
Delaware corporation.
(e) "Continuous Status as a Director" shall mean the
absence of any interruption or termination of service as a Director.
(f) "Director" shall mean a member of the Board.
(g) "Employee" shall mean any person, including
officers and Directors, employed by the Company or any Parent or Subsidiary of
the Company. The payment of a director's fee by the Company shall not be
sufficient in and of itself to constitute "employment" by the Company.
(h) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
(i) "Option" shall mean a stock option granted pursuant
to the Plan.
(j) "Optioned Stock" shall mean the Common Stock subject
to an Option.
(k) "Optionee" shall mean an Outside Director who
receives an Option.
(l) "Outside Director" shall mean a Director who is not
an Employee.
(m) "Parent" shall mean a "parent corporation", whether
now or hereafter existing, as defined in Section 424(e) of the Code.
(n) "Plan" shall mean this 1986 Directors' Stock Option
Plan.
<PAGE> 2
(o) "Share" shall mean a share of the Common Stock, as
adjusted in accordance with Section 11 of the Plan.
(p) "Subsidiary" shall mean a "subsidiary corporation",
whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of
Section 11 of the Plan, the maximum aggregate number of Shares which may be
optioned and sold under the Plan is 300,000 Shares (the "Pool") of Common
Stock. The Shares may be authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any
reason without having been exercised in full, the unpurchased Shares which were
subject thereto shall, unless the Plan shall have been terminated, become
available for future grant under the Plan. If Shares which were acquired upon
exercise of an Option are subsequently repurchased by the Company, such Shares
shall not in any event be returned to the Plan and shall not become available
for future grant under the Plan.
4. Administration of and Grants of Options under the Plan.
(a) Administrator. Except as otherwise required herein,
the Plan shall be administered by the Board.
(b) Procedure for Grants. All grants of Options
hereunder shall be automatic and non-discretionary and shall be made strictly in
accordance with the following provisions:
(i) No person shall have any discretion to select
which Outside Directors shall be granted Options or to determine the number of
Shares to be covered by Options granted to Outside Directors.
(ii) Each Outside Director shall be automatically
granted an Option to purchase 20,000 Shares (the "First Option") upon the later
to occur of (A) the effective date of this Plan, as determined in accordance
with Section 6 hereof, or (B) the date on which such person first becomes a
Director, whether through election by the shareholders of the Company or
appointment by the Board of Directors to fill a vacancy; provided, however, that
no such Option shall be granted to any Outside Director prior to surrender by
such Outside Director for cancellation that portion of any outstanding option or
warrant held by such Outside Director to purchase shares of the Company's stock
that relates to shares with respect to which such option or warrant has not yet
become exercisable.
(iii) After the First Option has been granted to an
Outside Director, such Outside Director shall thereafter be automatically
granted an Option to purchase 5,000 Shares (a "Subsequent Option") on the first
day of each fiscal year of the Company occurring after the grant date of such
Outside Director's First Option; provided, however, that in no event shall an
Outside Director be granted Options prior to the Amendment Date (as herein
defined) to purchase in the aggregate more than 40,000 shares.
(iv) In addition, after the First Option has been
granted to an Outside Director, upon the later to occur of (A) the date of
approval by the stockholders (the "Amendment Date") of the Amendments to the
Plan that were approved by the Board on August 5, 1993 and March 11, 1994 (the
"Amendments") or (B) the date on which the First Option or a Replenishment
Option (as herein defined) granted to an Outside Director expires unexercised in
whole or in part, such Outside Director shall be automatically granted an option
(a "Replenishment Option") to purchase a number of Shares that is equal to
20,000 minus the aggregate number of Shares, if any, that were issued to such
Outside Director upon exercise of his First Option and any previously granted
Replenishment Options.
<PAGE> 3
(v) Notwithstanding the provisions of subsections
(ii) and (iii) hereof, in the event that a grant would cause the number of
Shares subject to outstanding Options plus the number of Shares previously
purchased upon exercise of Options to exceed the Pool, then each such automatic
grant shall be for that number of Shares determined by dividing the total number
of Shares remaining available for grant by the number of Outside Directors on
the automatic grant date. Any further grants shall then be deferred until such
time, if any, as additional Shares become available for grant under the Plan
through action of the stockholders to increase the number of Shares which may be
issued under the Plan or through cancellation or expiration of Options
previously granted hereunder.
(vi) The terms of an Option granted hereunder shall be as
follows:
(A) the term of the Option shall be (I) five (5) years
for Options granted prior to the Amendment Date and (II) ten
(10) years for Options granted on or after the Amendment Date.
(B) the Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as
set forth in Section 9 hereof.
(C) the exercise price per Share shall be 100% of the
fair market value per Share on the date of grant of the
Option.
(D) the Option shall become exercisable as follows:
(I) If it is a First Option, it shall become
exercisable in installments cumulatively
with respect to 5,000 Shares on the first
day of the first, second, third and fourth
fiscal years beginning after the date of
grant of such First Option;
(II) If it is a Subsequent Option, it shall
become exercisable in full on the first day
of the fourth fiscal year beginning after
the date of grant of such Subsequent Option;
and
(III) If it is a Replenishment Option, it shall be
exercisable in full on the date of grant of
such Replenishment Option;
provided, however, that in no event shall (x) any
Replenishment Option or (y) any Subsequent Option granted
to an Outside Director who had previously been granted
Options to purchase in the aggregate more than 40,000 Shares
prior to the Amendment Date be exercisable prior to obtaining
stockholder approval in accordance with Section 17 hereof of
the Amendments.
(c) Powers of the Board. Subject to the provisions and
restrictions of the Plan, the Board shall have the authority, in its discretion:
(i) to determine, upon review of relevant information and in accordance with
Section 8(b) of the Plan, the fair market value of the Common Stock; (ii) to
determine the exercise price per share of Options to be granted, which exercise
price shall be determined in accordance with Section 8(a) of the Plan; (iii) to
interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations
relating to the Plan; (v) to authorize any person to execute on behalf of the
Company any instrument required to
<PAGE> 4
effectuate the grant of an Option previously granted hereunder; and (vi) to make
all other determinations deemed necessary or advisable for the administration of
the Plan.
(d) Effect of Board's Decision. All decisions,
determinations and interpretations of the Board shall be final and binding on
all Optionees and any other holders of any Options granted under the Plan.
5. Eligibility. Options may be granted only to Outside
Directors. All Options shall be automatically granted in accordance with the
terms set forth in Section 4(b) hereof. An Outside Director who has been granted
an Option may, if he is otherwise eligible, be granted an additional Option or
Options in accordance with such provisions.
The Plan shall not confer upon any Optionee any right with
respect to continuation of service as a Director or nomination to serve as a
Director, nor shall it interfere in any way with any rights which the Director
or the Company may have to terminate his directorship at any time.
6. Term of Plan. The Plan shall become effective upon the
earlier to occur of its adoption by the Board of Directors or its approval by
the stockholders of the Company as described in Section 17 of the Plan. It shall
continue in effect until August 6, 1996 (August 6, 2001 if stockholders approve
the Amendments) unless sooner terminated under Section 13 of the Plan.
7. Term of Option. The term of each Option shall be as set forth
in Section 4(b)(vi)(A) of the Plan.
8. Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be 100% of the fair
market value per Share on the date of grant of the Option.
(b) Fair Market Value. The fair market value shall be
determined by the Board in its discretion; provided, however, that where there
is a public market for the Common Stock, the fair market value per Share shall
be the closing bid price of the Common Stock in the over-the-counter market on
the date of grant, as reported in the Wall Street Journal (or, if not so
reported, as otherwise reported by the National Association of Securities
Dealers Automated Quotation ("NASDAQ") System) or, in the event the Common Stock
is traded on the NASDAQ National Market System or listed on a stock exchange,
the fair market value per Share shall be the closing price on such system or
exchange on the date of grant of the Option, as reported in the Wall Street
Journal.
(c) Form of Consideration. The consideration to be paid
for the Shares to be issued upon exercise of an Option shall consist entirely of
cash, check, other Shares of Common Stock having a fair market value on the date
of surrender equal to the aggregate exercise price of the Shares as to which
said Option shall be exercised, or any combination of such methods of payment.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any
Option granted hereunder shall be exercisable at such times as are set forth in
Section 4(b) hereof; provided, however, that no Options shall be exercisable
until stockholder approval of the Plan in accordance with Section 17 hereof has
been obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
<PAGE> 5
the Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received by
the Company. Full payment may consist of any consideration and method of payment
allowable under Section 8(c) of the Plan. Until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a stockholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. A share certificate for the number of Shares so acquired shall be issued
to the Optionee as soon as practicable after exercise ofthe Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as a Director. If an Outside
Director ceases to serve as a Director, he may, but only within thirty (30) days
after the date he ceases to be a Director of the Company, exercise his Option to
the extent that he was entitled to exercise it at the date of such termination.
To the extent that he was not entitled to exercise an Option at the date of such
termination, or if he does not exercise such Option (which he was entitled to
exercise) within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions
of Section 9(b) above, in the event a Director is unable to continue his service
as a Director with the Company as a result of his total and permanent disability
(as defined in Section 22(e)(3) of the Code), he may, but only within six (6)
months from the date of termination, exercise his Option to the extent he was
entitled to exercise it at the date of such termination. To the extent that he
was not entitled to exercise the Option at the date of termination, or if he
does not exercise such Option (which he was entitled to exercise) within the
time specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an
Optionee:
(i) during the term of the Option who is at the time
of his death a Director of the Company and who shall have been in Continuous
Status as a Director since the date of grant of the Option, the Option may be
exercised, at any time within six (6) months following the date of death, by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise that
would have accrued had the Optionee continued living and remained in Continuous
Status as a Director for six (6) months after the date of death.
(ii) within thirty (30) days after the termination
of Continuous Status as a Director, the Option may be exercised, at any time
within six (6) months following the date of death, by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent of the right to exercise that had accrued at
the date of termination.
10. Non-Transferability of Options. The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution or pursuant to a
Qualified Domestic Relations Order as defined by the Code or Title I of the
Employee Retirement Income Security Act, or the rules thereunder, and may be
exercised, during the lifetime of the Optionee, only by the Optionee or by a
transferee permitted by this Section 10.
<PAGE> 6
11. Adjustments Upon Changes in Capitalization or Merger. Subject to
any required action by the stockholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the
Company, the Option 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, the Option shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation.
12. Time of Granting Options. The date of grant of an Option shall,
for all purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall be given to each Outside Director to whom an
Option is so granted within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or terminate
the Plan from time to time in such respects as the Board may deem advisable;
provided that, effective September 1, 1994 or, if permitted by the rules of the
Securities and Exchange Commission, such later time as the Company elects to
switch all of its employee and director stock plans over to the version of Rule
16b-3 adopted effective May 1, 1991, the provisions of Section 4(b) hereof
shall not be amended more than once every six months, other than to comport
with changes in the Code, the Employee Retirement Income Security Act, or the
rules thereunder; and provided further that the following revisions or
amendments shall require approval of the stockholders of the Company in the
manner described in Section 17 of the Plan:
(i) any increase in the number of Shares subject to
the Plan, other than in connection with an adjustment under Section 11 of the
Plan; or
(ii) any change in the designation of the class of
persons eligible to be granted Options; or
(iii) any material increase in the benefits accruing
to participants under the Plan; or
(iv) any change in the number of shares subject to
Options to be granted hereunder or in the terms thereof as set forth in Section
4(b) hereof.
(b) Stockholder Approval. Stockholder approval of any amendment
<PAGE> 7
requiring stockholder approval under Section 13(a) of the Plan shall be
solicited as described in Section 17 of the Plan.
(c) Effect of Amendment or Termination. Any such amendment or
termination ofthe Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee
and the Board, which agreement must be in writing and signed by the Optionee
and the Company.
14. Conditions Upon Issuance of Shares. Shares shall not be
issued pursuant to the exercise of an Option unless the exercise of such Option
and the issuance and delivery of such Shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
15. Reservation of Shares. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
16. Option Agreement. Options shall be evidenced by written
option agreements in such form as the Board shall approve.
17. Stockholder Approval.
(a) The Plan (and any amendments thereto requiring stockholder
approval pursuant to Section 13(a) hereof) shall be subject to approval by the
stockholders of the Company at or prior to the first annual meeting of
stockholders held subsequent to the granting of an Option under the Plan (or
subsequent to the amendment, as the case may be). If such stockholder approval
is obtained at a duly held stockholders' meeting, it may be obtained by the
affirmative vote of the holders of a majority of the outstanding shares of the
Company present or represented and entitled to vote thereon. If such stockholder
approval is obtained by written consent, it may be obtained by the written
consent of the holders of a majority of the outstanding shares of the Company.
(b) Any required approval of the stockholders of the Company
shall be solicited substantially in accordance with Section 14(a) of the
Exchange Act and the rules and regulations promulgated thereunder.
18. Information to Optionees. The Company shall provide to
each Optionee, during the period for which such Optionee has one or more Options
outstanding, copies of all annual reports to stockholders, proxy statements and
other information provided to all stockholders of the Company.
<PAGE> 1
EXHIBIT 10.7
VLSI TECHNOLOGY, INC.
1992 STOCK PLAN
(As adopted by the Board of Directors on May 1, 1992 and approved by
the stockholders on August 20, 1992, and as amended by the Board of Directors
on November 17, 1994 and subject to stockholder approval at the 1995 Annual
Meeting of Stockholders)
1. PURPOSES OF THE PLAN. The purpose of this 1992 Stock Plan is
to enable the Company to provide an incentive to Employees and Consultants
whose present and potential contributions are important to the continued
success of the Company, to afford these individuals the opportunity to acquire
a proprietary interest in the Company, and to enable the Company to enlist and
retain the best available talent for positions of substantial responsibility.
It is intended that this purpose will be effected through the granting of
Incentive Stock Options, Nonstatutory Stock Options, Stock Appreciation Rights,
Stock Purchase Rights, Stock Bonus Awards and Long-Term Performance Awards.
2. DEFINITIONS. As used herein, the following definitions shall
apply:
(a) "Administrator" means the Board or any of its
Committees as shall be administering the Plan, in accordance with Section 4 of
the Plan.
