<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only
/X/ Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
VLSI Technology, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Registrant
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
N/A
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
N/A
- --------------------------------------------------------------------------------
(3) Filing Party:
N/A
- --------------------------------------------------------------------------------
(4) Date Filed:
N/A
- --------------------------------------------------------------------------------
<PAGE> 2
VLSI TECHNOLOGY, INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 31, 1996
9:00 A.M.
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of VLSI
Technology, Inc., a Delaware corporation (the "Company"), will be held on
Friday, May 31, 1996, at 9:00 a.m., local time, at the Company's offices located
at 1151 McKay Drive, San Jose, California 95131, for the following purposes:
1. To elect six directors to serve for the ensuing year and until their
successors are elected.
2. To ratify and approve an amendment to the Company's 1992 Stock Plan to
increase the number of shares reserved for issuance thereunder from
4,500,000 to 9,500,000.
3. To ratify the appointment of Ernst & Young LLP as independent auditors
of the Company for the fiscal year ending December 27, 1996.
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on April 4, 1996 are
entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, you are urged to vote,
date, sign and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the meeting may vote in person even if he or she returned a proxy.
Sincerely,
LARRY L. GRANT, Secretary
San Jose, California
May 3, 1996
<PAGE> 3
VLSI TECHNOLOGY, INC.
------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of VLSI Technology, Inc. (the
"Company") for use at the Annual Meeting of Stockholders (the "Annual Meeting")
to be held on Friday, May 31, 1996, at 9:00 a.m., local time, or at any
adjournment thereof, for the purposes set forth herein and in the accompanying
Notice of Annual Meeting of Stockholders. The meeting will be held at the
Company's offices located at 1151 McKay Drive, San Jose, California 95131. The
Company's principal executive office is located at 1109 McKay Drive, San Jose,
California 95131 and its telephone number at that address is (408) 434-3100.
These proxy solicitation materials were mailed on or about May 3, 1996 to
all stockholders entitled to vote at the meeting.
RECORD DATE; OUTSTANDING SHARES
Stockholders of record at the close of business on April 4, 1996 (the
"Record Date") are entitled to notice of and to vote at the meeting. The Company
has only one series of Common Shares ("Common Shares") outstanding, which is
designated Common Stock, $.01 par value per share ("Common Stock"). At the
Record Date, 45,789,320 shares of the Company's Common Stock were issued and
outstanding, representing the total number of votes that may be cast at the
meeting. See "Voting and Solicitation" below. The closing price of the Company's
Common Stock on the Record Date, as reported by the National Association of
Securities Dealers, Inc. Automated Quotation National Market System
("NASDAQ/NMS") was $13.375 per share.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company or the transfer agent a written notice of revocation or a duly executed
proxy bearing a later date, or by attending the meeting and voting in person.
VOTING AND SOLICITATION
Except as provided below with respect to cumulative voting, each share of
Common Stock has one vote on all matters.
Subject to the procedural requirements described below, every stockholder
voting in the election of directors may cumulate such stockholder's votes and
give one candidate a number of votes equal to the number of directors to be
elected multiplied by the number of votes to which the stockholder's shares are
entitled, or distribute the stockholder's votes on the same principle among as
many candidates as the stockholder thinks fit, provided that votes cannot be
cast for more than the number of directors to be elected. If cumulative voting
for directors is properly invoked by any stockholder, all stockholders may
cumulate their votes. Stockholders may only cast votes for candidates whose
names have been properly placed in nomination in accordance with the Company's
Bylaws. Any stockholder who desires to cumulate votes in the election of
directors must give advance notice to the Company, in accordance with its
Bylaws, of such stockholder's intention to cumulate his or her votes and must
give notice to the other stockholders at the meeting prior to voting for
directors. The required advance notice to the Company must be received at the
principal executive office of the Company not less than 20 days nor more than 60
days prior to the meeting and must include the
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<PAGE> 4
stockholder's name and address, the number of shares of Common Stock
beneficially owned and the stockholder's request for cumulative voting.
The cost of soliciting proxies will be borne by the Company. The Company is
retaining Corporate Investor Communications, Inc. to solicit proxies at a cost
of approximately $4,000, plus out of pocket expenses. In addition, the Company
will reimburse brokerage firms and other persons representing beneficial owners
of shares for their expenses in forwarding solicitation material to such
beneficial owners. Proxies may also be solicited by certain of the Company's
directors, officers and regular employees, without additional compensation,
personally or by telephone, telegram or facsimile.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Annual Meeting
is a majority of the votes eligible to be cast by holders of shares of Common
Stock issued and outstanding on the Record Date. Shares that are voted "FOR",
"AGAINST" or "WITHHELD FROM" a matter are treated as being present at the
meeting for purposes of establishing a quorum and are also treated as shares
entitled to vote at the Annual Meeting (the "Votes Cast") with respect to such
matter.
Abstentions will be counted for purposes of determining both (i) the
presence or absence of a quorum for the transaction of business and (ii) the
total number of Votes Cast with respect to a proposal (other than the election
of directors). Accordingly, abstentions will have the same effect as a vote
against the proposal.
Broker non-votes will be counted for purposes of determining the presence
or absence of a quorum for the transaction of business, but broker non-votes
will not be counted for purposes of determining the number of Votes Cast with
respect to the particular proposal on which the broker has expressly not voted.
Thus, a broker non-vote will not affect the outcome of the voting on a proposal.
2
<PAGE> 5
SECURITY OWNERSHIP
The following table sets forth the beneficial ownership of Common Stock of
the Company as of the Record Date: (i) by each director and by each nominee for
director, (ii) by each executive officer listed in the Summary Compensation
Table under the heading "EXECUTIVE OFFICER COMPENSATION", (iii) by all directors
and executive officers as a group, and (iv) by all persons known by the Company
to be the beneficial owners of more than five percent (5%) of the Company's
outstanding Common Stock:
<TABLE>
<CAPTION>
NUMBER OF APPROXIMATE
NAME OF PERSON OR IDENTITY OF GROUP SHARES PERCENTAGE
- --------------------------------------------------------------------- --------- -----------
<S> <C> <C>
West Highland Capital, Inc. and affiliates(1)........................ 3,200,000 7.0%
300 Drake's Landing Road, Suite 290
Greenbrae, California 94904
Jurika & Voyles, Inc.(2)............................................. 3,023,581 6.6%
1999 Harrison Street, Suite 700
Oakland, California 94612
Intel Corporation(3)................................................. 2,677,604 5.8%
2200 Mission College Boulevard
Santa Clara, California 95052
Pierre S. Bonelli(4)................................................. 20,000 *
Donald L. Ciffone(5)................................................. 36,751 *
Robert P. Dilworth(6)................................................ 5,000 *
Gregory K. Hinckley(7)............................................... 50,501 *
William G. Howard, Jr................................................ 0 *
James J. Kim(8)...................................................... 50,000 *
Paul R. Low.......................................................... 0 *
L. Don Maulsby(9).................................................... 47,501 *
Dieter J. Mezger(10)................................................. 84,160 *
Alfred J. Stein(11).................................................. 1,127,852 2.4%
Horace H. Tsiang(12)................................................. 21,000 *
All directors and executive officers as a group (15 persons)
(4)(5)(6)(7)(8)(9)(10)(11)(12)(13)................................. 1,499,570 3.2%
</TABLE>
- ---------------
* Less than 1%.
(1) As reported in Schedule 13D, dated March 26, 1996, filed jointly as a group
by Lang H. Gerhard ("Gerhard"), West Highland Capital, Inc. ("WHC"), West
Highland Capital, LLC ("WHCLLC"), West Highland Partners, L.P. ("WHP") and
Buttonwood Partners, L.P. ("BP"). WHC has shared voting and dispositive
power with respect to 3,200,000 shares; each of Gerhard and WHCLLC has
shared voting and dispositive power with respect to 2,703,550 shares; WHP
has shared voting and dispositive power with respect to 2,287,300 shares;
and BP has shared voting and dispositive power with respect to 416,250
shares.
(2) As reported in Schedule 13G, dated February 12, 1996, filed by Jurika &
Voyles, Inc. ("Jurika"). Jurika has shared power to vote or to direct the
vote of 2,856,581 shares and shared power to dispose or to direct the
disposition of 3,023,581 shares.
