<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. [ ])
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to
Section 240.14a-11(c) or Section 240.14a-12
VLSI Technology, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
Registrant
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(l) Title of each class of securities to which transaction applies:
-------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------
(5) Total fee paid:
-------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(l) Amount Previously Paid:
N/A
-------------------------------------
(2) Form, Schedule or Registration Statement No.:
N/A
-------------------------------------
(3) Filing Party:
N/A
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(4) Date Filed:
N/A
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<PAGE> 2
VLSI TECHNOLOGY, INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 7, 1997
9:00 A.M.
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of VLSI
Technology, Inc., a Delaware corporation (the "Company"), will be held on
Wednesday, May 7, 1997, at 9:00 a.m., local time, at the Company's offices
located at 9651 Westover Hills Boulevard, San Antonio, Texas 78251, for the
following purposes:
1. To elect seven directors to serve for the ensuing year and until
their successors are elected.
2. To ratify the appointment of Ernst & Young LLP as independent
auditors of the Company for the fiscal year ending December 26, 1997.
3. To ratify and approve an amendment to the Company's 1992 Stock Plan
to increase the limit on the number of shares that can be granted to
any one employee in any fiscal year under an option to purchase from
500,000 to 1,500,000 and to ratify the issuance of options in 1996
thereunder.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on March 12, 1997 are
entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, you are urged to vote,
date, sign and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the meeting may vote in person even if he or she returned a proxy.
Sincerely,
LARRY L. GRANT
Secretary
San Jose, California
April 4, 1997
<PAGE> 3
VLSI TECHNOLOGY, INC.
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of VLSI Technology, Inc. (the
"Company") for use at the Annual Meeting of Stockholders (the "Annual Meeting")
to be held on Wednesday, May 7, 1997, at 9:00 a.m., local time, or at any
adjournment thereof, for the purposes set forth herein and in the accompanying
Notice of Annual Meeting of Stockholders. The meeting will be held at the
Company's offices located at 9651 Westover Hills Boulevard, San Antonio, Texas
78251. The telephone number at the Company's office in San Antonio, Texas is
(210) 522-7003. The Company's principal executive office is located at 1109
McKay Drive, San Jose, California 95131 and its telephone number at that address
is (408) 434-3100.
These proxy solicitation materials were mailed on or about April 4, 1997 to
all stockholders entitled to vote at the meeting.
RECORD DATE; OUTSTANDING SHARES
Stockholders of record at the close of business on March 12, 1997 (the
"Record Date") are entitled to notice of and to vote at the meeting. The Company
has only one series of Common Shares ("Common Shares") outstanding, which is
designated Common Stock, $.01 par value per share ("Common Stock"). At the
Record Date, 46,779,667 shares of the Company's Common Stock were issued and
outstanding, representing the total number of votes that may be cast at the
meeting. See "Voting and Solicitation" below. The closing price of the Company's
Common Stock on the Record Date, as reported by the National Association of
Securities Dealers, Inc. Automated Quotation National Market System
("Nasdaq/NMS") was $18.25 per share.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company or the transfer agent a written notice of revocation or a duly executed
proxy bearing a later date, or by attending the meeting and voting in person.
VOTING AND SOLICITATION
Except as provided below with respect to cumulative voting, each share of
Common Stock has one vote on all matters.
Any stockholder who desires to cumulate votes in the election of directors
must give advance notice to the Company, in accordance with its Bylaws, of such
stockholder's intention to cumulate his or her votes and must give notice to the
other stockholders at the meeting prior to voting for directors. The required
advance notice to the Company must be received at the principal executive office
of the Company not less than 20 days nor more than 60 days prior to the meeting
and must include the stockholder's name and address, the number of shares of
Common Stock beneficially owned and the stockholder's request for cumulative
voting.
If cumulative voting for directors is properly invoked by any stockholder,
every stockholder voting in the election of directors may cumulate such
stockholder's votes and give one candidate a number of votes equal to the number
of directors to be elected multiplied by the number of votes to which the
stockholder's shares are entitled, or distribute the stockholder's votes on the
same principle among as many candidates as the stockholder thinks fit, provided
that votes cannot be cast for more than the number of directors to be elected.
Stockholders may only cast votes for candidates whose names have been properly
placed in nomination in accordance with the Company's Bylaws.
<PAGE> 4
The cost of soliciting proxies will be borne by the Company. The Company is
retaining Corporate Investor Communications, Inc. to solicit proxies at a cost
of approximately $4,000, plus out-of-pocket expenses. In addition, the Company
will reimburse brokerage firms and other persons representing beneficial owners
of shares for their expenses in forwarding solicitation material to such
beneficial owners. Proxies may also be solicited by certain of the Company's
directors, officers and regular employees, without additional compensation,
personally or by telephone, telegram or facsimile.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Annual Meeting
is a majority of the votes eligible to be cast by holders of shares of Common
Stock issued and outstanding on the Record Date. Shares that are voted "FOR",
"AGAINST" or "WITHHELD FROM" a matter are treated as being present at the
meeting for purposes of establishing a quorum and are also treated as shares
entitled to vote at the Annual Meeting (the "Votes Cast") with respect to such
matter.
Abstentions will be counted for purposes of determining both (i) the
presence or absence of a quorum for the transaction of business and (ii) the
total number of Votes Cast with respect to a proposal (other than the election
of directors). Accordingly, abstentions will have the same effect as a vote
against the proposal.
Broker non-votes will be counted for purposes of determining the presence
or absence of a quorum for the transaction of business, but broker non-votes
will not be counted for purposes of determining the number of Votes Cast with
respect to the particular proposal on which the broker has expressly not voted.
Thus, a broker non-vote will not affect the outcome of the voting on a proposal.
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<PAGE> 5
SECURITY OWNERSHIP
The following table sets forth the beneficial ownership of Common Stock of
the Company as of the Record Date: (i) by each director and by each nominee for
director, (ii) by each executive officer listed in the Summary Compensation
Table under the heading "EXECUTIVE OFFICER COMPENSATION", (iii) by all current
directors and executive officers as a group, and (iv) by all persons known by
the Company to be the beneficial owners of more than five percent (5%) of the
Company's outstanding Common Stock.
<TABLE>
<CAPTION>
NUMBER OF APPROXIMATE
NAME OF PERSON OR IDENTITY OF GROUP SHARES PERCENTAGE
- ------------------------------------------------------------------- --------- -----------
<S> <C> <C>
Barclays Trust and Banking Company (Japan) Ltd.(1)................. 2,718,497 5.8%
2-2 Otemachi 2-Chome
Tokyo, Japan 100
Intel Corporation(2)............................................... 2,677,604 5.7%
2200 Mission College Boulevard
Santa Clara, California 95052
Richard M. Beyer................................................... -- *
Pierre S. Bonelli(3)............................................... 20,000 *
Bernd U. Braune(4)................................................. 27,501 *
Robert P. Dilworth(5).............................................. 15,000 *
Larry L. Grant(6).................................................. 15,250 *
Gregory K. Hinckley(7)............................................. -- *
William G. Howard, Jr.............................................. -- *
Paul R. Low........................................................ -- *
Dieter J. Mezger (8)............................................... -- *
Alfred J. Stein (9)................................................ 877,401 1.9%
Horace H. Tsiang (10).............................................. 16,000 *
All current directors and executive officers as a group (10
persons)(3)(5)(6)(9)(10)(11)..................................... 968,622 2.1%
</TABLE>
- ---------------
* Less than 1%.