(b) "Affiliated Company" means a corporation, whether now
or hereafter existing, which is not a Subsidiary but with respect to which the
Company owns, directly or indirectly through one or more Subsidiaries, at least
20% of the total voting power of all classes of stock.
(c) "Applicable Laws" means the legal requirements
relating to the administration of stock option and equity incentive plans under
applicable state corporate and securities laws and under the Code.
(d) "Board" means the Board of Directors of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as
amended.
(f) "Committee" means a Committee appointed by the Board
in accordance with Section 4 of the Plan.
(g) "Common Stock" means the Common Stock of the Company.
(h) "Company" means VLSI Technology, Inc., a Delaware
corporation.
(i) "Consultant" means (i) any person, including an
advisor, who is engaged by the Company or by a Parent or Subsidiary of the
Company to render consulting services to it and who is compensated for such
services, provided that the term "Consultant" shall not include Directors who
are compensated, through a director's fee or other standard director
compensation, only for their services as Directors of the Company, (ii) any
currently authorized manufacturer's representative or sales representative firm
which
-1-
<PAGE> 2
sells products of the Company or of a Parent or Subsidiary of the Company, as
designated by the Company in its sole discretion (which designation shall be
subject to withdrawal at any time for any or no reason), whether compensated by
the Company for service as such or not, or (iii) any individual who is employed
by such a manufacturer's representative or sales representative firm to perform
services which include the sale of products of the Company or of a Parent or
Subsidiary of the Company, whether compensated by the Company for such services
or not.
(j) "Continuous Status as an Employee or Consultant"
means the absence of any interruption or termination of service as an Employee
or Consultant, provided, however, that Continuous Status as an Employee or
Consultant shall not be considered interrupted in the case of: (i) any leave
of absence approved by the Administrator, including sick leave, military leave,
or any other personal leave; provided, however, that for purposes of Incentive
Stock Options, any such leave may not exceed ninety (90) days, unless
reemployment upon the expiration of such leave is guaranteed by contract
(including certain Company policies) or statute; or (ii) transfers between
locations of the Company or between the Company, its Parent, its Subsidiaries,
its Affiliated Companies or its successor. In the case of a leave of absence
which extends for more than ninety (90) days and after which there is no
contractual or statutory guaranty of reemployment, the Employee's employment
or Consultant's service as such shall be deemed to have terminated on the
ninety-first (91st) day of such leave of absence.
(k) "Director" means a member of the Board.
(l) "Disability" means total and permanent disability, as
defined in Section 22(e)(3) of the Code.
(m) "Employee" means any person, including Officers and
Directors, employed by the Company or by any Parent or Subsidiary of the
Company, as such term is defined under common law and interpreted by the rules
and regulations under the Code. Neither service as a Director nor the payment
of a director's fee by the Company shall be sufficient to constitute
"employment" by the Company.
(n) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(o) "Fair Market Value" means, as of a specified date,
the value of Common Stock determined by the Administrator as follows:
(i) If the Common Stock is listed on any
established stock exchange or quoted on a national market system, including
without limitation the National Market System of the National Association of
Securities Dealers, Inc. Automated Quotation ("NASDAQ") System, the Fair Market
Value of a Share of Common Stock shall be the closing sales price for such
stock (or the closing bid, if no sales were reported) as quoted on such
exchange (or, if listed on more than one exchange, the exchange with the
greatest volume of trading in Common Stock) or system on the last market
trading day prior to the day of determination, as reported in the Wall Street
Journal or such other source as the Administrator deems reliable; or
(ii) If the Common Stock is quoted on the NASDAQ
System (but is not included on the National Market System thereof) or is
regularly quoted by a recognized securities dealer but selling prices are not
reported, the Fair Market Value of a Share of Common Stock shall be the mean
between the closing bid and closing asked prices for the Common Stock on the
last market
-2-
<PAGE> 3
trading day prior to the day of determination, as reported in the Wall Street
Journal or such other source as the Administrator deems reliable; or
(iii) In the absence of an established market for
the Common Stock, the Fair Market Value thereof shall be determined in good
faith by the Administrator.
(p) "Incentive Stock Option" means an Option that
satisfies the provisions of Section 422 of the Code.
(q) "Insider" means an Officer or Director.
(r) "Long-Term Performance Award" means an award granted
pursuant to Section 10 of the Plan.
(s) "Nonstatutory Stock Option" means an Option that is
not an Incentive Stock Option.
(t) "Notice of Grant" means a written notice evidencing
certain terms and conditions of an individual Option, Stock Purchase Right,
SAR, Long-Term Performance Award or Stock Bonus Award grant. The Notice of
Grant is part of the Option Agreement, the Restricted Stock Purchase Agreement,
the SAR Agreement, the Long-Term Performance Award agreement or the Stock Bonus
Award agreement, as the case may be.
(u) "Officer" means an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(v) "Option" means a stock option granted pursuant to the
Plan.
(w) "Option Agreement" means a written agreement between
the Company and an Optionee evidencing the terms and conditions of an
individual Option grant. The Option Agreement is subject to the terms and
conditions of the Plan and the Notice of Grant.
(x) "Optioned Stock" means the Common Stock subject to an
Option or Right.
(y) "Optionee" means an Employee or Consultant who holds
an outstanding Option or Right.
(z) "Option Exchange Program" means a program whereby
outstanding options (whether originally granted under this Plan or under other
plans of the Company) are surrendered in exchange for Options with a lower
exercise price.
(aa) "Outside Director" shall mean a Director who is not
an Employee.
(bb) "Parent" means a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(cc) "Plan" means this 1992 Stock Plan.
(dd) "Restricted Stock" means shares of Common Stock
purchased pursuant to Stock Purchase Rights granted under Section 8 of the
Plan.
-3-
<PAGE> 4
(ee) "Restricted Stock Purchase Agreement" means a written
agreement between the Company and an Optionee evidencing the terms and
restrictions applying to stock purchased under a Stock Purchase Right. The
Restricted Stock Purchase Agreement is subject to the terms and conditions of
the Plan and the Notice of Grant.
(ff) "Right" means and includes SARs, Long-Term
Performance Awards, Stock Purchase Rights and Stock Bonus Awards granted
pursuant to the Plan.
(gg) "Rule 16b-3" means Rule 16b-3 promulgated under the
Exchange Act (or any successor to Rule 16b-3), as in effect when discretion is
being exercised with respect to the Plan.
(hh) "SAR" means a stock appreciation right granted
pursuant to Section 7 of the Plan.
(ii) "SAR Agreement" means a written agreement between the
Company and an Optionee evidencing the terms and conditions of an individual
Option grant. The SAR Agreement is subject to the terms and conditions of the
Plan and the Notice of Grant.
(jj) "Share" means a share of the Common Stock, as
adjusted in accordance with Section 12 of the Plan.
(kk) "Stock Bonus Award" means an award granted pursuant
to Section 9 of the Plan.
(ll) "Stock Purchase Right" means a right to purchase
Common Stock granted pursuant to Section 8 of the Plan.
(mm) "Subsidiary" means a "subsidiary corporation",
whether now or hereafter existing, as defined in Section 424(f) of the Code.
In addition, the term "waiting period", the term "Performance Period",
the terms "Change in Control" and "Incumbent Directors" and the term "Tax Date"
shall have the meanings set forth in Sections 7, 10, 12 and 13 of the Plan,
respectively.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of
Section 12 of the Plan, the total number of Shares reserved and available for
distribution pursuant to awards made under the Plan shall be 4,500,000, of
which 2,500,000 shares are subject to stockholder approval at the 1995 Annual
Meeting of Stockholders. The Shares may be authorized but unissued or
reacquired stock.
If an Option or Right should expire or become unexercisable
for any reason without having been exercised in full, the unpurchased Shares
which were subject thereto shall, unless the Plan shall have been terminated,
become available for other Options or Rights granted under the Plan.
Notwithstanding any other provision of the Plan, Shares issued
upon exercise of Options or Rights under the Plan and later repurchased by the
Company shall not become available for future grant or sale under the Plan.
4. ADMINISTRATION OF THE PLAN.
-4-
<PAGE> 5
(a) MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule
16b-3, the Plan may be administered by different bodies with respect to Outside
Directors, Directors who are Employees, Officers who are not Directors, and
Employees and Consultants who are neither Directors nor Officers.
(b) ADMINISTRATION WITH RESPECT TO DIRECTORS AND
OFFICERS. With respect to grants of Options or Rights to Employees or
Consultants who are also Officers or Directors, the Plan shall be administered
by (A) the Board, if the Board may administer the Plan in compliance with the
rules governing a plan intended to qualify as a discretionary grant or award
plan under Rule 16b-3, or (B) a Committee designated by the Board to administer
the Plan, which Committee shall be constituted (I) in such a manner as to
permit the Plan to comply with the rules governing a plan intended to qualify
as a discretionary grant or award plan under Rule 16b-3 and (II) in such a
manner as to satisfy the Applicable Laws.
(c) ADMINISTRATION WITH RESPECT TO OTHER PERSONS. With
respect to grants of Options or Rights or to Employees or Consultants who are
neither Directors nor Officers, the Plan shall be administered by (A) the Board
or (B) a Committee designated by the Board, which Committee shall be
constituted in such a manner as to satisfy the Applicable Laws.
(d) COMMITTEE COMPOSITION. Once a Committee has been
appointed pursuant to subsection (b) or (c) of this Section 4, such Committee
shall continue to serve in its designated capacity until otherwise directed by
the Board. From time to time the Board may increase the size of any Committee
and appoint additional members thereof, remove members (with or without cause)
and appoint new members in substitution therefor, fill vacancies (however
caused) or remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by the Applicable Laws and, in
the case of a Committee appointed under subsection (b), to the extent permitted
by Rule 16b-3 as it applies to a plan intended to qualify thereunder as a
discretionary grant or award plan.
(e) POWERS OF THE ADMINISTRATOR. Subject to the
provisions of the Plan and, in the case of a Committee, the specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:
(i) to grant Incentive Stock Options,
Nonstatutory Stock Options, SARs, Stock Purchase Rights, Stock Bonus Awards and
Long-Term Performance Awards;
(ii) to determine the Fair Market Value of the
Common Stock, in accordance with Section 2(o) of the Plan;
(iii) to select the Employees and Consultants to
whom Options and Rights may from time to time be granted hereunder;
(iv) to determine whether and to what extent
Options and Rights, or any combination thereof, are granted hereunder;
(v) to determine the number of shares of Common
Stock to be covered by each such award granted hereunder;
(vi) to approve forms of agreements for use under
the Plan;
-5-
<PAGE> 6
(vii) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder and of
the Options or Rights so awarded (including, but not limited to, the exercise
or purchase price and any restriction or limitation regarding any Option or
Right and/or the shares of Common Stock relating thereto, based in each case on
such factors as the Administrator shall determine, in its sole discretion);
(viii) to determine whether and under what
circumstances an Option or Right may be settled in cash instead of Common
Stock;
(ix) to reduce the exercise price of any Option or
Right to the then current Fair Market Value if the Fair Market Value of the
Common Stock covered by such Option or Right shall have declined since the date
the Option was granted;
(x) to modify or amend the terms and conditions
of any Option or Right, subject to Section 15 of the Plan (including, but not
limited to, accelerating vesting or waiving forfeiture restrictions);
(xi) to institute an Option Exchange Program;
(xii) to authorize any person to execute on behalf
of the Company any instrument required to effect the grant of an Option or
Right previously granted by the Administrator;
(xiii) to interpret the Plan and to prescribe, amend
and rescind rules and regulations relating to the Plan; and
(xiv) to make all other determinations deemed
necessary or advisable for administering the Plan.
(f) EFFECT OF ADMINISTRATOR'S DECISION. All decisions,
determinations and interpretations of the Administrator shall be final and
binding.
(g) SUSPENSION OR TERMINATION OF OPTION OR RIGHT. If the
Chief Executive Officer or his or her designee reasonably believes that an
Optionee has committed an act of misconduct, the Chief Executive Officer may
suspend the Optionee's right to exercise any Option or Right or to receive any
benefits relating thereto pending a determination by the Administrator. If the
Administrator determines that an Optionee has committed an act of embezzlement,
fraud, dishonesty, nonpayment of an obligation owed to the Company, breach of
fiduciary duty or deliberate disregard of the Company's rules resulting in
loss, damage or injury to the Company, or if an Optionee makes an unauthorized
disclosure of any Company trade secret or confidential information, engages in
any conduct constituting unfair competition, induces any Company customer to
breach a contract with the Company or induces any principal for whom the
Company acts as agent to terminate such agency relationship, neither the
Optionee nor his or her estate shall be entitled to exercise any Option or
Right or to receive any benefits relating to Options or Rights whatsoever. In
making such determination, the Administrator shall act fairly and shall give
the Optionee an opportunity to appear and present evidence on Optionee's behalf
at a hearing before the Administrator.
5. ELIGIBILITY. Nonstatutory Stock Options and Rights may be
granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees. An Employee or Consultant who has been granted an Option or
Right
-6-
<PAGE> 7
may, if he or she is otherwise eligible, be granted additional Options or
Rights.
6. TERM OF PLAN. Subject to Section 19 of the Plan, the Plan
shall become effective upon the earlier to occur of its adoption by the Board
or its approval by the stockholders of the Company as described in Section 19.
It shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 15 of the Plan.
7. OPTIONS AND SARS.
(a) OPTIONS. The Administrator, in its discretion, may
grant Options to eligible participants and shall determine whether such Options
shall be Incentive Stock Options or Nonstatutory Stock Options. Each Option
shall be evidenced by a Notice of Grant, which shall expressly identify the
Options as either Incentive Stock Options or as Nonstatutory Stock Options and
which shall be in such form and contain such provisions as the Administrator
shall from time to time deem appropriate. Without limiting the foregoing, the
Administrator may, at any time, or from time to time, authorize the Company,
with the consent of the respective holders of outstanding options or rights, to
issue Options or Rights in exchange for the surrender and cancellation of any
or all outstanding options or rights held by such person. Option agreements
shall contain the following terms and conditions:
(i) EXERCISE PRICE; NUMBER OF SHARES. The Notice
of Grant shall specify the per Share exercise price for the Shares issuable
pursuant to an Option, which shall be such price as is determined by the
Administrator. The Notice of Grant shall also specify the number of Shares
which are subject to the Option.