(3) As reported in Amendment No. 18 to Schedule 13D, dated August 25, 1995,
filed by Intel Corporation ("Intel"). Intel has sole voting and dispositive
power with respect to all 2,677,604 shares.
(4) These 20,000 shares are exercisable within 60 days of the Record Date under
options held by Mr. Bonelli.
(5) Includes 36,251 shares exercisable within 60 days of the Record Date under
options held by Mr. Ciffone.
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<PAGE> 6
(6) These 5,000 shares are exercisable within 60 days of the Record Date under
options held by Mr. Dilworth.
(7) Includes 45,501 shares exercisable within 60 days of the Record Date under
options held by Mr. Hinckley.
(8) Includes 20,000 shares exercisable within 60 days of the Record Date under
options held by Mr. Kim.
(9) Includes 45,001 shares exercisable within 60 days of the Record Date under
options held by Mr. Maulsby.
(10) Includes 81,747 shares exercisable within 60 days of the Record Date under
options held by Mr. Mezger.
(11) Includes 688,751 shares exercisable within 60 days of the Record Date under
options held by Mr. Stein.
(12) Includes 20,000 shares exercisable within 60 days of the Record Date under
options held by Mr. Tsiang.
(13) Includes 1,011,753 shares exercisable within 60 days of the Record Date
under options held by four directors and nine executive officers.
COMPLIANCE WITH SECTION 16(A) FILING REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, officers and beneficial
owners of more than 10% of the Company's Common Stock to file with the
Securities and Exchange Commission (the "SEC") initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Based solely on its review of the copies of such reports received
by it, or written representations from reporting persons, the Company believes
that during the fiscal year ended December 29, 1995, its officers, directors and
holders of more than 10% of the Company's Common Stock complied with all Section
16(a) filing requirements.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's next annual meeting of stockholders must
be received by the Company no later than January 3, 1997 in order that they may
be considered for possible inclusion in the proxy statement and form of proxy
relating to that meeting.
ELECTION OF DIRECTORS
NOMINEES FOR DIRECTOR
A Board of six directors is to be elected at the meeting. Unless otherwise
instructed, the proxy holders will vote the proxies received by them for the
Company's six nominees named below, four of whom are currently directors of the
Company. In the event that any Company nominee is unable or declines to serve as
a director at the time of the meeting, the proxies will be voted for any nominee
who shall be designated by the current Board of Directors to fill the vacancy.
In the event that additional persons are nominated for election as directors and
cumulative voting has been properly invoked, the proxy holders intend to
cumulate their votes and to vote all proxies received by them in accordance with
cumulative voting procedures in such a manner as they believe will ensure the
election of as many of the nominees listed below as possible. In such event, the
specific nominees for whom such votes will be cast will be determined by the
proxy holders. It is not expected that any nominee will be unable or will
decline to serve as a director. The term of office of each person elected as a
director will continue until the next annual meeting of stockholders or until
his successor has been elected and qualified.
James J. Kim, currently a member of the Board, has informed the Company
that he does not intend to stand for re-election to the Board. Accordingly, his
name has not been placed in nomination for re-election to the Board. Mr. Kim is
currently serving as the chairman of the Company's Compensation Committee and a
member of the Company's Audit Committee. Mr. Kim has been Chairman of the Board
and Chief Executive Officer of AMKOR Electronics, Inc., a semiconductor assembly
and test company, for more than the past five years.
4
<PAGE> 7
Pursuant to an amendment of the Company's Bylaws, the size of the Board was
increased from five members to six members, effective March 12, 1996.
The names of the nominees, their ages as of the Record Date and certain
information about them are set forth below.
<TABLE>
<CAPTION>
DIRECTOR
NOMINEES AGE PRINCIPAL OCCUPATION SINCE
- -------------------------- --- -------------------------------------------------------- --------
<S> <C> <C> <C>
Pierre S. Bonelli(1)(2)... 56 Chief Executive Officer, Sema Group, a software, 1983
consulting and market research firm
Robert P. 54 President and Chief Executive Officer, Metricom Inc., an 1991
Dilworth(1)(2).......... electronic wireless data communications company
William G. Howard, Jr..... 54 Independent Consulting Engineer in microelectronics and --
technology-based business planning
Paul R. Low............... 63 President and Chief Executive Officer, P.R.L. --
Associates, a technology consulting company
Alfred J. Stein........... 63 Chairman of the Board, Chief Executive Officer and 1982
President of the Company
Horace H. Tsiang.......... 54 Chief Executive Officer, First International Computer, 1992
Inc., a computer manufacturing company
</TABLE>
- ---------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Except as set forth below, each of the nominees has been engaged in his
principal occupation set forth above during the past five years. There are no
family relationships between any directors or executive officers of the Company.
Mr. Bonelli is also a director of Sema Group, Xerox S.A. and Poliet S.A.
Mr. Dilworth is also a director of Metricom Inc. and Qume Corporation.
Dr. Howard served as Senior Fellow of the National Academy of Engineering
from 1987 to 1990 and has held various technical and management positions with
Motorola, Inc., most recently as Senior Vice President and Director of Research
and Development. He is a member of the National Academy of Engineering and a
fellow of the Institute of Electrical and Electronics Engineers and of the
American Association for the Advancement of Science. Dr. Howard is also a
director of BEI Electronics, Inc., Credence Systems Corporation, Ramtron
International Corporation and Sandia Corporation (a wholly-owned subsidiary of
Lockheed Martin Corporation).
Dr. Low has been Chief Executive Officer of P.R.L. Associates, a consulting
firm, since July 1992. From 1990 to 1992, he was a Vice President, and General
Manager of Technical Products, of International Business Machines Corporation
and was a member of IBM's Management Board. Dr. Low is a director of Applied
Materials, Inc., Integrated Packaging Assembly Corp., Network Computing Devices,
Inc., Number Nine Visual Technology Corporation, Solectron Corporation, Veeco
Instruments Inc. and several privately-held companies.
Mr. Stein joined the Company in March 1982 as Chairman of the Board and
Chief Executive Officer and also served as President from January 1983 to August
1983 and from August 1993 to the present. Mr. Stein was initially appointed as a
director of the Company in April 1982, pursuant to an employment agreement with
the Company. Pursuant to such agreement, the Company has agreed to use its best
efforts while he is employed as Chief Executive Officer to cause the nomination
of Mr. Stein to the Board of Directors, to recommend his election as a director
and to continue his appointment as Chairman of the Board so long as he serves as
a director. Mr. Stein is also a director of Applied Materials, Inc. and Tandy
Corporation.
Prior to joining First International Computer, Inc., a Taiwanese
manufacturer of products for the computer industry, in November 1991, Mr. Tsiang
was employed by Wang Laboratories, Inc., a computer
5
<PAGE> 8
manufacturer, from 1969 through July 1991 in various positions, including
Executive Vice President from 1985 to 1991.
VOTE REQUIRED
The six nominees receiving the highest number of affirmative votes of the
shares present or represented and entitled to be voted for them shall be elected
as directors. Votes withheld from any director are counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
but have no other legal effect under Delaware law.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held five meetings during the fiscal
year ended December 29, 1995. During such year, each director attended at least
75% of the aggregate of all meetings of the Board of Directors and any
committees upon which he served, with the exception of Mr. Bonelli, who attended
60% of all meetings held.
The Board of Directors has a Compensation Committee and an Audit Committee.
The current members of the Compensation and Audit Committees are identified in
the list of directors under "Nominees for Director" above.
The Compensation Committee is authorized to review and approve the
Company's executive compensation policy and to administer the Company's employee
stock option and stock purchase plans. See "REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION". The Compensation Committee
held four meetings in fiscal 1995. The Compensation Committee is composed solely
of non-employee directors.
The Audit Committee selects and recommends to the Board a firm of
independent auditors (whose duty it is to audit the financial statements of the
Company for the fiscal year with respect to which they are appointed) and
monitors the effectiveness of the audit effort and the Company's internal
financial and accounting controls and financial reporting. The Audit Committee
held one meeting in fiscal 1995. The Audit Committee is composed solely of
non-employee directors.
The Board performs the duties of a nominating committee.
DIRECTOR COMPENSATION
Non-employee members of the Board of Directors ("Outside Directors")
receive an annual retainer of $10,000, a fee of $2,000 per Board meeting
attended and $500 per Board Committee meeting attended (if such meeting is not
held within one day of a Board meeting). The Company also reimburses its
directors for certain expenses incurred by them in their capacity as directors
or in connection with attendance at Board or Committee meetings.
