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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 29, 1995
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
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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.)
1109 MCKAY DRIVE
SAN JOSE, CALIFORNIA 95131
(Address of principal executive offices, including zip code)
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Registrant's telephone number, including area code: (408) 434-3100
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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)
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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. [X].
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of March 15, 1996 was approximately $538,010,411 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 March 15, 1996, the number of shares of the Registrant's Common Stock
outstanding was 45,780,107.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following document are incorporated by reference in this
Annual Report on Form 10-K: the Proxy Statement for the Registrant's Annual
Meeting of Stockholders to be held May 31, 1996 (the "Proxy Statement"), (Parts
I & III).
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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.
This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results could differ materially from those
projected in the forward-looking statements as a result of the risk factors set
forth below and elsewhere in this Form 10-K.
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 computing, communications and consumer digital
entertainment markets. VLSI targets a limited number of key Original Equipment
Manufacturer ("OEM") customers who are leaders in their respective industries.
See "MARKETING AND CUSTOMERS" below.
The Company has developed significant design expertise in its targeted
markets by establishing a library of proprietary cells and highly integrated
building blocks and uses that expertise 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 computing (high-end computing and desktop and portable
personal computers) applications, wireless and networking communications
applications and consumer digital entertainment systems.
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
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significant potential. During the year ended December 29, 1995, approximately
two-thirds of the Company's net revenues were derived from sales to its top 20
customers.
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), DSP, Ethernet, Fibre Channel, MPEGII and SSA.
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 -- VLSI PRODUCTS
PRODUCTS AND SERVICES
VLSI has organized its business around targeted market segments,
establishing groups to address specific silicon markets. Each of the Company's
silicon groups 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 Computing Products group designs, manufactures and markets devices for
the computer market, including personal computer ("PC") applications and
high-end computing applications such as graphics workstations and high-end
storage. The Communications Products group designs, manufactures and markets
devices for networking and wireless communications. The Consumer Digital
Entertainment Products group designs, manufactures and markets devices for
secure communications and home entertainment applications (such as interactive
television and video game systems).
The key to the success of these business units 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.
Competition comes from a wide variety of large, established IC providers,
including, but not limited to, AT&T, Intel, IBM, LSI Logic, Motorola, NEC, Texas
Instruments ("TI") and Toshiba.
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COMPUTING PRODUCTS
This group produces PC devices for Apple, its subcontractors and licensees
as well as Apple-compatible peripheral suppliers worldwide and system-logic chip
sets and peripheral components for personal computers based on X86 and competing
personal computing architectures. The group also serves workstations (from
entry-level through high-end graphic), servers, parallel processors, mass
storage devices and peripherals. Apple and its licensees are provided with
high-performance gate array and cell-based products, which are used in
second-generation Power Macintosh(TM) systems, Apple's Powerbook(TM) computer
line based on the Macintosh(R) platform and in a host of printer products. While
the Company did not have significant silicon content in Apple's first generation
Power Macintosh(TM) machines in 1994, VLSI has returned to historic levels of
silicon content in second-generation Power Mac systems in 1995. See "MARKETING
AND CUSTOMERS" below. 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.
The PC chip set product line consists of highly-integrated core logic and
peripheral input/output devices for X86 systems. The group primarily targets a
selected set of high-volume market leaders worldwide. VLSI's chip sets currently
support Intel, Advanced Micro Devices and other competing microprocessors.
During 1995, the dynamics of the X86 core logic chip set market changed
dramatically with Intel, the dominant microprocessor supplier, gaining
significant market share in core logic chip sets that work with its
microprocessors, as well as motherboards that use the microprocessor and core
logic chip sets. By the second half of 1995, Intel dominated the core logic chip
set business and VLSI's design wins in this area dropped significantly. This
drop is expected to result in a sharp decline in the Company's core logic chip
set business in 1996. The Computing Products group is therefore shifting its
focus away from standard core logic chip sets and redirecting its expertise to
develop and produce custom products for X86 applications.
See "COMPETITION" herein and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Factors Affecting Future
Results" in Item 7 of Part II hereof for recent 1996 developments that will
likely reduce VLSI's current market share of the PC chip set market.
Significant high-end computing customers include AT&T, DEC, Silicon
Graphics and Storage Technology.
COMMUNICATIONS PRODUCTS
This group serves wireless and network customers. Wireless solutions are
provided for communications voice and data through the use of baseband signal
processing technology developed to support various voice and data standards, the
majority of which in 1995 were GSM solutions, and in 1996 are expected to
include GSM, PHS, DECT and CDPD solutions. Standard products include GTI2000 (a
GSM reference solution), Geode (a CDPD reference solution), RubyII (a
communication processor) and Vocoder and Kernal (GSM basebands). The group
supports major wireless telephone manufacturers, including Ericsson, Acer and
Motorola. Additionally, solutions have been developed for other markets and
standards. Wireless revenues are primarily generated in non-U.S. markets; sales
to a single OEM, Ericsson, accounted for over 50% of 1995 and 1994 worldwide
wireless revenues.
Network solutions are provided for customers such as Alcatel, Cisco
Systems, DSC Communications, NEC and Tellabs 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 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.
CONSUMER DIGITAL ENTERTAINMENT PRODUCTS
This group primarily targets high-volume entertainment-related markets
including satellite and cable set-top box, digital video disk, cable modem, and
electronic games as well as other miscellaneous industrial
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applications including manufacturing and robotics. The customer base for the
group includes the Allen Bradley Division of Rockwell International, General
Instruments, Pioneer, Sagem SAT, Sony and Thomson Consumer Electronic.
As these products become more sophisticated and interactive, security
becomes a critical element of the product. In response to this critical need,
VLSI has teamed its secure information technology with these consumer products.
Secure information technologies in the form of data encryption strategies are
another key area of focus for this group. VLSI also provides commercial
applications of technologies developed for military applications, including
Geo-Positioning Satellite systems and entertainment applications of graphics
technology.
MARKETING AND CUSTOMERS
The Company primarily uses a direct sales force and commissioned
representatives to sell its silicon products and services. VLSI's silicon
operations have 27 sales offices (19 in the United States, four in Europe, two
in Japan and two in the Asia-Pacific region) as well as 19 Technology Centers
(12 in the United States, four in Europe, two in Japan and one in the
Asia-Pacific region). 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. The Technology Centers are
staffed by system and integrated circuit designers.
During each of the years 1995, 1994 and 1993, VLSI's top 20 customers
represented approximately two-thirds of the Company's net revenues. Shipments to
a single customer in the personal computer business, Apple, accounted for 11% of
net revenues in 1995 and 19% in 1993, as compared to less than 10% in 1994.
Shipments to Compaq accounted for 22% of net revenues in 1994, as compared to
less than 10% in both 1995 and 1993. Due to the expected decline in the
Company's X86 chip set business, the Company anticipates a shift in its top 20
customers in 1996 away from the high concentration of personal computer industry
companies that was seen in 1995 and in prior years. 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 1995, 1994 and 1993
have shown sequential increases with total expenses of $89.7 million, $78.9
million and $66.4 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 in 1993 and
1994 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 regards purchased technology as a key component of product
development. A few examples include ARM, DSP, Ethernet, Fibre Channel, MPEGII,
SSA, power management, communications (including standards such as DECT, CT2,
GSM and PHS), signal converters, forward error correction and digital signal
processing, which represent key licensed technology. Research and development
efforts are
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ongoing to create products from those technologies and establish them as FSB's
for use in ASIC products or for incorporation in ASSPs.
The Company's process technology development activities in 1995
concentrated on the successful development of a 0.35-micron CMOS process and on
the development of software for the EDA market. R&D activities in the packaging
area continue to 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
1995 in conjunction with the Company's strategic agreement with Hitachi include
integration of 0.35-micron CMOS process and manufacturing methodologies.
See also "EMPLOYEES" below and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Factors Affecting Future
Results" in Item 7 of Part II herein.
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
needs.
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 1995
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 1995 wafer production utilized a 0.8-micron
CMOS process; however, the production of wafers utilizing a 0.6-micron CMOS
process increased to approximately 30% of total monthly wafer production by the
end of the year.
The Company has three manufacturing locations. Its San Jose, California
plant performs wafer fabrication, probe and final test activities. The Tempe,
Arizona site contains design, probe and final test facilities. The San Antonio
facility is primarily dedicated to wafer fabrication and includes four modules.
Modules A, B and C have been fully facilitized, while VLSI currently anticipates
facilitizing Module D during 1996. During 1995, the Company began the process of
converting its San Antonio wafer fabrication facility from a predominantly
0.8-micron process to predominantly 0.6-micron and smaller processes. The
conversion is expected to be completed in the first half of 1996. This will
enable the Company to significantly increase its production capacity at the San
Antonio facility in the fourth quarter of 1996 over the fourth quarter of 1995.
These conversions, if successfully completed, will increase device volume
production and lead to lower overall device costs.
The building housing the Company's San Jose wafer fabrication facility,
which in 1995 accounted for approximately 45% of its total internal wafer
production, was purchased by the Company during the first quarter of 1994. In
late 1995, the conversion of the Class 10 San Jose facility from a 5-inch wafer
process to a
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6-inch process was completed. This conversion is expected to 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 12-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. To the extent customers and markets served by the
Company require advanced process technologies, there are no assurances that the
Company will have sufficient demand to fully utilize the San Jose fabrication
facility or have ultimate use for its capacity.
In addition to manufacturing in its own facilities, VLSI has wafer
manufacturing arrangements with several 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 such as changes in government
policies, transportation delays, increased tariffs, fluctuations in foreign
exchange rates, and export and tax controls. Lengthy or recurring disruptions 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 50% of its final testing to third parties. The final
tested circuits are then shipped to VLSI's customers or 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 and specialty gases 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.
Competition in the X86 core logic chip set market, the Company's largest
individual market segment, is especially intense and is subject to significant
shifts in demand and severe pricing pressures. During the latter portion of 1995
and continuing into 1996, VLSI has experienced significant changes in customer
behavior as Intel has become the predominant supplier of PC chip sets. As a
result of this competition, VLSI expects significantly reduced market share and,
to the extent VLSI elects to continue to compete in the X86 core logic market,
expects to do so at reduced sales prices and gross margins.
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, Intel, IBM,
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LSI Logic, Motorola, NEC, TI and Toshiba. There is no assurance that the Company
will be able to compete successfully in the future.
Competition is primarily based on 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 overall competitive 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 "EMPLOYEES" below and "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 focuses 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 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. COMPASS uses
a number of different vendors' software tools to develop its own software tools
and physical libraries. Vendor changes in those underlying tools in terms of
features and functionality, interoperability, licensing and support can
influence the focus of certain R&D projects and COMPASS' development strategies.
The focus of COMPASS product development 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 established vendors, such as Cadence Design Systems, Mentor
Graphics, Viewlogic Systems and Synopsys. COMPASS pursues cooperative
relationships with certain of these 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, General Electric Corporation
Ltd.'s Plessey Division, LG Semicon, Hitachi, Mitsubishi, NEC and Toshiba.
Additionally, COMPASS libraries are supported by VLSI, Taiwan Semiconductor
Manufactur-
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ing 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' 20 sales offices (14 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 European distribution channels.
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.
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 29, 1995, the Company and its subsidiaries had approximately
3,000 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. In particular, the Company currently
has numerous open positions, specifically in the engineering arena. Any lengthy
delays in filling these positions will lead to delays in the introduction of
various products currently being developed, as well as the research and
development associated with potential new products.
PATENTS AND LICENSES
The Company has filed a number of patent applications and currently holds
various patents expiring from 2003 to 2012 covering inventions in areas
including computer-aided engineering, semiconductor manufacturing and electronic
circuitry. The Company expects to file additional patent applications from time
to time, as appropriate. 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
three remaining defendants in a major patent infringement suit brought by TI and
currently under appeal by TI (see "Legal Proceedings" in Item 3 of Part I
herein).
Periodically, the Company is made aware that technology used by the Company
in the manufacture of some or all of its products may infringe on product or
process technology rights held by others. Resolution of whether the Company's
manufacture of products has infringed on valid rights held by others may have a
material adverse effect on the Company's financial position or results of
operations, and may require material changes in production processes and
products. IBM, Motorola and others have individually contacted the Company
concerning its alleged use of intellectual property belonging to them. In
addition, VLSI has also entered into 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. Certain of these agreements will
require renewal in calendar 1996. The Company is unable to predict whether
license agreements can be obtained or renewed on terms acceptable to the
Company. Failure to obtain or renew such licenses could result in litigation and
the attendant cost and diversion of resources associated therewith. An adverse
decision on any such litigation or such material changes could have a material
effect on the Company's financial position or results of operations.
8
<PAGE> 10
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".
FINANCIAL INFORMATION BY BUSINESS SEGMENT
AND GEOGRAPHIC DATA
This information is included in Note 9 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 and San
Antonio facilities are located near residential areas, 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 material adverse effect on the Company's operating results.
ITEM 2. PROPERTIES
The Company owns the buildings housing its three manufacturing facilities
located in San Jose, California, Tempe, Arizona and San Antonio, Texas and
recently acquired ownership of its previously leased headquarters buildings in
San Jose. 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 19 Technology Centers (12 in the U. S., four in Europe,
two in Japan and one in the Asia-Pacific region). The Company's other
properties, including some comprising its San Jose campus, are occupied under
operating leases that expire on various dates through October 2023 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 those San Jose and San Antonio facilities that it owns.
The Company's San Jose facility, which includes manufacturing, COMPASS,
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
primarily 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. During 1995, Module B was fully equipped and
Module C was fully facilitized and minimally equipped, while Module D was
partially facilitized.
The Tempe site contains the research and development resources supporting
the PC chip set products for the Computing Products group, test facilities,
marketing, sales and Technology Center functions.
VLSI expanded into new leased facilities adjacent to its San Jose
headquarters in each of the last three years ending in 1995. The Company
anticipates that the lease of the additional space, along with an option
obtained for additional space adjacent to its leased facilities in San Jose,
will satisfy the Company's growth needs in the near term.
9
<PAGE> 11
ITEM 3. LEGAL PROCEEDINGS
Texas Instruments Litigation
The Company along with LSI Logic and Cypress Semiconductor (the Company and
such other defendants are collectively referred to as the "TI Defendants") are
named defendants in a lawsuit filed by TI in 1990 that claims alleged patent
infringement.
TI filed this patent infringement action against the TI Defendants in the
United States District Court for the Northern District of Texas seeking damages
for alleged past infringement of now expired U.S. Patent Nos. 4,043,027 and
3,716,764. A trial in April 1995 resulted in a May 1995 jury verdict against the
Company in the amount of $19.4 million. While in the process of contesting the
jury verdict, the Company recorded a charge to earnings of $19.4 million in the
second quarter of 1995. In August 1995, the trial judge issued an order
overturning and setting aside the jury verdict and conditionally granting a new
trial on the matter in the event that his order is reversed on appeal. TI is
pursuing an appeal of the trial judge's order in the United States Court of
Appeals for the Federal Circuit and seeks a reversal of that order as well as
enhanced damages, pre-judgment interest and attorneys' fees. The Company has not
made any adjustments to the $19.4 million charge taken during the second quarter
of 1995, pending resolution of this and related intellectual property matters.
In the event that TI's appeal is successful and enhanced damages (which by
statute may be as high as treble damages), pre-judgment interest and/or
attorney's fees are awarded, such a judgment could result in a material
reduction in liquidity, as well as an additional adverse impact on the Company's
reported results of operations.
Other Patent Matters
Periodically, the Company is made aware that technology used by the Company
in the manufacture of some or all of its products may infringe on product and
process technology rights held by others. An adverse decision on infringement of
patents may have a material adverse effect on the Company's financial position
or results of operations and may require material changes in production
processes or products. Where deemed advisable, the Company may seek or extend
licenses or negotiate settlements. See "Patents and Licenses" in Item I of Part
I herein.
Other Litigation
The Company is currently a party to various other legal actions arising out
of the normal course of business, none of which are expected to have a material
effect on the Company's financial position or results of operations.