(ii) WAITING PERIOD, EXERCISE DATES AND TERM. At
the time an Option is granted, the Administrator will determine the terms and
conditions to be satisfied before Shares may be purchased upon exercise of the
Option, including the date or dates on which Shares subject to the Option first
become available for purchase. The Administrator may specify that an Option
may not be exercised until the completion of a specified service period or
until certain Company, Subsidiary, Affiliated Company or individual performance
objectives are met. Any such period is referred to herein as the "waiting
period". At the time an Option is granted, the Administrator shall fix the
period within which the Option may be exercised, which shall not be earlier
than the end of the waiting period, if any, nor, in the case of an Incentive
Stock Option, later than ten (10) years, from the date of grant. The Notice of
Grant shall specify the term of the Option.
(iii) FORM OF PAYMENT. The form of payment
acceptable to the Company in payment by an Optionee of the exercise price of
Shares to be issued upon exercise of an Option shall be determined by the
Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and, subject to compliance with the Delaware
General Corporation Law, may consist entirely of:
(A) cash;
(B) check (personal, cashier's or
certified) or money order;
(C) promissory note;
-7-
<PAGE> 8
(D) other Shares which (I) in the case
of Shares acquired upon exercise of an option, have been owned by the Optionee
for more than six months on the date of surrender and (II) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which the Option is being exercised;
(E) delivery to the Company of (I) a
properly executed exercise notice, (II) irrevocable instructions to a broker to
sell a sufficient number of the Shares being exercised to cover the exercise
price and to promptly deliver to the Company the amount of sale proceeds
required to pay the exercise price and any required tax withholding relating to
the exercise, and (III) such other documentation as the Administrator and the
broker shall require to effect a same-day exercise and sale;
(F) delivery to the Company of (I) a
properly executed exercise notice, (II) irrevocable instructions to a broker or
other third party acceptable to the Company to hold the Shares being exercised
as collateral for a loan to the Optionee of an amount sufficient to cover the
exercise price and to promptly deliver to the Company the amount of loan
proceeds required to pay the exercise price and any required tax withholding
relating to the exercise and (III) such other documentation as the
Administrator and the broker or other third party shall require to effect the
transaction;
(G) delivery of an irrevocable
subscription agreement for the Shares which irrevocably obligates the Optionee
to take and pay for the Shares not more than twelve months after the date of
delivery of such subscription agreement;
(H) any combination of the foregoing
methods of payment; or
(I) such other method of payment for the
issuance of Shares as is permitted by the Applicable Laws.
(iv) SPECIAL INCENTIVE STOCK OPTION PROVISIONS.
In addition to the foregoing, Options granted under the Plan which are intended
to be Incentive Stock Options under Section 422 of the Code shall be subject to
the following terms and conditions:
(A) Exercise Price. The per share
exercise price of an Incentive Stock Option shall be no less than 100% of the
Fair Market Value per Share on the date of grant.
(B) Dollar Limitation. If an Option
granted hereunder to an Optionee is intended to be an Incentive Stock Option,
then to the extent that such Option, when considered together with all other
incentive stock options held by Optionee (whether granted hereunder or under
other plans of the Company or its Parent or Subsidiaries), would cause the Fair
Market Value of all shares of stock of the Company, its Parent and Subsidiaries
first becoming exercisable by the Optionee during any calendar year to exceed
$100,000, such Option shall be treated as a Nonstatutory Stock Option. For
purposes of the preceding sentence, (1) options shall be taken into account in
the order in which they were granted, and (2) the Fair Market Value of the
shares subject to the option shall be determined as of the time the Option or
other incentive stock option is granted.
-8-
<PAGE> 9
(C) 10% Stockholder. If any Optionee to
whom an Incentive Stock Option is to be granted pursuant to the provisions of
the Plan is, on the date of grant, the owner (as determined under Section
424(d) of the Code) of stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or of a Parent or
Subsidiary of the Company, then the following special provisions shall be
applicable to the Incentive Stock Option granted to such individual:
(I) The per Share Option price of
Shares subject to such Incentive Stock Option shall not be less than 110% of
the Fair Market Value of Common Stock on the date of grant; and
(II) The Option shall not have a
term in excess of five (5) years from the date of grant.
Except as modified by the preceding provisions of this subsection 7(a)(iv) and
except as otherwise limited by Section 422 of the Code, all of the provisions
of the Plan shall be applicable to the Incentive Stock Options granted
hereunder.
(v) OTHER PROVISIONS. Each Option granted under
the Plan may contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Administrator.
(vi) BUY-OUT PROVISIONS. The Administrator may at
any time offer on behalf of the Company to buy out, for a payment in cash or
Shares, an Option previously granted, based on such terms and conditions as the
Administrator shall establish and communicate to the Optionee at the time that
such offer is made, provided, however, that buy-out offers made to Insiders may
only be payable in cash. Any such cash offer made to an Officer or Director
shall comply with the applicable provisions of Rule 16b-3, if any.
(b) SARS.
(i) IN CONNECTION WITH OPTIONS. At the sole
discretion of the Administrator, SARs may be granted in connection with all or
any part of an Option, either concurrently with the grant of the Option or at
any time thereafter during the term of the Option. The following provisions
apply to SARs that are granted in connection with Options:
(A) The SAR shall entitle the Optionee
to exercise the SAR by surrendering to the Company unexercised a portion of the
related Option. The Optionee shall receive in exchange from the Company an
amount equal to the excess of (1) the Fair Market Value, on the date of
exercise of the SAR, of the Common Stock covered by the surrendered portion of
the related Option over (2) the exercise price of the Common Stock covered by
the surrendered portion of the related Option. Notwithstanding the foregoing,
the Administrator may place limits on the amount that may be paid upon exercise
of an SAR; provided, however, that such limit shall not restrict the
exercisability of the related Option.
(B) When an SAR is exercised, the
related Option, to the extent surrendered, shall be cancelled and shall cease
to be exercisable.
(C) An SAR 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.
-9-
<PAGE> 10
(D) An SAR may only be exercised at a
time when the Fair Market Value of the Common Stock covered by the related
Option exceeds the exercise price of the Common Stock covered by the related
Option.
(ii) INDEPENDENT OF OPTIONS. At the sole
discretion of the Administrator, SARs may be granted independently without
related Options. The following provisions apply to SARs that are not granted
in connection with Options:
(A) The SAR shall entitle the Optionee,
by exercising the SAR, to receive from the Company an amount equal to the
excess of (1) the Fair Market Value of the Common Stock covered by the
exercised portion of the SAR, as of the date of such exercise, over (2) the
Fair Market Value of the Common Stock covered by the exercised portion of the
SAR, as of the date on which the SAR was granted; provided, however, that the
Administrator may place limits on the aggregate amount that may be paid upon
exercise of an SAR.
(B) To the extent that an SAR is
exercised, it shall be cancelled and shall cease to be exercisable.
(C) SARs shall be exercisable, in whole
or in part, at such times as the Administrator shall specify in the Optionee's
SAR Agreement.
(D) An SAR may only be exercised at a
time when the Fair Market Value of the Common Stock on the exercise date
exceeds the Fair Market Value of the Common Stock on the date of grant of the
SAR.
(iii) FORM OF PAYMENT. Unless otherwise specified
in the SAR Agreement, the Company's obligation arising upon the exercise of an
SAR may be paid in Common Stock or in cash, or in any combination of Common
Stock and cash, as the Administrator, in its sole discretion, may determine.
Shares issued upon the exercise of an SAR shall be valued at their Fair Market
Value as of the date of exercise.
(iv) RULE 16b-3. SARs granted to Insiders shall
be subject to any additional restrictions of Rule 16b- 3 applicable to SARs
granted to such persons. An Insider may only exercise an SAR during such time
or times as are permitted by Rule 16b-3.
(c) EXERCISE OF OPTIONS AND SARS.
(i) RIGHT TO EXERCISE. Any Option or SAR granted
hereunder shall be exercisable at such times and under such conditions as are
determined by the Administrator and as shall be permissible under the terms of
the Plan.
(ii) NO FRACTIONAL SHARES. An Option or SAR may
not be exercised for a fraction of a Share.
(iii) PROCEDURE FOR EXERCISE. An Option or SAR
shall be deemed to be exercised when written notice of such exercise has been
given to the Company in accordance with the terms of the Option or SAR by the
person entitled to exercise the Option or SAR and full payment for the Shares
with respect to which the Option or SAR is being exercised has been received by
the Company. Full payment may, as authorized by the Administrator (and, in the
case of an Incentive Stock Option, determined at the time of grant) and
-10-
<PAGE> 11
permitted by the Option Agreement, consist of any consideration and method of
payment allowable under the Plan.
(iv) RIGHTS AS A STOCKHOLDER. Until the issuance
(as evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the stock certificate is
issued, except as provided in Section 12 of the Plan.
(v) EFFECT OF EXERCISE. Exercise of an Option in
any manner shall result in a decrease in the number of Shares which thereafter
shall be available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised. Exercise
of an SAR in any manner shall, to the extent the SAR is exercised, result in a
decrease in the number of Shares which thereafter shall be available for
purposes of the Plan, and the SAR (and the related Option, if any) shall cease
to be exercisable to the extent it has been exercised.
(vi) LEAVE OF ABSENCE. Options and SARs held by
an Optionee shall not be exercisable during the Optionee's leave of absence
from his or her employment or consulting relationship with the Company, any
Parent or Subsidiary or any Affiliated Company, regardless of the length of
such leave, except as otherwise required by law. With respect to an Optionee's
leave of absence which is ninety (90) days or less in duration, vesting of all
Options and SARs held by the Optionee shall continue uninterrupted during such
leave unless otherwise provided in the Option or SAR Agreement. With respect
to an Optionee's leave of absence which is more than ninety (90) days in
duration, vesting of any or all Options and SARs held by such Optionee shall be
suspended until the end of such leave unless (i) otherwise expressly provided
in the Option or SAR Agreement or (ii) prohibited by an applicable law or
regulation. The employment of an Optionee who takes a leave of absence of more
than 90 days after which such Optionee is not guaranteed re-employment by
contract or statute shall be deemed to have terminated for purposes of the Plan
on the ninety-first (91st) day of such leave of absence.
(d) RULE 16b-3. Options and SARs granted to Insiders
must comply with the applicable provisions of Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
(e) EFFECT OF TERMINATION.
(i) TERMINATION OF EMPLOYMENT OR CONSULTING
RELATIONSHIP. In the event an Optionee's Continuous Status as an Employee or
Consultant terminates (other than upon the Optionee's death or Disability),
such Optionee may exercise his or her Option or SAR, but (A) only to the extent
that the Optionee was entitled to exercise it at the date of such termination,
unless otherwise permitted by the Administrator, and (B) only within such
period of time following the date of such termination not exceeding five (5)
years as is determined by the Administrator (with such determination in the
case of an Incentive Stock Option being made at the time of grant of the Option
and not exceeding three (3) months) and in no event later than the expiration
of the term of such Option or SAR as set forth in the Option or SAR Agreement.
To the extent that Optionee was not entitled to exercise an Option or SAR at
the
-11-
<PAGE> 12
date of such termination, and to the extent that the Optionee does not exercise
such Option or SAR (to the extent otherwise so entitled) within the time
specified herein, the Option or SAR shall terminate.
(ii) DISABILITY OF OPTIONEE. In the event an
Optionee's Continuous Status as an Employee or Consultant terminates as a
result of the Optionee's Disability, the Optionee may exercise his or her
Option or SAR, but (A) only to the extent that the Optionee was entitled to
exercise it at the date of such termination, unless otherwise permitted by the
Administrator, and (B) only within such period of time following the date of
termination due to Disability not exceeding ten (10) years as is determined by
the Administrator (with such determination being made at the time of grant of
the Option in the case of an Incentive Stock Option and not exceeding one (1)
year) and in no event later than the expiration of the term of such Option or
SAR as set forth in the Option or SAR Agreement. To the extent that Optionee
was not entitled to exercise an Option or SAR at the date of such termination,
and to the extent that the Optionee does not exercise such Option or SAR (to
the extent otherwise so entitled) within the time specified herein, the Option
or SAR shall terminate.
(iii) DEATH OF OPTIONEE. In the event of an
Optionee's death during the term of an Option or SAR, the Optionee's estate or
a person who acquired the right to exercise the deceased Optionee's Option or
SAR by bequest or inheritance may exercise the Option or SAR, but (A) only to
the extent that the Optionee was entitled to exercise it at the date of death,
unless otherwise permitted by the Administrator and (B) only within such period
of time following the date of death not exceeding ten (10) years as is
determined by the Administrator, and in no event later than the expiration of
the term of such Option or SAR as set forth in the Option or SAR Agreement. To
the extent that Optionee was not entitled to exercise an Option or SAR at the
date of death, and to the extent that the Optionee's estate or a person who
acquired the right to exercise such Option does not exercise such Option or SAR
(to the extent otherwise so entitled) within the time specified herein, the
Option or SAR shall terminate.
8. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be
issued either alone, in addition to or in tandem with other awards granted
under the Plan and/or awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in a written Notice of Grant of the terms, conditions and
restrictions related to the offer, including the number of Shares that the
offeree shall be entitled to purchase, the price to be paid, the form of
payment that is acceptable (which may, in the discretion of the Administrator,
include any form of payment enumerated in Section 7(a)(iii) hereof), and the
time within which the offeree must accept such offer, which shall in no event
exceed sixty (60) days from the date upon which the Administrator made the
determination to grant the Stock Purchase Right. The offer shall be accepted
by execution of a Restricted Stock Purchase Agreement in the form determined by
the Administrator and payment of the purchase price. Shares purchased pursuant
to a Stock Purchase Right shall be referred to herein as "Restricted Stock".