In addition, Outside Directors participate in the 1986 Directors' Stock
Option Plan (the "Directors' Plan"). Certain amendments to the Directors' Plan
(the "Directors' Plan Amendments") were approved by the stockholders in May 1994
at the 1994 Annual Meeting. The Directors' Plan provides for the automatic grant
of non-statutory options to Outside Directors upon first joining the Board and
on an annual basis thereafter in order to motivate them to continue to serve as
directors. A total of 300,000 shares of the Company's Common Stock is reserved
for issuance during the 10-year term of the Plan, which expires in August 2001.
The exercise price of options granted under the Directors' Plan is the fair
market value of the Company's Common Stock on the date of the automatic grant,
as determined in accordance with the Directors' Plan. Options granted prior to
stockholder approval of the Directors' Plan Amendments have a term of five
years, and options granted after such approval have a term of ten years.
Each Outside Director who was serving as such on the date of adoption of
the Directors' Plan received an automatic grant on such date of an option to
purchase 20,000 shares of Common Stock (an "Initial Option"). An Initial Option
becomes exercisable cumulatively with respect to 5,000 shares on the first day
of each fiscal
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<PAGE> 9
year following the date of grant. Each person who becomes an Outside Director
subsequent to the date of adoption of the Directors' Plan receives an automatic
grant of an Initial Option on the date of his or her initial appointment or
election to the Board.
After receiving an Initial Option, an Outside Director is automatically
granted an additional option to purchase 5,000 shares under the Directors' Plan
(a "Subsequent Option") on the first day of each fiscal year of the Company.
Each Subsequent Option becomes exercisable in full on the first day of the
fourth fiscal year beginning after the date of grant of such option. The
Directors' Plan Amendments eliminated the previously existing 40,000-share limit
on the number of shares subject to options granted under the Directors' Plan to
any director and also provided for the grant of an immediately exercisable
replenishment option to purchase up to 20,000 shares to any director whose
Initial Option had expired, or in the future expires, unexercised. As of
December 29, 1995, options to purchase 25,000 shares had been exercised under
the Directors' Plan at a net realized value of $253,750 and 160,000 shares
remained available for future grant.
During fiscal 1995, Subsequent Options to purchase 5,000 shares at an
exercise price of $12.00 per share were granted to each of directors Bonelli,
Dilworth, Kim and Tsiang.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of directors Bonelli,
Dilworth and Kim.
The Company paid AMKOR (a corporation of which Mr. Kim is an officer,
director and the majority stockholder) or accrued for payment approximately
$42.6 million in fiscal 1995 for assembly and test services performed for the
Company by ANAM Semiconductor Technology Co. Ltd. (a Korean corporation with
which Mr. Kim is affiliated) under contract with AMKOR.
CERTAIN TRANSACTIONS
Intel. In the third quarter of 1992, VLSI and Intel entered into two
related agreements. On July 8, 1992, VLSI and Intel entered into a Technology
and Manufacturing Agreement ("Technology Agreement"), and on August 25, 1992,
pursuant to the Intel/VLSI Stock and Warrant Purchase Agreement ("Equity
Agreement") also entered into on July 8, 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. In addition,
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. In August 1995,
Intel exercised its Warrant, resulting in net proceeds to the Company of
approximately $31 million.
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.
Relocation Assistance. In 1992, to facilitate his relocation, the Company
loaned Dieter J. Mezger $100,000 on an interest-free basis with principal due
three years from the date of the promissory note and an additional $280,000 with
interest payable at the rate of 7% over the one-year term of the promissory
note. Both loans were secured by trust deeds on Mr. Mezger's residence. The
largest principal amount outstanding during fiscal 1995 was $300,000, all of
which was repaid prior to fiscal 1995 year end.
In 1994, to facilitate his relocation, the Company loaned L. Don Maulsby
$89,000 on an interest-free basis with principal due one year from the date of
the promissory note. The note is secured by a trust deed on
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<PAGE> 10
Mr. Maulsby's residence. The due date on Mr. Maulsby's loan has been extended by
the Board until August 9, 1996. The entire principal amount remained outstanding
at 1995 fiscal year end.
See also the footnotes to the Summary Compensation Table under the heading
"EXECUTIVE OFFICER COMPENSATION" and the information under the heading "ELECTION
OF DIRECTORS -- Compensation Committee Interlocks and Insider Participation".
EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table, together with the footnotes thereto, summarizes the
total compensation for fiscal year 1995 of the Chief Executive Officer and the
four other most highly compensated executive officers of the Company
(collectively, the "Named Officers"), as well as the total compensation paid to
each Named Officer for the Company's two previous fiscal years, if applicable.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
---------------------
ANNUAL COMPENSATION
------------------------------------ SECURITIES UNDERLYING
OTHER ANNUAL OPTIONS (#)(4) ALL OTHER
NAME AND SALARY BONUS COMPENSATION --------------------- COMPENSATION
PRINCIPAL POSITION YEAR ($)(1) ($)(2) ($)(3) COMPANY SUBSIDIARY ($)(5)
- ------------------------- ---- -------- -------- ------------ ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Alfred J. Stein.......... 1995 $582,096 $675,000 $ 0 500,000 0 $418,468
Chairman of the Board, 1994 520,445 375,000 -- 75,000 0 57,950
Chief Executive Officer 1993 485,009 300,000 -- 75,000 0 41,222
and President
- -----------------------------------------------------------------------------------------------------------------
Gregory K. Hinckley...... 1995 $260,962 $200,000 $ 0 50,000 0 $ 2,427
Sr. Vice President and 1994 243,269 95,000 0 30,000 0 1,923
Chief Financial Officer 1993 225,000 75,000 121,809 0 25,000 1,792
- -----------------------------------------------------------------------------------------------------------------
Donald L. Ciffone........ 1995 $224,777 $170,000 $ 0 50,000 0 $ 1,404
Sr. Vice President and 1994 206,400 100,000 0 30,000 0 780
General Manager, 1993 184,385 76,000 0 35,000 0 714
VLSI Products Divisions
- -----------------------------------------------------------------------------------------------------------------
Dieter J. Mezger......... 1995 $314,069 $ 0 $ -- 0 0 $ 18,418
Sr. Vice President 1994 298,096 0 40,138 0 0 13,741
of the Company and 1993 296,441 30,000 51,699 0 0 16,156
President of COMPASS
Design Automation, Inc.
- -----------------------------------------------------------------------------------------------------------------
L. Don Maulsby........... 1995 $225,961 $ 60,000 $ -- 50,000 0 $ 1,411
Group Vice President, 1994 204,615 80,000 75,171 50,000 0 934
Computing Products 1993 185,000 71,000 0 20,000 0 853
</TABLE>
- ---------------
(1) The amounts disclosed in this column include amounts deferred by the Named
Officers pursuant to the Company's 401(k) Investment/Retirement Plan (the
"401(k) Plan").
(2) The amounts disclosed in this column represent payments made by the Company
under its Executive Performance Incentive Plan. See "REPORT OF THE
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION".
(3) Amounts exclude perquisites if the aggregate amount of the Named Officer's
perquisites was less than the lesser of $50,000 or 10% of such Named
Officer's salary plus bonus. The amounts in the "Other Annual Compensation"
column include:
(a) Payment by the Company of certain 1993 and 1994 relocation costs to Mr.
Mezger in the amount of $39,226 and $30,384, respectively.
(b) Payment by the Company of certain 1993 relocation costs to Mr. Hinckley
in the amount of $121,809.
(c) Payment by the Company of certain 1994 relocation costs to Mr. Maulsby
in the amount of $73,655.
8
<PAGE> 11
(d) The differential between the rate of interest, if any, charged by the
Company on loans to Messrs. Mezger and Maulsby and the average rate
earned by the Company on its cash during fiscal 1994 and 1995.
(4) The stock option grants listed in the table include options to purchase
Common Stock of the Company and options to purchase Common Stock of a
subsidiary, COMPASS Design Automation, Inc. ("COMPASS"). The Company's
subsidiary, COMPASS, granted stock options to purchase COMPASS common stock
to virtually all of the COMPASS employees and certain VLSI employees,
including the Named Officers, pursuant to the COMPASS 1992 Stock Option Plan
(the "COMPASS Stock Plan"). See "EXECUTIVE OFFICER COMPENSATION -- Stock
Options" below for additional information regarding options to purchase
stock of COMPASS granted in fiscal 1993, 1994 and 1995.