(1) As reported in Schedule 13G, dated February 12, 1997, filed by Barclays
Trust and Banking Company (Japan) Ltd., Barclays Global Investors, N.A. and
Barclays Global Fund Advisors (collectively "Barclays"). Barclays has sole
power to vote or to direct the vote of 2,656,297 and sole power to dispose
or to direct the disposition with respect to all 2,718,497 shares.
(2) As reported in Amendment No. 18 to Schedule 13D, dated August 25, 1995,
filed by Intel Corporation ("Intel"). Intel has sole voting and dispositive
power with respect to all 2,677,604 shares.
(3) These 20,000 shares are exercisable within 60 days of the Record Date under
options held by Mr. Bonelli.
(4) These 27,501 shares are exercisable within 60 days of the Record Date under
options held by Mr. Braune. Mr. Braune resigned from his position as an
executive officer in January 1997.
(5) These 15,000 shares are exercisable within 60 days of the Record Date under
options held by Mr. Dilworth.
(6) Includes 8,750 shares exercisable within 60 days of the Record Date under
options held by Mr. Grant.
(7) Mr. Hinckley left the Company in January 1997.
(8) Mr. Mezger left the Company in December 1996.
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<PAGE> 6
(9) Includes 583,751 shares exercisable within 60 days of the Record Date under
options held by Mr. Stein, of which 125,001 are subject to stockholder
approval.
(10) Includes 15,000 shares exercisable within 60 days of the Record Date under
options held by Mr. Tsiang.
(11) Includes 684,252 shares exercisable within 60 days of the Record Date under
options held by five directors and five current executive officers, of
which 125,001 are subject to stockholder approval.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, officers and beneficial
owners of more than 10% of the Company's Common Stock to file with the
Securities and Exchange Commission (the "SEC") initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Based solely on its review of the copies of such reports received
by it, or written representations from reporting persons, the Company believes
that during the fiscal year ended December 27, 1996, its officers, directors and
holders of more than 10% of the Company's Common Stock complied with all Section
16(a) filing requirements, except that the transactions for December 1996, for
the following officers and directors were reported on Form 5 rather than on Form
4, which constitutes a late filing for each officer for the number of
transactions shown: Alfred J. Stein (4); Gregory K. Hinckley (1); Dieter J.
Mezger (3); Bernd U. Braune (1); Balakrishnan S. Iyer (3); John C. Batty (1);
and Horace H. Tsiang (1). In addition, (i) information regarding one transaction
for a former officer, Donald L. Ciffone, was reported on a Form 5 rather than a
Form 4, (ii) a Form 5 for a director, Robert P. Dilworth, involving one
transaction, was filed late, and (iii) a non-exempt option grant to Alfred J.
Stein was reported late on a Form 4.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's next annual meeting of stockholders must
be received by the Company no later than December 5, 1997 in order that they may
be considered for possible inclusion in the proxy statement and form of proxy
relating to that meeting.
ELECTION OF DIRECTORS
NOMINEES FOR DIRECTOR
A Board of seven directors is to be elected at the meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the Company's seven nominees named below, all of whom are currently
directors of the Company. In the event that any Company nominee is unable or
declines to serve as a director at the time of the meeting, the proxies will be
voted for any nominee who shall be designated by the current Board of Directors
to fill the vacancy. In the event that additional persons are nominated for
election as directors and cumulative voting has been properly invoked, the proxy
holders intend to cumulate their votes and to vote all proxies received by them
in accordance with cumulative voting procedures in such a manner as they believe
will ensure the election of as many of the nominees listed below as possible. In
such event, the specific nominees for whom such votes will be cast will be
determined by the proxy holders. It is not expected that any nominee will be
unable or will decline to serve as a director. The term of office of each person
elected as a director will continue until the next annual meeting of
stockholders or until his successor has been elected and qualified.
Pursuant to an amendment of the Company's Bylaws approved by the Board of
Directors, the size of the Board was increased from six members to seven
members, effective November 15, 1996.
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<PAGE> 7
The names of the nominees, their ages as of the Record Date and certain
information about them are set forth below.
<TABLE>
<CAPTION>
DIRECTOR
NOMINEES AGE PRINCIPAL OCCUPATION SINCE
- ---------------------------- --- --------------------------------------------------- --------
<S> <C> <C> <C>
Richard M. Beyer............ 48 President and Chief Operating Officer of the 1996
Company
Pierre S. Bonelli(1)(2)..... 57 Chief Executive Officer, Sema Group, a software, 1983
consulting and market research firm
Robert P. Dilworth(1)(2).... 55 President, Chief Executive Officer and Director, 1991
Metricom Inc., an electronic wireless data
communications company
William G. Howard, Jr.(1)... 55 Independent Consulting Engineer in microelectronics 1996
and technology-based business planning
Paul R. Low................. 64 President and Chief Executive Officer, P.R.L. 1996
Associates, a technology consulting company
Alfred J. Stein............. 64 Chairman of the Board and Chief Executive Officer 1982
of the Company
Horace H. Tsiang............ 55 Chief Executive Officer, First International 1992
Computer, Inc., a computer manufacturing company
</TABLE>
- ---------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Except as set forth below, each of the nominees has been engaged in his
principal occupation set forth above during the past five years. There are no
family relationships between any directors or executive officers of the Company.
Mr. Beyer joined the Company in September 1996 as President and Chief
Operating Officer and was appointed a Director in November 1996. From 1993 to
1996, Mr. Beyer was employed by National Semiconductor Corporation, a
semiconductor manufacturer ("National"). While at National, he was Executive
Vice President and Chief Operating Officer from 1995 to 1996 and
President-Communications and Computing Group from 1993 to 1995. Prior to that
time, from 1989 to 1993, he was Vice President and General Manager of the
Switching Systems Division of Rockwell International ("Rockwell"), a division of
Rockwell involved in communications.
Mr. Bonelli is also a director of Sema Group, Xerox S.A. and Poliet S.A.
Mr. Dilworth is also a director of Qume Corporation.
Dr. Howard has been an independent consulting engineer since 1989. Prior to
that time he held various technical and management positions with Motorola,
Inc., most recently as Senior Vice President and Director of Research and
Development. He is a member of the National Academy of Engineering and a fellow
of the Institute of Electrical and Electronics Engineers and of the American
Association for the Advancement of Science. Dr. Howard is also a director of BEI
Electronics, Inc., Credence Systems Corporation, Ramtron International
Corporation and Xilinx, Inc. In addition, he serves as a director of Sandia
Corporation, Lockheed Martin Energy Research and Lockheed Martin Idaho
Technologies (wholly-owned subsidiaries of Lockheed Martin Corporation).
Dr. Low has been Chief Executive Officer of P.R.L. Associates, a consulting
firm, since July 1992. From 1990 to 1992, he was a Vice President, and General
Manager of Technical Products of International Business Machines Corporation
("IBM"), a computer and office products manufacturer, and was a member of IBM's
Management Board. Dr. Low is a director of Applied Materials, Inc., Integrated
Packaging Assembly Corp., Network Computing Devices, Inc., Number Nine Visual
Technology Corporation, Solectron Corporation, Veeco Instruments Inc. and
several privately-held companies.