(b) REPURCHASE OPTION. Unless the Administrator
determines otherwise, the Restricted Stock Purchase Agreement shall grant the
Company a repurchase option exercisable upon the voluntary or involuntary
termination of the purchaser's Continuous Status as an Employee or Consultant
for any reason
-12-
<PAGE> 13
(including death or Disability). The purchase price for Shares repurchased by
the Company pursuant to the provisions of the Restricted Stock Purchase
Agreement shall be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to the Company, whether or
not such indebtedness is related to the original purchase of the Shares being
repurchased by the Company. The repurchase option shall lapse at such rate as
the Administrator may determine.
(c) OTHER PROVISIONS. The Restricted Stock Purchase
Agreement shall contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Administrator in its
sole discretion. The provisions of Restricted Stock Purchase Agreements need
not be the same with respect to each purchaser.
(d) RULE 16b-3. Stock Purchase Rights granted to
Insiders, and Shares purchased by Insiders pursuant to Stock Purchase Rights,
shall be subject to such additional conditions or restrictions of Rule 16b-3 as
may be applicable thereto in order to qualify for the maximum exemption from
Section 16 of the Exchange Act with respect to Plan transactions.
(e) RIGHTS AS A STOCKHOLDER. Once the Stock Purchase
Right is exercised, the purchaser shall have the rights equivalent to those of
a stockholder and shall be a stockholder when his or her purchase is entered
upon the records of the duly authorized transfer agent of the Company. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the Stock Purchase Right is exercised, except as provided
in Section 12 of the Plan.
9. STOCK BONUS AWARDS. Stock Bonus Awards may be granted either
alone, in addition to or in tandem with other awards granted under the Plan
and/or awards made outside of the Plan. Stock Bonus Awards shall not require
payment by the Optionee of any consideration for the Shares covered by the
Stock Bonus Award. The Administrator shall determine, in its sole discretion,
the terms, conditions and restrictions relating to each Stock Bonus Award and
shall determine any performance or employment-related factors to be considered
in the granting of Stock Bonus Awards and the extent to which such Stock Bonus
Awards have been earned. Shares issued pursuant to a Stock Bonus Award may be
made subject to various conditions, including vesting or forfeiture provisions.
Stock Bonus Awards may vary from participant to participant and between groups
of participants. Each Stock Bonus Award shall be confirmed by, and be subject
to the terms of, a Stock Bonus Award agreement.
10. LONG-TERM PERFORMANCE AWARDS.
(a) AWARDS. Long-Term Performance Awards are cash or
stock bonus awards that may be granted either alone, in addition to or in
tandem with other awards granted under the Plan and/or awards made outside of
the Plan. Long-Term Performance Awards shall not require payment by the
Optionee of any consideration for the Long-Term Performance Award or for the
Shares covered by such award. The Administrator shall determine the nature,
length and starting date of any performance period (the "Performance Period")
for each Long-Term Performance Award and shall determine the performance or
employment factors, if any, to be used in the determination of the value of
Long-Term Performance Awards and the extent to which such Long-Term Performance
Awards have been earned. Shares issued pursuant to a Long-Term Performance
Award may be made subject to various conditions, including vesting or
forfeiture provisions. Long-Term Performance Awards may vary from participant
to participant and between groups of participants and shall be
-13-
<PAGE> 14
based upon the achievement of Company, Subsidiary, Parent, Affiliated Company
and/or individual performance factors or upon such other criteria as the
Administrator may deem appropriate. Performance Periods may overlap and
participants may participate simultaneously with respect to Long-Term
Performance Awards that are subject to different Performance Periods and
different performance factors and criteria. Long-Term Performance Awards shall
be confirmed by, and be subject to the terms of, a Long-Term Performance Award
agreement.
(b) VALUE OF AWARDS. At the beginning of each
Performance Period, the Administrator may determine for each Long-Term
Performance Award subject to such Performance Period the range of dollar values
and/or numbers of shares of Common Stock to be awarded to the participant at
the end of the Performance Period if and to the extent that the relevant
measures of performance for such Long-Term Performance Award are met. Such
dollar values or numbers of shares of Common Stock may be fixed or may vary in
accordance with such performance or other criteria as may be determined by the
Administrator.
(c) ADJUSTMENT OF AWARDS. Notwithstanding the provisions
of Section 15 hereof, the Administrator may, after the grant of Long-Term
Performance Awards, adjust the performance factors applicable to such Long-Term
Performance Awards to take into account changes in the law or in accounting or
tax rules and to make such adjustments as the Administrator deems necessary or
appropriate to reflect the inclusion or exclusion of the impact of
extraordinary or unusual items, events or circumstances in order to avoid
windfalls or hardships.
11. NON-TRANSFERABILITY OF OPTIONS. Options and Rights may not be
sold, pledged, assigned, hypothecated, transferred or disposed of in any manner
other than by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act, or the rules thereunder. The
designation of a beneficiary by an Optionee does not constitute a transfer. An
Option or Right may be exercised, during the lifetime of the Optionee, only by
the Optionee or by a transferee permitted by this Section 11.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION,
MERGER, ASSET SALE OR CHANGE OF CONTROL.
(a) CHANGES IN CAPITALIZATION. Subject to any required
action by the stockholders of the Company, the number of shares of Common Stock
covered by each outstanding Option and Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Rights have yet been granted or which have been returned to
the Plan upon cancellation or expiration of an Option or Right, as well as the
price per share of Common Stock covered by each such outstanding Option or
Right, shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of issued shares of
Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Administrator, whose determination in that
respect shall be final, binding and conclusive.
-14-
<PAGE> 15
(b) DISSOLUTION OR LIQUIDATION. In the event of the
proposed dissolution or liquidation of the Company, to the extent that an
Option or Right has not been previously exercised, it will terminate
immediately prior to the consummation of such proposed action. The
Administrator may, in the exercise of its sole discretion in such instances,
declare that all Options and Rights shall terminate as of a date fixed by the
Administrator and give each Optionee the right to exercise his or her Option or
Right as to all or any part of the Optioned Stock, including Shares as to which
the Option or Right would not otherwise be exercisable.
(c) MERGER OR ASSET SALE. In the event of a merger of
the Company with or into another corporation or the sale of substantially all
of the assets of the Company, each outstanding Option and Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. However,
the Administrator may, in lieu of such assumption or substitution, provide for
the Optionee to have the right to exercise the Option or Right in full,
including Shares as to which such Options or Rights would not otherwise be
exercisable. If the Administrator makes an Option or Right fully exercisable
in lieu of assumption or substitution in the event of a merger or sale of
assets, the Administrator shall notify the Optionee that the Option or Right
shall be fully exercisable for a period of time determined by the Administrator
from the date of such notice, and the Option or Right will terminate upon the
expiration of such period. For the purposes of this paragraph, the Option or
Right shall be considered assumed if, immediately following the merger or sale
of assets, the option or right confers the right to purchase, for each Share of
Optioned Stock subject to the Option or Right immediately prior to the merger
or sale of assets, the consideration (whether stock, cash, or other securities
or property) received in the merger or sale of assets by holders of Common
Stock for each Share held on the effective date of the transaction (and, if
such holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding Shares); provided,
however, that if such consideration received in the merger or sale of assets
was not solely common stock of the successor corporation or its Parent, the
Administrator may, with the consent of the successor corporation and the
participant, provide for the consideration to be received upon the exercise of
the Option or Right, for each Share of Optioned Stock subject to the Option or
Right, to be solely common stock of the successor corporation or its Parent
equal in Fair Market Value to the per share consideration received by holders
of Common Stock in the merger or sale of assets.
(d) CHANGE IN CONTROL. In the event of a "Change in
Control" of the Company, as defined in paragraph (e) below, unless otherwise
determined by the Administrator prior to the occurrence of such Change in
Control, any Options and Rights outstanding on the date such Change in Control
is determined to have occurred that are not yet exercisable and vested on such
date shall become fully exercisable and vested.
(e) DEFINITION OF "CHANGE IN CONTROL". For purposes of
this Section 12, a "Change in Control" means the happening of any of the
following:
(i) When any "person", as such term is used in
Sections 13(d) and 14(d) of the Exchange Act (other than the Company, a
Subsidiary or a Company employee benefit plan, including any trustee of such
plan acting as trustee) is or becomes the "beneficial owner" (as defined in
Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of
securities of the Company representing fifty percent (50%) or more of the
combined voting power of the Company's then outstanding securities; or
-15-
<PAGE> 16
(ii) The stockholders of the Company approve a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve an agreement for the sale or disposition by the Company
of all or substantially all of the Company's assets; or
(iii) A change in the composition of the Board of
Directors of the Company, as a result of which fewer than a majority of the
directors in office are Incumbent Directors. "Incumbent Directors" shall mean
directors who either (A) are directors of the Company as of the date the Plan
is approved by the stockholders, or (B) are elected, or nominated for election,
to the Board of Directors of the Company with the affirmative votes of at least
a majority of the Incumbent Directors at the time of such election or
nomination (but shall not include an individual whose election or nomination
is in connection with an actual or threatened proxy contest relating to the
election of directors to the Company).
(f) NO OTHER ADJUSTMENTS. Except as expressly provided
or authorized herein, no issuance by the Company of shares of stock of any
class, or securities convertible into or exercisable for shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option
or Right.
13. STOCK WITHHOLDING TO SATISFY WITHHOLDING TAX OBLIGATIONS.
(a) ABILITY TO USE STOCK TO SATISFY WITHHOLDING. At the
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this Section 13. When an Optionee incurs tax liability in
connection with the award, vesting or exercise of an Option or Right, which tax
liability is subject to tax withholding under applicable tax laws (including
federal, state and local laws), and the Optionee is obligated to pay the
Company an amount required to be withheld under such applicable tax laws, the
Optionee may satisfy the withholding tax obligation (up to an amount calculated
by applying such Optionee's maximum marginal tax rate) by electing to have the
Company withhold from the Shares to be issued upon award, vesting or exercise
of the Option or Right that number of Shares, or by delivering to the Company
that number of previously owned Shares, having a Fair Market Value equal to the
amount required to be withheld. The Fair Market Value of the Shares to be
withheld or delivered, as the case may be, shall be determined on the date that
the amount of tax to be withheld is determined (the "Tax Date").
(b) ELECTION TO HAVE STOCK WITHHELD. All elections by an
Optionee to have Shares withheld or to deliver previously owned Shares pursuant
to this Section 13 shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(i) the election must be made on or prior to the
applicable Tax Date;
(ii) all elections shall be subject to the consent
or disapproval of the Administrator; and
-16-
<PAGE> 17
(iii) if the Optionee is an Insider, the election
must comply with the applicable provisions of Rule 16b-3 and shall be subject
to such additional conditions or restrictions as may be required thereunder to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
(c) SECTION 83(b) ELECTIONS. In the event that an
election to have Shares withheld is made by an Optionee, no election is filed
under Section 83(b) of the Code by such Optionee and the Tax Date is deferred
under Section 83 of the Code, the Optionee shall receive the full number of
Shares with respect to which the Option or Right has been awarded, has vested
or has been exercised, as the case may be, but such Optionee shall be
unconditionally obligated to tender back to the Company the proper number of
Shares on the Tax Date.
14. TIME OF GRANTING OPTIONS AND RIGHTS. The date of grant of an
Option or Right shall, for all purposes, be the date on which the Administrator
makes the determination granting such Option or Right or such future date as is
specified in the resolutions of the Administrator grating such Option or Right.
Notice of the determination shall be given to each Employee or Consultant to
whom an Option or Right is so granted within a reasonable time after the date
of such grant.
15. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time
amend, alter, suspend or terminate the Plan, but no amendment, alteration,
suspension or termination shall be made which would impair the rights of any
Optionee under any Option or Right theretofore granted without his or her
consent.
(b) STOCKHOLDER APPROVAL. The Company shall obtain
stockholder approval of any Plan amendment to the extent necessary and
desirable to comply with Rule 16b-3 or with Section 422 of the Code (or any
successor statute or rule or other applicable law, rule or regulation,
including the requirements of any exchange or quotation system on which the
Common Stock is listed or quoted). Such stockholder approval, if required,
shall be obtained in such a manner and to such a degree as is required by the
applicable law, rule or regulation.
(c) EFFECT OF AMENDMENT OR TERMINATION. Any such
amendment, alteration, suspension or termination of the Plan shall not
adversely affect Options or Rights already granted and such Options and Rights
shall remain in full force and effect as if this Plan had not been amended,
altered, suspended or terminated, unless mutually agreed otherwise between the
Optionee and the Administrator, which agreement must be in writing and signed
by the Optionee and the Company.
16. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued
pursuant to the award, vesting or exercise of an Option or Right unless the
award, vesting or exercise of such Option or Right, as the case may be, and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act
of 1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, applicable state securities laws and the requirements of any stock
exchange or quotation system upon which the Shares may then be listed or
-17-
<PAGE> 18
quoted, and shall be further subject to the approval of counsel for the Company
with respect to such compliance.
(b) INVESTMENT REPRESENTATION. As a condition to the
receipt of Shares upon the award, vesting or exercise of an Option or Right,
the Company may require the person receiving such Shares to represent and
warrant at the time of any such award, vesting or exercise that the Shares are
being acquired only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required by any of the aforementioned relevant provisions of
law.
(c) REGULATORY AUTHORITY. The inability of the Company
to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
(d) GRANTS EXCEEDING ALLOTTED SHARES. If the Optioned
Stock covered by an Option or Right exceeds, as of the date of grant, the
number of Shares which may be issued under the Plan without additional
stockholder approval, such Option or Right shall be void with respect to such
excess Optioned Stock, unless stockholder approval of an amendment sufficiently
increasing the number of Shares subject to the Plan is timely obtained in
accordance with Section 15(b) of the Plan.
17. RESERVATION OF SHARES. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
18. AGREEMENTS. Options and Rights shall be evidenced by written
agreements in such form as the Administrator shall approve from time to time.
19. STOCKHOLDER APPROVAL. Continuance of the Plan shall be
subject to approval by the stockholders of the Company within twelve (12)
months before or after the date the Plan is adopted as provided in Section 6.
Such stockholder approval shall be obtained in the degree and manner required
under applicable state and federal law.