(5) The amounts in the "All Other Compensation" column for fiscal year 1995
include:
(a) Company contributions in fiscal 1995 under VLSI's 401(k) Plan, in the
following amounts: Alfred J. Stein $800; Gregory K. Hinckley $800;
Donald L. Ciffone $600; L. Don Maulsby $600.
(b) Payment by the Company of 1995 premiums for term life insurance for the
Named Officers in the following amounts: Alfred J. Stein $15,368;
Gregory K. Hinckley $1,627; Donald L. Ciffone $804; Dieter J. Mezger
$1,786; L. Don Maulsby $811.
(c) Payment by the Company of 1995 premiums for a split dollar life
insurance policy in the amount of $40,596 for Mr. Stein and payment by
the Company of the 1995 installment of a series of ten annual payments
for services to be provided under a ten-year management and consulting
agreement between Mr. Stein and the Company (the "Management Agreement")
in the amount of $358,316.
(d) Payment by the Company of 1995 premiums for disability insurance
policies for Mr. Mezger in the amount of $16,632.
MANAGEMENT CONTINUITY AGREEMENTS
The Company is a party to management continuity agreements with certain of
its officers, including all of the Named Officers, which agreements are designed
to ensure the officers' continued services to the Company in the event of a
change-in-control. Benefits are payable only if the officer's employment is
terminated by the Company or the officer is constructively discharged within two
years following a change-in-control. For purposes of the agreement, a
change-incontrol is deemed to have occurred in the event of (1) Company
stockholder approval of (i) a merger or consolidation of the Company with any
other corporation or (ii) a plan of liquidation or dissolution; (2) the sale,
lease or exchange of more than 50% of the Company's assets; (3) acquisition by
any person of beneficial ownership of more than 50% of the combined voting power
of the Company's then outstanding securities; or (4) a change of the majority of
the Board of Directors within a three-year period.
If, within two years after a change-in-control, an officer's employment is
terminated by the Company or the officer is constructively discharged, the
officer will receive: (1) a severance benefit equal to two times his or her
current annual base salary; (2) full and immediate vesting of all unvested stock
options; and (3) twenty-four months continuation of other incidental benefits.
9
<PAGE> 12
STOCK OPTIONS
The following table presents information with respect to options to
purchase the Company's Common Stock during fiscal 1995. No options to purchase
COMPASS Common Stock were granted during fiscal 1995 to the Named Officers. No
stock appreciation rights ("SARs") have been granted by the Company or COMPASS.
OPTION GRANTS IN LAST FISCAL YEAR
---------------------------------------------------
INDIVIDUAL GRANTS (1)
---------------------------------------------------
<TABLE>
<CAPTION>
% OF
TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL
SECURITIES GRANTED RATES OF STOCK PRICE
UNDERLYING TO APPRECIATION FOR OPTION
OPTIONS EMPLOYEES EXERCISE TERM(2)
GRANTED IN FISCAL PRICE EXPIRATION ------------------------------
NAME OR GROUP (#) YEAR ($/SH) DATE 5%($) 10%($)
- ----------------------------- ---------- --------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alfred J. Stein.............. 500,000 27.27% $21.25 4/27/2005 $ 6,682,005 $ 16,933,514
Gregory K. Hinckley.......... 30,000 1.64 21.25 4/27/2005 400,920 1,016,011
20,000 1.09 16.25 12/18/2005 204,391 517,966
------- ----- ----------- -------------
50,000 2.73 605,311 1,533,977
Donald L. Ciffone............ 30,000 1.64 21.25 4/27/2005 400,920 1,016,011
20,000 1.09 16.25 12/18/2005 204,391 517,966
------- ----- ----------- -------------
50,000 2.73 605,311 1,533,977
Dieter J. Mezger............. 0 -- -- -- -- --
L. Don Maulsby............... 30,000 1.64 21.25 4/27/2005 400,920 1,016,011
20,000 1.09 16.25 12/18/2005 204,391 517,966
------- ----- ----------- -------------
50,000 2.73 605,311 1,533,977
All Stockholders............. N/A N/A N/A N/A 537,945,740 1,363,260,125
</TABLE>
- ---------------
(1) All options to purchase the Company's Common Stock granted in 1995 to the
Named Officers have ten-year terms and become exercisable in annual 25%
increments commencing on the first anniversary of the original grant date,
with full exercisability occurring on the fourth anniversary date. The per
share exercise price is the closing price for the Company's Common Stock on
NASDAQ/NMS on the date of the grant. The options were granted under the
Company's 1992 Stock Plan (the "Stock Plan"), which is currently
administered by the Compensation Committee. Such committee has broad
discretion and authority to amend outstanding options and to reprice
options, whether through an exchange of options or an amendment thereto. The
Stock Plan provides for the automatic acceleration of vesting of all
outstanding options (such that they become exercisable in full) in the event
of a change-in-control, as defined in the Stock Plan.
(2) For the Named Officers, the potential realizable value is calculated
starting with the fair market value on the date of grant and assuming that
the Company's Common Stock appreciates in value from the date of grant until
the end of the option term at the annual rate specified (5% and 10%). For
"All Stockholders", the potential value is calculated starting with $18.125
per share, the closing price of the Company's Common Stock on the last
trading day of the Company's 1995 fiscal year, December 29, 1995 and
assuming the same annual rates of appreciation for ten years, multiplied by
the outstanding shares of Common Stock at fiscal year end. Potential
realizable value listed for the Named Officers and "All Stockholders" is net
of the option exercise price or fiscal year end price, respectively. The
assumed rates of appreciation are specified in SEC rules and do not
represent the Company's estimate or projection of future stock prices.
Actual gains, if any, resulting from stock option exercises and Common Stock
holdings are dependent on the future performance of the Common Stock and the
option holders' continued employment through the vesting period. There can
be no assurance that the amounts reflected in this table will be achieved.
10
<PAGE> 13
The number of shares of Company and COMPASS stock issued upon exercise of
options and the value realized from any such exercise during the fiscal year
ended December 29, 1995 and the number of exercisable and unexercisable options
held and their value at December 29, 1995 for the Named Officers of the Company
are set forth in the following table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FY-END(#) OPTIONS AT FY-END ($)(2)
SHARES ACQUIRED VALUE ----------------------------- -----------------------------
ON EXERCISE(#) REALIZED($)(1) EXERCISABLE/ EXERCISABLE/ EXERCISABLE/ EXERCISABLE/
------------------- --------------------- UNEXERCISABLE UNEXERCISABLE UNEXERCISABLE UNEXERCISABLE
NAME VLSI COMPASS(3) VLSI COMPASS(3) VLSI COMPASS VLSI COMPASS
- -------------------- ------ ---------- -------- ---------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alfred J. Stein..... 0 23,333 $ 0 $0 488,750/ 0/ $ 5,960,938/ $ 0/
631,250 23,333 $ 1,176,563 $ 0
Gregory K.
Hinckley.......... 50,000 0 990,625 0 32,500/ 8,334/ 323,125/ 0/
97,500 16,666 450,625 0
Donald L. Ciffone... 50,000 0 406,410 0 10,000/ 6,667/ 97,188/ 0/
95,000 3,333 424,063 0
Dieter J. Mezger.... 39,953 66,500 649,213 0 81,747/ 167/ 1,021,303/ 0/
0 33,333 0 0
L. Don Maulsby...... 26,437 6,667 459,791 0 15,000/ 0/ 102,813/ 0/
102,500 3,333 430,625 0
</TABLE>
- ---------------
(1) Market value of underlying securities on the date of exercise, minus the
exercise price.
(2) Market value of underlying securities at fiscal year end (for in-the-money
options only) minus the exercise price. No COMPASS stock options held by
Named Officers were in-the-money at 1995 fiscal year end. The fair market
value of COMPASS common stock at 1995 fiscal year end, as determined by the
COMPASS Board of Directors, was $0.10 per share.
(3) In 1992 and 1993, the Company's subsidiary, COMPASS, granted stock options
to purchase COMPASS common stock to certain of the Named Officers pursuant
to the COMPASS Stock Plan (the "COMPASS Plan"). All optionees under the
COMPASS Plan, including such Named Officers, received option grants having
an exercise price of $.10 per share, which represented the estimated fair
value of COMPASS common stock on the date of grant as determined by the
COMPASS Board of Directors. Subject to certain conditions, these options
become exercisable cumulatively as follows: second anniversary of date of
the grant 33 1/3%; third anniversary of the date of the grant additional
33 1/3%; fourth anniversary of the date of the grant remaining 33 1/3%.