5
<PAGE> 8
Mr. Stein joined the Company in March 1982 as Chief Executive Officer and
also served as President from January 1983 to August 1983 and from August 1993
to September 1996. Mr. Stein was initially appointed as Chairman of the Board
and a director of the Company in April 1982, pursuant to an employment agreement
with the Company. Pursuant to such agreement, the Company has agreed to use its
best efforts while he is employed as Chief Executive Officer to cause the
nomination of Mr. Stein to the Board of Directors, to recommend his election as
a director and to continue his appointment as Chairman of the Board so long as
he serves as a director. Mr. Stein is also a director of Applied Materials, Inc.
and Tandy Corporation.
Mr. Tsiang joined First International Computer, Inc., a Taiwanese
manufacturer of products for the computer industry, in November 1991. Prior to
that time he was employed by Wang Laboratories, Inc., a computer manufacturer,
from 1969 through July 1991 in various positions, including Executive Vice
President from 1985 to 1991.
VOTE REQUIRED
The seven nominees receiving the highest number of affirmative votes of the
shares present or represented and entitled to be voted for them shall be elected
as directors. Votes withheld from any director are counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
but have no other legal effect under Delaware law.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held four meetings during the fiscal
year ended December 27, 1996. During such year, each director attended at least
75% of the aggregate of all meetings held while such director served as a member
of the Board of Directors and any committees upon which he served.
The Board of Directors has a Compensation Committee and an Audit Committee.
The current members of the Compensation and Audit Committees are identified in
the list of directors under "Nominees for Director" above.
The Compensation Committee is authorized to review and approve the
Company's executive compensation policy and to administer the Company's employee
stock option and stock purchase plans. See "REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION". The Compensation Committee
held one meeting in fiscal 1996. The Compensation Committee is composed solely
of non-employee directors.
The Audit Committee selects and recommends to the Board a firm of
independent auditors (whose duty it is to audit the financial statements of the
Company for the fiscal year with respect to which they are appointed) and
monitors the effectiveness of the audit effort and the Company's internal
financial and accounting controls and financial reporting. The Audit Committee
held two meetings in fiscal 1996. The Audit Committee is composed solely of
non-employee directors.
The Board performs the duties of a nominating committee.
DIRECTOR COMPENSATION
Non-employee members of the Board of Directors ("Outside Directors")
receive an annual retainer of $10,000, a fee of $2,000 per Board meeting
attended and $500 per Board Committee meeting attended (if such meeting is not
held within one day of a Board meeting). The Company also reimburses its
directors for certain expenses incurred by them in their capacity as directors
or in connection with attendance at Board or Committee meetings.
In addition, Outside Directors participate in the 1986 Directors' Stock
Option Plan (the "Directors' Plan"). Certain amendments to the Directors' Plan
(the "Directors' Plan Amendments") were approved by the stockholders in May 1994
at the 1994 Annual Meeting. The Directors' Plan provides for the automatic grant
of non-statutory options to Outside Directors upon first joining the Board and
on an annual basis
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<PAGE> 9
thereafter in order to motivate them to continue to serve as directors. A total
of 300,000 shares of the Company's Common Stock is reserved for issuance during
the current 10-year term of the Plan, which expires in August 2001. The exercise
price of options granted under the Directors' Plan is the fair market value of
the Company's Common Stock on the date of the automatic grant, as determined in
accordance with the Directors' Plan. Options granted prior to stockholder
approval of the Directors' Plan Amendments have a term of five years, and
options granted after such approval have a term of ten years.
Each Outside Director who was serving as such on the date of adoption of
the Directors' Plan received an automatic grant on such date of an option to
purchase 20,000 shares of Common Stock (an "Initial Option"). An Initial Option
becomes exercisable cumulatively with respect to 5,000 shares on the first day
of each fiscal year following the date of grant. Each person who becomes an
Outside Director subsequent to the date of adoption of the Directors' Plan
receives an automatic grant of an Initial Option on the date of his or her
initial appointment or election to the Board.
After receiving an Initial Option, an Outside Director is automatically
granted an additional option to purchase 5,000 shares under the Directors' Plan
(a "Subsequent Option") on the first day of each fiscal year of the Company.
Each Subsequent Option becomes exercisable in full on the first day of the
fourth fiscal year beginning after the date of grant of such option. The
Directors' Plan Amendments eliminated the previously existing 40,000-share limit
on the number of shares subject to options granted under the Directors' Plan to
any director and also provided for the grant of an immediately exercisable
replenishment option ("Replenishment Option") to purchase up to 20,000 shares to
any Outside Director whose Initial Option had expired, or in the future expires,
unexercised. As of December 27, 1996, options to purchase 35,000 shares had been
exercised under the Directors' Plan at a net realized value of $444,650, 125,000
shares were subject to outstanding options, and 140,000 shares remained
available for future grant.
During fiscal 1996, an Initial Option to purchase 20,000 shares at an
exercise price of $17.125 per share was granted to each of directors Howard and
Low upon their initial election to the Board of Directors on May 31, 1996. In
addition, during fiscal 1996, Subsequent Options to purchase 5,000 shares at an
exercise price of $18.125 per share were granted to each of directors Bonelli,
Dilworth, Tsiang and former director Kim. In addition, a Replenishment Option to
purchase 10,000 shares was granted to Mr. Dilworth at an exercise price of
$13.125 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of directors Bonelli and
Dilworth. Former director James Kim was also a member of the Compensation
Committee until he ceased to serve as a director on May 31, 1996.
The Company paid AMKOR (a corporation of which former director Kim is an
officer, director and the majority stockholder) or accrued for payment
approximately $27.4 million in fiscal 1996 for assembly and test services
performed for the Company by ANAM Semiconductor Technology Co. Ltd. (a Korean
corporation with which Mr. Kim is affiliated) under contract with AMKOR.
CERTAIN TRANSACTIONS
Intel. Pursuant to the Intel/VLSI Stock and Warrant Purchase Agreement
(Equity Agreement) 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 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
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<PAGE> 10
interest). All other significant rights of, and restrictions on, Intel under the
Equity Agreement have terminated.
Relocation Assistance. In 1996, to facilitate his relocation, the Company
loaned Bernd U. Braune, then the Sr. Vice President of Global Business
Operations, a total of $779,000, represented by three separate promissory notes,
on an interest-free basis. The first note in the amount of $379,000 was due in
full on December 16, 1996 and has been fully repaid to the Company; the second
note in the amount of $200,000 is to be forgiven each year in the amount of
$50,000 until fully satisfied; the third and final note, in the amount of
$200,000, is due in full on September 1, 1999. Each loan is secured by trust
deeds on Mr. Braune's residence. The largest aggregate principal amount
outstanding during fiscal 1996 was $779,000 and the total principal amount on
all loans outstanding at fiscal 1996 year end was $512,200.
See also the footnotes to the Summary Compensation Table under the heading
"EXECUTIVE OFFICER COMPENSATION" and the information under the heading "ELECTION
OF DIRECTORS -- Compensation Committee Interlocks and Insider Participation".
EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table, together with the footnotes thereto, summarizes the
total compensation for fiscal year 1996 of (i) the Chief Executive Officer, (ii)
the four other most highly compensated executive officers of the Company who
were serving as such at 1996 fiscal year end, and (iii) two former executive
officers (collectively, the "Named Officers"), as well as the total compensation
paid to each Named Officer for the Company's two previous fiscal years, if
applicable.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
--------------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
---------------------------------- UNDERLYING OPTIONS COMPEN-
OTHER ANNUAL (#)(4)(10)(11) SATION
SALARY BONUS COMPEN- -------------------- ---------
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($)(2) SATION($)(3) COMPANY SUBSIDIARY ($)(5)
- --------------------------------------------- ---- -------- -------- ------------ ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Alfred J. Stein.............................. 1996 $643,849 $452,000 $ 0 950,000 0 $424,989
Chairman of the Board and 1995 582,096 675,000 0 500,000 0 418,468
Chief Executive Officer 1994 520,445 375,000 0 75,000 0 57,950
- ---------------------------------------------------------------------------------------------------------------------------
Richard M. Beyer(6).......................... 1996 $106,350 $150,000 $ 0 375,000 0 $ 2,019
President and Chief Operating Officer
- ---------------------------------------------------------------------------------------------------------------------------
Gregory K. Hinckley(7)....................... 1996 $283,269 $ 0 $ 0 150,000 0 $ 7,457
Former Sr. Vice President 1995 260,962 200,000 0 50,000 0 2,427
and Chief Financial Officer 1994 243,269 95,000 0 30,000 0 1,923
- ---------------------------------------------------------------------------------------------------------------------------
Dieter J. Mezger(8).......................... 1996 $307,855 $ 0 $ 0 0 0 $ 20,444
Former Sr. Vice President and President of 1995 314,069 0 0 0 0 18,418
COMPASS Design Automation, Inc. 1994 298,096 0 40,138 0 0 13,741
- ---------------------------------------------------------------------------------------------------------------------------
Bernd U. Braune (9).......................... 1996 $286,212 $ 20,000 $173,297 100,000 0 $ 8,810
Former Sr. Vice President, 1995 236,715 0 0 60,000 0 10,002
Global Business Operations 1994 202,516 47,913 0 10,000 0 8,186
- ---------------------------------------------------------------------------------------------------------------------------
Larry L. Grant............................... 1996 $179,038 $ 40,000 $ 71,783 50,000 0 $ 6,377
Vice President, General Counsel and Secretary
</TABLE>
- ---------------
(1) The amounts disclosed in this column include amounts deferred by the Named
Officers pursuant to the Company's 401(k) Investment/Retirement Plan (the
"401(k) Plan").
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<PAGE> 11
(2) The amounts disclosed in this column represent:
(a) Bonus awards made by the Company under its Executive Performance
Incentive Plan. See "REPORT OF THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION".
(b) Includes an initial sign-on bonus in the amount of $50,000 to
Richard M. Beyer.
(3) Amounts exclude perquisites if the aggregate amount of the Named Officer's
perquisites was less than the lesser of $50,000 or 10% of such Named
Officer's salary plus bonus. The amounts in the "Other Annual Compensation"
column include:
(a) Payment by the Company of certain 1994 relocation costs to Mr.
Mezger in the amount of $30,384.
(b) Payment by the Company of certain 1996 relocation costs to Mr.
Braune in the amount of $156,413.
(c) The differential between the rate of interest, if any, charged by
the Company on the loan to Mr. Braune and the average rate earned by
the Company on its cash during fiscal 1996.
(d) Payment by the Company of certain 1996 relocation costs to Mr. Grant
in the amount of $71,783.
(4) The stock option grants listed in the table include options to purchase
Common Stock of the Company and options to purchase Common Stock of a
subsidiary, COMPASS Design Automation, Inc. ("COMPASS"). The Company's
subsidiary, COMPASS, granted stock options to purchase COMPASS common stock
to virtually all of the COMPASS employees and certain VLSI employees,
including the Named Officers, pursuant to the COMPASS 1992 Stock Option
Plan (the "COMPASS Stock Plan"). See "EXECUTIVE OFFICER
COMPENSATION -- Stock Options" below for additional information regarding
options to purchase stock of COMPASS granted in fiscal 1994, 1995 and 1996.
(5) The amounts in the "All Other Compensation" column for fiscal year 1996
include:
(a) Company contributions in fiscal 1996 under VLSI's 401(k) Plan, in
the following amounts: Alfred J. Stein $4,500; Gregory K. Hinckley
$4,500; Larry L. Grant $4,476.
(b) Payment by the Company of 1996 premiums for term life insurance for
the Named Officers in the following amounts: Alfred J. Stein
$17,137; Richard M. Beyer $755; Gregory K. Hinckley $2,957; Dieter
J. Mezger $1,786; Bernd U. Braune $446; Larry L. Grant $1,901.
(c) Payment by the Company of 1996 premiums for a split dollar life
insurance policy in the amount of $40,596 for Mr. Stein and payment
by the Company of the 1996 installment of a series of ten annual
payments for services to be provided under a ten-year management and
consulting agreement between Mr. Stein and the Company (the
"Management Agreement") in the amount of $358,302.
(d) Payment by the Company of 1996 premiums for disability insurance
policies for Messrs. Mezger and Braune in the amount of $18,658 and
$8,364, respectively.
(6) Mr. Beyer joined the Company in September 1996.
(7) Gregory K. Hinckley resigned from his position as an executive officer on
January 15, 1997 and terminated employment with the Company on January 31,
1997.
(8) Dieter J. Mezger resigned as a Senior Vice President of the Company and
President of its subsidiary, COMPASS Design Automation, Inc., as of
December 12, 1996.
(9) Bernd U. Braune resigned from his position as an executive officer on
January 16, 1997.
(10) Includes certain options granted on March 12, 1996 pursuant to a
Company-wide option repricing. See "Ten-Year Option Repricing Table" below.
(11) Includes options to purchase 450,000 shares granted to Alfred J. Stein in
1996 subject to stockholder approval. See "RATIFICATION OF AN AMENDMENT TO
THE 1992 STOCK PLAN AND OPTIONS GRANTED THEREUNDER."
9
<PAGE> 12
CHANGE-IN-CONTROL AGREEMENTS
The Company is a party to agreements with certain of its officers to help
ensure management continuity, which agreements are designed to ensure the
officers' continued services to the Company in the event of a change-in-control.
All existing change-in-control agreements expired on January 1, 1997. New
agreements were entered into during 1996 with certain of the Company's officers.
Under the new agreements, benefits are payable only if the officer's employment
is terminated by the Company, within two years following a change-in-control, or
the officer is constructively discharged during that period. For purposes of the
agreement, a change-in-control is deemed to have occurred in the event of (1)
Company stockholder approval of (i) a merger or consolidation of the Company
with any other corporation or (ii) a plan of liquidation or dissolution; (2) the
sale, lease or exchange of more than 50% of the Company's assets; (3)
acquisition by any person of beneficial ownership of more than 25% of the
combined voting power of the Company's then outstanding securities; or (4) a
change of the majority of the incumbent Board of Directors within a three-year
period.