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 1995, which ended December 29, 1995.
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 41, 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. Bernd U. Braune, age 40, was named Senior Vice President of Worldwide
Sales and Marketing in November 1995. Mr. Braune joined the Company in June 1993
as General Manager and Vice President of European Operations. Prior to joining
the Company, Mr. Braune was Managing Director for European operations of NCR
Microelectronics, a computing company, from 1987 until 1991 and then Director
10
<PAGE> 12
of Marketing for NCR Central Europe as part of the Global Information Systems
Group of AT&T, a computing company, until joining VLSI.
Mr. Donald L. Ciffone, Jr., age 40, was named Senior Vice President of VLSI
Products in November 1995. Mr. Ciffone 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, a semiconductor manufacturer, in various
capacities from 1978 until 1991, including as Director of Marketing, ASIC
Division immediately prior to his departure.
Mr. Larry Grant, age 50, joined the Company in January 1996 as Vice
President, General Counsel and Secretary. From 1985 until joining VLSI, Mr.
Grant was Vice President and General Counsel to Micron Technology, Inc., a
semiconductor manufacturer.
Mr. Gregory K. Hinckley, age 49, was named Senior Vice President in
November 1995. Mr. Hinckley 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 and OEC Medical Systems,
Inc.
Mr. Balakrishnan S. Iyer, age 39, 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 44, was named Group Vice President of the Computing
Products Division in November 1995. Prior to that time, he was Vice President
and General Manager of the Personal Computer Division from June 1994, and Vice
President, Worldwide Sales and Technology Center Operations, from November 1992
until June 1994. 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 52, 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
Company's European operations. From December 1988 until March 1991, he was
President of VLSI Technology Europe.
There are no family relationships among the Company's executive officers
and directors.
11
<PAGE> 13
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>
1995 DEC. 29 SEPT. 29 JUNE 30 MAR. 31
- ------------------------------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues.................................... $184,311 $188,184 $184,389 $163,035
Gross profit.................................... $ 74,805 $ 75,115 $ 74,583 $ 64,074
Net income...................................... $ 18,266 $ 16,157 $ 1,295 $ 10,250
Net income per share............................ $ .38 $ .35 $ .03 $ .26
Market price:(1) High........................... $ 32 1/4 $ 37 5/8 $ 30 1/8 $18 3/16
Low........................... $ 16 1/4 $26 11/16 $ 16 3/4 $11 11/16
</TABLE>
<TABLE>
<CAPTION>
1994 DEC. 30 SEPT. 30 JULY 1 APRIL 1
- ------------------------------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues.................................... $149,311 $151,609 $148,048 $138,123
Gross profit.................................... $ 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:(1) High........................... $ 13 1/8 $15 15/16 $ 15 3/8 $ 16
Low........................... $ 10 1/2 $ 11 $ 12 1/8 $ 9 5/8
</TABLE>
- ---------------
(1) The Company's Common Stock is traded on the Nasdaq National Market under the
symbol VLSI. The prices per common share represent the highest and lowest
closing prices for VLSI's Common Stock in the Nasdaq National Market during
each quarter. On February 23, 1996, there were approximately 2,020
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.
ITEM 6. SELECTED FINANCIAL DATA(1)
<TABLE>
<CAPTION>
1995 1994 1993 1992(2) 1991
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net revenues........................ $719,919 $587,091 $515,946 $428,498 $413,376
Operating income (loss)............. $ 75,382 $ 46,749 $ 27,082 $(19,282) $ 23,173
Net income (loss)................... $ 45,968 $ 31,697 $ 15,883 $(32,217) $ 9,873
Net income (loss) per share......... $ 1.05 $ .85 $ .45 $ (1.12) $ .37
Research and development as a
percentage of net revenues........ 12.5% 13.4% 12.9% 11.8% 9.5%
Capital expenditures................ $203,472 $ 94,446 $ 71,615 $ 40,123 $ 55,432
Cash, cash equivalents and liquid
investments....................... $365,581 $103,111 $ 72,636 $ 69,674 $ 48,018
Working capital..................... $400,097 $138,704 $114,423 $102,149 $ 76,127
Long-term debt and non-current
capital lease obligations......... $218,847 $ 96,804 $ 85,855 $ 83,178 $ 92,633
Stockholders' equity................ $530,629 $255,430 $212,508 $185,008 $161,628
Total assets........................ $959,887 $490,216 $412,223 $368,208 $364,018
Employees........................... 2,986 2,728 2,659 2,379 2,315
</TABLE>
- ---------------
(1) Certain prior year amounts previously reported have been reclassified to
conform to the 1995 presentation.
(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.
12
<PAGE> 14
The Company has never paid any cash dividends and is currently prohibited
from doing so under the terms of its committed Credit Agreement. See Note 2 of
Notes to Consolidated Financial Statements, which information is incorporated
herein by reference to Item 8 of Part II hereof.
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 ("MDA") should be read in conjunction with the 1995
Consolidated Financial Statements and Notes thereto in Item 8 of Part II herein.
This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results could differ materially from those
projected in the forward-looking statements as a result of the risk factors set
forth below and elsewhere in this Form 10-K.
OVERVIEW
VLSI ("the Company") improved its liquidity and financial position during
1995 through the sale of Common Stock, conversion of previously outstanding
convertible debt into Common Stock and the issuance of new convertible debt, as
well as increased net income on increased net revenues.
VLSI recorded net income of $46.0 million on net revenues of $719.9 million
in 1995, compared to net income of $31.7 million on net revenues of $587.1
million in 1994 and net income of $15.9 million on net revenues of $515.9
million in 1993. Sequentially improved operating results in 1995, 1994 and 1993
reflect gross profit margin improvements on increased shipment volumes.
VLSI recorded a $19.4 million litigation charge in the second quarter of
1995 upon a jury rendering a verdict in favor of Texas Instruments ("TI") in an
intellectual property litigation matter. Subsequently, the trial judge
overturned the verdict and TI has appealed. See Note 4 of Notes to Consolidated
Financial Statements.
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 groups, in the Computing, Communications
and Consumer Digital Entertainment Products markets serving Original Equipment
Manufacturers ("OEMs"). 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>
1995 1994 1993
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Net Revenues....................................... $719,919 $587,091 $515,946
Percentage increase over preceding year............ 23% 14% 20%
</TABLE>
A key factor to the Company's 1995 net revenue growth was increased demand
for products designed for communications devices as the units shipped in that
market segment during 1995 doubled from 1994. A major portion of the Company's
1994 net revenue growth was due to an increase in the number of units shipped
for communications devices in 1994 over 1993 by approximately two-thirds.
Net revenues from the personal computer ("PC") market in 1995 were
characterized by a substantial increase in units shipped for incorporation into
Apple products, partially offset by decreased unit sales of X86 chip sets. The
Company realized higher average sales prices on devices for personal computers
in 1994 over 1993 through the introduction of portable products and
Pentium-compatible chip sets.
13
<PAGE> 15
Consumer Digital Entertainment Products revenue increased in 1995 from
1994; however, that increase was not as dramatic as was the increase of 1994
revenues over 1993, which increase was primarily due to significantly greater
unit shipments. The focus of this group in the latter portion of 1995 was on
research and development and in achieving design wins for products to begin
shipment in 1996, which is expected to result in increased revenues in 1996 over
1995 for this group.
COMPASS net revenues in the EDA market increased in 1995 from 1994 levels,
which were above 1993 net revenue results.
International net revenues (including export sales) increased at a rate
consistent with the overall growth in net revenues for the Company in 1995 as
well as in 1994, flattening out from the higher-than-overall rate of net revenue
growth noted during 1993. International net revenues were approximately 50% of
the 1995, 1994 and 1993 total net revenues. Export sales in terms of dollars,
primarily to the Asia-Pacific region, decreased slightly in 1995 from 1994
levels, while 1994 was up 28% over 1993 levels, reflecting VLSI's customers'
continuing emphasis of manufacturing efforts in the Asia-Pacific region.
European net revenues increased 42% in 1995 over 1994, and increased slightly in
1994 over 1993. The growth in European net revenues reflects the location of the
major customers for VLSI's communications devices. The slower net growth for
1994 European revenues primarily reflects lower net revenues from the PC
marketplace.
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Gross Profits...................................... $288,577 $230,233 $188,172
Percentage of net revenues......................... 40% 39% 36%
</TABLE>
Gross profits as a percentage of net revenues improved to 40% in 1995,
compared to 39% in 1994 and 36% in 1993. Gross profit margin improvement over
the three-year period of 1993 through 1995 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. The 1995 gross profit margin was affected by certain
manufacturing inefficiencies associated with the conversion of the San Jose,
California facility to a 6-inch CMOS wafer process and of the San Antonio, Texas
facility to 100% sub-0.8-micron CMOS processes. For further discussion of the
manufacturing issues, see "Factors Affecting Future Results".
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Operating Expenses................................. $213,195 $183,484 $161,090
Percentage of net revenues......................... 30% 31% 31%
</TABLE>
Operating expenses were approximately 30% of net revenues in 1995, and
approximately 31% of net revenues in the years 1994 and 1993. The decrease in
operating expenses as a percentage of net revenues in 1995 reflects continued
decreases in marketing, general and administrative expenses as a percentage of
net revenues offset by sequential dollar increases in R&D expenses from 1993 to
1995.
Increased R&D expenses in 1995 reflect the continuing investment in new
products and package and process technologies. These expenditures focus on
design environment and process development and development of products for the
communications and consumer digital entertainment markets. R&D expenses in 1994
focused on the development of new process technologies in smaller geometries and
new devices for the communications and consumer digital entertainment markets
and the development of software for the EDA market. R&D expenses in 1993
centered on the development of new products for the handheld, desktop and
portable segments of the computing market. Handheld development efforts ceased
in 1994 with the termination of the Technology and Manufacturing Agreement with
Intel Corporation ("Intel").
Marketing, general and administrative expenses have increased in amount
from 1993 to 1995, 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
grow marketing, general and administrative costs at a slower percentage rate
than that of net revenues.
14
<PAGE> 16
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 1995 net revenues.
During 1995, the Company changed the functional currency of the majority of its
larger European foreign subsidiaries from the local subsidiary currency to U.S.
dollar-based currency reflecting the significance of predominantly U.S. dollar-
based revenues and cost of sales. Prior to 1995, the Company had designated the
local subsidiary currency as the functional currency of each of its foreign
subsidiaries. There was no material effect on the consolidated financial
statements from this change. See Note 1 of Notes to Consolidated Financial
Statements. 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. Although the U.S. dollar weakened
against the Japanese Yen and major European currencies in 1995 and 1994, thereby
negatively impacting operating expenses, the Company had offsetting favorable
currency-related results on revenues, resulting in an immaterial net effect on
the operations of the Company.
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.
LITIGATION CHARGE
The litigation charge in 1995 of $19.4 million reflects the current year
accrual for the jury award to TI. Litigation expenditures incurred in 1995 for
the TI litigation were netted against the litigation reserve taken during 1995
(see Note 4 of Notes to Consolidated Financial Statements). Since VLSI accrued
costs associated with the TI litigation in 1995, the Company does not anticipate
that the adjudication of the TI litigation will materially increase expenses in
1996, although there can be no assurance of the outcome of any litigation (see
"Factors Affecting Future Results").
INTEREST EXPENSE AND OTHER, NET
Interest expense net of interest income and other expenses, net shows
income in 1995, as compared to expense in 1994 and 1993, reflecting reduced
interest expense and higher interest income. Interest expense is lower
reflecting the capitalization of interest expense associated with increased
capital expenditures. Higher interest income reflects higher investment yields
on significantly higher cash balances. The higher cash balances are due
primarily to the Company's June 1995 public offering of Common Stock and
September 1995 offering of Convertible Subordinated Notes. The Company considers
incurred foreign exchange gains and losses immaterial in 1995, 1994 and 1993.
PROVISION FOR TAXES ON INCOME
The 1995 tax provision at 26% of pre-tax income reflects the impact of
foreign income taxes in excess of U.S. rates offset by state tax benefits and
changes in the tax valuation reserve. The 1994 and 1993 tax provisions at 24%
and 23% of pre-tax income, respectively, reflect benefits from prior year credit
carryforwards and changes in the tax valuation reserve. The Company eliminated
the valuation reserve for U.S. deferred taxes in 1995; however, it continues to
reserve foreign deferred tax assets. The Company still has credit and loss
carryovers that it has been unable to fully utilize. The Company estimates that
its overall effective tax rate will increase in 1996 as the Company, if
profitable in 1996, 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 carryforward benefits.
15
<PAGE> 17
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
The Company must adopt Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("FAS 121") with the commencement of fiscal 1996. Initial
adoption of FAS 121 will not have a material effect on the Company's
consolidated financial statements.
FACTORS AFFECTING FUTURE RESULTS
As described by the following factors, 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.
Approximately 46% of the Company's net revenues were derived from the
personal computer market in 1995, as compared to 47% in 1994 and 58% in 1993
(with approximately 33%, 37% and 33% of total revenues in the years 1995, 1994
and 1993, respectively, coming from the X86 market). With seven of the Company's
top ten 1995 customers operating in the personal computer industry, a
deterioration of, or changes in, business conditions in the personal computer
industry would have a material adverse effect on VLSI's operations. Revenues for
the Company's X86 chip sets as a percentage of total Company revenues in 1995
were below Company expectations. The Company anticipates a sharp reduction in
the amount of net revenues derived from the PC market in 1996 reflecting that
during the latter part of 1995, the Company did not win new designs at certain
major customers, including AST Research, Compaq, Hewlett-Packard and IBM, as a
result of pricing that was not considered attractive for the Company to pursue.
In addition, VLSI has experienced a dramatic loss of market share as a result of
Intel's expansion in scope of its business from microprocessors to motherboards
and core logic chip sets. The Company's results in the personal computer market
are also dependent in part on the Company's ability to gain early access to new
microprocessor architectures being developed by Intel, the dominant
microprocessor supplier, and adopted by major OEMs. Intel's withholding of key
information of upcoming architectures from core logic chip set suppliers has
adversely impacted the Company's ability to respond quickly to new architecture
changes. The Company's need to anticipate customer product transitions could
lead to potential inventory exposure, which could adversely affect the Company's
financial results.
During each of the years 1995, 1994 and 1993, VLSI's top 20 customers
represented approximately two-thirds of the Company's net revenues. Shipments to
a single customer in the personal computer business, Apple, accounted for 11% of
net revenues in 1995 and 19% in 1993, as compared to less than 10% in 1994.
Shipments to Compaq accounted for 22% of net revenues in 1994, as compared to
less than 10% in both 1995 and 1993. Due to the expected decline in the
Company's X86 chip set business, the Company anticipates a shift in its top 20
customers in 1996 away from the high concentration of personal computer industry
companies that was seen in 1995.
The Company is a sole source of products to many of its customers, which
may cause some customers to potentially over-order VLSI products. This could
lead to cancellations of certain of those orders by customers when customers
perceive that demand and supply are better aligned. 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.
In late 1995, Apple announced delays to certain of its products in development,
excessive amounts of inventories as well as a downturn in operations. This
downturn in Apple's operations resulted in lower than expected VLSI revenues
from Apple in the fourth quarter of 1995, which VLSI anticipates will continue
into 1996.
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 left with significant inventory
exposure, which could have a material adverse effect on the Company's operating
results.
16
<PAGE> 18
Software net revenues are subject to various factors, including pricing
pressure, customers' capital budget approval cycles and limited backlog, which
create a high degree of variability from quarter to quarter. 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. For example, software
revenues in the fourth quarter of 1995 were lower than revenues in the third
quarter of 1995 and were lower than expected, adversely affecting VLSI's results
of operations.