Subject to certain conditions, most of these options, including all those
granted to the Named Officers, contain additional rights and obligations,
including the right of a COMPASS Plan participant to put shares of COMPASS
common stock acquired through the COMPASS Plan back to COMPASS or the
Company in certain events; the Company's right to buy back COMPASS common
stock issued under the COMPASS Plan; and a right of first refusal by COMPASS
or VLSI to purchase COMPASS common stock issued under the COMPASS Plan that
is being offered for sale to any third party.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
COMPENSATION PRINCIPLES
The Compensation Committee firmly believes that the compensation of its
employees, including its executive officers, should be designed to:
- Attract, retain and motivate well-qualified employees who contribute to
the long-term success of the Company.
- Strongly encourage the development and achievement of strategic
objectives that enhance long-term stockholder value.
11
<PAGE> 14
- Relate compensation levels to the overall success of the Company, which
includes sound financial results for its stockholders, providing quality
products and services useful to its customers and fostering an
environment based on teamwork, enabling its employees to achieve both
strategic and tactical objectives.
Regarding Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code") (which limits the deductibility by corporations of certain
executive compensation in excess of $1 million for any covered individual), the
Compensation Committee has elected to qualify compensation under the Company's
1992 Stock Plan for an exemption from the deductibility limitations of Section
162(m). The non-equity-based compensation paid to the Named Officers in fiscal
1995 did not exceed $1 million, with the exception of Mr. Stein. The
Compensation Committee will continue to consider the effects of Section 162(m)
but does not currently intend to take any action to preserve the deductibility
of cash compensation.
EXECUTIVE COMPENSATION PRACTICES
The Company's executive compensation program consists primarily of cash and
equity-based components. Salary and, if warranted, annual awards under the
Executive Performance Incentive Plan (the "Incentive Plan"), comprise the cash
components. Grants of options under the Company's stock option plans and the
COMPASS Stock Plan and participation in the Company's employee stock purchase
plan comprise the equity-based components. The Company also provides health and
welfare benefits to the Named Officers through programs that are available to
all employees in general.
CASH COMPONENTS
Salary levels are reviewed periodically and Incentive Plan target levels
are established annually for executive officers by the Compensation Committee
after a review of compensation surveys for electronic manufacturing companies,
including integrated circuit manufacturers. For 1995, the survey group consisted
of 16 companies in the semiconductor industry, including U.S. semiconductor
companies having annual revenues of up to approximately $13 billion and
semiconductor operations of foreign multi-national corporations. Of these
companies, ten are included in the Hambrecht & Quist Technology index (See
"STOCK PRICE PERFORMANCE GRAPH"). In years that the Company exhibits superior
financial performance, cash compensation is designed to be above average
competitive levels. When financial performance is below plan, cash compensation
is designed to be below average competitive levels. It is the Company's intent
to maintain a total compensation program that can attract, motivate and retain
high-performance executives who are critical to the long-term success of the
Company.
Employees, including executive officers, who participate in the 401(k) Plan
may receive a Company matching contribution into their respective 401(k) Plan
accounts of up to 50% of contributions up to 6% of their base wages per year,
not to exceed the annual maximum as set by the Internal Revenue Service.
The Incentive Plan provides for annual awards, which are paid after the end
of the fiscal year, based upon achievement of pre-established annual goals (the
"Goals"), including revenue and operating profit goals for the Company's
financial performance, department or business unit goals and individual
performance goals. Each element is weighted by percentage, but the weighting can
be varied at the discretion of the Compensation Committee. The Compensation
Committee establishes targets for revenue, gross margin and operating profit on
a Company-wide and business unit basis at the beginning of each fiscal year, and
also sets individual objectives, such as new product development milestones and
key product launch dates. During 1995, no awards were to be paid if the
Company's performance fell below a specified operating profit target. Once the
Company's operating profit targets were met, individual Incentive Plan payouts
were awarded based on achievement of the Goals. Awards are prorated for
participation for less than one year, but awards are not generally paid for less
than six months of participation, except at the discretion of the Compensation
Committee. Employees with other bonus arrangements or contracts (including
commission arrangements) are generally excluded from participation in the
Incentive Plan, unless otherwise directed by the Compensation Committee. The
Incentive Plan may be modified from time to time, or discontinued, at the
discretion of the Compensation Committee.
12
<PAGE> 15
EQUITY-BASED COMPONENTS
The Company utilizes equity-based compensation in the form of stock options
and discount stock purchases under the employee stock purchase plan for its
employees (including the Named Officers) because it provides a close tie between
management and the stockholder by focusing employees and management on creating
and enhancing long-term stockholder value. The actual value of such equity-based
compensation correlates directly to the Company's stock price performance.
Stock options are an essential element of the Company's compensation
package. This component is intended to retain all employees receiving options,
including the Named Officers, and to motivate them to improve long-term stock
market performance. Some 919 employees (or approximately 31% of all employees at
December 29, 1995) hold options under the various stock option plans. Stock
options are currently outstanding under the 1982 Incentive Stock Option Plan
(the "1982 Plan"), which expired in May 1992, the 1992 Stock Plan (the "1992
Plan") and the COMPASS Stock Plan.
In determining the number of shares subject to options to be granted to
executive officers, the Compensation Committee considers survey data on options
granted to executives with comparable positions at other companies, the number
of shares subject to options previously granted to the executive, the number of
unvested shares subject to outstanding options held by the executive (which is
an indicator of the retention value of the outstanding options) and an
evaluation of the executive's prior year individual performance. In 1995, the
Compensation Committee continued to focus on retention and individual
performance as the critical factors in determining the number of options to
grant to executives.
The options granted in 1995 under the 1992 Plan had exercise prices equal
to the fair market value (the NASDAQ/NMS closing price) of the Common Stock on
the grant date, or such other date as specified by the Compensation Committee,
and will only have value if the stock price increases subsequent to such date.
These options become exercisable cumulatively at an annual rate not more than
25% of the total shares granted commencing one year from such date. Both the
1982 Plan and the 1992 Plan provide for full vesting of options in the event
there is a change-in-control of the Company.
Options to purchase common stock of COMPASS granted under the COMPASS Stock
Plan in 1995 had exercise prices of not less than the estimated fair value, as
determined by the COMPASS and Company Board of Directors, on the grant date.
Subject to certain conditions, these options become exercisable cumulatively as
follows: second anniversary of the grant date 33 1/3%; third anniversary of the
grant date additional 33 1/3%; fourth anniversary of the grant date remaining
33 1/3%. No option under the COMPASS Stock Plan may be exercised after 10 years
and one month from the date of the grant. No options to purchase common stock of
COMPASS were granted to any of the Named Officers in 1995.
The Company has not issued any stock appreciation rights (SARs), stock
purchase rights, long-term performance awards in stock or stock bonus awards to
any Named Officer or any other person under the 1982 Plan, the 1992 Plan or the
COMPASS Stock Plan.
1995 CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Stein, in his capacity as the Chairman of the Board, Chief Executive
Officer and President, participates in the same compensation programs as the
other Named Officers. The Compensation Committee has targeted Mr. Stein's total
compensation, including compensation derived from the Incentive Plan and the
stock option plan, at a level it believes is competitive with the average amount
paid by other electronics companies based on survey data.
Mr. Stein's annual base salary was increased from $533,500 to $600,000 in
April 1995. Mr. Stein's Incentive Plan award for 1995 was based on the Company
achieving certain operating profit target levels set by the Compensation
Committee. The 1995 stock option grant to Mr. Stein and Mr. Stein's payment for
services to be provided under the Management Agreement were primarily made as a
retention vehicle in view of the relatively small number of unvested options
held by Mr. Stein and the growing competition for top executive talent in the
semiconductor industry. Mr. Stein also receives additional life insurance
benefits and income tax preparation services.
13
<PAGE> 16
This report of the Compensation Committee shall not be deemed incorporated
by reference by any general statement incorporating by reference this proxy
statement (or any portion hereof) into any filing under the Securities Act of
1933 or under the Exchange Act (collectively, the "Acts"), except to the extent
that the Company specifically incorporates this report by reference, and shall
not otherwise be deemed filed under such Acts.