If, within two years after a change-in-control, an officer's employment is
terminated by the Company or the officer is constructively discharged, the
officer will receive: (1) a severance benefit based on a multiple of his or her
current annual base salary; (2) full and immediate vesting of all unvested stock
options; and (3) continuation of other incidental benefits. As of the Record
Date, only Alfred J. Stein, Richard M. Beyer, Bernd U. Braune and two other
employees who are not executive officers had such agreements. Under their
respective agreements, Mr. Stein is to receive a multiple of three times his
annual salary, Mr. Beyer is to receive two and one-half times his salary and Mr.
Braune two times his annual salary.
STOCK OPTIONS
The following table presents information with respect to options to
purchase the Company's Common Stock during fiscal 1996. No options to purchase
COMPASS Common Stock were granted during fiscal 1996 to the Named Officers. No
stock appreciation rights ("SARs") have been granted by the Company or COMPASS.
10
<PAGE> 13
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
---------------------------------------------------- POTENTIAL REALIZABLE VALUE
% OF TOTAL AT ASSUMED ANNUAL
NUMBER OF OPTIONS RATES OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES EXERCISE TERM(3)
OPTIONS IN FISCAL PRICE EXPIRATION -----------------------------
NAME OR GROUP GRANTED(#)(2)(4) YEAR ($/SH) DATE 5%($) 10%($)
- ---------------------- ---------------- ---------- -------- --------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Alfred J. Stein....... 650,000(5) 13.76 $11.00 3/12/06 $ 4,496,597 $ 11,395,259
300,000(6) 6.35 15.31 10/08/06 2,888,513 7,320,059
---------------- ----------
950,000 20.11
Richard M. Beyer...... 250,000 5.29 13.00 9/9/06 2,043,908 5,179,663
125,000 2.65 15.31 10/8/06 1,203,547 3,050,025
---------------- ----------
375,000 7.94
Gregory K. Hinckley... 60,000 1.27 11.00 3/12/06 415,070 1,051,870
90,000 1.91 15.31 10/08/06 866,554 2,196,018
---------------- ----------
150,000 3.18
Dieter J. Mezger...... -- -- -- -- -- --
Bernd U. Braune....... 100,000 2.12 11.00 3/12/06 705,501 1,796,561
Larry L. Grant........ 40,000 0.85 11.00 3/12/06 276,714 701,247
10,000 0.21 20.50 11/15/06 128,923 326,717
---------------- ----------
50,000 1.06
All Stockholders...... N/A N/A N/A N/A 723,012,185 1,832,254,833
</TABLE>
- ---------------
(1) All options to purchase the Company's Common Stock granted in 1996 to the
Named Officers have ten-year terms and become exercisable in annual 25%
increments, commencing on the first anniversary of the original grant date,
with full exercisability occurring on the fourth anniversary date, except
(i) of the options to purchase shares granted to Larry L. Grant, 5,000
shares vest 100% in the fourth year, and (ii) options granted under the
Company's Long Term Incentive Program (see footnote (4) below). The per
share exercise price is equal to the fair market value of the Common Stock
on Nasdaq/NMS on the date of the grant. The options were granted under the
Company's 1992 Stock Plan (the "1992 Plan"), which is currently administered
by the Compensation Committee. Such committee has broad discretion and
authority to amend outstanding options and to reprice options, whether
through an exchange of options or an amendment thereto. The 1992 Plan
provides for the automatic acceleration of vesting of all outstanding
options (such that they become exercisable in full) in the event of a
change-in-control, as defined in the 1992 Plan.
(2) Includes certain options granted on March 12, 1996 pursuant to a
Company-wide option repricing. See "Ten-Year Option Repricing Table" below.
(3) For the Named Officers, the potential realizable value is calculated
starting with the fair market value on the date of grant and assuming that
the Company's Common Stock appreciates in value from the date of grant until
the end of the option term at the annual rate specified (5% and 10%). For
"All Stockholders", the potential value is calculated starting with $24.625
per share, the closing price of the Company's Common Stock on the last
trading day of the Company's 1996 fiscal year, December 27, 1996, and
assuming the same annual rates of appreciation for ten years, multiplied by
the outstanding shares of Common Stock at fiscal year end. Potential
realizable value listed for the Named Officers and "All Stockholders" is net
of the option exercise price or fiscal year end price, respectively. The
assumed rates of appreciation are specified in SEC rules and do not
represent the Company's estimate or projection of future stock prices.
Actual gains, if any, resulting from stock option exercises and Common Stock
11
<PAGE> 14
holdings are dependent on the future performance of the Common Stock and the
option holders' continued employment through the vesting period. There can
be no assurance that the amounts reflected in this table will be achieved.
(4) Includes options issued to the following officers under the Company's Long
Term Incentive Program: Alfred J. Stein -- 300,000 shares; Richard M.
Beyer -- 125,000 shares; and Gregory K. Hinckley -- 90,000 shares. See "Long
Term Incentive Program" below.
(5) Of such options, options to purchase 150,000 shares are subject to
stockholder approval.
(6) This option is subject to stockholder approval.
The number of shares of Company and COMPASS stock issued upon exercise of
options and the value realized from any such exercise during the fiscal year
ended December 27, 1996 and the number of exercisable and unexercisable options
held and their value at December 27, 1996 for the Named Officers of the Company
are set forth in the following table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END(#) FY-END($)(2)
SHARES ACQUIRED ON VALUE ----------------------------- -----------------------------
EXERCISE(#) REALIZED($)(1) EXERCISABLE/ EXERCISABLE/ EXERCISABLE/ EXERCISABLE/
-------------------- ---------------------- UNEXERCISABLE UNEXERCISABLE UNEXERCISABLE UNEXERCISABLE
NAME VLSI COMPASS(3) VLSI COMPASS(3) VLSI COMPASS VLSI COMPASS
- ------------------ ------- ---------- ---------- ---------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alfred J. Stein... 150,000 23,333 3,063,110 $0 413,750/ 0/ $ 7,347,188/ $ 0/
1,006,250 0 $12,452,313 $ 0
Richard M. 0 0 0 0 0/ 0/ 0/ 0/
Beyer............
375,000 0 4,070,625 0
Gregory K. 62,000 16,667 1,019,374 0 15,501/ 0/ 104,691/ 0/
Hinckley.........
202,499 8,333 2,044,909 0
Bernd U. Braune... 10,000 0 185,000 0 5,000/ 6,667/ 62,500/ 0/
115,000 3,333 1,593,750 0
Dieter J. 81,747 0 1,540,805 0 0/ 33,500/ 0/ 0/
Mezger...........
0 0 0 0
Larry L. Grant.... 0 0 0 0 0/ 0/ 0/ 0/
50,000 0 586,250 0
</TABLE>
- ---------------
(1) Market value of underlying securities on the date of exercise, minus the
exercise price.
(2) Market value of underlying securities at fiscal year end (for in-the-money
options only) minus the exercise price. No COMPASS stock options held by
Named Officers were in-the-money at 1996 fiscal year end. The fair market
value of COMPASS common stock at 1996 fiscal year end, as determined by the
COMPASS Board of Directors, was $0.10 per share.