20. NO EMPLOYMENT OR CONSULTING AGREEMENT. Neither the Plan nor
any Option or Right nor any agreement evidencing such awards nor the vesting
thereof shall confer upon an Optionee any right with respect to continuing the
Optionee's employment or consulting relationship with the Company, nor shall
they interfere in any way with the Optionee's right or the Company's right to
terminate such employment or consulting relationship at any time, with or
without cause.
21. PERFORMANCE-BASED PLAN LIMITATION. The following limitations
shall apply to grants of Options to Employees:
(i) No Employee shall be granted, in any fiscal year of
the Company, Options to purchase more than 500,000 Shares.
(ii) In connection with his or her initial employment, an
Employee may be granted Options to purchase up to an additional 500,000 Shares,
which shall not count against the limit set forth in subsection (i) above.
-18-
<PAGE> 19
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization
as described in Section 12.
(iv) If an Option is cancelled in the same fiscal year of
the Company in which it was granted (other than in connection with a
transaction described in Section 12), the cancelled Option will be counted
against the limit set forth in this Section 21. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
-19-
<PAGE> 1
EXHIBIT 10.9
VLSI TECHNOLOGY, INC
AMENDED AND RESTATED
EMPLOYEE STOCK PURCHASE PLAN
(Amended and Restated Plan adopted by the Board of Directors on January 15,
1987, amended by the Board on April 22, 1987, February 17, 1989, March 6, 1991,
February 11, 1992, February 10, 1993 and February 28, 1995 and subject to
stockholder approval at the 1995 Annual Meeting of Stockholders; first approved
by the stockholders on April 22, 1987).
1. ESTABLISHMENT OF PLAN. VLSI Technology, Inc. (the "Company")
proposes to grant options for purchase of the Company's Common Stock to
eligible employees of the Company and Subsidiaries (as hereinafter defined)
pursuant to this Amended and Restated Employee Stock Purchase Plan (the
"Plan"). For purposes of this Plan, "parent corporation" and "Subsidiary"
(collectively, "Subsidiaries") shall have the same meanings as "parent
corporation" and "subsidiary corporation" in Sections 424(e) and 424(f),
respectively, of the Internal Revenue Code of 1986, as amended (the "Code").
The Company intends that the Plan shall qualify as an "employee stock purchase
plan" under Section 423 of the Code (including any amendments or replacements
of such section), and the Plan shall be so construed. Any term not expressly
defined in the Plan but defined for purposes of such Section 423 shall have the
same definition herein. A total of 9,000,000 shares of Common Stock are
reserved for issuance under the Plan, of which 2,400,000 shares shall be
subject to stockholder approval at the 1995 Annual Meeting of Stockholders.
Such number shall be subject to adjustments effected in accordance with Section
14 of the Plan. All shares purchased under the Plan since its initial adoption
on August 1, 1983 shall be counted against the 9,000,000 shares reserved under
the Plan.
2. PURPOSES. The purpose of the Plan is to provide employees of
the Company and Subsidiaries with a convenient means to acquire an equity
interest in the Company through payroll deductions, to enhance such employees'
sense of participation in the affairs of the Company and Subsidiaries, and to
provide an incentive for continued employment.
3. ADMINISTRATION.
(a) ADMINISTRATIVE BODY. The Plan is administered by the
Compensation Committee appointed by the Board of Directors of the Company or,
if no such Committee has been appointed, then by the Board of Directors of the
Company (in which event all references herein to the Compensation Committee
shall be to the Board of Directors). Subject to the provisions of the Plan,
the limitations of Section 423 of the Code or any successor provision in the
Code and the requirements of Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended, or any successor provision ("Rule 16b-3"),
all questions of interpretation or application of the Plan shall be determined
by the Compensation Committee, and its decisions shall be final and binding
upon all participants. Members of the Compensation Committee shall receive no
compensation for their services in connection with the administration of the
Plan, other than standard fees as established from time to time by the Board of
Directors of the Company for services rendered by Board members serving on
Board committees. All expenses incurred in connection with the administration
of the Plan shall be paid by the Company.
-1-
<PAGE> 2
(b) Rule 16b-3 Limitations. Notwithstanding the
provisions of Subsection (a) of this Section 3, in the event that Rule 16b-3
provides specific requirements for the administrators of plans of this type,
the Plan shall only be administered by such a body and in such a manner as
shall comply with the applicable requirements of Rule 16b-3. Unless permitted
by Rule 16b-3, no discretion concerning decisions regarding the Plan shall be
afforded to any committee or person that is not "disinterested" as that term is
used in Rule 16b-3.
4. ELIGIBILITY. Any employee of the Company or the Subsidiaries
is eligible to participate in an Offering Period (as hereinafter defined) under
the Plan except the following:
(a) employees who are not employed by the Company or
Subsidiaries on the fifteenth (15th) day of the month before the beginning of
such Offering Period;
(b) employees who are customarily employed for less than
twenty (20) hours per week;
(c) employees who are customarily employed for less than
five (5) months in a calendar year;
(d) employees who, together with any other person whose
stock would be attributed to such employee pursuant to Section 424(d) of the
Code, own stock and/or hold options to purchase stock or who, as a result of
being granted an option under the Plan with respect to such Offering Period,
would own stock and/or hold options to purchase stock possessing five percent
(5%) or more of the total combined voting power or value of all classes of
stock of the Company or any of its Subsidiaries; and
(e) employees who would, by virtue of their participation
in such Offering Period, be participating simultaneously in more than one
Offering Period under the Plan.
5. OFFERING DATES. The Plan is implemented by overlapping
offering periods of twenty-four (24) months duration (the "Offering Period").
The first Offering Period with a 24-month duration shall commence on May 1,
1987. Subsequent Offering Periods shall commence May 1 and November 1 of each
year and end on the second April 30 and October 31, respectively, thereafter.
The first day of each Offering Period is referred to as the "Offering Date."
Each Offering Period shall consist of four six-month purchase periods
(individually, a "Purchase Period") during which payroll deductions of the
participant are accumulated under this Plan. Each such six-month Purchase
Period shall commence on each May 1 and November 1 of an Offering Period and
shall end on the next October 31 and April 30, respectively. The last business
day of each Purchase Period is hereinafter referred to as the "Purchase Date."
The Board of Directors of the Company shall have the power to change the
duration of Offering Periods or Purchase Periods with respect to future
offerings without stockholder approval if such change is announced at least
fifteen (15) days prior to the scheduled beginning of the first Offering Period
or Purchase Period, as the case may be, to be affected.
6. PARTICIPATION IN THE PLAN. Eligible employees may become
participants in an Offering Period under the Plan on the first Offering Date
after satisfying the eligibility requirements by delivering to the Company's or
Subsidiary's (whichever employs such employee) payroll office (the
-2-
<PAGE> 3
"payroll office") not later than the fifteenth (15th) day of the month before
such Offering Date (unless a later time for filing the subscription agreement
is set by the Board for all eligible Employees with respect to a given Offering
Period) a subscription agreement authorizing payroll deductions. An eligible
employee who does not deliver a subscription agreement to the payroll office by
such date after becoming eligible to participate in such Offering Period under
the Plan shall not participate in that Offering Period or any subsequent
Offering Period unless such employee subsequently enrolls in the Plan by filing
the subscription agreement with the payroll office not later than the fifteenth
(15th) day of the month preceding a subsequent Offering Date. Once an employee
becomes a participant in the Plan, such employee will automatically participate
in each successive Offering Period until such time as such employee withdraws
from the Plan or terminates further participation in a given Offering Period as
set forth below, and is not required to file any additional subscription
agreements for subsequent Offering Periods in order to continue participation
in the Plan. A participant in the Plan may participate in only one Offering
Period at any time.
7. GRANT OF OPTION ON ENROLLMENT.
(a) ENROLLMENT; MAXIMUM SHARES SUBJECT TO OPTION.
Enrollment by an eligible employee in the Plan with respect to an Offering
Period will constitute the grant (as of the Offering Date) by the Company to
such employee of an option to purchase on each Purchase Date up to that number
of shares of Common Stock of the Company determined by dividing the amount
accumulated in such employee's payroll deduction account during such Purchase
Period by the lower of (i) eighty-five percent (85%) of the fair market value
of a share of the Company's Common Stock on the Offering Date (the "Entry
Price") or (ii) eighty-five percent (85%) of the fair market value of a share
of the Company's Common Stock on the Purchase Date; provided, however, that the
number of shares of the Company's Common Stock subject to any option granted
pursuant to this Plan shall not exceed the lesser of (A) the aggregate of the
maximum number of shares set by the Compensation Committee pursuant to Section
10(c) below with respect to each Purchase Period within the applicable Offering
Period, or (B) 8,400 shares. The number of shares of Common Stock which are
exercisable on a given Purchase Date within an Offering Period shall be
determined by dividing the employee's payroll deductions accumulated during the
Purchase Period ending on such Purchase Date by the lower of the Entry Price
for such Offering Period or eighty-five percent (85%) of the fair market value
of a share of the Company's Common Stock on such Purchase Date; provided,
however, that the number of shares exercisable on any Purchase Date shall not
exceed the lesser of (x) the maximum number of shares set by the Compensation
Committee pursuant to Section 10(c) below with respect to such Purchase Period,
or (y) 8,400 shares less any shares purchased by such employee on prior
Purchase Dates within the same Offering Period. Fair market value of a share
of the Company's Common Stock shall be determined as provided in Section 8
hereof.
(b) RE-ENROLLMENT. Re-enrollment by a participant in the
Plan (but not merely a change in the level of payroll deductions other than a
reduction of payroll deductions to 0%) will constitute the grant by the Company
to the participant of a new option on the first day of the next Offering Period
that commences on or after the date that such re-enrollment occurs. Any
participant whose option expires and who has not withdrawn from the Plan will
automatically be re-enrolled in the Plan and granted a new option on the
Offering Date of the next Offering Period.
-3-
<PAGE> 4
8. PURCHASE PRICE.
(a) PURCHASE PRICE DETERMINATION. The purchase price per
share at which a share of Common Stock will be sold in any Offering Period
shall be eighty-five percent (85%) of the lesser of:
(i) The fair market value on the Offering Date; or
(ii) The fair market value on the Purchase Date.
(b) FAIR MARKET VALUE. For purposes of the Plan, the
term "fair market value" on a particular date shall mean the following amount
for such date (or, if no prices are reported for such date, then for the last
date prior thereto for which prices were reported): (i) the closing price of a
share of the Company's Common Stock, as reported on the NASDAQ National Market
System or as reported on such other stock exchange or market system as the
Common Stock is traded on, or (ii) if no closing price for the Common Stock is
so quoted, then the average of the closing bid and asked prices, or (iii) if
neither of the foregoing is reported, then as determined by the Compensation
Committee.
9. PAYROLL DEDUCTIONS; ISSUANCE OF SHARES.
(a) PAYROLL DEDUCTION PERCENTAGE; ELIGIBLE COMPENSATION.
The purchase price of the shares is accumulated by regular payroll deductions
made during each Purchase Period, which deductions are to be made as a
percentage of the employee's regular compensation. Upon initial subscription
to an Offering Period under the Plan, a participant must authorize a deduction
of not less than one-tenth of one percent (0.1%) and not more than ten percent
(10%) of the participant's regular compensation (the "Initial Deduction Rate").
All deduction percentages of less than one percent (1%) may only be made in
increments of one-tenth of one percent (0.1%). All deduction percentages of
one percent (1%) or more (up to the maximum of ten percent (10%)) may only be
made in increments of one percent (1%). Regular compensation shall mean all
gross earnings, including regular straight time pay, payments for overtime,
shift premium, incentive compensation, incentive payments, bonuses, and
commissions, but excluding profit sharing and any other income (such as
relocation expenses, automobile reimbursement, severance payments or other
employee benefits). For purposes of determining a participant's compensation,
any election by such participant to reduce his/her regular cash remuneration
under Code Section 125 or 401(k) shall be treated as if the participant did not
make such election. Payroll deductions shall commence on the first payday
following the Offering Date and shall continue to be made on each payday during
the Offering Period unless altered or terminated as provided in the Plan.
(b) CHANGE IN RATE OF PAYROLL DEDUCTIONS. A participant
may decrease (but not increase) the rate of payroll deductions during a
Purchase Period by filing with the payroll office a new authorization for
payroll deductions, in which case the new rate shall become effective for the
next payroll period commencing more than fifteen (15) days after the payroll
office's receipt of the authorization. Such change in the rate of payroll
deductions may be made at any time during an Offering Period, but not more than
one change may be made effective during any Purchase Period. Notwithstanding
subsection (a) of this Section 9, a participant may decrease the rate of
payroll deductions during a Purchase Period to a rate of zero
-4-
<PAGE> 5
percent (0%) after the Initial Deduction Rate has been chosen and at least one
deduction has been made in accordance therewith during the Purchase Period. In
such a case, the participant will continue to participate in the current
Purchase Period to the extent of payroll deductions that have been made during
such Purchase Period and prior to the reduction of the rate to 0%, but such
participant will be considered to have withdrawn from any future Purchase
Periods during such Offering Period and from the Plan effective immediately
following the Purchase Date relating to the Purchase Period during which such
reduction in payroll deductions to 0% was made such that the total amount of
payroll deductions made during such Purchase Period are used to purchase shares
of Common Stock in accordance with Section 7(a) hereof; PROVIDED, HOWEVER, that
a participant who so withdraws from the Plan may re-enroll in the Plan for the
next or any subsequent Offering Period following such withdrawal pursuant to
Section 6 hereof. A participant may increase (subject to the limitations
contained herein) or decrease the rate of payroll deductions for any subsequent
Purchase Period by filing with the payroll office a new authorization for
payroll deductions not later than the fifteenth (15th) day of the month before
the beginning of such Purchase Period. Such changed rate of payroll deductions
shall be subject to the limitations described in Subsection (a) of this Section
9.
(c) NO SEGREGATION OF PAYROLL DEDUCTIONS REQUIRED; NO
INTEREST. All payroll deductions made for a participant are credited to
his/her account under the Plan and are deposited with the general funds of the
Company; 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 the Company shall not be obligated to segregate such payroll
deductions.