SUBMITTED BY THE
COMPENSATION COMMITTEE:
James J. Kim, Chairman
Pierre S. Bonelli
Robert P. Dilworth
14
<PAGE> 17
STOCK PRICE PERFORMANCE GRAPH
The following graph shows a five-year comparison of cumulative total
stockholder returns for the Company, the Standard & Poor's 500 (the "S&P 500")
index and the Hambrecht & Quist Technology ("H&Q Technology") index. The H&Q
Technology index is composed of approximately 250 companies in the electronics
and technology industry, including semiconductors, health care and related
service industries. Historic stock price performance is not necessarily
indicative of future stock price performance.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
[CAMERA READY CHART]
Assumes $100 invested on December 29, 1990
*Total return assumes reinvestment of dividends
Note: Total returns for the S&P 500 index and for the H&Q Technology index
are weighted based on market capitalization.
<TABLE>
<CAPTION>
12/29/90 12/28/91 12/26/92 12/25/93 12/30/94 12/29/95
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
VLSI TECHNOLOGY................ $ 100.00 $ 169.44 $ 180.56 $ 238.89 $ 266.67 $ 402.78
S & P 500...................... $ 100.00 $ 130.47 $ 140.41 $ 154.56 $ 156.60 $ 215.45
H & Q TECHNOLOGY............... $ 100.00 $ 147.83 $ 170.04 $ 185.56 $ 215.39 $ 323.40
</TABLE>
The Stock Price Performance Graph shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement (or any portion hereof) into any filing under the Acts, except to the
extent that the Company specifically incorporates this performance graph by
reference, and shall not otherwise be deemed filed under such Acts.
15
<PAGE> 18
RATIFICATION OF AN AMENDMENT TO THE 1992 STOCK PLAN
Since 1982, the Company has provided stock options as an incentive to its
key employees and executives as a means to promote increased stockholder value.
Management believes stock options are one of the prime ways to attract and
retain key personnel responsible for the continued development and growth of
VLSI's business. In addition, stock options are considered a competitive
necessity in the semiconductor/high technology industries.
In March 1996, the Company's Board of Directors, subject to stockholder
approval, adopted an amendment to the 1992 Stock Plan (the "1992 Plan") to
increase the number of shares reserved for issuance under the 1992 Plan from
4,500,000 shares to 9,500,000 shares. At the Annual Meeting, stockholders are
being asked to approve the increase in shares reserved under the 1992 Plan.
VOTE REQUIRED
The affirmative vote of a majority of the Votes Cast will be required to
ratify the increase in the number of shares reserved for issuance under the 1992
Plan from 4,500,000 shares to 9,500,000 shares.
RECOMMENDATION
The Board of Directors unanimously recommends that stockholders vote "FOR"
ratification of the increase in shares reserved under the 1992 Plan. The
essential features of the 1992 Plan, as amended, are outlined below.
GENERAL
The 1992 Plan provides an incentive to eligible employees and consultants
whose present and potential contributions are important to the continued success
of the Company, affords them an opportunity to acquire a proprietary interest in
the Company, and enables the Company to enlist and retain the best available
talent for the conduct of its business. The 1992 Plan permits the granting of
incentive stock options ("ISOs"), nonstatutory stock options ("NSOs"), stock
appreciation rights ("SARs"), stock purchase rights ("Purchase Rights"),
long-term performance awards ("Long-Term Awards") and stock bonus awards ("Stock
Bonuses"). SARs, Purchase Rights, Long-Term Awards and Stock Bonuses are
referred to collectively as "Rights". The Company does not currently have any
specific plans to grant any awards under the 1992 Plan other than options.
ELIGIBILITY
Awards may be granted under the 1992 Plan to employees (including officers
and directors) and consultants of the Company, its parent (if any) and its
subsidiaries. The 1992 Plan provides that NSOs, SARs, Purchase Rights, Stock
Bonuses and Long-Term Awards may be granted to employees and consultants of the
Company or any parent or majority-owned subsidiary of the Company. Incentive
stock options may be granted only to employees of the Company or any parent or
subsidiary of the Company. As of December 29, 1995, the Company's 2,986
employees and its consultants would have been eligible to participate in the
1992 Plan.
ADMINISTRATION
The 1992 Plan may be administered by the Board of Directors or by a
committee of the Board (the "Administrator"), and is currently administered by
the Compensation Committee, which is composed solely of non-employee directors.
The Administrator has full power to select, from among the employees and
consultants eligible for awards, the individuals to whom awards will be granted,
to make any combination of awards to any participant and to determine the
specific terms of each grant, subject to the provisions of the 1992 Plan. The
interpretation and construction of any provision of the 1992 Plan by the
Administrator shall be final and conclusive.
16
<PAGE> 19
STOCK OPTIONS
The term of each option will be fixed by the Administrator and may not
exceed 10 years from the date of grant in the case of ISOs, or five years from
the date of grant in the case of ISOs granted to 10% stockholders. The
Administrator determines the time or times that each option may be exercised.
Options may become exercisable in installments, and the exercisability of
options may be accelerated either automatically upon the occurrence of certain
events described in the 1992 Plan or the option agreement or on a discretionary
basis by the Administrator.
The Administrator sets the option exercise price, which may be less than
100% of the fair market value on the date of grant of the option. The method of
payment of consideration with respect to shares issued upon exercise of options
granted under the 1992 Plan shall be determined by the Administrator (and, in
the case of ISOs, determined at the time of grant) and may be any legal form of
consideration permitted by applicable laws.
In March 1996, the Compensation Committee of the Board of Directors
approved an option exchange program under which holders of outstanding options
were offered the opportunity to exchange options granted on or after April 27,
1995 with exercise prices exceeding $11.00 per share for new options having an
exercise price of $11.00 per share. New options issued in exchange for options
granted on April 27, 1995 will be on the same terms as the surrendered options,
except that the new options will vest at a rate of 25% per year beginning March
12, 1996 and will have a term of ten years from March 12, 1996. New options
issued in exchange for options granted after April 27, 1995 will be on the same
terms as the surrendered options, except that the new options will vest at a
rate of 25% per year beginning one year after the date on which the surrendered
option would have begun to vest and will have a term that expires ten years
after the first anniversary of the date on which the surrendered option would
have begun to vest. Options to purchase an aggregate of 1,833,775 shares at a
weighted average exercise price of $20.85 per share are eligible for the option
exchange.
The Administrator of the 1992 Plan may at any time offer to buy out, for a
payment in cash or shares of Common Stock of the Company, any 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. Buy-out
offers made to persons who are subject to Section 16 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), referred to herein as "Insiders",
may only be payable in cash.
STOCK APPRECIATION RIGHTS
The 1992 Plan also permits the granting of nontransferable stock
appreciation rights. SARs may be granted in connection with all or any part of
an option, either concurrently with the grant of such option or at any time
thereafter during the term of the option, or may be granted independently of
options.
The Administrator of the 1992 Plan may place limits on the aggregate amount
that may be paid upon exercise of an SAR, provided, however, that with respect
to SARs granted in connection with options, such limits shall not restrict the
exercisability of the related option. The Company's obligation arising upon the
exercise of an SAR may be paid in Common Stock or in cash, or any combination
thereof, as the Administrator may determine.
TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP
Under the 1992 Plan, the period of time during which an option or SAR may
be exercised following an optionee's termination of employment or consulting
relationship for any reason is such period as is determined by the
Administrator, up to a maximum of 10 years in the case of death or permanent
disability and five years in the case of termination for any other reason. After
termination of employment or consulting, an option or SAR may thereafter be
exercised during the specified period but in no event after the expiration of
the original term of the option or SAR. After termination, an option or SAR is
generally only exercisable to the extent it was exercisable at the date of such
termination, unless otherwise determined by the Administrator. The employment or
consulting relationship is not considered to be terminated in the event of
certain leaves of
17
<PAGE> 20
absence or transfers between the Company, its parent (if any), its
majority-owned subsidiaries or its affiliated companies (defined to be companies
with respect to which the Company owns, directly or indirectly, at least 20% of
the voting power).