(3) In 1992 and 1993, the Company's subsidiary, COMPASS, granted stock options
to purchase COMPASS common stock to certain of the Named Officers pursuant
to the COMPASS Stock Plan (the "COMPASS Plan"). All optionees under the
COMPASS Plan, including such Named Officers, received option grants having
an exercise price of $0.10 per share, which represented the estimated fair
value of COMPASS common stock on the date of grant as determined by the
COMPASS Board of Directors. Subject to certain conditions, these options
become exercisable cumulatively as follows: second anniversary of date of
the grant, 33 1/3%; third anniversary of the date of the grant, additional
33 1/3%; fourth anniversary of the date of the grant, remaining 33 1/3%.
Subject to certain conditions, most of these options, including all those
granted to the Named Officers, contain additional rights and obligations,
including the right of a COMPASS Plan participant to put shares of COMPASS
common stock acquired through the COMPASS Plan back to COMPASS or the
Company in certain events; the Company's right to buy back COMPASS common
stock issued under the COMPASS Plan; and a right of first refusal by COMPASS
or VLSI to purchase COMPASS common stock issued under the COMPASS Plan that
is being offered for sale to any third party.
12
<PAGE> 15
LONG TERM INCENTIVE PROGRAM
On October 8, 1996, the Company adopted a Long Term Incentive Program (the
"Program") for key employees. Under the Program, the employees are granted stock
options under the Company's 1992 Stock Plan at fair market value. Options
granted vest 50% on the fifth anniversary of the date of the grant and 50% on
the sixth anniversary of the date of the grant. Early vesting occurs if the
stock price reaches certain price levels and remains at that level for at least
twenty days. Current price levels are: $10.00 over grant price, $20.00 over
grant price and $30.00 over grant price. Upon meeting each price level, 1/6 of
the granted options vest immediately and 1/6 vest 120 days later. The following
number of options were granted under the Program in fiscal 1996 to the Named
Officers: Alfred J. Stein -- 300,000 shares (subject to stockholder approval);
Richard M. Beyer -- 125,000; and Gregory K. Hinckley -- 90,000 shares.
EXECUTIVE SALARY CONTINUATION AGREEMENT
In December 1996, the Company entered into an Executive Salary Continuation
Agreement (the "Agreement") with Alfred J. Stein, age 64, the Company's Chairman
of the Board and Chief Executive Officer. Under the Agreement, upon any
voluntary termination after the executive reaches age 65 or any involuntary
termination, including death or disability, mental or physical, other than for
cause (conviction of a felony involving fraud or dishonesty against the Company;
gross unfitness to serve; or an intentional, material violation of a statutory
or fiduciary duty not corrected after notice), the executive will receive a lump
sum payment equal to three years' compensation, defined as annual base pay plus
an amount equal to the average of the executive's highest two annual bonuses, if
any, payable with respect to the three fiscal years prior to the termination. In
addition, the executive will receive health insurance and other standard Company
welfare benefits, as in effect at the date of termination, for the life of the
executive and his spouse, or the survivor of them, cost to the Company not to
exceed, by premium or otherwise, $10,000 per year. In addition, upon death or
disability, mental or physical, all outstanding stock options previously granted
to the executive shall vest and executive's estate or successors shall have
twelve months within which to exercise them.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
COMPENSATION PRINCIPLES
The Compensation Committee firmly believes that the compensation of the
Company's employees, including executive officers, should be designed to:
- Attract, retain and motivate well-qualified employees who contribute to
the long-term success of the Company.
- Strongly encourage the development and achievement of strategic
objectives that enhance long-term stockholder value.
- Relate compensation levels to the overall success of the Company, which
includes sound financial results for its stockholders, providing quality
products and services useful to its customers and fostering an
environment based on teamwork, enabling its employees to achieve both
strategic and tactical objectives.
Regarding Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code") (which limits the deductibility by corporations of certain
executive compensation in excess of $1 million for any covered individual), the
Compensation Committee has elected to qualify compensation under the Company's
1992 Stock Plan for an exemption from the deductibility limitations of Section
162(m). The non-equity-based compensation paid to the Named Officers in fiscal
1996 did not exceed $1 million, with the exception of Mr. Stein. The
Compensation Committee will continue to consider the effects of Section 162(m)
but does not currently intend to take any action to preserve the deductibility
of cash compensation.
13
<PAGE> 16
EXECUTIVE COMPENSATION PRACTICES
The Company's executive compensation program consists primarily of cash and
equity-based components. Salary and, if warranted, annual awards under the
Executive Performance Incentive Plan (the "Incentive Plan") comprise the cash
components. Grants of options under the Company's stock option plans and the
COMPASS Stock Plan and participation in the Company's employee stock purchase
plan comprise the equity-based components. The Company also provides health and
welfare benefits to the Named Officers through programs that are available to
all employees in general.
CASH COMPONENTS
Salary levels are reviewed periodically and Incentive Plan target levels
are established annually for executive officers by the Compensation Committee
after a review of compensation surveys for electronic manufacturing companies,
including integrated circuit manufacturers. For 1996, the survey group consisted
of 16 companies in the semiconductor industry, including U.S. semiconductor
companies and semiconductor operations of foreign multi-national corporations.
Of these companies, ten are included in the Hambrecht & Quist Technology index
(See "STOCK PRICE PERFORMANCE GRAPH"). In years that the Company exhibits
superior financial performance, cash compensation is designed to be above
average competitive levels. When financial performance is below plan, cash
compensation is designed to be below average competitive levels. It is the
Company's intent to maintain a total compensation program that can attract,
motivate and retain high-performance executives who are critical to the
long-term success of the Company.
Employees, including executive officers, who participate in the 401(k) Plan
may receive a Company matching contribution into their respective 401(k) Plan
accounts of up to 50% of contributions up to 6% of their base wages per year,
not to exceed the annual maximum as set by the Internal Revenue Service.
The Incentive Plan provides for annual awards, which are paid after the end
of the fiscal year, based upon achievement of pre-established annual goals (the
"Goals"), including revenue and operating profit goals for the Company's
financial performance, department or business unit goals and individual
performance goals. Each element is weighted by percentage, but the weighting can
be varied at the discretion of the Compensation Committee. The Compensation
Committee establishes targets for revenue, gross margin and operating profit on
a Company-wide and business unit basis at the beginning of each fiscal year, and
also sets individual objectives, such as new product development milestones and
key product launch dates. During 1996, no awards were made based on revenue,
gross margin or operating profit goals because the established targets were not
met. The awards that were made in 1996 were made based upon individual
performance goals and considerations, particularly the accomplishment of
replacing a significant reduction in revenues for X86 core logic chipsets with
growth in sales of communication and digital entertainment products. Awards are
prorated for participation for less than one year, but awards are not generally
paid for less than six months of participation, except at the discretion of the
Compensation Committee. Employees with other bonus arrangements or contracts
(including commission arrangements) are generally excluded from participation in
the Incentive Plan, unless otherwise directed by the Compensation Committee. The
Incentive Plan may be modified from time to time, or discontinued, at the
discretion of the Compensation Committee.
EQUITY-BASED COMPONENTS
The Company utilizes equity-based compensation in the form of stock options
and discount stock purchases under the employee stock purchase plan for its
employees (including the Named Officers) because it provides a close tie between
management and the stockholders by focusing employees and management on creating
and enhancing long-term stockholder value. The actual value of such equity-based
compensation correlates directly to the Company's stock price performance.