(d) PURCHASE OF SHARES. On each Purchase Date, so long
as the Plan remains in effect and provided that the participant has not
submitted a signed and completed withdrawal form before that date which
notifies the Company that the participant wishes to withdraw from that Offering
Period under the Plan and have all payroll deductions accumulated in the
participant's account on that date returned to him/her, the Company shall apply
the funds then in the participant's account to the purchase of whole shares of
Common Stock reserved under the option granted to such participant with respect
to the Offering Period to the extent that such option is exercisable on the
Purchase Date. The purchase price per share shall be as specified in Section 8
of the Plan. Any amount remaining in such participant's account after a
purchase of shares on a Purchase Date shall, to the extent that such amount is
less than the amount necessary to purchase a full share of Common Stock of the
Company, be retained in such participant's payroll deduction account and
treated as an amount contributed to such account in the next succeeding
Purchase Period or, if the Purchase Date is the last Purchase Date in an
Offering Period, in the next succeeding Offering Period. Any additional cash
remaining to the credit of a participant's account after such purchase of
shares shall be refunded to such participant in cash. In the event that the
Plan has been oversubscribed, all funds not used to purchase shares on the
Purchase Date shall be returned to the participant. No Common Stock shall be
purchased on a Purchase Date on behalf of any employee whose participation in
the Plan has terminated prior to such Purchase Date.
(e) DELIVERY OF STOCK CERTIFICATES. Subject to the
provisions of this Plan, as promptly as practicable after the Purchase Date,
the Company shall cause to be delivered to the participant certificates
representing the shares purchased by the participant. Delivery shall be
-5-
<PAGE> 6
deemed effective for all purposes when the Company's stock transfer agent
deposits the stock certificates in the United States mail addressed to the
participant at the address specified by the participant on the subscription
agreement.
(f) EXERCISE OF OPTION ONLY BY PARTICIPANT. During a
participant's lifetime, such participant's option to purchase shares hereunder
is exercisable only by him/her. The participant will have no interest or
voting right in shares covered by his/her option until such option has been
exercised. Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his/her spouse.
10. LIMITATIONS ON SHARES TO BE PURCHASED.
(a) $25,000 LIMITATION. No employee shall be entitled to
purchase stock under the Plan at a rate which, when aggregated with his/her
rights to purchase stock under all other employee stock purchase plans of the
Company or any Subsidiary, exceeds $25,000 in fair market value, determined as
of the Offering Date (or such other limit as may be imposed by the Code) for
each calendar year in which the employee participates in the Plan.
(b) MAXIMUM NUMBER OF SHARES. No more than 8,400 shares
may be purchased by a participant on any single Purchase Date or during any
single Offering Period.
(c) DECREASE IN MAXIMUM SHARES BY COMMITTEE. No employee
shall be entitled to purchase more than the Maximum Share Amount (as defined
below) on any single Purchase Date. Not less than thirty days prior to the
commencement of any Purchase Period, the Compensation Committee may, in its
sole discretion, set a maximum number of shares which may be purchased by any
employee on any single Purchase Date (hereinafter the "Maximum Share Amount").
In no event shall the Maximum Share Amount exceed the amounts permitted under
Section 10(b) above. If a new Maximum Share Amount is set, then all
participants must be notified of such Maximum Share Amount not less than
fifteen days prior to the commencement of the next Purchase Period. Once the
Maximum Share Amount is set, it shall continue to apply in respect of all
succeeding Purchase Dates and Purchase Periods unless revised or rescinded by
the Compensation Committee as set forth above.
(d) EQUITABLE ALLOCATION OF REMAINING SHARES. If the
number of shares to be purchased on a Purchase Date by all employees
participating in the Plan exceeds the number of shares then available for
issuance under the Plan, the Company will make a pro rata allocation of the
remaining shares in as uniform a manner as shall be practicable and as the
Compensation Committee shall determine to be equitable. In such event, the
Company shall give written notice of such reduction of the number of shares to
be purchased under a participant's option to each employee affected thereby.
(e) RETURN OF EXCESS PAYROLL DEDUCTIONS. Any payroll
deductions accumulated in a participant's account which are not used to
purchase stock due to the limitations in this Section 10 shall be returned to
the participant as soon as practicable after the end of the Offering Period.
-6-
<PAGE> 7
11. WITHDRAWAL.
(a) METHODS OF WITHDRAWAL. Each participant may withdraw
from a Purchase Period and an Offering Period under the Plan by signing and
delivering to the payroll office notice on a form provided for such purpose.
Such withdrawal may be elected at any time prior to the end of an Offering
Period. In addition, a participant's reduction of his or her payroll deduction
rate to zero percent (0%) pursuant to Section 9(b) constitutes a withdrawal
from the Plan immediately following the Purchase Date relating to the Purchase
Period during which such reduction was made.
(b) EFFECT OF WITHDRAWAL. Upon withdrawal from the Plan,
the accumulated payroll deductions shall be returned to the withdrawn employee
and his/her interest in the Plan shall terminate. In the event an employee
voluntarily elects to withdraw from the Plan, he/she may not resume his/her
participation in the Plan during the same Offering Period, but he/she may
participate in any Offering Period under the Plan which commences on a date
subsequent to such withdrawal by filing a new authorization for payroll
deductions in the same manner as set forth above for initial participation in
the Plan.
(c) EXERCISE, WITHDRAWAL AND ENROLLMENT IN NEXT OFFERING
PERIOD. A participant may participate in the current Purchase Period (the
"Current Purchase Period") under an Offering Period (the "Current Offering
Period") and enroll in the Offering Period commencing immediately after the
Current Purchase Period (the "New Offering Period") by (i) withdrawing from
participation in the Current Offering Period effective as of immediately
following the purchase of shares on the Purchase Date of the Current Purchase
Period within the Current Offering Period and (ii) enrolling in the New
Offering Period. Such withdrawal and enrollment shall be effected by filing
with the payroll office such form or forms as are provided for such purposes.
12. TERMINATION OF EMPLOYMENT. Termination of a participant's
employment for any reason, including retirement or death or the failure of a
participant to remain an eligible employee, terminates his/her participation in
the Plan immediately. In such event, the payroll deductions credited to the
participant's account will be returned to him/her or, in the case of his/her
death, to his/her legal representative. For this purpose, an employee will not
be deemed to have terminated employment or failed to remain in the continuous
employ of the Company in the case of sick leave, military leave, or any other
leave of absence approved by the Board of Directors of the Company; provided
that such leave is for a period of not more than ninety (90) days or
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
13. RETURN OF PAYROLL DEDUCTIONS. In the event an employee's
interest in the Plan is terminated by withdrawal, termination of employment or
otherwise, or in the event the Plan is terminated or suspended by the Board of
Directors of the Company, the Company shall promptly deliver to the employee
all payroll deductions credited to his/her account. No interest shall accrue
on the payroll deductions of a participant in the Plan.
14. CAPITAL CHANGES.
(a) STOCK SPLITS. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered by
each option under the Plan which has not yet been exercised and the number of
shares of Common Stock which have been authorized for issuance under the
-7-
<PAGE> 8
Plan but have not yet been placed under option (collectively, the "Reserves"),
as well as the price per share of Common Stock covered by each option under the
Plan which has not yet been exercised, shall be proportionately adjusted for
any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split or the payment of a stock dividend (but only on
the Common Stock) or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive.
(b) DISSOLUTION OR LIQUIDATION. In the event of the
proposed dissolution or liquidation of the Company, the Offering Period will
terminate immediately prior to the consummation of such proposed action, unless
otherwise provided by the Board. The Board may, in the exercise of its sole
discretion in such instances, declare that the options under the Plan shall
terminate as of a date fixed by the Board and give each participant the right
to exercise his/her option as to all of the optioned stock, including shares
which would not otherwise be exercisable.
(c) SALE OF ASSETS OR MERGER. 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, each option under the Plan shall
be assumed or an equivalent option shall be substituted by the successor
corporation or a parent or subsidiary of such successor corporation, unless the
Board determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the participant shall have the right to
exercise the option as to all of the optioned stock, including shares as to
which the option would not otherwise be exercisable. If the Board makes an
option fully exercisable in lieu of assumption or substitution in the event of
a merger or sale of assets, the Board shall notify the participant that the
option shall be fully exercisable for a period of twenty (20) days from the
date of such notice, and the option will terminate upon the expiration of such
period.
(d) ADJUSTMENT OF RESERVES. The Board may, if it so
determines in the exercise of its sole discretion, also make provision for
adjusting the Reserves, as well as the price per share of Common Stock covered
by each outstanding option, in the event that the Company effects one or more
reorganizations, recapitalizations, rights offerings or other increases or
reductions of shares of its outstanding Common Stock, and in the event of the
Company being consolidated with or merged into any other corporation.
(e) NO OTHER ADJUSTMENTS. Except as expressly provided
or authorized herein, no issuance by the Company of shares of stock of any
class, or securities convertible into or exercisable for shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an option.
15. NONASSIGNABILITY. No rights or accumulated payroll deductions
of an employee under the Plan may be pledged, assigned or transferred for any
reason and any such attempt may be treated by the Company as an election by
such employee to withdraw from the Plan.
-8-
<PAGE> 9
16. REPORTS. Individual accounts will be maintained for each
participant in the Plan. Each participant shall receive promptly after the end
of each Purchase Period a report of his/her account setting forth the total
payroll deductions accumulated, the number of shares purchased, the per share
price thereof and the remaining cash balance, if any, carried forward to the
next Purchase Period or Offering Period, as the case may be.
17. NOTICE OF DISPOSITION. Each participant shall notify the
Company if the participant disposes of any of the shares purchased in any
Offering Period pursuant to this Plan if such disposition occurs within two
years from the Offering Date or within six months from the Purchase Date on
which such shares were purchased (the "Notice Period"). Unless such
participant is disposing of any of such shares during the Notice Period, such
participant shall keep the certificates representing such shares in his/her
name (and not in the name of a nominee) during the Notice Period. The Company
may, at any time during the Notice Period, place a legend or legends on any
certificate representing shares acquired pursuant to the Plan requesting the
Company's transfer agent to notify the Company of any transfer of the shares.
The obligation of the participant to provide such notice shall continue
notwithstanding the placement of any such legend on certificates.
18. NO OBLIGATION OF EMPLOYMENT. Neither this Plan nor the grant
of any option hereunder shall confer any right on any employee to remain in the
employ of the Company or any Subsidiary or restrict the right of the Company or
any Subsidiary to terminate such employee's employment.
19. DURATION, AMENDMENT AND TERMINATION OF THE PLAN.
(a) DURATION OF THE PLAN. This Plan shall continue until
the earlier to occur of termination by the Board of Directors of the Company or
issuance of all of the shares of Common Stock reserved for issuance under the
Plan.
(b) ABILITY TO AMEND OR TERMINATE THE PLAN. The Board
may at any time amend, alter, suspend or discontinue the Plan.
(c) EFFECT OF AMENDMENT. Except for limitations
expressly permitted by this Plan, amendments or alterations to the Plan or to
options under the Plan which would impair the rights of any participant in the
Plan shall not be effective with respect to any option theretofore granted
unless the consent of the participant holding such option is obtained.
Amendments which do not impair the rights of participants shall be effective
with respect to all options under the Plan, whether theretofore or thereafter
granted; provided, however, that no such amendment shall be effective with
respect to previously granted options if such amendment would constitute a
modification to such options (as defined in Section 424 of the Code) and such
modification would disqualify such options from treatment as qualified options
under Section 421 of the Code.
(d) EFFECT OF TERMINATION. Any suspension,
discontinuation or termination of the Plan shall automatically terminate all
options outstanding hereunder and any payroll deductions held in participants'
accounts under the Plan at the time of such termination shall be returned to
such participants without interest.
(e) STOCKHOLDER APPROVAL OF AMENDMENTS. The Company
shall obtain stockholder approval of any Plan amendment to the extent necessary
-9-
<PAGE> 10
and desirable to comply with Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or with Section 423 of
the Code (or any successor statute or rule or other applicable law, rule or
regulation), such stockholder approval to be obtained in such a manner and to
such a degree as is required by the applicable law, rule or regulation.
20. DEATH OF PARTICIPANT.
(a) FILING OF DESIGNATION OF BENEFICIARY. A participant
may file a written designation of a beneficiary who is to receive any shares
and cash, if any, from the participant's account under the Plan in the event of
such participant's death subsequent to the end of a Purchase Period but prior
to delivery to him/her of such shares and cash. In addition, a participant may
file a written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to a Purchase Date. Such designation of beneficiary may be changed by
the participant at any time by written notice.
(b) DEATH WITHOUT EFFECTIVE DESIGNATION OF BENEFICIARY.
In the event of the death of a participant and in the absence of a beneficiary
validly designated under the Plan who is living at the time of such
participant's death, the Company shall deliver such shares and/or cash to the
executor or administrator of the estate of the participant, or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its discretion, may deliver such shares and/or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
21. CONDITIONS UPON ISSUANCE OF SHARES.
(a) GENERAL. Shares shall not be issued with respect to
an option unless the exercise of such option and the issuance and delivery of
such shares pursuant thereto shall comply with all applicable provisions of
law, domestic or foreign, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the shares
may then be listed, and shall be further subject to the approval of counsel for
the Company with respect to such compliance.
(b) INVESTMENT REPRESENTATION. As a condition to the
exercise of an option, the Company may require the person exercising such
option to represent and warrant at the time of any such exercise that the
shares are being purchased only for investment and without any present
intention to sell or distribute such shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
applicable provisions of law.
22. ADDITIONAL RESTRICTIONS OF RULE 16B-3. The terms and
conditions of options granted hereunder to, and the terms and conditions the
purchase of shares by, persons subject to Section 16 of the Exchange Act shall
comply with the applicable provisions of Rule 16b-3. This Plan shall be deemed
to contain, and such options shall contain, and the shares issued upon exercise
thereof shall be subject to, such additional conditions and restrictions as may
be required by Rule 16b-3 to qualify for the maximum exemption from Section 16
of the Exchange Act with respect to Plan transactions.
-10-
<PAGE> 1
EXHIBIT 10.10
COMPASS DESIGN AUTOMATION, INC.
1992 STOCK OPTION PLAN
(as amended May 3, 1993)
1. Purposes of the Plan. The purposes of this 1992 Stock Option Plan
are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to Employees and
Consultants of the Company, and to promote the success of the Company's
business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant and as reflected in the Option Agreement.