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. These product
supply and demand fluctuations have historically been characterized by periods
of manufacturing capacity shortages immediately followed by periods of
overcapacity, which are caused by the previously mentioned additions of
manufacturing capacity in large increments. Due to the high fixed costs of the
industry, profitability can drop sharply as utilization drops during periods of
overcapacity. In addition, competition in the semiconductor industry is intense,
particularly in core logic X86 chip sets where Intel has become a major supplier
of personal computer chip sets and motherboards. The reduced level of revenues
for the X86 chip sets in relation to overall Company revenues could result in
unused wafer fabrication capacity, potentially adversely affecting manufacturing
performance and increasing the cost of each unit manufactured. To the extent
customers and markets served by the Company require advanced process
technologies, there are no assurances that the Company will have sufficient
demand to fully utilize the San Jose fabrication facility or have ultimate use
for its capacity. In March 1996, the Company reduced its work force by four
percent as a result of reduced X86 business.
The Company's products are susceptible to severe pricing pressures and the
Company continually attempts to pursue cost reductions, including process
enhancements, in order to maintain favorable gross profit margins. Future gross
margins 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's COMPASS
subsidiary, like other companies in the electronic design automation business,
is particularly subject to significant fluctuations in revenues due to limited
backlog and its reliance on large orders placed late in quarters.
During 1995, the semiconductor industry faced capacity constraints in wafer
manufacturing, assembly operations and test operations. While the Company
operates and maintains its own wafer manufacturing facilities, the Company also
relies on three suppliers for a portion of its wafers and on three suppliers for
the bulk of its assembly and test operations. With respect to these suppliers,
the Company has only one contract for guaranteed capacity. Wafer, assembly and
test allocations depend on VLSI's needs, supply availability during periods of
changes in capacity shortages and excesses and pricing. Any reduction in
allocation from these suppliers could adversely affect the Company's operations.
Due to the industry-wide manufacturing capacity shortage experienced during
1995, the Company accelerated the expansion and upgrading of its manufacturing
capacity. These activities require substantial investments in capital equipment
and facilities. Significant lead time is required to acquire and install
additional wafer fabrication equipment. Any significant expansion or upgrade of
semiconductor manufacturing capacity has attendant risks. Specifically, the
Company has recently completed a program to expand and upgrade its manufacturing
facility in San Jose 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 and steps to facilitize and equip the third and fourth modules have
begun. In 1995, inefficiencies caused by the work associated with the
conversions of the manufacturing facilities had a negative effect on the
Company's overall gross profit of approximately $10 million, or 2 percentage
points of gross margin. The work effort associated with the changes to these
facilities has resulted in lower wafer yields and could cause further disruption
to manufacturing output, negatively impacting the Company's revenues and gross
profit in 1996. As the Company continues to shift an even greater percentage of
its manufacturing to its own facilities (in 1995, VLSI produced approximately
80% of its wafer requirements internally and projects to produce more than 90%
of its 1996 wafer requirements
17
<PAGE> 19
internally), any delays, problems or lack of successful completion of the
Company's facilities conversion efforts could have a material adverse impact on
future operating results.
The Company's future success depends on its ability to continue to develop
and introduce new products that compete effectively on the basis of price and
performance and that satisfy customer requirements. The Company expects to
continue to invest in the research and development of new products for all of
its market segments in 1996. New product development often requires long-term
forecasting of markets, market trends, development and implementation of new
processes and technologies and substantial capital commitments. 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.
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 and San
Antonio facilities are located near residential areas, 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 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,
corporate support services such as its computer center, technology development,
a 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.
The status of the Company's pending material legal proceeding is set forth
in Note 4 of Notes to Consolidated Financial Statements. The Company cannot
accurately predict the final outcome of this matter with TI. As part of its
appeal, TI has requested that it be awarded enhanced damages, pre-judgment
interest and attorneys' fees. 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.
LIQUIDITY AND CAPITAL RESOURCES
VLSI generates cash from operations, debt and equipment financings and
sales of its equity and debt 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>
1995 1994 1993
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Cash, cash equivalents and liquid investments...... $365,581 $103,111 $ 72,636
Working capital.................................... $400,097 $138,704 $114,423
Stockholders' equity............................... $530,629 $255,430 $212,508
</TABLE>
At December 29, 1995, total cash, cash equivalents and liquid investments
increased $262.4 million from the 1994 year-end balance due primarily to the
receipt of proceeds from an equity offering late in the second quarter of 1995,
proceeds from a convertible debt offering in September 1995, proceeds from the
exercise by Intel in August 1995 of its warrant to purchase VLSI Common Stock,
and net income, offset by purchases of property, plant and equipment and
payments of debt and capital leases during 1995. The balance of liquid
investments has increased at December 29, 1995 from December 30, 1994 levels in
order to take advantage of higher interest rates for liquid investments. Working
capital increased to $400.1 million at December 29, 1995, compared to $138.7
million at December 30, 1994.
During the year ended December 29, 1995, the Company generated $123.5
million of cash from operations, a 19% increase over the $103.5 million of cash
generated from operations for the year ended
18
<PAGE> 20
December 30, 1994 and a 92% increase over the $64.4 million generated for the
year ended December 25, 1993. Accounts receivable were $39.1 million higher at
December 29, 1995 than at December 30, 1994, reflecting proportionally higher
sales volumes in the latter part of the fourth quarter of 1995. Accounts
receivable increased $9.8 million in 1994 compared to 1993, reflecting higher
sales volume. Inventory levels have increased $1.2 million from December 30,
1994 levels, reflecting a build-up of products targeted to ASIC products, much
in communications, and decreased $1.3 million from inventories at December 25,
1993, which were high due to anticipated demand for standard products in early
1994. Accounts payable and accrued liabilities contributed approximately $60.1
million to cash from operations in 1995 reflecting increased spending levels
associated with increases in production volumes and the stock tax benefit
associated with the exercise of stock options by employees and the exercise by
Intel of its warrant. Accounts payable and accrued liabilities increased in 1994
by $20.3 million over 1993 year-end levels reflecting increases in production
volumes and the timing of payments for higher levels of spending for fixed
assets, as well as increases in accrued compensation and benefits and other
liabilities.
Cash used for investing activities was $326.7 million for the year ended
December 29, 1995, as compared to $43.9 million for the year ended December 30,
1994 and $84.1 million for the year ended December 25, 1993. VLSI invested
$203.5 million in property, plant and equipment during 1995 compared to $94.4
million in 1994 and $71.6 million in 1993. Capital additions during 1995, 1994
and 1993 were financed by cash, equipment loans and capital leases. The 1995,
1994 and 1993 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, while the 1995 expenditures also included facilitization and equipment
for modules C and D of the San Antonio facility. The expansion into these
available modules was initiated during 1995 in response to considerable capacity
constraints affecting the semiconductor industry and VLSI. As part of the 1995
capital purchases, VLSI acquired land and buildings at its San Jose headquarters
for approximately $9.6 million. As part of 1994 capital purchases, VLSI acquired
the land and buildings associated with the wafer fabrication and test areas at
its San Jose headquarters for approximately $6.0 million. In each of the years
1993 through 1995, the Company has expanded office facilities for its growing
engineering and support space requirements. The Company expects current
facilities will be adequate through 1996. The Company expects to continue to
utilize debt and/or lease financing for portions of its future capital
expenditures. In January 1996, the Board of Directors of the Company ("Board")
authorized the Company to repurchase shares of the Company's Common Stock on the
open market or in privately negotiated transactions. The Board authorized the
Company to re-issue those shares at a later date through certain of its employee
stock plans and/or to fund stock or asset acquisitions authorized by the Board.
By the end of January 1996, the Company had repurchased 1.8 million shares at an
average per share price of $15.10, and had not yet re-issued any of these
shares.
Cash provided from financing activities was $293.1 million in 1995,
compared to cash used for financing activities of $7.9 million in 1994 and $8.5
million in 1993. The change in 1995 from 1994 reflects higher proceeds from the
issuance of Common Shares in 1995, the majority of which were proceeds from the
Company's June 1995 equity offering (3.4 million shares for net proceeds to the
Company of approximately $94 million), the August 1995 exercise by Intel of a
warrant for 2.7 million shares (approximately $31 million) and a September 1995
debt offering of $172.5 million of 8.25% Convertible Subordinated Notes due 2005
(for net proceeds of approximately $168 million). Additionally, the Company
completed the conversion of its $57.5 million Convertible Subordinated
Debentures into Common Shares in August 1995. See Note 2 of Notes to
Consolidated Financial Statements. Unused committed credit facilities
approximated $52.5 million at February 23, 1996.
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
(THOUSANDS)
<S> <C> <C> <C>
Capital expenditures................................. $203,472 $94,446 $71,615
</TABLE>
VLSI currently estimates that total budgeted capital expenditures for 1996
will approximate $300 million and will include expenditures to facilitize and
equip modules C and D of the San Antonio facility and for further increases in
0.6-micron wafer fabrication capability. As VLSI pursues these large projects in
ever
19
<PAGE> 21
increasingly complex technologies, more time is needed to bring manufacturing
capabilities on-line. Accordingly, VLSI will continue to capitalize interest on
the increasing costs of capital projects. Of such planned 1996 capital
expenditures, the level of which could change as necessary during the year, VLSI
had outstanding commitments for purchases of equipment of approximately $157.2
million at December 29, 1995.
VLSI believes that its existing cash balances and estimated cash flows from
operations will be sufficient to meet its liquidity and capital expenditure
needs through 1996. The Company also has a $52.5 million credit facility which
is available until it expires in June 1996, or is renewed. The Company does not
anticipate difficulties associated with renewing the credit facility on terms no
less favorable than its current facility. 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.
20
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY 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 29, 1995
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..................................... 22
Consolidated Statements of Income for each of the three years in the period ended
December 29, 1995................................................................... 23
Consolidated Statements of Stockholders' Equity for each of the three years in the
period ended December 29, 1995...................................................... 24
Consolidated Balance Sheets at December 29, 1995 and December 30, 1994................ 25
Consolidated Statements of Cash Flows for each of the three years in the period ended
December 29, 1995................................................................... 26
Notes to Consolidated Financial Statements............................................ 27
Consent of Ernst & Young LLP, Independent Auditors.................................... 44
Schedule for each of the three years in the period ended December 29, 1995 included in
Item 14(d):
II Valuation and Qualifying Accounts and Reserves................................ 45
</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.
21
<PAGE> 23
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 29, 1995 and December 30, 1994 and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three fiscal years in the period ended December 29, 1995. 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 29, 1995 and December 30, 1994, and the
consolidated results of its operations and its cash flows for each of the three
fiscal years in the period ended December 29, 1995, 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 16, 1996
22
<PAGE> 24
VLSI TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE YEARS ENDED DECEMBER 29, 1995 1995 1994 1993
- ----------------------------------- -------- -------- --------
<S> <C> <C> <C>
Net revenues............................................... $719,919 $587,091 $515,946
Cost of sales(1)........................................... 431,342 356,858 327,774
-------- -------- --------
Gross profit............................................... 288,577 230,233 188,172
-------- -------- --------
Operating expenses:
Research and development................................. 89,682 78,889 66,439
Marketing, general and administrative.................... 123,513 104,595 94,651
-------- -------- --------
Operating income........................................... 75,382 46,749 27,082
Litigation charge.......................................... (19,400) -- --
Interest income and other expenses, net.................... 13,985 3,301 1,512
Interest expense........................................... (8,029) (8,343) (8,063)
-------- -------- --------
Income before provision for taxes on income................ 61,938 41,707 20,531
Provision for taxes on income.............................. 15,970 10,010 4,648
-------- -------- --------
Net income................................................. $ 45,968 $ 31,697 $ 15,883
======== ======== ========
Net income per share....................................... $ 1.05 $ 0.85 $ 0.45
======== ======== ========
Weighted average common and common equivalent shares
outstanding.............................................. 43,890 37,446 35,276
======== ======== ========
</TABLE>
- ---------------
(1) See Note 8 for related party disclosures.
See accompanying Notes to Consolidated Financial Statements.
23
<PAGE> 25
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 29, -------------- PAID-IN (ACCUMULATED NOTES STOCKHOLDERS'
1995 SHARES AMOUNT CAPITAL DEFICIT) RECEIVABLE EQUITY
- ---------------------------------- ------ ----- ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
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.............. 1,189 12 5,983 -- -- 5,995
Tax benefits related to stock
plans........................... -- -- 1,680 -- -- 1,680
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.............. 469 4 2,838 -- -- 2,842
Tax benefits related to stock
plans........................... -- -- 1,200 -- -- 1,200
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
------ ---- -------- -------- ----- --------
Issuance of Common Shares under:
Public offering................. 3,450 35 93,605 -- -- 93,640
Exercise of warrant by Intel.... 2,678 27 31,217 -- -- 31,244
Conversion of long-term debt.... 2,614 26 56,476 -- -- 56,502
Employee stock purchase plan.... 739 7 8,206 -- -- 8,213
Stock option plans.............. 1,028 10 7,018 -- -- 7,028
Tax benefits related to stock
plans and Intel warrant......... -- -- 32,604 -- -- 32,604
Net income........................ -- -- -- 45,968 -- 45,968
------ ---- -------- -------- ----- --------
BALANCES AT DECEMBER 29, 1995..... 47,194 $472 $ 461,028 $ 69,129 $ -- $ 530,629
====== ==== ======== ======== ===== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
24
<PAGE> 26
VLSI TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 30,
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $183,165 $ 93,310
Liquid investments............................................... 182,416 9,801
Accounts receivable, net of allowance for doubtful accounts and
customer returns of $2,100 ($2,300 in 1994)................... 119,638 80,500
Inventories:
Raw materials................................................. 4,683 5,277
Work-in-process............................................... 47,069 43,123
Finished goods................................................ 9,096 11,296
-------- --------
Total inventories................................................ 60,848 59,696
Deferred and refundable income taxes............................. 47,706 17,963
Prepaid expenses and other current assets........................ 4,362 4,966
-------- --------
Total current assets..................................... 598,135 266,236
-------- --------
Property, plant and equipment:
Land............................................................. 15,372 12,197
Buildings and leasehold improvements............................. 85,341 67,171
Machinery and equipment.......................................... 456,085 346,268
Assets leased under capital leases............................... 52,788 63,029
Construction in progress......................................... 88,627 16,058
-------- --------
698,213 504,723
Accumulated depreciation and amortization........................ (346,172) (285,593)
-------- --------
Net property, plant and equipment............................. 352,041 219,130
Other assets....................................................... 9,711 4,850
-------- --------
$959,887 $490,216
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable(1).............................................. $100,099 $ 52,789
Accrued compensation and benefits................................ 24,802 20,512
Deferred income.................................................. 9,067 10,276
Litigation reserve............................................... 18,543 --
Other accrued liabilities........................................ 36,367 28,439
Current capital lease obligations................................ 1,552 7,882
Current portion of long-term debt................................ 7,608 7,634
-------- --------
Total current liabilities................................ 198,038 127,532
-------- --------
Non-current capital lease obligations.............................. 3,465 5,017
Long-term debt..................................................... 215,382 91,787
Deferred income taxes.............................................. 12,373 10,450
Commitments and contingencies
Stockholders' equity:
Preferred Shares, $.01 par value; 2,000 shares authorized........ -- --
Common Stock, $.01 par value; 99,000 shares authorized (54,000 in
1994), 47,194 shares issued and outstanding (36,685 in
1994)......................................................... 472 367
Junior Common Stock, $.01 par value; 1,000 shares authorized..... -- --
Additional paid-in capital....................................... 461,028 231,902
Retained earnings................................................ 69,129 23,161
-------- --------
Total stockholders' equity............................... 530,629 255,430
-------- --------
$959,887 $490,216
======== ========
</TABLE>
- ---------------
(1) See Note 8 for related party disclosures.
See accompanying Notes to Consolidated Financial Statements.