Stock options are an essential element of the Company's compensation
package. This component is intended to retain all employees receiving options,
including the Named Officers, and to motivate them to improve long-term stock
market performance. Some 1,056 employees (or approximately 36% of all employees
at December 27, 1996) hold options under the various stock option plans. Stock
options are currently
14
<PAGE> 17
outstanding under the 1982 Incentive Stock Option Plan (the "1982 Plan"), which
expired in May 1992, the 1992 Plan and the COMPASS Stock Plan.
In determining the number of shares subject to options to be granted to
executive officers, the Compensation Committee considers survey data on options
granted to executives with comparable positions at other companies, the number
of shares subject to options previously granted to the executive, the number of
unvested shares subject to outstanding options held by the executive (which is
an indicator of the retention value of the outstanding options) and an
evaluation of the executive's prior year individual performance. In 1996, the
Compensation Committee continued to focus on retention and individual
performance as the critical factors in determining the number of options to
grant to executives.
The options granted in 1996 under the 1992 Plan had exercise prices equal
to the fair market value (the Nasdaq/NMS closing price) of the Common Stock on
the grant date, or such other date as specified by the Compensation Committee,
and will only have value if the stock price increases subsequent to such date.
These options become exercisable cumulatively at an annual rate not more than
25% of the total shares granted commencing one year from such date. Both the
1982 Plan and the 1992 Plan provide for full vesting of options in the event
there is a change-in-control of the Company.
During fiscal 1996, the Company repriced outstanding options granted on or
after April 27, 1995 having exercise prices in excess of $11.00 per share. See
"REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION -- Option Repricing Report" below. Because of the option repricing,
the Compensation Committee found it necessary to increase the limit on the
number of shares that may be subject to options granted under the 1992 Plan from
500,000 to 1,500,000 to accommodate new options that the Compensation Committee
determined should be granted to the Chief Executive Officer. See "RATIFICATION
OF AN AMENDMENT TO THE 1992 STOCK PLAN AND OPTIONS GRANTED THEREUNDER."
Options to purchase common stock of COMPASS granted under the COMPASS Stock
Plan in 1996 had exercise prices of not less than the estimated fair value, as
determined by the COMPASS and Company Board of Directors, on the grant date.
Subject to certain conditions, these options become exercisable cumulatively as
follows: second anniversary of the grant date, 33 1/3%; third anniversary of the
grant date, additional 33 1/3%; fourth anniversary of the grant date, remaining
33 1/3%. No option under the COMPASS Stock Plan may be exercised after 10 years
and one month from the date of the grant. No options to purchase common stock of
COMPASS were granted to any of the Named Officers in 1996.
The Company has not issued any stock appreciation rights (SARs), stock
purchase rights, long-term performance awards in stock or stock bonus awards to
any Named Officer or any other person under the 1982 Plan, the 1992 Plan or the
COMPASS Stock Plan.
CHANGE-IN-CONTROL AGREEMENTS
The Company is a party to change-in-control agreements with certain of its
officers and key employees. Previous change-incontrol agreements expired on
January 1, 1997. In the competitive environment of attracting and retaining
high-level executives, change-in-control agreements have become an important
element of executive officers' compensation packages. Accordingly, new
agreements were entered into during 1996 with certain of the Company's officers.
The Company may enter into such agreements with additional officers and key
employees from time to time. See Table "EXECUTIVE OFFICER COMPENSATION --
Change-In-Control Agreements" above.
1996 CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Stein, in his capacity as the Chairman of the Board and Chief Executive
Officer, participates in the same compensation programs as the other Named
Officers. The Compensation Committee has targeted Mr. Stein's total
compensation, including compensation derived from the Incentive Plan and the
stock option plan, at a level it believes is competitive with the average amount
paid by other electronics companies based on survey data.
15
<PAGE> 18
Mr. Stein's annual base salary was increased from $600,000 to $660,000 in
March 1996, primarily based on personal accomplishments and Company performance
in 1995. Mr. Stein's Incentive Plan award for 1996, as discussed above under
"Executive Officer Compensation," was based on individual performance
considerations. Major factors taken into account included the management of a
significant shift in revenues from X86 core logic chipsets to communication and
digital entertainment products; the recruitment of Richard M. Beyer as President
and Chief Operating Officer and other management changes; and the redirection
and management of corporate assets, such as the improvements in the San Antonio
manufacturing site and the decision to close the San Jose fabrication facility.
The 1996 stock option grant to Mr. Stein is believed to be competitive in the
industry. Mr. Stein also receives additional life insurance and income tax
preparation services.
As discussed above under "Executive Officer Compensation," in 1996 the
Company entered into an Executive Salary Continuation Agreement with Mr. Stein.
Given Mr. Stein's long service with the Company and the intense competition for
executive talent in the semiconductor industry, the Company believes it is
appropriate to provide Mr. Stein with a salary continuation plan defining the
terms of any termination or retirement from the Company. After review with
outside compensation consultants, the Company believes that the salary
continuation agreement entered into with Mr. Stein is competitive in the
industry for an executive of Mr. Stein's position and experience.
OPTION REPRICING REPORT
In March 1996, all employees who held outstanding options under the
Company's stock option plans, including all executive officers, were given the
opportunity to reprice outstanding stock options granted during the period from
April 27, 1995 to March 12, 1996 to the then current market price of $11.00 per
share. The Company took this action to retain key employees at a time of intense
competition for experienced personnel, to maintain momentum on key development
projects and to maintain morale across the Company during the downturn generally
experienced by the semiconductor industry beginning in late 1995. There were no
separate analyses of the impact of the repricing on the overall compensation of
the executive officers or any other employees.
The Company has repriced options in the past as noted in the "Ten-Year
Option Repricing Table" which follows this report.
This report of the Compensation Committee shall not be deemed incorporated
by reference by any general statement incorporating by reference this proxy
statement (or any portion hereof) into any filing under the Securities Act of
1933 or under the Exchange Act (collectively, the "Acts"), except to the extent
that the Company specifically incorporates this report by reference, and shall
not otherwise be deemed filed under such Acts.
Submitted by the
Compensation Committee:
Pierre S. Bonelli, Chairman
Robert P. Dilworth
James J. Kim (until May 31, 1996)
16
<PAGE> 19
REPRICED OPTIONS
The following table sets forth the option repricings for the last ten years
for all persons who were executive officers at the time of such repricings.
TEN-YEAR OPTION REPRICING TABLE
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES MARKET PRICE EXERCISE LENGTH OF
UNDERLYING OF STOCK AT PRICE AT ORIGINAL OPTION
OPTIONS/SARS TIME OF TIME OF NEW TERM REMAINING
REPRICED OR REPRICING OR REPRICING OR EXERCISE AT DATE OF
AMENDED AMENDMENT AMENDMENT PRICE REPRICING OR
NAME DATE (#) ($) ($) ($) AMENDMENT (YRS.)