STOCK PURCHASE RIGHTS
The 1992 Plan permits the Company to grant stock purchase rights, which
allow the offeree the opportunity to purchase, during a specified period of time
not exceeding 60 days, Common Stock of the Company on the terms specified by the
Administrator. The Administrator notifies the offeree in writing of the terms,
conditions and restrictions related to the offer, including the number of shares
of Common Stock that the offeree shall be entitled to purchase, the price to be
paid and the time within which the offeree must accept such offer (which shall
in no event exceed 60 days from the date upon which the Administrator made the
determination to grant the Purchase Right). Offers may be accepted by execution
of a restricted stock purchase agreement between the Company and the offeree and
payment of the purchase price.
Unless the Administrator determines otherwise, the restricted stock
purchase agreement shall grant the Company a repurchase option at the original
price paid by the purchaser with respect to unvested shares, exercisable upon
the termination of the purchaser's employment or consulting relationship for any
reason. The purchase price for shares repurchased by the Company pursuant to the
restricted stock purchase agreement may be paid by cancellation of any
indebtedness of the purchaser to the Company. The repurchase option shall lapse
at such rate as the Administrator may determine.
LONG-TERM PERFORMANCE AWARDS
The 1992 Plan also permits the granting of Long-Term Awards payable in cash
or Common Stock. The range of values subject to a Long-Term Award may be
specified in dollar amounts and/or numbers of shares. Such awards shall be based
upon Company, parent, subsidiary, affiliated company and/or individual
performance over designated periods, measured by such factors or other criteria
as the Administrator deems appropriate. Performance objectives may vary from
participant to participant, group to group and period to period. Such awards
shall not require payment by the award recipient of any consideration. The
Administrator may adjust Long-Term Awards as it deems necessary or appropriate,
based on changes in the law or in accounting or tax rules, in order to avoid
windfalls or hardships.
STOCK BONUS AWARDS
The 1992 Plan also permits the granting of Stock Bonuses based on such
performance or employment-related factors as the Administrator shall determine.
Stock Bonus awards may vary from participant to participant and group to group.
Such awards shall not require payment by the recipient of any consideration but
may, in the discretion of the Administrator, be subject to vesting or forfeiture
restrictions.
WRITTEN AGREEMENTS; RULE 16B-3
All awards granted under the 1992 Plan shall be evidenced by a written
agreement between the Company and the employee or consultant to whom such award
is granted. Awards granted to Insiders are subject to any additional applicable
restrictions under Rule 16b-3.
RIGHTS NONTRANSFERABLE
Options and Rights granted pursuant to the 1992 Plan are nontransferable by
the participant, other than by will or by the laws of descent and distribution
or pursuant to a qualified domestic relations order. Options or Rights may be
exercised, during the lifetime of the participant, only by the participant or by
a permitted transferee.
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<PAGE> 21
USE OF STOCK FOR TAX WITHHOLDING
The 1992 Plan permits participants to satisfy tax withholding obligations
arising from the grant, vesting or exercise of options or Rights by surrendering
shares of Common Stock already owned, or by directing the Company to withhold
from the shares of Common Stock issued or issuable pursuant to the award in
question that number of shares, having a fair market value equal to the tax
withholding liability as of the applicable tax date. All elections to utilize
stock for tax withholding are subject to the approval of the Administrator.
CHANGE-IN-CONTROL PROVISIONS
The 1992 Plan provides that in the event of a change-in-control of the
Company (as defined below), except as otherwise determined by the Administrator
in its discretion prior to the change-in-control, all stock options and Rights
granted under the 1992 Plan that are outstanding as of the date such
change-in-control is determined to have occurred and that are not yet
exercisable and vested on such date will become immediately vested and fully
exercisable. A change-in-control means the occurrence of (i) the acquisition by
a person or entity (other than the Company, one of its subsidiaries, or a
Company employee benefit plan or trustee thereof) of securities representing 50%
or more of the combined voting power of the Company, (ii) a transaction
requiring the approval of the stockholders and involving the sale of all or
substantially all of the assets of the Company or a merger of the Company with
or into another corporation, or (iii) a change in the composition of the Board
of Directors after which less than a majority of the directors in office are
incumbent directors.
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 outstanding option and Right shall be assumed or substituted by such
successor corporation or a parent or subsidiary of the successor corporation,
unless the Administrator determines, in lieu of such assumption or substitution,
that the participant shall have the right to exercise the option or Right as to
all or a portion of the shares subject to such option or Right that would not
otherwise be exercisable, for a period of time determined by the Administrator,
after which the options and Rights shall terminate.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
In the event any change, such as a stock split or dividend, is made in the
Company's capitalization, which change results in an increase or decrease in the
number of outstanding shares of Common Stock without receipt of consideration by
the Company, an appropriate adjustment shall be made in the number of shares
that have been reserved for issuance under the 1992 Plan and the price per share
covered by each outstanding option, SAR, Purchase Right and Long-Term Award. In
the event of the proposed dissolution or liquidation of the Company, all
outstanding options and Rights will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the
Administrator. The Administrator may, in its discretion, make provision for
accelerating the exercisability of shares subject to options or Rights under the
1992 Plan in such event.
AMENDMENT AND TERMINATION
The Board may amend, alter, suspend or discontinue the 1992 Plan at any
time, but any such amendment, alteration, suspension or discontinuation shall
not adversely affect any outstanding option or Right under the 1992 Plan without
the consent of the holder thereof. To the extent necessary and desirable to
comply with Rule 16b-3 or Section 422 of the Code (or any other applicable law
or regulation), the Company shall obtain stockholder approval of any amendment
to the 1992 Plan in such a manner and to such a degree as is required. The 1992
Plan will terminate by its terms on April 30, 2002.
Subject to applicable laws and the specific terms of the 1992 Plan, the
Administrator may accelerate any option or Right or waive any condition or
restriction pertaining to such option or Right at any time. The Administrator
may also substitute new options or Rights for previously granted options or
Rights, including previously granted options or Rights having higher prices, and
may reduce the exercise price of any option or
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<PAGE> 22
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 or right was granted.
FEDERAL INCOME TAX INFORMATION
The following is only a brief summary of the federal income tax
consequences of transactions under the 1992 Plan based on federal income tax
laws in effect on January 1, 1996. This summary is not intended to be exhaustive
and does not discuss the tax consequences of a participant's death or provisions
of the income tax laws of any municipality, state or foreign country in which an
optionee may reside.
STOCK OPTIONS
An optionee will recognize no taxable income upon grant or exercise of
incentive stock options under the 1992 Plan, unless the alternative minimum tax
rules apply. The Company will not be allowed a deduction for federal income tax
purposes in connection with the grant or exercise of an ISO. Upon an optionee's
resale of the underlying shares (assuming that the sale occurs no sooner than
two years after grant of the option and one year after exercise of the option
(the "statutory holding periods")), any gain will be taxed to the optionee as
long-term capital gain. If the statutory holding periods are not satisfied
(i.e., the optionee makes a "disqualifying disposition"), the optionee will
recognize compensation income equal to the difference between the exercise price
and the lower of (i) the fair market value of the stock at the date of the
option exercise or (ii) the sale price of the stock, and the Company will be
entitled to a deduction in the same amount. Any additional gain or loss
recognized on a disqualifying disposition of the shares will be characterized as
capital gain or loss.
An optionee will not recognize any taxable income at the time he or she is
granted an NSO under the 1992 Plan. However, upon exercise of the NSO, the
optionee will generally recognize compensation income for federal tax purposes
measured by the excess, if any, of the then fair market value of the shares over
the exercise price. The Company will be entitled to a tax deduction in the same
amount. Upon an optionee's resale of such shares, any difference between the
sale price and fair market value of such shares on the date of exercise will be
treated as capital gain or loss and will qualify for long-term capital gain or
loss treatment if the shares have been held for more than one year.
The compensation income recognized upon exercise of an NSO by an optionee
who is also an employee will be treated as wages for tax purposes and will be
subject to tax withholding by the Company out of the current compensation paid
to such person, if any. If such current compensation is insufficient to satisfy
the tax withholding obligation, such person will be required to make direct
payment to the Company for the tax liability. Any required withholding in
connection with the exercise of an NSO may, with the consent of the
Administrator, be satisfied by an optionee, in whole or in part, by surrendering
to the Company shares of Common Stock previously owned by such person or shares
issued upon exercise of the option. For such purpose, the surrendered shares are
valued at their fair market value at the time of surrender.