25
<PAGE> 27
VLSI TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE YEARS ENDED DECEMBER 29, 1995 1995 1994 1993
- ----------------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Increase (decrease) in cash and cash equivalents
Operating activities:
Net income............................................... $ 45,968 $ 31,697 $ 15,883
Adjustments to reconcile net income to cash generated
by operations:
Litigation charge..................................... 19,400 -- --
Depreciation and amortization......................... 73,683 61,761 49,500
Deferred income taxes................................. (22,537) 4,613 5,837
Changes in operating assets and liabilities:
Accounts receivable................................. (39,137) (9,834) 2,826
Inventories......................................... (1,152) 2,416 (10,397)
Refundable income taxes............................. (5,283) (5,997) (11,966)
Accounts payable, accrued liabilities and deferred
income........................................... 60,101 20,283 10,984
Other............................................... (7,513) (1,400) 1,748
-------- -------- --------
Cash generated by operations..................... 123,530 103,539 64,415
-------- -------- --------
Investing activities:
Purchases of liquid investments.......................... (329,198) (64,570) (53,109)
Proceeds from maturities of liquid investments........... 156,633 85,870 22,009
Purchases of property, plant and equipment............... (153,573) (64,622) (51,824)
Other.................................................... (600) (550) (1,145)
-------- -------- --------
Net cash flow used for investing activities...... (326,738) (43,872) (84,069)
-------- -------- --------
Financing activities:
Payments on debt and capital lease obligations........... (18,790) (17,965) (18,421)
Issuance of long-term debt............................... 172,500 -- --
Conversion of long-term debt to equity................... (845) -- --
Issuance of Common Shares, net of issuance costs......... 140,198 10,072 9,937
-------- -------- --------
Net cash flow provided by (used for) financing
activities..................................... 293,063 (7,893) (8,484)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents....... 89,855 51,774 (28,138)
Cash and cash equivalents, beginning of period............. 93,310 41,536 69,674
-------- -------- --------
Cash and cash equivalents, end of period................... $183,165 $ 93,310 $ 41,536
======== ======== ========
Supplemental disclosure:
Cash outflows for property, plant and equipment.......... $153,573 $ 64,622 $ 51,824
Add: Secured equipment loans.......................... 19,341 26,072 11,651
Add: Capital lease obligations incurred............... -- 3,752 8,140
Add: Accrued property, plant and equipment
additions........................................ 30,558 -- --
-------- -------- --------
Property, plant and equipment additions.......... $203,472 $ 94,446 $ 71,615
======== ======== ========
Interest paid............................................ $ 8,732 $ 8,100 $ 8,319
Income taxes paid, net................................... $ 6,533 $ 9,615 $ 3,889
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
26
<PAGE> 28
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 29, 1995
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 years prior to 1994, the Company's fiscal year ended
on the last Saturday in December. Fiscal years 1995, 1994 and 1993 ended
December 29, 30 and 25, 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.
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 invests cash through
high-credit-quality financial institutions. 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 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 semi-annual adjusted standard basis (which approximates average
cost on a FIFO basis); market is based upon estimated net realizable value. The
valuation of inventory at the lower of cost or market requires the use of
estimates as to the amounts of current inventory that will be sold. These
estimates are dependent on the Company's assessment of current and expected
orders from its customers, given that orders, particularly of core logic and
cellular handset chip sets, are subject to cancellation with limited advance
notice prior to shipment. In most instances, inventory is reserved if the units
in inventory exceed six months of estimated demand for that product. As a
considerable portion of the Company's sales are to the personal computer and
cellular handset markets, it is reasonably possible that the recoverability of
VLSI's investment in inventory associated with these markets will change in the
near term. No estimate can be made of a range of amounts of customer
cancellations that would materially affect the consolidated financial
statements.
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. The
valuation of property, plant and equipment at depreciated cost requires use of
estimates as to the estimated useful lives and salvage value of these assets. As
the Company competes in an industry that relies on rapidly changing technology
and manufacturing developments, the actual useful lives and salvage values may
eventually prove to be lower than those estimated. No estimate can be made of a
range of amounts of loss that are reasonably possible should actuals prove lower
than estimated.
REVENUES. Revenues from silicon product sales to customers are recognized
upon shipment.
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.
27
<PAGE> 29
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 29, 1995
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. During 1995, the Company changed the
functional currency of the majority of its larger foreign subsidiaries from the
local subsidiary currency to U.S. dollar-based currency. 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 1995, 1994 and 1993.
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 29, 1995 relates to hedging foreign currency net asset and
liability positions as well as purchase orders and consists of foreign exchange
forward contracts to sell $25.8 million in foreign currency and buy $23.0
million in foreign currency. These contracts, which matured through January
1996, were with major international financial institutions resulting in a net
gain of $0.8 million on the forward contracts hedging foreign currency net asset
and liability positions and a $0.6 million deferred loss on the forward
contracts hedging purchase orders. The deferred loss is to be included in the
cost of the items to be acquired. 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 values.
Debt (See Note 2) -- Quoted market prices of the Company's convertible
debt 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 29, 1995 and December 30, 1994 are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
1995 AMOUNT VALUE
--------------------------------------------------------------- -------- --------
(THOUSANDS)
<S> <C> <C>
Cash and cash equivalents...................................... $183,165 $183,165
Liquid investments............................................. $182,416 $182,416
Short-term debt................................................ $ 7,608 $ 7,919
Long-term debt................................................. $215,382 $202,795
Foreign currency contracts..................................... $ -- $ 149
</TABLE>
28
<PAGE> 30
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 29, 1995
<TABLE>
<CAPTION>
CARRYING FAIR
1994 AMOUNT VALUE
--------------------------------------------------------------- -------- --------
(THOUSANDS)
<S> <C> <C>
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>
The fair value estimates presented are based on pertinent information
available to management as of December 29, 1995 and December 30, 1994,
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.
The Company classifies liquid investments as available-for-sale or
held-to-maturity at the time of purchase and reevaluates such designation as of
each balance sheet date in accordance with the nature of the securities and the
intent and investment goals of the Company. 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. Unrealized 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 liquid investments at December 29, 1995 are classified as
available-for-sale securities. Such investments, which mature through June 1996,
are categorized in the following table.
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ---------------- ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ----- ------ ----------
(THOUSANDS)
<S> <C> <C> <C> <C>
Cash equivalents:
Commercial paper.............................. $ 90,533 $10 $ 2 $ 90,541
EuroDollar time deposits...................... 23,265 2 -- 23,267
Governmental securities....................... 10,054 1 -- 10,055
Money market funds............................ 39,085 -- -- 39,085
Other......................................... 5,000 -- 26 4,974
Liquid investments:
Commercial paper.............................. 157,632 51 -- 157,683
Governmental securities....................... 4,912 -- -- 4,912
Medium-term notes............................. 14,999 -- -- 14,999
Treasury notes................................ 4,822 -- -- 4,822
-------- --- --- --------
Total......................................... $ 350,302 $64 $ 28 $ 350,338
======== === === ========
</TABLE>
29
<PAGE> 31
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 29, 1995
All investments at December 30, 1994 were classified as available-for-sale
securities. Such investments, which matured 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>
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
Liquid investments -- Commercial paper......... 9,800 2 1 9,801
------- --- --- -------
Total.......................................... $90,971 $13 $ 60 $ 90,924
======= === === =======
</TABLE>
There were no gains or losses realized on sales of available-for-sale
securities during 1995. Unrealized holding losses on available-for-sale
securities included in stockholders' equity in 1995 and 1994 were immaterial.
CAPITALIZED INTEREST. Of total interest expenditures in 1995 and 1994 of
$12.3 million and $8.7 million, respectively, the Company capitalized $4.3
million and $0.4 million. Amounts subject to capitalization in prior years were
not material.
STOCK-BASED COMPENSATION. The Company grants stock options for a fixed
number of shares to employees with an exercise price equal to the fair value of
the shares at the date of grant. The Company accounts for stock option grants in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees"
and, accordingly, recognizes no compensation expense for the stock option
grants.
NET INCOME PER SHARE. Net income 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 through
late August 1995 a warrant held by Intel Corporation ("Intel"). Fully diluted
earnings per share have not been presented, because the amounts are not
materially different.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
RECLASSIFICATIONS. Certain prior year amounts previously reported have
been reclassified to conform to the 1995 presentation.
NEW ACCOUNTING PRONOUNCEMENTS. The Company must adopt Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("FAS 121") and
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123") with the commencement of fiscal 1996. Initial adoption
of FAS 121 will not have a material effect on the Company's consolidated
financial statements. The Company has elected to adopt the disclosure
requirements of FAS 123 rather than the accounting requirements of FAS 123.
30
<PAGE> 32
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 29, 1995
2. LONG-TERM DEBT
Total debt at December 29, 1995 and December 30, 1994 consists of the
following:
<TABLE>
<CAPTION>
1995 1994
-------- -------
(THOUSANDS)
<S> <C> <C>
Secured equipment loans, with interest at various rates (8.1% to
10.6%; 9.1% weighted average at December 29, 1995), due
through August 2002........................................... $ 50,490 $41,921
7% Convertible Subordinated Debentures, due 2012................ -- 57,500
8.25% Convertible Subordinated Notes, due 2005.................. 172,500 --
-------- -------
Total debt...................................................... 222,990 99,421
Less current portion............................................ 7,608 7,634
-------- -------
Long-term portion............................................... $215,382 $91,787
======== =======
</TABLE>
The Company has a two-year committed Credit Agreement (the "Credit
Agreement") with a syndicate of banks providing for borrowings of up to $52.5
million at various rates of interest that expires June 7, 1996. The Credit
Agreement has various covenants that preclude the Company from, among other
things, paying cash dividends and also places certain other limits on the
Company. 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 29,
1995 and December 30, 1994, the Company had no outstanding borrowings on the
Credit Agreement.
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 equipment
loans require adherence to certain financial covenants, one of which prohibits
payment of cash dividends.
In July 1995, the Company called for redemption of the 7% Convertible
Subordinated Debentures due 2012 ("Debentures"). Of the $57,500,000 in principal
amount of Debentures, $57,364,000 were converted into 2,607,359 shares of the
Company's Common Stock. The Debentures not converted, which amounted to
$136,000, were redeemed by the Company at a price of $1,032.86 for each $1,000
in principal amount of Debentures redeemed. This resulted in the issuance of
6,181 shares of the Company's Common Stock under an underwritten call agreement
that the Company had entered into with Bear, Stearns & Co. Inc. and Hambrecht &
Quist LLC.
In September 1995, the Company completed the public offering of an
aggregate of $172.5 million of 8.25% Convertible Subordinated Notes ("Notes")
due 2005, for net proceeds of approximately $168 million. Interest on the Notes
is payable on April 1 and October 1 of each year commencing April 1, 1996. The
Notes are convertible into shares of VLSI Common Stock at any time on or before
the close of business on the last trading day prior to maturity, unless
previously redeemed, at a conversion price of $54.80 per share, subject to
adjustment in certain events. The Notes are redeemable, in whole or in part, at
the option of the Company, upon at least 15 days' notice, at any time on or
after October 3, 1997, at redemption prices starting at 103.3% and at
diminishing prices thereafter, plus accrued interest, except that the Notes may
not be redeemed prior to October 3, 1999 unless the closing price of the Common
Stock is at least 125% of the conversion price for at least 20 trading days
within a period of 30 consecutive trading days ending on the fifth trading day
prior to the notice of redemption. The Notes are unsecured and subordinated in
right of payment in full to all existing and future Senior Debt of the Company
(as defined). The Company expects from time to time to incur
31
<PAGE> 33
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 29, 1995
indebtedness constituting Senior Debt. Additionally, the terms of the Company's
existing Credit Agreement prohibit the Company from repaying any Notes prior to
maturity.
Maturities of debt are as follows: 1996 -- $7.6 million, 1997 -- $7.8
million, 1998 -- $7.9 million, 1999 -- $8.4 million, 2000 -- $9.0 million and
thereafter (starting in 2001) -- $182.3 million.
3. LEASES AND OTHER COMMITMENTS
Obligations under capital leases represent the present value of future
minimum 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 $50.2 million
and $54.6 million at December 29, 1995 and December 30, 1994, respectively.
The Company rents certain equipment and manufacturing and office facilities
under operating lease agreements that 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.
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 29, 1995, are shown as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER LEASES LEASES
----------------------------------------------------------------- ------- ---------
(THOUSANDS)
<S> <C> <C>
1996............................................................. $ 1,967 $ 8,946
1997............................................................. 1,425 8,635
1998............................................................. 1,552 7,814
1999............................................................. 1,022 6,088
2000............................................................. -- 4,970
2001 and thereafter.............................................. -- 21,944
------ -------
Total minimum lease payments..................................... $ 5,966 $58,397
=======
Less amount representing interest................................ (949)
------
Present value of future minimum lease payments................... $ 5,017
======
</TABLE>
Rental expense was approximately $10.2 million in 1995 ($9.0 million in
1994 and $11.3 million in 1993).
OTHER COMMITMENTS. The Company has commitments for the purchase of
equipment totaling approximately $157.2 million at December 29, 1995, as well as
various other long-term committed contracts.
4. LITIGATION AND CONTINGENCIES
In 1990, patent infringement claims were filed by Texas Instruments ("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
32
<PAGE> 34
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 29, 1995
Appeals, for the Federal Circuit, affirmed the ITC decision in 1993. The U.S.
District Court proceedings resulted in a May 1995 jury verdict against the
Company for damages of $19.4 million. Although the Company was in the process of
contesting the verdict at the trial court level, the Company recorded a charge
to earnings of $19.4 million in the second quarter of 1995. In August 1995, the
trial judge issued an order overturning and setting aside the jury verdict and
conditionally granting a new trial on the matter in the event that his order is
reversed on appeal. TI has filed a notice of appeal and will seek a reversal of
the trial judge's order as well as enhanced damages (which by statute may be as
high as treble damages), pre-judgment interest and attorneys' fees. The Company
intends to continue to vigorously defend itself against the TI claims throughout
the appeals process. The Company has retained the $19.4 million charge taken
during the second quarter of 1995, pending resolution of this and related
intellectual property matters. The litigation charge is shown as a separate
liability on the balance sheet, net of TI litigation expenditures incurred
during 1995.
While the final 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.
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.
5. STOCKHOLDERS' EQUITY
The Company's amended certificate of incorporation authorizes 102,000,000
shares of Capital Stock for issuance, 100,000,000 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 99,000,000 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 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.
In June 1995, the Company completed the public offering of an aggregate of
3,450,000 shares of its Common Stock at a price to the public of $28.625 per
share, for net proceeds to the Company of approximately $94 million.
In January 1996, the Board authorized the Company to repurchase shares of
the Company's Common Stock on the open market or in privately negotiated
transactions. The Board authorized the Company to re-issue those shares at a
later date through certain of its employee stock plans and/or to fund stock or
asset acquisitions authorized by the Board. By the end of January 1996, the
Company had repurchased 1.8 million shares at an average per share price of
$15.10, and had not yet re-issued any of these shares.
INTEL AGREEMENTS. 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
33
<PAGE> 35
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 29, 1995
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.
STOCKHOLDERS' RIGHTS PLAN. In August 1992, the Board 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 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 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 29, 1995, non-employee directors
held options to purchase 115,000 shares of Common Stock at exercise prices
ranging from $6.75 to $14.25 per share, of which 65,000 were exercisable. In
addition, 160,000 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 9,000,000 shares
authorized to be issued under this Plan, 6,816,094 shares have been issued
through December 29, 1995.
STOCK OPTION PLANS. Employees and consultants may be granted options to
purchase shares of VLSI's 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 29,
1995, 1,087,626 shares were available for grant under the 1992 Stock Plan. This
Plan expires in 2002. The Board has authorized an increase of 5,000,000 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.
34
<PAGE> 36
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 29, 1995
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 30, 1994.................................................... 3,788 $29,972
December 29, 1995.................................................... 4,201 $55,446
Options exercisable at:
December 30, 1994.................................................... 1,779 $10,478
December 29, 1995.................................................... 1,492 $10,314
</TABLE>
During 1995, VLSI recorded a tax benefit related to options exercised under
the Plans, resulting in a $10,250,000 increase in stockholders' equity
($1,200,000 in 1994 and $1,680,000 in 1993).