2. Definitions. As used herein, the following terms shall have the
definitions set forth below:
(a) "Administrator" means the Board or any of its
Committees appointed pursuant to Section 4 of the Plan.
(b) "Applicable Laws" means the applicable laws, rules,
regulations and any other legal requirements under state corporate and
securities laws and the Code.
(c) "Board" means the Board of Directors of the Company.
(d) "Buyout Notice" means that term as defined in Section 14(a)
of the Plan.
(e) "Buyout Price" means that term as defined in Section 14(a)
of the Plan.
(f) "Buyout Right" means that term as defined in Section 14(a)
of the Plan.
(g) "Code" means the Internal Revenue Code of 1986, as amended.
(h) "Committee" means a Committee appointed by the Board in
accordance with Section 4 of the Plan.
(i) "Common Stock" means the Common Stock of the Company.
(j) "Company" means Compass Design Automation, Inc., a Delaware
corporation, and subsidiary of VLSI.
(k) "Consultant" means any person, including an advisor,
engaged by the Company or a Parent or Subsidiary of the Company to render
services and who is compensated for such services, and any Director, whether
compensated for such services or not, provided that if the Company registers any
class of its equity securities pursuant to Section 12 of the Exchange Act, the
term "Consultant" thereafter shall not include Directors who are not compensated
for their services as such or Directors who are paid only a director's fee by
the Company.
(l) "Continuous Status as an Employee or Consultant" means the
continuous uninterrupted employment or consulting relationship with the Company
or any Parent or Subsidiary of the Company. Continuous Status as an Employee or
Consultant shall not be considered interrupted in the case of: (i) any leave of
absence approved by the Administrator, including sick leave, military leave or
any other personal leave; provided, however, that for
<PAGE> 2
purposes of Incentive Stock Options, any such leave may not exceed ninety (90)
days, unless reemployment upon the expiration of such leave is guaranteed by
contract (including certain Company policies) or statute; or (ii) transfers
between locations of the Company or between the Company, its Parent, its
Subsidiaries or its successor.
(m) "Conversion Number" means that term as defined in Section
14(a) of the Plan.
(n) "Director" means a member of the Board.
(o) "Disability" means total and permanent disability as
defined in Section 22(e)(3) of the Code.
(p) "Employee" means any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(q) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(r) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange (or the exchange with the greatest volume
of trading in Common Stock) or system on the day of determination, or, if no
quote is available for such day, then on the most recent prior market trading
day for which there was a quote as reported in the Wall Street Journal or such
other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System
(but not on the National Market System thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the average of the closing bid and the asked prices for
the Common Stock on the day of determination, or, if no such prices are
available for such day then on the most recent prior market trading day for
which such prices are available, as reported in the Wall Street Journal or such
other source as the Administrator deems reliable; or,
(iii) If (r)(i) and (r)(ii) above are not applicable, then
in the absence of an established market for the Common Stock, the Fair Market
Value thereof shall be determined in good faith by the Board in its sole
discretion, using such factors, in its sole judgment, as are relevant in
measuring the value of Common Stock.
(s) "Incentive Stock Option" or "ISO" means an Option intended
to qualify as an incentive stock option within the meaning of Section 422 of the
Code and the regulations promulgated thereunder.
(t) "Nonstatutory Stock Option" or "NSO" means an Option not
intended to qualify as an Incentive Stock Option.
(u) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(v) "Option" means a stock option granted pursuant to the Plan.
(w) "Option Agreement" means a written agreement between the
<PAGE> 3
Company and an Optionee in substantially the form set forth on Appendices I or
II attached to this Plan evidencing the terms and conditions of an individual
Option grant. The Option Agreement is incorporated and made a part of the Plan.
Each Option Agreement is subject to the terms and conditions of the Plan in all
respects.
(x) "Optioned Stock" means the Common Stock subject to an
Option.
(y) "Optionee" means an Employee or Consultant who holds an
outstanding Option.
(z) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(aa) "Plan" means this 1992 Stock Option Plan.
(bb) "Public Company" means a company that is required to file
reports pursuant to Section 13 or 15(d) of the Exchange Act.
(cc) "Purchaser" means an Employee or Consultant who exercises
an Option.
(dd) "Put Period" means the twenty (20) business day period
specified by the Company during any year after April 30, 1995 (assuming the
Company is not then a Public Company and assuming VLSI continues to own any
shares of Preferred Stock of the Company or at least 50% of the outstanding
shares of Common Stock) pursuant to Section 1(a) of Restricted Stock Purchase
Agreements dated prior to May 3, 1993 during which a Purchaser may direct the
Company (or its assignee) to repurchase shares held by such Purchaser as
described in Section 1(a) of such Restricted Stock Purchase Agreements.
(ee) "Restricted Stock Purchase Agreement" means a written
agreement between the Company and a Purchaser substantially in the form attached
as Appendix II evidencing the terms and conditions of the purchase of Shares
pursuant to the exercise of an Option. The Restricted Stock Purchase Agreement
is subject to the terms and conditions of the Plan in all respects.
(ff) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(gg) "Securities Act" means the Securities Act of 1933, as
amended.
(hh) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(ii) "Subsidiary" means a "subsidiary corporation", whether now
or hereafter existing, as defined in Section 424(f) of the Code.
(jj) "Unvested Option" means that term as defined in Section
14(a) of the Plan.
(kk) "Valuation Date" means the last day of the fiscal year of
the Company.
(ll) "VLSI" means VLSI Technology, Inc., a Delaware corporation.
(mm) "Voting Power" means the number of votes which may be cast
in the election of directors of the Company at any meeting of the stockholders
of the Company if all securities entitled to vote in the election of directors
of the Company were present and voted at such meeting.
(nn) "VLSI Change of Control" means that term as defined in
<PAGE> 4
Section 14(a) of the Plan.
3. Stock Subject to the Plan. Subject to the provisions of Section
12 of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 2,700,000 Shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant under the Plan (unless the Plan has
terminated). Notwithstanding any other provision of the Plan, Shares issued
under the Plan and later repurchased by the Company shall not become available
for future grant or sale under the Plan without stockholder approval therefor to
the extent required by Section 14(b) of the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. If (A) the Company
is not a Registered Public Company (defined below), or (B) the Company is a
Registered Public Company and it is permitted by Rule 16b-3, the Plan may be
administered by different bodies with respect to Directors, non-Director
Officers, and Employees who are neither Directors nor Officers.
(ii) Administration With Respect to Directors and
Officers Subject to Section 16(b). With respect to grants of Options to
Employees who are also Officers or Directors when the Company has a class of
equity securities registered under Section 12 of the Exchange Act (in which case
the Company shall be referred to as a "Registered Public Company"), the Plan
shall be administered by (A) the Board, if the Board may administer the Plan in
compliance with the rules governing a plan intended to qualify as a
discretionary plan under Rule 16b-3, or (B) a Committee designated by the Board
to administer the Plan, which Committee shall be constituted to comply with the
rules governing a plan intended to qualify as a discretionary plan under Rule
16b-3. Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members, remove
members (with or without cause) and substitute new members, fill vacancies
(however caused), and remove all members of the Committee and thereafter
directly administer the Plan, all to the extent permitted by the rules governing
a plan intended to qualify as a discretionary plan under Rule 16b-3.
(iii) Administration With Respect to Other Persons. With
respect to grants of Options to Employees or Consultants who are neither
Directors nor Officers of the Company and grants made when the Company is not a
Registered Public Company, the Plan shall be administered by (A) the Board or
(B) a Committee designated by the Board, which Committee shall be constituted to
satisfy Applicable Laws. Once appointed, such Committee shall serve in its
designated capacity until otherwise directed by the Board. The Board may
increase the size of the Committee and appoint additional members, remove
members (with or without cause) and substitute new members, fill vacancies
(however caused), and remove all members of the Committee and thereafter
directly administer the Plan, all to the extent permitted by Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of
the Plan, and in the case of a Committee, subject to any specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:
(i) to select the Consultants and Employees to whom
Options may be granted hereunder;
<PAGE> 5
(ii) to determine whether and to what extent Options are
to be granted hereunder;
(iii) to determine the number of shares of Common Stock to
be covered by each Option granted hereunder;
(iv) to approve forms of any Option Agreement and
Restricted Stock Purchase Agreement;
(v) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder. Such
terms and conditions include, but are not limited to, the exercise price, the
time or times when Options may be exercised (which may be based on performance
criteria), and any restriction or limitation, or any waiver of forfeiture
restrictions regarding any Option or the shares of Common Stock relating
thereto, based in each case on such factors as the Administrator shall
determine, in its sole discretion;
(vi) to construe and interpret the terms of the Plan;
(vii) to prescribe, amend and rescind rules and
regulations relating to the Plan;
(viii) to modify or amend each Option (with the consent of
the Optionee);
(ix) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option previously
granted by the Administrator; and
(x) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and Purchasers and any other holders of Options or Shares.
5. Eligibility. Nonstatutory Stock Options may be granted to
Employees and Consultants. Incentive Stock Options may be granted only to
Employees. If otherwise eligible, an Employee or Consultant who has been
granted an Option may be granted additional Options.
6. Limitations.
(a) Each Option shall be designated as either an Incentive
Stock Option or a Nonstatutory Stock Option. However, notwithstanding such
designations, to the extent that the aggregate Fair Market Value: (i) of Shares
subject to an Optionee's incentive stock options granted by the Company, any
Parent or Subsidiary, which (ii) become exercisable for the first time during
any calendar year (under all plans of the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options shall be treated as Nonstatutory Stock
Options. For purposes of this Section 6(a), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time of grant.
(b) Neither the Plan nor any Option shall confer upon an
Optionee or Purchaser any right with respect to continuing the Optionee's or
Purchaser's employment or consulting relationship with the Company, nor shall
they interfere in any way with the Optionee's or Purchaser's right or the
Company's right to terminate such employment or consulting relationship at any
time, with or without cause.
7. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the stockholders of the
<PAGE> 6
Company as described in Section 17 of the Plan. It shall continue in effect for
a term of ten (10) years unless terminated earlier under Section 14 of the Plan.
8. Term of Option. The term of each Option shall be ten (10) years
from the date of grant or such shorter term as may be provided in the Option
Agreement. However, in the case of an Option granted to an Optionee who, at the
time the Option is granted, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary of the Company, the term of the Option shall be five (5) years from
the date of grant or such shorter term as may be provided in the Option
Agreement.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the
grant of such Incentive Stock Option, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary of the Company, the per Share exercise price shall be no
less than 110% of the Fair Market Value per Share on the date of grant,
(B) granted to any other Employee, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to an Employee or Consultant who, at
the time of the grant of such Nonstatutory Stock Option, owns stock representing
more than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary of the Company, the per Share exercise price
shall be no less than 110% of the Fair Market Value per Share on the date of
grant.
(B) granted to an Employee or Consultant, the per
Share exercise price shall not be less than eighty-five percent (85%) of the
Fair Market Value per Share on the date of grant.
(b) Form of Consideration. The Administrator shall determine
the acceptable form of consideration for exercising an Option, including the
method of payment, and such consideration shall be set forth in the Option
Agreement. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of (i) cash, (ii) check, (iii) promissory
note, (iv) other Shares which (a) in the case of Shares acquired upon exercise
of an Option, have been owned by the Optionee for more than six months on the
date of surrender, and (b) have a Fair Market Value on the date of surrender
equal to the aggregate exercise price of the Shares as to which said Option
shall be exercised, (v) if there is a public market for the Shares and they are
registered under the Securities Act of 1933, as amended, delivery of a properly
executed exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Company the amount of sale or loan proceeds required to
pay the exercise price or (vi) any combination of the foregoing methods of
payment. In making its determination as to the type of consideration to accept,
the Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.
10. Exercise of Option.
<PAGE> 7
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and
applicable Option Agreement and at such times and under such conditions as
determined by the Administrator.
An Option may not be exercised for a fraction of a Share.
Subject to Section 15 of the Plan, an Option shall be
deemed exercised when the Company receives: (i) written notice of exercise and a
Restricted Stock Purchase Agreement duly executed (in accordance with the terms
of the Option Agreement) from the person entitled to exercise the Option, and
(ii) full payment for the Shares with respect to which the Option is exercised.
Full payment may consist of any consideration and method of payment authorized
by the Administrator and permitted by the Option Agreement and the Plan. Shares
issued upon exercise of an Option shall be issued in the name of the Optionee,
or in the case of the Optionee's death, by the person entitled to exercise the
Option in accordance with Section 10(d) of the Plan. The stock certificate
evidencing such shares shall be issued as soon as practicable. Until the stock
certificate evidencing such Shares is issued (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. Subject to Section 15 of the Plan, the Company shall
issue (or cause to be issued) such stock certificate promptly after the Option
is exercised. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the stock certificate is issued, except as
provided in Section 12 of the Plan.
Exercising an Option in any manner shall decrease the
number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Employment or Consulting Relationship.
Subject to the terms of the Option Agreement and Sections 12 and 14 of the Plan,
in the event an Optionee's Continuous Status as an Employee or Consultant
terminates (other than upon the Optionee's death or Disability), the Optionee
may exercise his or her Option, but only within thirty days (30) from the date
of termination or such other period of time as is specified in the Option
Agreement, and only to the extent that the Optionee was entitled to exercise it
at the date of termination (but in no event later than the expiration of the
term of such Option as set forth in the Option Agreement). In the case of an
Incentive Stock Option, such period of time shall not exceed ninety (90) days
from the date of termination. If, at the date of termination, the Optionee is
not entitled to exercise his or her entire Option, the unexercisable portion of
the Option shall terminate and the Shares covered thereby shall revert to the
Plan. If, after termination, the Optionee does not exercise his or her Option
within the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
(c) Disability of Optionee. Subject to the terms of the Option
Agreement and Sections 12 and 14 of the Plan, in the event an Optionee's
Continuous Status as an Employee or Consultant terminates as a result of the
Optionee's Disability, the Optionee may exercise his or her Option at any time
within six (6) months (or such other period of time not exceeding twelve (12)
months) from the date of such termination, but only to the extent that the
Optionee was entitled to exercise it at the date of such termination (and in no
event later than the expiration of the term of such Option as set forth in the
Option Agreement). If, at the date of termination, the Optionee is not entitled
to exercise his or her entire Option, the unexercisable portion of the Option
shall terminate and the Shares covered thereby shall revert to the Plan. If,
after termination, the Optionee does not exercise his or her Option within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
<PAGE> 8
(d) Death of Optionee. Subject to the terms of the Option
Agreement and Sections 12 and 14 of the Plan, in the event of the death of an
Optionee, the Option may be exercised at any time within six (6) months
following the date of death (but in no event later than the expiration of the
term of such Option as set forth in the Option Agreement), by the Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent the Optionee was entitled to exercise the
Option at the date of death. If, at the time of death, the Optionee was not
entitled to exercise his or her entire Option, the unexercisable portion of the
Option shall terminate and the Shares covered thereby shall revert to the Plan.