STOCK APPRECIATION RIGHTS
No income will be recognized by a recipient in connection with the grant of
an SAR. When the SAR is exercised, the recipient will generally be required to
include as taxable ordinary income in the year of exercise an amount equal to
the fair market value of any Common Stock (or cash, as the case may be) received
upon the exercise. In the case of a recipient who is also an employee, any
taxable income recognized upon exercise of an SAR will constitute wages for
which withholding will be required. The Company will be entitled to a tax
deduction in the same amount. Any gain or loss on the resale of Common Stock
acquired, upon exercise of an SAR, will be treated as capital gain or loss.
STOCK PURCHASE RIGHTS
Purchase Rights will generally be taxed in the same manner as NSOs.
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<PAGE> 23
LONG-TERM PERFORMANCE AWARDS
Generally, no income will be recognized by a recipient in connection with
the grant of a Long-Term Award of stock that is subject to vesting restrictions
(referred to as "restricted stock"), unless an election under Section 83(b) of
the Code is filed with the Internal Revenue Service within 30 days of the date
of grant. Otherwise, at the time the Long-Term Award vests, the recipient will
generally recognize compensation income in an amount equal to the fair market
value of the award at the time of vesting. Generally, the recipient will be
subject to the same tax consequences as for NSOs. In the case of a recipient who
is also an employee, any amount included in income will be subject to
withholding by the Company. The Company will be entitled to a tax deduction in
the same amount, and at the time the recipient recognizes ordinary income with
respect to a Long-Term Award.
STOCK BONUSES
A recipient who receives fully vested shares of Common Stock pursuant to a
Stock Bonus will generally recognize ordinary income in the year of receipt
equal to the fair market value of the stock on the date of grant. If the
recipient receives restricted stock pursuant to a Stock Bonus Award, the
recipient will recognize ordinary income equal to the fair market value of the
stock at the time or times the restrictions lapse (unless a Section 83(b)
election is timely filed within 30 days of the date of grant). If the recipient
is an employee, any amount included in income will be subject to withholding by
the Company. As a general rule, the Company will be entitled to a tax deduction
in the amount and at the time the recipient recognizes ordinary income with
respect to the Stock Bonus.
SPECIAL RULES APPLICABLE TO INSIDERS AND RESTRICTED STOCK PURCHASERS
Generally, Insiders and individuals who purchase restricted stock may have
their recognition of compensation income and the beginning of their capital
gains holding period deferred until a date (the "Deferral Date") that is up to
six months after option exercise (in the case of Insiders) or the date on which
the restrictions lapse (in the case of restricted stock purchasers), with the
excess of the fair market value of the stock on the Deferral Date over the
purchase price being taxed as ordinary income, and the tax holding period for
any subsequent gain (or loss) beginning at the end of such period. However, an
Insider or restricted stock purchaser who files a timely election under Section
83(b) may instead be taxed on the difference between the excess of the fair
market value on the date of transfer by the Company to the optionee over the
purchase price, with the tax holding period beginning on such date. Similar
rules apply for alternative minimum tax purposes with respect to the exercise of
an ISO by an Insider.
In order for compensation in excess of $1 million realized by any of the
Named Officers to be deductible by the Company, IRS regulations require any
option plan to state the maximum number of shares subject to options that can be
granted during a fiscal year to any one individual. The 1992 Plan has a limit of
500,000 shares subject to options per fiscal year. While the Company does not
expect to grant this number of options to an individual on a regular basis, the
Company does expect that this would be the maximum number of options that would
be necessary to recruit any outstanding top executive.
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<PAGE> 24
PARTICIPATION IN 1992 PLAN
The grant of options, stock appreciation rights, stock purchase rights,
stock bonus awards and long-term performance awards under the 1992 Plan to
employees, including the Named Officers, is subject to the discretion of the
Administrator. As of the date of this proxy statement, there has been no
determination by the Administrator with respect to future awards under the 1992
Plan. Accordingly, future awards are not determinable. Non-employee directors
are not eligible to participate in the 1992 Plan. The following table sets forth
information with respect to the grant of options to the Named Officers, to all
current executive officers as a group and to all other employees as a group
during the last fiscal year:
AMENDED PLAN BENEFITS
1992 STOCK PLAN
<TABLE>
<CAPTION>
NUMBER OF
NAME OF INDIVIDUAL SECURITIES UNDERLYING
OR IDENTITY OF GROUP AND POSITION OPTIONS GRANTED (#) EXERCISE PRICE ($/SH)
- ------------------------------------------------------- --------------------- ---------------------
<S> <C> <C>
Alfred J. Stein........................................ 500,000 $ 21.25
Chairman of the Board, Chief Executive Officer and
President
Gregory K. Hinckley.................................... 30,000 21.25
Senior Vice President and Chief Financial Officer 20,000 16.25
Donald L. Ciffone...................................... 30,000 21.25
Senior Vice President and General Manager, VLSI 20,000 16.25
Products Divisions
Dieter J. Mezger....................................... 0 0
Senior Vice President of the Company and President of
COMPASS Design Automation, Inc.
L. Don Maulsby......................................... 30,000 21.25
Group Vice President, Computing Products 20,000 16.25
All current executive officers as a group (9 724,000 20.70(1)
persons).............................................
All other employees as a group......................... 1,109,775 20.95(1)
</TABLE>
- ---------------
(1) Represents weighted average per share exercise price.
RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors has appointed Ernst & Young LLP, independent
auditors, to audit the consolidated financial statements of the Company for the
fiscal year ending December 27, 1996 and recommends that stockholders vote "FOR"
ratification of such appointment. In the event of a negative vote on such
ratification, the Board of Directors will reconsider its selection.
Ernst & Young LLP has audited the Company's financial statements since
1980. Representatives of Ernst & Young LLP are expected to be present at the
meeting, will have the opportunity to make a statement if they desire to do so,
and are expected to be available to respond to appropriate questions.
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<PAGE> 25
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the enclosed proxy card to vote the shares they represent as
the Board of Directors may recommend.
BY ORDER OF THE BOARD OF DIRECTORS
Larry L. Grant, Secretary
Date: May 3, 1996
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<PAGE> 26
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
VLSI TECHNOLOGY, INC.
Proxy for 1996 Annual Meeting of Stockholders
The undersigned stockholder of VLSI Technology, Inc., a Delaware
corporation, hereby acknowledges receipt of the 1995 Annual Report to
Stockholders and the Notice of Annual Meeting of Stockholders and Proxy
Statement for the Annual Meeting of Stockholders of VLSI Technology, Inc. to be
held on Friday, May 31, 1996 at 9:00 a.m. local time, at the Company's offices
located at 1151 McKay Drive, San Jose, California 95131, and hereby appoints
Alfred J. Stein and Thomas C. Tokos, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in
the name of the undersigned, to represent the undersigned at such meeting, and
at any adjournment or adjournments thereof, and to vote all shares of Common
Stock that the undersigned would be entitled to vote if then and there
personally present on the matters set forth below:
1. ELECTION OF DIRECTORS.
/ / FOR all nominees listed / / WITHHOLD AUTHORITY
below (except as marked to vote for all nominees
to the contrary below). below.
(INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list
below.)
Pierre S. Bonelli, Robert P. Dilworth, William G. Howard, Jr., Paul R.
Low, Alfred J. Stein and Horace H. Tsiang.
2. PROPOSAL TO RATIFY AND APPROVE AN AMENDMENT TO THE COMPANY'S 1992 STOCK
PLAN TO INCREASE THE NUMBER OF SHARES RESERVED FOR ISSUANCE THEREUNDER FROM
4,500,000 TO 9,500,000.
/ / FOR / / AGAINST / / ABSTAIN
3. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT
AUDITORS FOR 1996.
/ / FOR / / AGAINST / / ABSTAIN
(Continued on back)
<PAGE> 27
{Continued from front)
4. IN THEIR DISCRETION, THE PROXIES AND ATTORNEYS-IN-FACT ARE AUTHORIZED TO
VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING,
AND ANY ADJOURNMENT OR ADJOURNMENTS THEREOF.
Either of such proxies and attorneys-in-fact, or their substitutes, as shall be
present and shall act at said meeting or any adjournment or adjournments
thereof shall have and may exercise all the powers of said proxies and
attorneys-in-fact hereunder.
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned stockholder(s).
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3.
Signature Date
------------------------------------- ----------------
Signature Date
------------------------------------- ----------------
(This Proxy should be dated, signed by the stockholder(s) exactly as his or
her name(s) appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate.)
I do / / do not / / plan to attend the Annual Meeting in person.