6. EMPLOYEE BENEFIT PLANS
The Company accrued approximately $7.6 million, $5.0 million and $3.8
million in 1995, 1994 and 1993, 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 $1.4 million, $0.6 million and $0.5 million in 1995, 1994 and
1993, respectively.
7. INCOME TAXES
The provision for taxes on income is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
-------------------------------
1995 1994 1993
------- ------- -------
(THOUSANDS)
<S> <C> <C> <C>
Federal:
Current............................................. $22,758 $ 6,933 $ 4,464
Deferred............................................ (8,600) (1,468) (2,400)
------- ------- -------
14,158 5,465 2,064
State:
Current............................................. 1,292 970 295
Deferred............................................ (3,004) -- --
------- ------- -------
(1,712) 970 295
Foreign:
Current............................................. 3,629 3,265 2,441
Deferred............................................ (105) 310 (152)
------- ------- -------
3,524 3,575 2,289
------- ------- -------
Total............................................ $15,970 $10,010 $ 4,648
======= ======= =======
</TABLE>
Pre-tax income from foreign operations was $9.6 million, $4.5 million and
$1.2 million in 1995, 1994 and 1993, respectively.
35
<PAGE> 37
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 29, 1995
The provision for taxes reconciles with the amount computed by applying the
U.S. statutory rate to income before provision for taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
-------------------------------
1995 1994 1993
------- ------- -------
(THOUSANDS)
<S> <C> <C> <C>
Income before provision for taxes..................... $61,938 $41,707 $20,531
U.S. statutory rates.................................. 35% 35% 35%
Computed expected tax................................. 21,678 14,597 7,186
R&D and investment tax credits........................ (67) (5,048) (4,572)
Change in valuation allowance......................... (8,325) (1,252) 260
State taxes, net of federal benefits.................. (2,164) 631 192
Foreign income taxes in excess of U.S. statutory
rates............................................... 4,605 -- --
Foreign withholding taxes............................. -- -- 658
Unbenefited foreign loss.............................. 243 1,326 1,059
Other, net............................................ -- (244) (135)
------- ------- -------
Provision for taxes on income......................... $15,970 $10,010 $ 4,648
------- ------- -------
Total effective tax rate.............................. 25.8% 24.0% 22.6%
======= ======= =======
</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
----------------------------------
1995 1994 1993
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Deferred tax liabilities:
Depreciation and amortization expense............ $(12,373) $(10,450) $ (9,230)
Other............................................ -- (93) (399)
-------- -------- --------
Total deferred tax liabilities................ (12,373) (10,543) (9,629)
-------- -------- --------
Deferred tax assets:
Tax credit and loss carryforwards................ 17,228 11,589 14,196
Litigation and other reserves.................... 16,750 9,522 9,228
Inventory reserves and adjustment................ 10,203 10,492 6,080
Warranty and deferred revenues................... 2,660 2,851 5,485
-------- -------- --------
Total deferred tax assets..................... 46,841 34,454 34,989
-------- -------- --------
Valuation allowance for deferred tax assets........ (4,419) (18,309) (20,828)
-------- -------- --------
Net deferred taxes............................ $ 30,049 $ 5,602 $ 4,532
======== ======== ========
</TABLE>
In accordance with Financial Accounting Standards No. 109, the Company has
recorded net deferred tax assets totaling $30.0 million as of December 29, 1995
reflecting the benefit of credit and loss carryforwards, and other temporary
differences. The credit and loss carryforwards expire in various years between
1998 and 2010. Realization of the benefits is dependent on generating sufficient
U.S. taxable income prior to expiration of the carryforwards. Although
realization is not assured, management believes it is more likely than not that
all net deferred tax assets will be realized. The amount of the deferred tax
assets considered realizable could be reduced in the near term if estimates of
future taxable income during the carryforward period are reduced.
36
<PAGE> 38
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 29, 1995
For U.S. tax purposes, at December 29, 1995, VLSI had general business and
alternative minimum tax credit carryforwards of approximately $9.9 million.
Foreign subsidiaries have tax loss carryforwards of approximately $8.7 million.
Such credit and loss carryforwards expire in various years beginning in 1998.
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 $15.2 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.
8. 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 $42.6 million, $27.6 million and $38.1 million in 1995, 1994
and 1993, 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 $4.3 million and $1.9 million in 1995 and 1994,
respectively. Such company, which provides production, assembly and test
services, is one of three primary suppliers that provide substantially all of
the Company's assembly and test needs. Although the above company is not the
only provider of these services and, as a related party, is not believed likely
by management to precipitate a change in suppliers, a change in suppliers could
cause manufacturing delays and a possible loss of sales, which would adversely
affect operating results.
9. 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 focuses its products for the computing,
communications and consumer digital entertainment industries and distributes its
products through worldwide direct sales, commissioned representatives and
distributors.
In 1995 and 1993, Apple Computer, Inc. ("Apple") accounted for 11% and 19%,
respectively, of net revenues. In 1994, Apple represented less than 10% of net
revenues. In 1994, Compaq Computer Corporation accounted for 22% 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.
37
<PAGE> 39
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 29, 1995
The following is a summary of operations located within the indicated
geographic areas for the three years ended December 29, 1995:
<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>
1995
United States........................... $506,330 $ 143,573 $ 649,903 $66,489 $570,857
Europe.................................. 172,903 -- 172,903 5,785 49,165
Japan................................... 40,569 -- 40,569 2,459 15,871
Asia-Pacific............................ 117 -- 117 154 1,743
Corporate............................... -- -- -- -- 365,581
Eliminations............................ -- (143,573) (143,573) 495 (43,330)
-------- --------- --------- ------- --------
Consolidated....................... $719,919 $ -- $ 719,919 $75,382 $959,887
======== ========= ========= ======= ========
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
======== ========= ========= ======= ========
</TABLE>
U.S. export revenues, primarily to the Asia-Pacific region, were
approximately $153.8 million, $162.1 million and $126.7 million in 1995, 1994
and 1993, respectively.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
38
<PAGE> 40
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 RELATIONSHIPS 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 index
to financial statements and financial statement schedule (set forth in Item 8 of
Part II of this Form 10-K) are filed within this Annual Report on Form 10-K.
2. Financial Statement Schedule
The financial statement schedule listed in the Index to Consolidated
Financial Statements and Financial Statement Schedule (set forth in Item 8 of
Part II of this Form 10-K) 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 Reports on Form 8-K filed by the Company during the fourth
quarter ended December 29, 1995.
39
<PAGE> 41
(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 Certificate of Amendment of Restated Certificate of Incorporation filed with the
Secretary of State of the State of Delaware on May 5, 1995. Incorporated by
reference from Exhibit to Registration Statement on Form S-3 (File No. 33-60049).
3.5 Composite Certificate of Incorporation. Incorporated by reference from Exhibit to
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1995.
3.6 Restated Bylaws of the Company, as amended, effective March 12, 1996. Said
document is included as an Exhibit to this Annual Report on Form 10-K for the
fiscal year ended December 29, 1995.
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, 3.3, 3.4 and 3.5.
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.
4.8 Indenture, dated as of September 1, 1995, between the Company and Harris Trust
and Savings Bank, as Trustee, with respect to issuance of $172,500,000 of 8.25%
Convertible Subordinated Notes due October 1, 2005. Incorporated by reference
from Exhibit to Quarterly Report on Form 10-Q for the fiscal quarter ended
September 29, 1995.
4.9 Form of 8.25% Convertible Subordinated Note due October 1, 2005. Incorporated by
reference from Exhibit to Quarterly Report on Form 10-Q for the fiscal quarter
ended September 29, 1995.
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.
</TABLE>
40
<PAGE> 42
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.2* Agreement between the Company and Alfred J. Stein, dated March 8, 1996. Said
document is included as an Exhibit to this Annual Report on Form 10-K for the
fiscal year ended December 29, 1995.
10.3* 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.
10.4* 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.
10.6* 1986 Directors' Stock Option Plan, as amended, and Forms of Option Agreement for
use with such plan. Incorporated by reference from Exhibit to 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 29, 1995.
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. Incorporated by
reference from Exhibit to 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. Incorporated
by reference from Exhibit to 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 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.
10.15** 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.
10.16** 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.
10.17 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.
</TABLE>
41
<PAGE> 43
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.18 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.
10.19 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.
10.20 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.
10.21 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.
10.22 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.
10.23 Agreement between ADIMIC Limited Partnership and the Company assigning interest
of lessee under the two Ground Subleases referred to in Exhibits 10.21 and 10.22.
Incorporated by reference from Exhibit to Annual Report on Form 10-K for the
fiscal year ended December 27, 1987.
10.24 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.
10.25 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.
10.26 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.
10.27 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.
10.28 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.
10.29 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.
10.30 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.
10.31 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.
10.32 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.
</TABLE>
42
<PAGE> 44
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ---------------------------------------------------------------------------------
<C> <S>
10.33 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.
10.34 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.
10.35 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.
10.36 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.
10.37 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.
10.38 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.
10.39* 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, 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 29,
1995).
21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP, Independent Auditors (see page 44).
24 Power of Attorney (see page 46).
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.
43
<PAGE> 45
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 and 1986
Directors' Stock Option Plan of VLSI Technology, Inc. and in the related
Prospectuses, of our report dated January 16, 1996, with respect to the
consolidated financial statements and schedule of VLSI Technology, Inc. included
in this Annual Report (Form 10-K) for the year ended December 29, 1995.
/s/ ERNST & YOUNG LLP
--------------------------------------
ERNST & YOUNG LLP
San Jose, California
March 22, 1996
44
<PAGE> 46
VLSI TECHNOLOGY, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE AT
BEGINNING CHARGED END
OF YEAR TO INCOME DEDUCTIONS OF YEAR
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts and customer
returns(1):
Year ended December 25, 1993..................... $ 2,383 $ 458 $ (591) $ 2,250
Year ended December 30, 1994..................... $ 2,250 $ 107 $ (57) $ 2,300
Year ended December 29, 1995..................... $ 2,300 $ (108) $ (92) $ 2,100
Reserve for special charges(2):
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
Year ended December 29, 1995..................... $ 7,335 $ -- $ (7,335) $ --
Litigation reserve(2):
Year ended December 25, 1993..................... $ -- $ -- $ -- $ --
Year ended December 30, 1994..................... $ -- $ -- $ -- $ --
Year ended December 29, 1995..................... $ -- $19,400 $ (857) $ 18,543
</TABLE>
- ---------------
(1) Deductions represent amounts written off against the allowance for doubtful
accounts and customer returns.
(2) Deductions represent amounts written off against the reserves.
45
<PAGE> 47
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 12, 1996
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,
and each of them 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
--------- ----- ----
<S> <C> <C>
/s/ ALFRED J. STEIN Chairman of the Board, Chief March 12, 1996
- ----------------------------------------------- Executive Officer, President
(Alfred J. Stein) (Principal Executive Officer)
and Director
/s/ GREGORY K. HINCKLEY Senior Vice President, March 12, 1996
- ----------------------------------------------- Finance and Chief Financial
(Gregory K. Hinckley) Officer (Principal Financial
Officer)
/s/ BALAKRISHNAN S. IYER Vice President and Controller March 12, 1996
- ----------------------------------------------- (Principal Accounting
(Balakrishnan S. Iyer) Officer)
/s/ PIERRE S. BONELLI Director March 12, 1996
- -----------------------------------------------
(Pierre S. Bonelli)
/s/ ROBERT P. DILWORTH Director March 12, 1996
- -----------------------------------------------
(Robert P. Dilworth)
/s/ JAMES J. KIM Director March 15, 1996
- -----------------------------------------------
(James J. Kim)
/s/ HORACE H. TSIANG Director March 12, 1996
- -----------------------------------------------
(Horace H. Tsiang)
</TABLE>
46
<PAGE> 48
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 Certificate of Amendment of Restated Certificate of Incorporation
filed with the Secretary of State of the State of Delaware on May
5, 1995. Incorporated by reference from Exhibit to Registration
Statement on Form S-3 (File No. 33-60049).
3.5 Composite Certificate of Incorporation. Incorporated by reference
from Exhibit to Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1995.
3.6 Restated Bylaws of the Company, as amended, effective March 12,
1996. Said document is included as an Exhibit to this Annual Report
on Form 10-K for the fiscal year ended December 29, 1995.
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, 3.3, 3.4 and 3.5.
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.
</TABLE>
<PAGE> 49
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<S> <C> <C>
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.
4.8 Indenture, dated as of September 1, 1995, between the Company and
Harris Savings and Trust, as Trustee, with respect to issuance of
$172,500,000 of 8.25% Convertible Subordinated Notes due September
1, 2005. Incorporated by reference from Exhibit to Quarterly Report
on Form 10-Q for the fiscal quarter ended September 29, 1995.
4.9 Form of 8.25% Convertible Subordinated Debenture due September 1,
2005. Incorporated by reference from Exhibit to Quarterly Report on
Form 10-Q for the fiscal quarter ended September 29, 1995.
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* Agreement between the Company and Alfred J. Stein, dated March 8,
1996. Said document is included as an Exhibit to this Annual Report
on Form 10-K for the fiscal year ended December 29, 1995.
10.3* 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.
10.4* 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.
10.6* 1986 Directors' Stock Option Plan, as amended, and Forms of Option
Agreement for use with such plan. Incorporated by reference from
Exhibit to 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 29, 1995.
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.
Incorporated by reference from Exhibit to Annual Report on Form
10-K for the fiscal year ended December 30, 1994.
</TABLE>
<PAGE> 50
<TABLE>
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NUMBER DESCRIPTION PAGE
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<S> <C> <C>
10.10* COMPASS Design Automation, Inc. 1992 Stock Option Plan, as amended.
Incorporated by reference from Exhibit to 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 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.
10.15** 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.
10.16** 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.
10.17 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.
10.18 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.
10.19 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.
10.20 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.
10.21 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.
</TABLE>
<PAGE> 51
<TABLE>
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SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
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<S> <C> <C>
10.22 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.
10.23 Agreement between ADIMIC Limited Partnership and the Company
assigning interest of lessee under the two Ground Subleases
referred to in Exhibits 10.21 and 10.22. Incorporated by reference
from Exhibit to Annual Report on Form 10-K for the fiscal year
ended December 27, 1987.
10.24 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.
10.25 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.
10.26 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.
10.27 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.
10.28 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.
10.29 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.
10.30 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.
10.31 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.
10.32 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.
</TABLE>
<PAGE> 52
<TABLE>
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SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
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<S> <C> <C>
10.33 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.
10.34 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.
10.35 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.
10.36 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.
10.37 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.
10.38 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.
10.39* 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, 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 29, 1995).
21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP, Independent Auditors (see page 44).