If, after death, the Optionee's estate or a person who acquired the right to
exercise the Option by bequest or inheritance does not exercise the Option
within the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
(e) Rule 16b-3. Options granted to persons subject to Section
16(b) of the Exchange Act must comply with the applicable provisions of Rule
16b-3 and shall contain such additional conditions or restrictions as may be
required thereunder to qualify for the maximum exemption from Section 16 of the
Exchange Act with respect to Plan transactions.
11. Non-Transferability of Options. An Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
12. Adjustments Upon Changes in Capitalization, Dissolution, Merger
or Asset Sale.
(a) Changes in Capitalization. Subject to any required action
by the stockholders of the Company, the number of shares of Common Stock covered
by each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify all
Optionees at least fifteen (15) days prior to the taking of such proposed
action. To the extent that an Option has not been previously exercised, it will
terminate immediately prior to the consummation of such proposed action.
(c) Merger, Consolidation or Asset Sale. In the event of a
merger or consolidation of the Company with or into another corporation, or the
sale of all or substantially all of the assets of the Company, each outstanding
Option shall be assumed or an equivalent option shall be substituted by the
successor corporation or a Parent or Subsidiary of the successor corporation. In
the event that the successor corporation does not agree to assume the Option or
to substitute an equivalent option, the Administrator shall notify the Optionee
that the Option shall be exercisable
<PAGE> 9
for a period of fifteen (15) days from the date of such notice to the extent
that Optionee was entitled to exercise it upon the expiration of such period,
and, to the extent that Optionee was not entitled to exercise such Option upon
the expiration of such period, or if Optionee does not exercise such Option to
the extent so entitled within such period, the Option shall terminate. For the
purposes of this paragraph, the Option shall be considered assumed if, following
the merger, consolidation or sale of assets, the Option confers the right to
purchase, for each Share of Optioned Stock subject to the Option immediately
prior to the merger, consolidation or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger,
consolidation or sale of assets by holders of Common Stock for each Share held
on the effective date of the transaction (and if holders were offered a choice
of consideration, the type of consideration chosen by the holders of a majority
of the outstanding Shares); provided, however, that if such consideration
received in the merger, consolidation or sale of assets was not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation and the Optionee, provide for the
consideration to be received upon the exercise of the Option, for each Share of
Optioned Stock subject to the Option, to be solely common stock of the successor
corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger, consolidation
or sale of assets.
13. Date of Grant. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice thereof shall be provided within a reasonable time after the date of such
grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination.
(i) Subject to Section 14(a)(ii) below, the Board may at
any time amend or terminate the Plan, as the Board may deem advisable.
(ii) The Plan shall terminate upon the exercise by VLSI
of its "Buyout Right," as defined below. Subject to Applicable Laws, VLSI shall
have the right (the "Buyout Right"), on or after the earlier of April 30, 1995
or a VLSI Change of Control (defined below) so long as (A) VLSI holds at least
fifty percent (50%) of the total Voting Power of the Company and (B) the Company
is not then a Public Company, at its sole discretion, to purchase all, but not
less than all, of the shares of Common Stock issued under the Plan ("Outstanding
Plan Shares") and Options (including portions of Options) which are outstanding
and exercisable as of the date of the "Closing" (defined in Section 14(b)(ii)(A)
below) ("Vested Options"). Unless assumed by VLSI pursuant to Section
14(a)(ii)(B) below, all Options not exercisable as of the date of the Closing
("Unvested Options") shall terminate as of the date of the Closing. For purposes
of this Section 14(a)(ii), the term "VLSI Change of Control" means a merger or
consolidation of VLSI with or into another corporation where the stockholders of
VLSI hold less than fifty percent (50%) of the voting equity securities of the
successor or surviving corporation immediately following such merger or
consolidation.
(A) VLSI shall exercise its Buyout Right by giving
written notice (the "Buyout Notice") to holders of Outstanding Plan Shares and
to holders of Options indicating its intention to exercise such Buyout Right and
setting forth the purchase price (the "Buyout Price") and the date of closing
(the "Closing), which shall occur prior to the later of 90 days from the date of
the Buyout Notice or the receipt of any necessary federal, state or other
regulatory approvals. The Buyout Price for each Outstanding Plan Share shall be
the price per share that is determined by an investment banking firm selected by
VLSI, taking into account such factors as the investment banking firm deems
relevant, including without limitation, the Company's historical performance,
estimates of the business potential and earnings
<PAGE> 10
prospects of the Company and assessment of the Company's management. The Buyout
Price for Vested Options shall be the difference between (A) the product of (x)
the Buyout Price per Outstanding Plan Share, multiplied by (y) the number of
shares as to which the Vested Option was exercisable as of the date of the
Closing, less (B) the Exercise Price of the Vested Option (relating to such
shares) and any applicable withholding taxes.
(B) Notwithstanding the above, VLSI may, in its
sole discretion, elect to assume all Unvested Options in lieu of purchasing
them. Each Unvested Option assumed by VLSI shall continue to be on the same
terms and conditions (including without limitation the vesting provisions)
except that (1) each Unvested Option will be exercisable for that number of
shares of VLSI Common Stock that is equal to the product of (v) the number of
Shares subject to such Unvested Option multiplied by (x) the "Conversion Number"
(defined below), rounded down to the nearest share and (2) the exercise price
will be the quotient of (y) the Exercise Price divided by (z) the Conversion
Number, rounded up to the nearest cent. The "Conversion Number" shall be equal
to the number of shares of VLSI Common Stock for which each Outstanding Plan
Share would be exchanged pursuant to Section 1(c) of the Restricted Stock
Purchase Agreement, assuming that VLSI were paying the total Buyout Price
(defined below) with shares of VLSI Common Stock. It is intended that the
assumed Unvested Options will qualify following VLSI's exercise of its Buyout
Right as incentive stock options to the extent such Unvested Options qualified
as incentive stock options immediately prior to such date.
(C) The Closing shall take place at the Company's
office or at such other address as specified in the Buyout Notice. At the
Closing, the holder of the certificates for the Outstanding Plan Shares and/or
any Options being transferred shall deliver to the Company the stock certificate
or certificates evidencing such Outstanding Plan Shares and the Option
Agreement(s) relating to such Options, in exchange for the Buyout Price and, if
applicable, documents evidencing the assumption of Unvested Options. VLSI may
pay the Buyout Price by any following methods at VLSI's option (i) by delivery
to the Optionee or Purchaser (or his or her legal representative or successor,
as the case may be) of a VLSI check in the amount of a Buyout Price, (ii) in the
event the Optionee or Purchaser is indebted to VLSI, by cancellation by VLSI of
an amount of such undebtedness equal to the Buyout Price, or (iii) by issuance
to the Optionee or Purchaser of shares of VLSI Common Stock, which have been
registered under the Securities Act of 1933, as amended upon original issuance
or which have been registered by VLSI under the Act for resale by the Optionee
or Purchaser, such shares to be valued based on the closing price (or, if no
such price is quoted, the mean of the closing bid and ask prices) of VLSI Common
Stock as of the date of the Buyout Notice, or (iv) any combination of (i), (ii)
and (iii) above.
(D) The Company and VLSI make no representations as
to the tax consequences of the exercise of the Buyout Right and each Purchaser
or Optionee is urged to consult with his or her tax advisor as to the
implications of VLSI's exercise of the Buyout Right.
(b) Stockholder Approval. The Company shall obtain stockholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Rule 16b-3 or with Section 422 of the Code (or any successor rule or
statute or other Applicable Law, including the requirements of any exchange or
quotation system on which the Common Stock is listed or quoted). Such
stockholder approval, if required, shall be obtained in such a manner and to
such a degree as is required by the applicable law, rule or regulation.
15. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to
the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares shall comply with all relevant provisions of law,
including, without limitation, the Securities Act, the Exchange Act, the rules
and regulations promulgated thereunder, and the requirements of any stock
<PAGE> 11
exchange or quotation system upon which the Shares may then be listed or quoted,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
(b) Investment Representations. As a condition to the exercise
of an Option, the Company may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required by or desirable under any of the aforementioned
relevant provisions of law.
16. Reservation of Shares. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
17. Stockholder Approval. Continuance of the Plan shall be subject
to approval by the stockholders of the Company within twelve (12) months before
or after the date the Plan is adopted. Such stockholder approval shall be
obtained in the manner and to the degree required under Applicable Laws.
18. Information to Optionees. The Company shall provide to each
Optionee during the period for which such Optionee has one or more Options
outstanding, copies of a balance sheet and an income statement of the Company at
least annually and copies of all other annual reports and other information
which are provided to all stockholders of the Company. The Company shall not be
required to provide such information to key employees whose duties in connection
with the Company assure their access to equivalent information.
19. Legal Fees and Expenses. In the event that any stockholder or
optionee of the Company instigate litigation or other legal proceeding in
connection with the rights and obligations of VLSI as set forth in this Plan,
the Option Agreement or Restricted Stock Purchase Agreement, the party bringing
such action shall pay VLSI's legal fees and expenses in the event VLSI prevails.
<PAGE> 1
EXHIBIT 11
VLSI TECHNOLOGY, INC.
CALCULATION OF EARNINGS PER SHARE
(In thousands except per share data)
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------
12/30/94 12/25/93 12/26/92
-------- -------- --------
<S> <C> <C> <C>
Primary Earnings per Share
Net income (loss) $ 31,697 $ 15,883 $(32,215)
======== ======== ========
Average number of common and
common equivalent shares:
Average common shares outstanding 35,916 33,850 28,865
Dilutive options 1,530 1,427 -
-------- -------- --------
Average number of common and
common equivalent shares 37,446 35,276 28,865
======== ======== ========
Earnings (loss) per common and
common equivalent share $ .85 $ .45 $ (1.12)
======== ======== ========
Fully Diluted Earnings per Share
Net income (loss) $ 31,697 $ 15,883 $(32,215)
Add interest expense on convertible
subordinated debentures issued
May 1987, net of tax effects 3,058 3,140 4,024
-------- -------- --------
Adjusted net income (loss) $ 34,755 $ 19,023 $(28,192)
======== ======== ========
Average number of common and
common equivalent shares on a fully
diluted basis:
Average common shares
outstanding 35,916 33,850 28,865
Dilutive options 1,636 1,810 952
Conversion of convertible
debentures 2,614 2,614 2,614
-------- -------- --------
Average number of common and
common equivalent shares
on a fully diluted basis 40,166 38,274 32,431
======== ======== ========
Fully diluted earnings (loss) per common
and common equivalent share $ .87 $ .50 $ ( .87)
======== ======== ========
</TABLE>
<PAGE> 1
EXHIBIT 21
VLSI TECHNOLOGY, INC.
SUBSIDIARIES
1. VLSI Technology GmbH, incorporated under the laws of Germany.
2. VLSI Technology Limited, incorporated under the laws of the United
Kingdom.
3. VLSI Technology France SARL, incorporated under the laws of France.
4. VLSI Technology K.K., incorporated under the laws of Japan.
5. VLSI Technology Asia Limited, incorporated under the laws of Hong Kong.
6. VLSI India, Inc., incorporated under the laws of Delaware.
7. VLSI Technology Italia SRL, incorporated under the laws of Italy.
8. COMPASS Design Automation, Inc., incorporated under the laws of
Delaware.
9. COMPASS Design Automation EURL, incorporated under the laws of France.
10. COMPASS Design Automation, GmbH, incorporated under the laws of Germany.
11. COMPASS Design Automation International B.V., incorporated under the
laws of The Netherlands.
12. COMPASS Design Automation Italia SRL, incorporated under the laws of
Italy.
13. COMPASS Japan K.K., incorporated under the laws of Japan.
14. ComAtlas S.A., incorporated under the laws of France.
15. VLSI Foreign Sales Corporation, incorporated under the laws of the U.S.
Virgin Islands.
16. COMPASS Foreign Sales Corporation, incorporated under the laws of the U.S.
Virgin Islands.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE FORM 10-K OF VLSI TECHNOLOGY, INC. FOR
THE FISCAL YEAR ENDED DECEMBER 30, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<CURRENCY> 0
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-30-1994
<PERIOD-START> DEC-26-1993
<PERIOD-END> DEC-30-1994
<EXCHANGE-RATE> 1
<CASH> 93,310
<SECURITIES> 9,801
<RECEIVABLES> 82,800
<ALLOWANCES> (2,300)
<INVENTORY> 59,696
<CURRENT-ASSETS> 266,236
<PP&E> 504,723
<DEPRECIATION> (285,593)
<TOTAL-ASSETS> 490,216
<CURRENT-LIABILITIES> 127,532
<BONDS> 96,804
<COMMON> 367
0
0
<OTHER-SE> 255,063
<TOTAL-LIABILITY-AND-EQUITY> 490,216
<SALES> 587,091
<TOTAL-REVENUES> 587,091
<CGS> 356,858
<TOTAL-COSTS> 356,858
<OTHER-EXPENSES> 183,461
<LOSS-PROVISION> 23
<INTEREST-EXPENSE> 8,343
<INCOME-PRETAX> 41,707
<INCOME-TAX> 10,010
<INCOME-CONTINUING> 31,697
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,697
<EPS-PRIMARY> 0.85
<EPS-DILUTED> 0.87
</TABLE>