24 Power of Attorney (see page 46).
27 Financial Data Schedule.
</TABLE>
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* 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 3.6
BYLAWS
OF
VLSI TECHNOLOGY, INC.,
A Delaware Corporation
(as amended March 12, 1996)
<PAGE> 2
TABLE OF CONTENTS
Page
Article I
CORPORATE OFFICES.................................................. 1
1.1 REGISTERED OFFICE......................................... 1
1.2 PRINCIPAL EXECUTIVE OFFICE................................ 1
1.3 OTHER OFFICES............................................. 1
Article II
MEETINGS OF STOCKHOLDERS........................................... 1
2.1 PLACE OF MEETINGS......................................... 1
2.2 ANNUAL MEETING............................................ 2
2.3 SPECIAL MEETING........................................... 2
2.4 NOTICE OF STOCKHOLDERS' MEETINGS.......................... 2
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND CUMULATIVE
VOTING.................................................... 2
2.6 ADVANCE NOTICE OF STOCKHOLDER BUSINESS.................... 3
2.7 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.............. 4
2.8 QUORUM.................................................... 4
2.9 ADJOURNED MEETING; NOTICE................................. 5
2.10 CONDUCT OF BUSINESS....................................... 5
2.11 VOTING; CUMULATIVE VOTING IN ELECTION OF DIRECTORS........ 5
2.12 WAIVER OF NOTICE.......................................... 6
2.13 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
......................................................... 6
2.14 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING
CONSENTS.................................................. 6
2.15 PROXIES................................................... 7
2.16 LIST OF STOCKHOLDERS ENTITLED TO VOTE..................... 7
2.17 INSPECTORS OF ELECTION.................................... 8
Article III
DIRECTORS.......................................................... 9
3.1 POWERS.................................................... 9
3.2 NUMBER OF DIRECTORS....................................... 9
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS... 9
3.4 RESIGNATION AND VACANCIES................................. 9
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<PAGE> 3
TABLE OF CONTENTS
(continued)
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.................. 10
3.6 REGULAR MEETINGS.......................................... 10
3.7 SPECIAL MEETINGS; NOTICE.................................. 10
3.8 QUORUM.................................................... 11
3.9 WAIVER OF NOTICE.......................................... 11
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING......... 11
3.11 FEES AND COMPENSATION OF DIRECTORS........................ 11
3.12 LOANS TO OFFICERS......................................... 12
3.13 REMOVAL OF DIRECTORS...................................... 12
Article IV
COMMITTEES......................................................... 12
4.1 COMMITTEES OF DIRECTORS................................... 12
4.2 COMMITTEE MINUTES......................................... 13
4.3 MEETINGS AND ACTIONS OF COMMITTEES........................ 13
Article V
OFFICERS........................................................... 14
5.1 OFFICERS.................................................. 14
5.2 ELECTION OF OFFICERS...................................... 14
5.3 SUBORDINATE OFFICERS...................................... 14
5.4 REMOVAL AND RESIGNATION OF OFFICERS....................... 14
5.5 VACANCIES IN OFFICES...................................... 15
5.6 CHAIRMAN OF THE BOARD..................................... 15
5.7 PRESIDENT................................................. 15
5.8 VICE PRESIDENTS........................................... 15
5.9 SECRETARY................................................. 15
5.10 CHIEF FINANCIAL OFFICER................................... 16
5.11 ASSISTANT SECRETARY....................................... 16
5.12 AUTHORITY AND DUTIES OF OFFICERS.......................... 16
5.13 REPRESENTATION OF SHARES OF OTHER CORPORATIONS............ 17
Article VI
INDEMNITY.......................................................... 17
6.1 THIRD PARTY ACTIONS....................................... 17
6.2 ACTIONS BY OR IN THE RIGHT OF CORPORATION................. 17
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<PAGE> 4
TABLE OF CONTENTS
(continued)
Page
6.3 SUCCESSFUL DEFENSE........................................ 18
6.4 DETERMINATION OF CONDUCT.................................. 18
6.5 PAYMENT OF EXPENSES IN ADVANCE............................ 18
6.6 INDEMNITY NOT EXCLUSIVE................................... 18
6.7 INSURANCE INDEMNIFICATION................................. 19
6.8 THE CORPORATION........................................... 19
6.9 EMPLOYEE BENEFIT PLANS.................................... 19
6.10 INDEMNITY FUND............................................ 19
6.11 INDEMNIFICATION OF OTHER PERSONS.......................... 20
6.12 SAVINGS CLAUSE............................................ 20
6.13 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES.................................................. 20
Article VII
RECORDS AND REPORTS................................................ 20
7.1 MAINTENANCE AND INSPECTION OF RECORDS..................... 20
7.2 INSPECTION BY DIRECTORS................................... 21
7.3 ANNUAL STATEMENT TO STOCKHOLDERS.......................... 21
Article VIII
GENERAL MATTERS.................................................... 21
8.1 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS................. 21
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.......... 21
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES.................... 22
8.4 SPECIAL DESIGNATION ON CERTIFICATES....................... 22
8.5 LOST CERTIFICATES......................................... 23
8.6 CONSTRUCTION; DEFINITIONS................................. 23
8.7 DIVIDENDS................................................. 23
8.8 FISCAL YEAR............................................... 23
8.9 SEAL...................................................... 23
8.10 TRANSFER OF STOCK......................................... 24
8.11 STOCK TRANSFER AGREEMENTS................................. 24
8.12 REGISTERED STOCKHOLDERS................................... 24
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<PAGE> 5
TABLE OF CONTENTS
(continued)
Page
Article IX
AMENDMENTS......................................................... 24
-iv-
<PAGE> 6
BYLAWS
OF
VLSI TECHNOLOGY, INC.,
A Delaware corporation
Article I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The Board of Directors shall fix the location of the registered office
of the corporation, which shall be within the State of Delaware. Until changed
by the Board of Directors, the registered office of the corporation shall be in
the city of Wilmington, County of Newcastle, State of Delaware. The name of the
registered agent of the corporation at such location is The Corporation Trust
Company. Even if the principal executive office is located outside the State of
Delaware, the Board of Directors shall fix and designate a registered office in
the State of Delaware.
1.2 PRINCIPAL EXECUTIVE OFFICE
The Board of Directors shall fix the location of the principal
executive office of the corporation at any place within or outside the State of
Delaware.
1.3 OTHER OFFICES
The Board of Directors may at any time establish other offices at any
place or places where the corporation is qualified to do business in such place
or has submitted an application for such qualification, unless such
qualification is not, in the opinion of counsel to the Company, required in such
jurisdiction.
Article II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the Board of Directors. In the absence of
any such designation, stockholders' meetings shall be held at the principal
executive office of the corporation.
<PAGE> 7
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date
and at a time designated by the Board of Directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the fourth
Wednesday of April each year at 10:00 a.m. However, if such day falls on a legal
holiday, then the meeting shall be held at the same time and place on the next
succeeding full business day. At the meeting, directors shall be elected and any
other proper business may be transacted.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
Board of Directors, the Chairman of the Board, the President, or by one or more
holders of shares entitled to cast not less than ten percent (10%) of the votes
at the meeting.
If a special meeting is called by any person or persons other than the
Board of Directors or the President or the Chairman of the Board, then, the
request shall be in writing, specifying the time of such meeting and the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the Chairman of the Board, the President, any Vice President or
the Secretary of the corporation. No business may be transacted at such special
meeting other than such business as is specified in such notice. The officer
receiving the request shall cause notice to be promptly given to the
stockholders entitled to vote, in accordance with the provisions of Sections 2.4
and 2.7 of this Article II, that a meeting will be held at the time requested by
the person or persons calling the meeting, so long as that time is not less than
thirty-five (35) nor more than sixty (60) days after the receipt of the request.
If the notice is not given within twenty (20) days after the receipt of the
request, the person or persons requesting the meeting may give the notice.
Nothing contained in this paragraph of this Section 2.3 shall be construed as
limiting, fixing, or affecting the time when a meeting of stockholders called by
action of the Board of Directors may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings of stockholders shall be in writing and shall
be sent or otherwise given in accordance with Section 2.7 of these Bylaws not
less than ten (10) nor more than sixty (60) days before the date of the meeting
to each stockholder entitled to vote at such meeting. The notice shall specify
the place, date, and hour of the meeting and, in the case of a special meeting,
the purpose or purposes for which the meeting is called.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND CUMULATIVE
VOTING
Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of
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<PAGE> 8
the corporation entitled to vote in the election of directors at the meeting who
complies with the notice procedures set forth in this Section 2.5. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the corporation. Timely notice shall also be given of any stockholder's
intention to cumulate votes in the election of directors at a meeting. In either
case, to be timely, a stockholder's notice shall be delivered to or mailed and
received at the principal executive offices of the corporation not less than
twenty (20) days nor more than sixty (60) days prior to the meeting; provided,
however, that in the event less than thirty (30) days notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the tenth day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth (a) as to each person, if any, whom the stockholder
proposes to nominate for election or re-election as a director: (i) the name,
age, business address and residence address of such person, (ii) the principal
occupation or employment of such person, (iii) the class and number of shares of
the corporation which are beneficially owned by such person, and (iv) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including without limitation such person's written consent to being
named in the proxy statement, if any, as a nominee and to serving as a director
if elected); and (b) as to the stockholder giving the notice: (i) the name and
address, as they appear on the corporation's books, of such stockholder, (ii)
the class and number of shares of the corporation which are beneficially owned
by such stockholder, and (iii) whether such stockholder intends to request
cumulative voting in the election of directors at the meeting. At the request of
the Board of Directors any person nominated by the Board for election as a
director shall furnish to the Secretary of the corporation that information
required to be set forth in the stockholder's notice of nomination which
pertains to the nominee. No person shall be eligible for election as a director
of the corporation unless nominated in accordance with the procedures set forth
in this Section 2.5. The chairman of the meeting shall, if the facts warrant,
determine and declare at the meeting that a nomination was not made in
accordance with the procedures prescribed by these Bylaws, and if he should so
determine, he shall so declare at the meeting and the defective nomination shall
be disregarded.
2.6 ADVANCE NOTICE OF STOCKHOLDER BUSINESS
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting, business must be: (a) as specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors, (b) otherwise properly brought before the meeting by or
at the direction of the Board of Directors, or (c) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not less than sixty (60) days nor
more than ninety (90) days prior to the meeting; provided, however, that in the
event that less than fifty (50) days notice or prior public
-3-
<PAGE> 9
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the tenth day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure was made. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting: (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and address,
as they appear on the corporation's books, of the stockholder proposing such
business, (iii) the class and number of shares of the corporation which are
beneficially owned by the stockholder, (iv) any material interest of the
stockholder in such business, and (v) any other information that is required to
be provided by the stockholder pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended, in his capacity as a proponent of a
stockholder proposal. Notwithstanding the foregoing, in order to include
information with respect to a stockholder proposal in the proxy statement and
form of proxy for a stockholders' meeting, stockholders must provide notice as
required by the regulations promulgated under the Securities Exchange Act of
1934, as amended. Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at any annual meeting except in accordance with the
procedures set forth in this Section 2.6. The chairman of the annual meeting
shall, if the facts warrant, determine and declare at the meeting that business
was not properly brought before the meeting and in accordance with the
provisions of this Section 2.6, and, if he should so determine, he shall so
declare at the meeting that any such business not properly brought before the
meeting shall not be transacted.
2.7 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders, if mailed, is deemed
given when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the Secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.8 QUORUM
The presence in person or by proxy of the holders of a majority of the
stock issued and outstanding and entitled to vote thereat on the matter in
question shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either the chairman of the
meeting or the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum is present
or represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
When a quorum is present at any meeting, the vote of the holders of the
stock having a majority of the voting power present in person or represented by
proxy shall decide any question
-4-
<PAGE> 10
brought before such meeting, unless the question is one upon which, by express
provision of the statutes or of the Certificate of Incorporation, a different
vote is required, in which case such express provision shall govern and control
the decision of the question.
2.9 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these
Bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.10 CONDUCT OF BUSINESS
The chairman of any meeting of stockholders shall determine the order
of business and the procedures at the meeting, including such matters as the
regulation of the manner of voting and the conduct of business.
2.11 VOTING; CUMULATIVE VOTING IN ELECTION OF DIRECTORS
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.14 of these Bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).
Except as provided in the last paragraph of this Section 2.11, or as
may be otherwise provided in the Certificate of Incorporation, each stockholder
shall be entitled to one vote for each share of capital stock held by such
stockholder.
Every stockholder entitled to vote in any election of directors of this
corporation 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 otherwise entitled, or
distribute the stockholder's votes on the same principle among as many
candidates as such stockholder thinks fit. No stockholder, however, may cumulate
such stockholder's votes for one or more candidates unless (a) the names of such
candidates have been properly placed in nomination, in accordance with these
Bylaws, prior to the voting, (b) the stockholder has given advance notice to the
corporation of the intention to cumulate votes pursuant to Section 2.5 of these
Bylaws, and (c) the stockholder has given proper notice to the other
stockholders at the meeting, prior to voting, of such stockholder's intention to
cumulate such stockholder's votes. If any one stockholder has given proper
notice, all stockholders may cumulate their votes for any candidates who have
been properly placed in nomination. The candidates receiving the highest number
of votes
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of the shares entitled to be voted for them up to the number of directors to be
elected by such shares shall be declared elected. Elections of directors need
not be by written ballot, except upon demand made by a stockholder at the
meeting and before the voting begins.
2.12 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware, the Certificate of Incorporation or these
Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the Certificate of Incorporation or these Bylaws.
2.13 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the Certificate of Incorporation, any
action required by these Bylaws or applicable laws to be taken at any annual or
special meeting of stockholders of a corporation, or any action that may be
taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice, and without a vote if a consent in
writing, setting forth the action so taken, is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written consent and written notice have been given as
provided in Section 228 of the General Corporation Law of Delaware.
2.14 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING
CONSENTS
In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to express consent to corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days
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before the date of such meeting, nor more than sixty (60) nor less than ten (10)
days prior to any other action.
If the Board of Directors does not so fix a record date:
(a) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(b) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed.
(c) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
2.15 PROXIES
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the Secretary of the corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.
2.16 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of a corporation, or
transfer agent appointed by the corporation, if one has been appointed, shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be
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held, which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present. Such list shall
presumptively determine the identity of the stockholders entitled to vote at the
meeting and the number of shares held by each of them.
2.17 INSPECTORS OF ELECTION
Before any meeting of stockholders, the board of directors may appoint
an inspector or inspectors of election to act at the meeting or its adjournment.
If no inspector of election is so appointed, then the chairman of the meeting
may, and on the request of any stockholder or a stockholder's proxy shall,
appoint an inspector or inspectors of election to act at the meeting. The number
of inspectors shall be either one (1) or three (3). If inspectors are appointed
at a meeting pursuant to the request of one (1) or more stockholders or proxies,
then the holders or their proxies of shares representing a majority of the votes
or their proxies present at the meeting shall determine whether one (1) or three
(3) inspectors are to be appointed. If any person appointed as inspector fails
to appear or fails or refuses to act, then the chairman of the meeting may, and
upon the request of any stockholder or a stockholder's proxy shall, appoint a
person to fill that vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the
voting power of each, the number of shares represented at the meeting, the
existence of a quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in
any way arising in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the
election or vote with fairness to all stockholders.
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Article III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware
and any limitations in the Certificate of Incorporation or these Bylaws relating
to action required to be approved by the stockholders or by the outstanding
shares, the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the Board of
Directors.
3.2 NUMBER OF DIRECTORS
The Board of Directors shall consist of six (6) persons. This number
may be changed by a duly adopted amendment to the Certificate of Incorporation
or by an amendment to this Section 3.2 of these Bylaws adopted by the vote or
written consent of the holders of a majority of the stock issued and outstanding
and entitled to vote or by resolution of a majority of the Board of Directors.
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these Bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stock holders unless so required by the
Certificate of Incorporation or these Bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to fill
a vacancy, shall hold office until his successor is elected and qualified or
until his earlier resignation or removal.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon written notice to the
attention of the Chairman of the Board, the President, the Secretary or the
Board of Directors of the corporation. When one or more directors so resigns and
the resignation is effective at a future date, a majority of the directors then
in office, including those who have so resigned, shall have power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each director so chosen shall hold
office as provided in this section in the filling of other vacancies.
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Unless otherwise provided in the Certificate of Incorporation or these
Bylaws:
(i) Vacancies and newly created directorships resulting from
any increase in the authorized number of directors, elected by all of the
stockholders having the right to vote as a single class, may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the Certificate of Incorporation, vacancies and newly created directorships of
such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
A director elected or appointed to fill a vacancy shall serve until the
next Annual Meeting of Stockholders or until a successor shall be elected and
qualified.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The Board of Directors of the corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, members of the Board of Directors, or any committee designated by
the Board, may participate in a meeting of the Board of Directors, or any
committee, by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and such participation in a meeting shall constitute presence in person at the
meeting.
3.6 REGULAR MEETINGS
Regular meetings of the Board of Directors may be held without notice
at such time and at such place as shall from time to time be determined by the
Board.
3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the Board of Directors for any purpose or purposes
may be called at any time by the Chairman of the Board, the President, any Vice
President, the Secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram or other facsimile transmission, charges prepaid, addressed to each
director at that director's address as it is shown on the records of the
corporation. If the notice is mailed, it shall be deposited in the United States
mail at least four (4) days before the time of the holding of the meeting. If
the notice is delivered personally or telephone
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or telegram, it shall be delivered personally or by telephone or to the
telegraph company at least forty-eight (48) hours before the time of the holding
of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.8 QUORUM
At all meetings of the Board of Directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the Board of Directors, except as may be
otherwise specifically provided by statute or by the Certificate of
Incorporation. If a quorum is not present at any meeting of the Board of
Directors, then a majority of the directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum is present.
3.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware, the Certificate of Incorporation or these
Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the Certificate of
Incorporation or these Bylaws.
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, any action required or permitted to be taken at any meeting of the
Board of Directors, or of any committee thereof, may be taken without a meeting
if all members of the Board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the Board or committee.
3.11 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, the Board of Directors shall have the authority to fix the
compensation of directors. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid a fixed sum
for attendance at each meeting of the Board of Directors or a stated salary as
director. No
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such payment shall preclude any director from serving the corporation in any
other capacity and receiving compensation therefor. Members of special or
standing committees may be allowed like compensation for attending committee
meetings.
3.12 LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.13 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, the Certificate of
Incorporation or these Bylaws, any director or the entire Board of Directors may
be removed, with or without cause, by the holders of a majority of the shares
then entitled to vote in an election of directors; provided, however, that, so
long as stockholders of the corporation are entitled to cumulative voting, if
less than the entire board is to be removed, no director may be removed without
cause if the votes cast against his removal would be sufficient to elect him if
then cumulatively voted at an election of the entire Board of Directors.
Article IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The Board of Directors may, by resolution passed by a majority of the
Board, designate one or more committees, with each committee to consist of one
or more of the directors of the corporation. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors establishing such committee or in the
Bylaws of the cor poration, shall have and may exercise all the powers and
authority of the Board of Directors in the
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management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers that may require it; but no
such committee shall have the power or authority to:
(i) amend the Certificate of Incorporation (except that a
committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors
as provided in Section 151(a) of the General Corporation Law of Delaware, fix
any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the corporation or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the corporation),
(ii) adopt an agreement of merger or consolidation under Sections
251 or 252 of the General Corporation Law of Delaware,
(iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the corporation or a revocation
of a dissolution, or
(iv) recommend to the stockholders a dissolution of the corporation
or a revocation of a dissolution, or
(v) amend the Bylaws of the corporation;
and, unless the Board resolution establishing the committee, the Bylaws or the
Certificate of Incorporation expressly so provides, no such committee shall have
the power or authority to declare a dividend, to authorize the issuance of
stock, or to adopt a certificate of ownership and merger pursuant to Section 253
of the General Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report
the same to the Board of Directors when required.
4.3 MEETINGS AND ACTIONS OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these Bylaws, Section
3.5 (place of meetings and meetings by telephone), Section 3.6 (regular
meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum),
Section 3.9 (waiver of notice), and Section 3.10 (Board action by written
consent without a meeting), with such changes in the context of those Bylaws as
are necessary to substitute the committee and its members for the Board of
Directors and its members; provided, however, that the time of regular meetings
of committees may also be called by resolution of the Board of Directors and
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that notice of special meetings of committees shall also be given to all
alternate members, who shall have the right to attend all meetings of the
committee. The Board of Directors may adopt rules for the government of any
committee not inconsistent with the provisions of these Bylaws.
Article V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a President, a Secretary, and
a Chief Financial Officer. The corporation may also have, at the discretion of
the Board of Directors, a Chairman of the Board, one or more vice presidents, a
treasurer, one or more assistant secretaries, one or more assistant treasurers,
and any such other officers as may be appointed in accordance with the
provisions of Section 5.3 of these Bylaws. Any number of offices may be held by
the same person.
5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
Bylaws, shall be chosen by the Board of Directors, subject to the rights, if
any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The Board of Directors may appoint, or empower the President to
appoint, such other officers and agents as the business of the corporation may
require, each of whom shall hold office for such period, have such authority,
and perform such duties as are provided in these Bylaws or as the Board of
Directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by the
Board of Directors at any regular or special meeting of the Board of Directors
or, except in the case of an officer chosen by the Board of Directors, by any
officer upon whom such power of removal may be conferred by the Board of
Directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
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5.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of the corporation because of
death, resignation, removal, disqualification or any other cause shall be filled
in the manner prescribed in these Bylaws for regular appointments to that
office.
5.6 CHAIRMAN OF THE BOARD
The Chairman of the Board, if such an officer be elected, shall, if
present, preside at meetings of the Board of Directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
Board of Directors or as may be prescribed by these Bylaws. If there is no
President, then the Chairman of the Board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these Bylaws.
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the Chairman of the Board, if there be such an officer,
the President shall be the chief executive officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the stockholders and, in the absence or
nonexistence of a Chairman of the Board, at all meetings of the Board of
Directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation and shall have such other
powers and duties as may be prescribed by the Board of Directors or these
Bylaws.
5.8 VICE PRESIDENTS
In the absence or disability of the President, the vice presidents, if
any, in order of their rank as fixed by the Board of Directors or, if not
ranked, a vice president designated by the Board of Directors, shall perform all
the duties of the President and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the President. The vice presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the Board of Directors, these Bylaws,
the President or the Chairman of the Board.
5.9 SECRETARY
The Secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the Board of
Directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders. The minutes shall show the
time and place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders meetings, and the proceedings thereof.
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The Secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by reso lution of the Board of
Directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the Board of Directors required to be given by law or
by these Bylaws. He shall keep the seal of the corporation, if one be adopted,
in safe custody and shall have such other powers and perform such other duties
as may be prescribed by the Board of Directors or by these Bylaws.
5.10 CHIEF FINANCIAL OFFICER
The Chief Financial Officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The Chief Financial Officer shall deposit, or cause to be deposited,
money and other valuables in the name and to the credit of the corporation with
such depositories as may be designated by the Board of Directors. He shall
disburse the funds of the corporation as may be ordered by the Board of
Directors, shall render to the President and directors, whenever they request
it, an account of all of his transactions as Chief Financial Officer and of the
financial condition of the corporation, and shall have such other powers and
perform such other duties as may be prescribed by the Board of Directors or
these Bylaws.
5.11 ASSISTANT SECRETARY
The assistant secretary, if any, or, if there is more than one, the
assistant secretaries in the order determined by the stockholders or Board of
Directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the Secretary or in the event of his or her
inability or refusal to act, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as the
Board of Directors or the stockholders may from time to time prescribe.
5.12 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all officers of the
corporation shall have such authority and perform such duties in the management
of the business of the corporation as may be designated from time to time by the
Board of Directors or the stockholders.
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5.13 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The Chairman of the Board, the President, any vice president, the Chief
Financial Officer, the Secretary or assistant secretary of this corporation, or
any other person authorized by the Board of Directors or the President or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised by any other person authorized to do so by proxy or
power of attorney duly executed by such persons having the authority.
Article VI
INDEMNITY
6.1 THIRD PARTY ACTIONS
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative, or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director or officer of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise (collectively, "Agent") against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit, or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
6.2 ACTIONS BY OR IN THE RIGHT OF CORPORATION
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was an Agent of the corporation or serving at
the request of the corporation against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim,
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issue, or matter as to which such person shall have been adjudged to be liable
to the corporation unless and only to the extent that the Delaware Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
6.3 SUCCESSFUL DEFENSE
To the extent that an Agent of the corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Sections 6.1 or 6.2 of this Article VI, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
6.4 DETERMINATION OF CONDUCT
Subject to any rights under any contract between this corporation and
any Agent, any indemnification (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the Agent is proper in the circumstances because he has met
the applicable standard of conduct set forth in Sections 6.1 or 6.2 of this
Article VI. Such determination shall be made (1) by the Board of Directors (or
by an executive committee thereof) by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (2) if
such a quorum is not obtainable, or, even if obtainable, if a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders. Notwithstanding the foregoing, a director
or officer of the corporation shall be able to contest any determination that
the director or officer has not met the applicable standard of conduct, set
forth in Section 6.1 or 6.2 of this Article VI, by petitioning a court of
appropriate jurisdiction.
6.5 PAYMENT OF EXPENSES IN ADVANCE
Expenses incurred in defending or settling a civil or criminal action,
suit or proceeding by an individual who may be entitled to indemnification
pursuant to Sections 6.1 or 6.2 of this Article VI shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board of Directors upon receipt of an
undertaking by or on behalf of the Agent to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized in this Article VI.
6.6 INDEMNITY NOT EXCLUSIVE
The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subparagraphs of this Article VI shall not be deemed
exclusive of, and shall be subject to, any other rights to which those seeking
indemnification or advancement of expenses may be entitled under
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<PAGE> 24
any Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
6.7 INSURANCE INDEMNIFICATION
The corporation shall have the power to purchase and maintain insurance
on behalf of any person who is or was an Agent of the corporation, or is or was
serving at the request of the corporation as an Agent against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this Article VI.
6.8 THE CORPORATION
For purposes of this Article VI, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger, so that any person who is or was an Agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as an Agent, shall stand in the same position under the provisions of this
Article VI (including without limitation the provisions of Section 6.4) with
respect to the resulting or surviving corporation as he would have with respect
to such constituent corporation if its separate existence had continued.
6.9 EMPLOYEE BENEFIT PLANS
For purposes of this Article VI, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this Article
VI.
6.10 INDEMNITY FUND
Upon resolution passed by the Board of Directors, the corporation may
establish a trust or other designated account, grant a security interest or use
other means (including, without limitation, a letter of credit), to ensure the
payment of any or all of its obligations arising under this Article and/or
agreements which may be entered into between the corporation and its officers
and directors from time to time.
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<PAGE> 25
6.11 INDEMNIFICATION OF OTHER PERSONS
The provisions of this Article VI shall not be deemed to preclude the
indemnification of any person who is not an Agent, but whom the corporation has
the power or obligation to indemnify under the provisions of the General
Corporation Law of the State of Delaware or otherwise. The corporation may, in
its sole discretion, indemnify an employee, trustee or other agent as permitted
by the General Corporation Law of the State of Delaware. The corporation shall
indemnify an employee, trustee or other agent where required by law.
6.12 SAVINGS CLAUSE
If this Article or any portion thereof shall be invalidated on any
ground by any court of competent jurisdiction, then the corporation shall
nevertheless indemnify each Agent against expense (including attorneys' fees),
judgments, fines and amounts paid in settlement with respect to any action,
suit, proceeding or investigation, whether civil, criminal or administrative,
and whether internal or external, including a grand jury proceeding and an
action or suit brought by or in the right of the corporation, to the full extent
permitted by any applicable portion of this Article that shall not have been
invalidated or by any other applicable law.
6.13 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES
The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article VI shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Article VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall keep, either at its principal executive office or
at such place or places as designated by the Board of Directors, a record of its
stockholders listing their names and addresses and the number and class of
shares held by each stock-holder, a copy of these Bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other
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books and records and to make copies or extracts therefrom. A proper purpose
shall mean a purpose reasonably related to such person's interest as a
stockholder. In every instance where an attorney or other agent is the person
who seeks the right to inspection, the demand under oath shall be accompanied by
a power of attorney or such other writing that authorizes the attorney or other
agent to so act on behalf of the stockholder. The demand under oath shall be
directed to the corporation at its registered office in Delaware or at its
principal place of business.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The Board of Directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
Article VIII
GENERAL MATTERS
8.1 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the Board of Directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The Board of Directors, except as otherwise provided in these Bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified
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by the Board of Directors or within the agency power of an officer, no officer,
agent or employee shall have any power or authority to bind the corporation by
any contract or engagement or to pledge its credit or to render it liable for
any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of the corporation shall be represented by certificates,
provided that the Board of Directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the Board of
Directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by or in the name of the corporation by the Chairman of the Board, the
President or a vice president, and by the Chief Financial Officer, the
treasurer, an assistant treasurer, the Secretary or an assistant secretary of
the corporation, representing the number of shares registered in certificate
form. Any or all of the signatures on the certificate may be a facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate has ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the corporation with the same effect as if he were such officer, transfer
agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, or upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests such a statement of the
powers, the designations, the preferences, and the relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
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<PAGE> 28
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal repre sentative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these Bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.
8.7 DIVIDENDS
The Board of Directors of the corporation, subject to any restrictions
contained in the General Corporation Law of Delaware or the Certificate of
Incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
corporation's capital stock.
The directors of the corporation may set apart out of any of the funds
of the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
Board of Directors and may be changed by the Board of Directors.
8.9 SEAL
The corporation may adopt and may subsequently alter the corporate seal
and it may use the same by causing it or a facsimile thereof to be impressed,
affixed, reproduced or otherwise placed on documents.
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<PAGE> 29
8.10 TRANSFER OF STOCK
Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books
unless such transfer would be in contravention of any law regarding the transfer
of such securities or any contractual restrictions on transfer known to the
corporation.
8.11 STOCK TRANSFER AGREEMENTS
The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
Article IX
AMENDMENTS
The original or other Bylaws of the corporation may be adopted, amended
or repealed by the stockholders entitled to vote; provided, however, that the
corporation may, in its Certificate of Incorporation, confer the power to adopt,
amend or repeal Bylaws upon the Board of Directors. The fact that such power has
been so conferred upon the Board of Directors shall not divest the stock holders
of the power, nor limit their power to adopt, amend or repeal Bylaws.
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<PAGE> 1
EXHIBIT 10.2
AGREEMENT
This Agreement, entered into as of October 31, 1995 (the "Effective Date")
by and between VLSI TECHNOLOGY, INC., a Delaware corporation, located at 1109
McKay Drive, San Jose, California 95131, hereinafter referred to as "VLSI" and
ALFRED J. STEIN, 410 Old Oak Court, Los Altos, California 94022, hereinafter
referred to as "Employee".
WHEREAS, VLSI desires to compensate Employee for management and consulting
services to be performed in the future, such services being of a special,
unique, unusual, extraordinary, and intellectual character that gives them a
substantial value;
WHEREAS, Employee has developed numerous and substantial relationships with
VLSI's customers and vendors which are of substantial value to VLSI and are
expected to contribute to the growth and success of VLSI in the future;
WHEREAS, Employee desires to continue providing management and consulting
services for at least the period specified herein;
ARTICLE 1.
SERVICES TO BE PROVIDED BY EMPLOYEE
(a) Employee agrees to continue making his management services available to
VLSI, on a full time basis, for a period of at least three (3) years from the
Effective Date.
(b) Following, and in the event of, Employee's departure after three years
from the Effective Date, Employee shall provide VLSI with the services described
in Article 1(c) for a minimum of 52 days per year and shall continue to do so
throughout the period beginning with his departure date and ending ten years
from the Effective Date.
(c) Services to be provided by Employee to VLSI during the period set forth
in Article 1(b) hereof shall consist of general consulting services for the
Chief Executive Officer, the Board of Directors, or VLSI as requested from time
to time. The parties agree that such services shall not require full time
service.
(d) Nothing in this Agreement is intended to prevent Employee from
accepting employment with another employer after his departure from VLSI.
ARTICLE 2.
PAYMENTS TO EMPLOYEE
(a) VLSI agrees to make annual payments as provided in Exhibit A hereto to
Employee, or such person or persons as Employee may designate, for so long as
Employee continues to provide services either as an employee or as a consultant
as set forth in Article 1 hereof.
(b) Except as otherwise provided in Article 2(c) below, in the event that
Employee ceases to fulfill his obligations under Article 1 hereof, VLSI shall
have no further obligation to make payments to Employee under this Agreement.
(c) In the event that fewer than all payments set forth in Exhibit A have
been made to Employee and (i) Employee becomes disabled as defined in Article
5(c) hereof, (ii) VLSI undergoes a Change in Control (as defined in Article 5(b)
hereof) or (iii) VLSI notifies Employee that it no longer desires that Employee
perform the services required under Article 1 hereof, VLSI shall make a single
lump-sum payment to Employee equal to the sum of the present values of all
payments provided in Exhibit A which have not been paid to Employee at the time
of such disability, Change in Control or notification and Employee shall have no
further obligations under Article 1 hereof.
(d) The lump sum payment payable under Article 2(c) hereof shall be
calculated based on the assumptions set forth in section 2(A) of Exhibit A with
a discount rate equal to the lesser of the prime rate on the date of termination
and 5.5%.
--1--
<PAGE> 2
(e) All payments payable under this Article 2 shall be grossed up, and made
free and clear of and without deduction, for any and all present or future
income taxes, payroll taxes, excise taxes, deductions, charges or withholdings,
and all liabilities with respect thereto, (all such taxes, deductions, charges,
withholdings and liabilities being hereinafter referred to as "Taxes"). If VLSI
shall be required by law to deduct any Taxes from or in respect of a payment,
(i) the payment shall be increased as may be necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section) the payment shall be made in an amount equal to the amount
payable had no such deductions been made, (ii) VLSI shall make such deductions
and (iii) VLSI shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law.
(f) For purposes of computing increases in payments payable hereunder, VLSI
shall, in all cases, assume that Employee is taxable at the highest marginal tax
rate applicable to an individual.
(g) In the event that Employee is taxable at a marginal tax rate less than
the rate assumed in Article 2(f) hereof, Employee shall reimburse VLSI for the
excess of such increase paid to Employee over the increase computed on the basis
of Employee's actual marginal tax rate.
ARTICLE 3.
TERM
This term of this Agreement shall extend from the Effective Date to the
later of (i) the date that the final payment due hereunder is made by VLSI and
(ii) the date that Employee's obligations under Article 1 hereof are satisfied.
ARTICLE 4.
EMPLOYEE EXPENSES
VLSI agrees to reimburse Employee for all reasonable expenses incurred by
Employee in the nature of consulting and legal fees associated with the
development, negotiation and preparation of this Agreement.
ARTICLE 5.
GENERAL PROVISIONS
(a) Acquisition, Merger, Consolidation, Change in Control, Etc. The rights
and obligations of the parties as set forth herein shall be unaffected by a
Change in Control of VLSI or a merger or consolidation of VLSI with or into
another entity or any similar transaction.
(b) Change in Control. For purposes of this Agreement, a "Change in
Control" shall be deemed to have occurred if: (i) the stockholders of VLSI
approve a merger or consolidation of VLSI with any other corporation, other than
a merger or consolidation which would result in the voting securities of VLSI
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 VLSI or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of VLSI approve a plan of liquidation or dissolution of VLSI or an agreement for
the sale, lease, exchange or other transfer or disposition by VLSI of all or
substantially all (more than fifty percent (50%)) of VLSI's assets; (ii) any
person (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), is or becomes the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act)
directly or indirectly of 50% or more of VLSI's outstanding Common Stock, or
(iii) a change in the composition of the Board of Directors of VLSI within a
three (3) year period, as a result of which fewer than a majority of the
directors are Incumbent Directors. "Incumbent Directors" shall mean directors
who either (A) are directors of VLSI as of the date hereof, or (B) are elected,
or nominated for election, to the Board of Directors of VLSI 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 VLSI).
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<PAGE> 3
(c) Disabled. For purposes of this Agreement, Employee shall be considered
"disabled" in the event that a physician mutually acceptable to Employee and
VLSI determines that Employee is no longer capable of providing services as
required under Article 1 hereof due to any physical or mental illness or injury.
(d) Arbitration. (i) Any controversy between VLSI and Employee involving
the construction or application of any of the terms, provisions, or conditions
of this Agreement shall on the written request of either party served on the
other be submitted to arbitration. Arbitration shall comply with and be governed
by the provisions of the California Arbitration Act.
(ii) VLSI and Employee shall each appoint one person to hear and determine
the dispute. If the two persons so appointed are unable to agree, then those
persons shall select a third impartial arbitrator whose decision shall be final
and conclusive upon both parties.
(iii) The cost of arbitration shall be borne by VLSI or in such proportions
as the arbitrators decide.
(e) Entire Agreement. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the subject matter hereof and contains all of the covenants and agreements
between the parties with respect thereto. Each party to this Agreement
acknowledges that no representation, inducements, promises, or agreements,
orally or otherwise, have been made by any party, or anyone acting on behalf of
any party, which are not embodied herein, and that no other agreement,
statement, or promise not contained in this Agreement shall be valid or binding
on either party.
(f) Modifications. Any modification of this Agreement will be effective
only if it is in writing and signed by the party to be charged.
(g) Effect of Waiver. The failure of either party to insist on strict
compliance with any of the terms, covenants, or conditions of this Agreement by
the other party shall not be deemed a waiver of that term, covenant, or
condition, nor shall any waiver or relinquishment of any right or power at any
one time or times be deemed a waiver or relinquishment of that right or power
for all or any other times.
(h) Partial Invalidity. If any provision in this Agreement is held by a
court of competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions shall nevertheless continue in full force without being
impaired or invalidated in any way.
(i) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
VLSI TECHNOLOGY, INC.
<TABLE>
<S> <C>
/s/ JAMES J. KIM /s/ ALFRED J. STEIN
- --------------------------------------------- --------------------------------------------
James J. Kim, Board of Directors of VLSI Alfred J. Stein
Date: March 8, 1996 Date: March 8, 1996
/s/ ROBERT P. DILWORTH
- ---------------------------------------------
Robert P. Dilworth, Board of Directors of
VLSI
Date: March 8, 1996
</TABLE>
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<PAGE> 4
EXHIBIT A
PAYMENTS UNDER SECTION 2(A) OF THE AGREEMENT
1. Number of payments. Ten annual payments made on or before October 31 of
each year, beginning on October 31, 1995.
2. Amount of each payment.
(A) An amount equal to the annual premium necessary to endow a single life
policy (Corporate Universal Life) on the life of Employee issued by the
Specialized Benefit Resources division of Metropolitan Life Insurance Company
(MetLife) and based on the following policy assumptions:
- level death benefit of $5 million
- premiums payable for 10 years
- policy crediting rate assumption equal to 7%
- current mortality rates and loads
- nonsmoker unisex rates
- standard risk based on full underwriting
(B) The amount of the annual premium necessary to endow the policy
described above will be adjusted upward or downward annually in view of the
actual policy crediting rate in effect for the year.
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<PAGE> 1
EXHIBIT 10.7
VLSI TECHNOLOGY, INC.
1992 STOCK PLAN
(As adopted by the Board of Directors on May 1, 1992 and as amended on
November 17, 1994 and March 12, 1996, and approved by the stockholders on August
20, 1992 and April 27, 1995 and subject to stockholder approval at the 1996
Annual Meeting of Stockholders)
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.
Definitions. As used herein, the following definitions shall apply:
"Administrator" means the Board or any of its Committees as shall be
administering the Plan, in accordance with Section 4 of the Plan.
"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.
"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.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means a Committee appointed by the Board in accordance
with Section 4 of the Plan.
"Common Stock" means the Common Stock of the Company.
"Company" means VLSI Technology, Inc., a Delaware corporation.
"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 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.
"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
<PAGE> 2
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.
"Director" means a member of the Board.
"Disability" means total and permanent disability, as defined in
Section 22(e)(3) of the Code.
"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.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, as of a specified date, the value of Common
Stock determined by the Administrator as follows:
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
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 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
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.
"Incentive Stock Option" means an Option that satisfies the provisions
of Section 422 of the Code.
"Insider" means an Officer or Director.
"Long-Term Performance Award" means an award granted pursuant to
Section 10 of the Plan.
"Nonstatutory Stock Option" means an Option that is not an Incentive
Stock Option.
"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.
"Officer" means an officer of the Company within the meaning of
Section 16 of the Exchange Act and the rules and regulations promulgated
thereunder.
"Option" means a stock option granted pursuant to the Plan.
"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.
<PAGE> 3
"Optioned Stock" means the Common Stock subject to an Option or Right.
"Optionee" means an Employee or Consultant who holds an outstanding
Option or Right.
"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.
"Outside Director" shall mean a Director who is not an Employee.
"Parent" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
"Plan" means this 1992 Stock Plan.
"Restricted Stock" means shares of Common Stock purchased pursuant to
Stock Purchase Rights granted under Section 8 of the Plan.
"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.
"Right" means and includes SARs, Long-Term Performance Awards, Stock
Purchase Rights and Stock Bonus Awards granted pursuant to the Plan.
"Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act (or
any successor to Rule 16b3), as in effect when discretion is being
exercised with respect to the Plan.
"SAR" means a stock appreciation right granted pursuant to Section 7
of the Plan.
"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.
"Share" means a share of the Common Stock, as adjusted in accordance
with Section 12 of the Plan.
"Stock Bonus Award" means an award granted pursuant to Section 9 of
the Plan.
"Stock Purchase Right" means a right to purchase Common Stock granted
pursuant to Section 8 of the Plan.
"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.
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 9,500,000, of which 5,000,000
shares are subject to stockholder approval at the 1996 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.
<PAGE> 4
Administration of the Plan.
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.
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.
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.
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.
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:
to grant Incentive Stock Options, Nonstatutory Stock Options, SARs,
Stock Purchase Rights, Stock Bonus Awards and Long-Term Performance
Awards;
to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(o) of the Plan;
to select the Employees and Consultants to whom Options and Rights
may from time to time be granted hereunder;
to determine whether and to what extent Options and Rights, or any
combination thereof, are granted hereunder;
to determine the number of shares of Common Stock to be covered by
each such award granted hereunder;
to approve forms of agreements for use under the Plan;
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);
to determine whether and under what circumstances an Option or
Right may be settled in cash instead of Common Stock;
<PAGE> 5
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;
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);
to institute an Option Exchange Program;
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;
to interpret the Plan and to prescribe, amend and rescind rules and
regulations relating to the Plan; and
to make all other determinations deemed necessary or advisable for
administering the Plan.
Effect of Administrator's Decision. All decisions, determinations and
interpretations of the Administrator shall be final and binding.
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.
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
may, if he or she is otherwise eligible, be granted additional Options or
Rights.
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.
Options and SARs.
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:
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.
<PAGE> 6
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.
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:
cash;
check (personal, cashier's or certified) or money order;
promissory note;
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;
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;
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;
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;
any combination of the foregoing methods of payment; or
such other method of payment for the issuance of Shares as is
permitted by the Applicable Laws.
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:
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.
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
<PAGE> 7
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.
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:
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
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.
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.
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.
SARs.
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:
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.
When an SAR is exercised, the related Option, to the extent
surrendered, shall be canceled and shall cease to be exercisable.
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.
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.
<PAGE> 8
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:
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.
To the extent that an SAR is exercised, it shall be canceled and
shall cease to be exercisable.
SARs shall be exercisable, in whole or in part, at such times as
the Administrator shall specify in the Optionee's SAR Agreement.
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.
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.
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.
Exercise of Options and SARs.
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.
No Fractional Shares. An Option or SAR may not be exercised for a
fraction of a Share.
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 permitted by the Option Agreement, consist of
any consideration and method of payment allowable under the Plan.
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.
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
<PAGE> 9
any) shall cease to be exercisable to the extent it has been exercised.
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.
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.
Effect of Termination.
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 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.
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.
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
<PAGE> 10
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.
Stock Purchase Rights.
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".
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
(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.
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.
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.
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.
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.
<PAGE> 11
Long-Term Performance Awards.
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 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.
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.
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.
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.
Adjustments Upon Changes in Capitalization, Dissolution, Merger, Asset Sale
or Change of Control.
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.
<PAGE> 12
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.
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.
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.
Definition of "Change in Control". For purposes of this Section 12, a
"Change in Control" means the happening of any of the following:
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
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
<PAGE> 13
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).
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.
Stock Withholding to Satisfy Withholding Tax Obligations.
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").
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:
the election must be made on or prior to the applicable Tax Date;
all elections shall be subject to the consent or disapproval of the
Administrator; and
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.
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.
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.
<PAGE> 14
Amendment and Termination of the Plan.
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.
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.
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.
Conditions Upon Issuance of Shares.
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 quoted, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
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.
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.
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.
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.
Agreements. Options and Rights shall be evidenced by written agreements in
such form as the Administrator shall approve from time to time.
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.
<PAGE> 15
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:
No Employee shall be granted, in any fiscal year of the Company,
Options to purchase more than 500,000 Shares.
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.
The foregoing limitations shall be adjusted proportionately in
connection with any change in the Company's capitalization as described in
Section 12.
If an Option is canceled 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 canceled 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.
<PAGE> 1
EXHIBIT 11
VLSI TECHNOLOGY, INC.
CALCULATION OF EARNINGS PER SHARE
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------
DECEMBER 29, DECEMBER 30, DECEMBER 25,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Primary Earnings per Share
Net income............................................ $ 45,968 $ 31,697 $ 15,883
======= ======= =======
Average number of common and common equivalent shares:
Average common shares outstanding................ 41,514 35,916 33,850
Dilutive options................................. 2,376 1,530 1,427
------- ------- -------
Average number of common and common equivalent
shares.............................................. 43,890 37,446 35,277
======= ======= =======
Earnings per common and common equivalent share....... $ 1.05 $ .85 $ .45
======= ======= =======
Fully Diluted Earnings per Share
Net income............................................ $ 45,968 $ 31,697 $ 15,883
Add interest expense, net of tax effect, on
convertible debt(1)................................. -- -- --
------- ------- -------
Adjusted net income................................... $ 45,968 $ 31,697 $ 15,883
======= ======= =======
Average number of common and common equivalent shares
on a fully diluted basis:
Average common shares outstanding................ 41,514 35,916 33,850
Dilutive options................................. 2,569 1,636 1,810
Conversion of convertible debt(1)................ -- -- --
------- ------- -------
Average number of common and common equivalent shares
on a fully diluted basis............................ 44,083 37,552 35,660
======= ======= =======
Fully diluted earnings per common and common
equivalent share.................................... $ 1.04 $ .84 $ .45
======= ======= =======
</TABLE>
- ---------------
(1) The convertible debt is not included in the calculation of fully diluted
earnings per share since their inclusion would have had an antidilutive
effect. Fully diluted earnings per share are not presented on the face of
the Consolidated Statements of Income since they are not materially
different from primary earnings per share.
<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 Holding 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.
17. VLSI Technology France EURL, incorporated under the laws of France.
18. VLSI Technology Wireless Communication Research EURL, incorporated under the
laws of France.
19. Cooperative Silicon Systems GmbH, incorporated under the laws of Germany.
20. 12787 Yukon Inc., incorporated under the laws of Canada.
21. Cooperative Silicon Systems Ltd., incorporated under the laws of
Switzerland.
<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 29, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000704386
<NAME> VLSI TECHNOLOGY INC.
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-29-1995
<PERIOD-START> DEC-31-1994
<PERIOD-END> DEC-29-1995
<EXCHANGE-RATE> 1
<CASH> 183,165
<SECURITIES> 182,416
<RECEIVABLES> 121,738
<ALLOWANCES> (2,100)
<INVENTORY> 60,848
<CURRENT-ASSETS> 598,135
<PP&E> 698,213
<DEPRECIATION> (346,172)
<TOTAL-ASSETS> 959,887
<CURRENT-LIABILITIES> 198,038
<BONDS> 218,847
<COMMON> 472
0
0
<OTHER-SE> 530,157
<TOTAL-LIABILITY-AND-EQUITY> 959,887
<SALES> 719,919
<TOTAL-REVENUES> 719,919
<CGS> 431,342
<TOTAL-COSTS> 431,342
<OTHER-EXPENSES> 212,986
<LOSS-PROVISION> 209
<INTEREST-EXPENSE> 8,029
<INCOME-PRETAX> 61,938
<INCOME-TAX> 15,970
<INCOME-CONTINUING> 45,968
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,968
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.04
</TABLE>