- ------------------------------ ------- ------------ ------------ ------------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Douglas J. Bartek............. 4/20/89 15,000 7.50 8.63 7.50 9.5
Former Sr. Vice President,
Logic and Government Products 2/15/90 35,000 6.25 7.63 6.25 7.7
12,500 6.25 7.63 6.25 7.7
37,500 6.25 6.38 6.25 8.8
15,000 6.25 7.50 6.25 9.2
12/5/90 117,500 4.50 6.25 4.50 9.2
Bernd U. Braune............... 3/12/96 35,295 11.00 21.25 11.00 9.1
Former Sr. Vice President, 20,000 11.00 16.25 11.00 9.8
Global Business Operations 4,705 11.00 21.25 11.00 9.1
Larry R. Carter............... 2/15/90 2,000 6.25 7.50 6.25 9.2
Former Vice President,
Finance, 32,000 6.25 7.50 6.25 9.2
Chief Financial Officer and
Treasurer 12/5/90 49,000 4.50 6.25 4.50 9.2
Donald L. Ciffone............. 3/12/96 25,295 11.00 21.25 11.00 9.1
Former Sr. Vice President and 20,000 11.00 16.25 11.00 9.8
General Manager, 4,705 11.00 21.25 11.00 9.1
VLSI Products Divisions
Douglas G. Fairbairn.......... 2/15/90 37,000 6.25 7.63 6.25 7.7
Former Sr. Vice President, 15,000 6.25 7.63 6.25 7.7
Design Technology 7,500 6.25 7.50 6.25 9.2
James R. Fiebiger............. 2/15/90 210,000 6.25 7.63 6.25 8.0
Former President and 20,000 6.25 7.50 6.25 9.2
Chief Operating Officer
Balakrishnan S. Iyer.......... 3/12/96 5,295 11.00 21.25 11.00 9.1
Vice President and 4,705 11.00 21.25 11.00 9.1
Controller
L. Don Maulsby................ 3/12/96 25,295 11.00 21.25 11.00 9.1
Former Group Vice President 4,705 11.00 21.25 11.00 9.1
Computing Products
Alfred J. Stein............... 2/15/90 97,600 6.25 7.63 6.25 7.7
Chairman of the Board and 32,400 6.25 7.625 6.25 7.7
Chief Executive Officer 50,000 6.25 7.625 6.25 8.0
50,000 6.25 7.50 6.25 9.2
12/5/90 280,000 4.50 6.25 4.50 9.2
3/12/96 500,000(1) 11.00 21.25 11.00 9.1
</TABLE>
- ---------------
(1) Of such options, options to purchase 150,000 shares are subject to
stockholder approval.
17
<PAGE> 20
STOCK PRICE PERFORMANCE GRAPH
The following graph shows a five-year comparison of cumulative total
stockholder returns for the Company, the Standard & Poor's 500 (the "S&P 500")
index and the Hambrecht & Quist Technology ("H&Q Technology") index. The H&Q
Technology index is composed of approximately 200 companies in the electronics
and technology industry, including semiconductors, health care and related
service industries. Historic stock price performance is not necessarily
indicative of future stock price performance.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) VLSI TECHNOLOGY S & P 500 H & Q TECHNOLOGY
<S> <C> <C> <C>
12/28/91 100 100 100
12/26/92 106.56 107.62 115.02
12/28/93 140.98 118.46 125.52
12/30/94 157.38 120.03 145.7
12/29/95 237.7 165.13 218.76
12/27/96 313.11 203.05 262.49
</TABLE>
<TABLE>
<CAPTION>
12/28/91 12/26/92 12/28/93 12/30/94 12/29/95 12/27/96
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
VLSI TECHNOLOGY.......................... $ 100.00 $ 106.56 $ 140.98 $ 157.38 $ 237.70 $ 313.11
S&P 500.................................. $ 100.00 $ 107.62 $ 118.46 $ 120.03 $ 165.13 $ 203.05
H&Q TECHNOLOGY........................... $ 100.00 $ 115.02 $ 125.52 $ 145.70 $ 218.76 $ 262.49
</TABLE>
Assumes $100 invested on December 28, 1991
* Total return assumes reinvestment of dividends
Note: Total returns for the S&P 500 index and for the H&Q Technology index are
weighted based on market capitalization.
The Stock Price Performance Graph shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement (or any portion hereof) into any filing under the Acts, except to the
extent that the Company specifically incorporates this performance graph by
reference, and shall not otherwise be deemed filed under such Acts.
18
<PAGE> 21
RATIFICATION OF AN AMENDMENT TO THE 1992 STOCK PLAN AND
OPTIONS GRANTED THEREUNDER
Since 1982, the Company has provided stock options as an incentive to its
key employees and executives as a means to promote increased stockholder value.
Management believes stock options are one of the prime ways to attract and
retain key personnel responsible for the continued development and growth of
VLSI's business. In addition, stock options are considered a competitive
necessity in the semiconductor/high technology industries.
PROPOSED AMENDMENT
The 1992 Plan has a limit of 500,000 shares that can be granted under
options to purchase to any one employee in a fiscal year. The Company's Board of
Directors, subject to stockholder approval, has adopted an amendment to the 1992
Stock Plan (the "1992 Plan") to increase the number of shares that can be
granted to any one employee in any fiscal year from 500,000 shares to 1,500,000
shares. At the Annual Meeting, stockholders are being asked to approve the
increase in the limit under the 1992 Plan and ratify the granting of options to
purchase 450,000 shares (150,000 in exchange for cancellation of previously
granted options in a repricing and 300,000 under new grants pursuant to the Long
Term Incentive Program) to Alfred J. Stein, pursuant to the 1992 Plan, as
amended (the "1996 Options").
VOTE REQUIRED
The affirmative vote of a majority of the Votes Cast will be required to
ratify the increase in the number of shares that can be granted to any one
employee in any fiscal year under the 1992 Plan and the 1996 Options.
RECOMMENDATION
The Board of Directors unanimously recommends that stockholders vote "FOR"
ratification of the amendment to the 1992 Plan and the 1996 Options. The
essential features of the 1992 Plan, as amended, are outlined below.
GENERAL
The 1992 Plan provides an incentive to eligible employees and consultants
whose present and potential contributions are important to the continued success
of the Company, affords them an opportunity to acquire a proprietary interest in
the Company, and enables the Company to enlist and retain the best available
talent for the conduct of its business. The 1992 Plan permits the granting of
incentive stock options ("ISOs"), nonstatutory stock options ("NSOs"), stock
appreciation rights ("SARs"), stock purchase rights ("Purchase Rights"),
long-term performance awards ("Long-Term Awards") and stock bonus awards ("Stock
Bonuses"). SARs, Purchase Rights, Long-Term Awards and Stock Bonuses are
referred to collectively as "Rights". The Company does not currently have any
specific plans to grant any awards under the 1992 Plan other than options.
ELIGIBILITY
Awards may be granted under the 1992 Plan to employees (including officers
and directors) and consultants of the Company, its parent (if any) and its
subsidiaries. The 1992 Plan provides that NSOs, SARs, Purchase Rights, Stock
Bonuses and Long-Term Awards may be granted to employees and consultants of the
Company or any parent or majority-owned subsidiary of the Company. Incentive
stock options may be granted only to employees of the Company or any parent or
subsidiary of the Company. As of December 27, 1996, the Company's 2,801
employees and its consultants would have been eligible to participate in the
1992 Plan.
19
<PAGE> 22
ADMINISTRATION
The 1992 Plan may be administered by the Board of Directors or by a
committee of the Board (the "Administrator"), and is currently administered by
the Compensation Committee, which is composed solely of non-employee directors.
The Administrator has full power to select, from among the employees and
consultants eligible for awards, the individuals to whom awards will be granted,
to make any combination of awards to any participant and to determine the
specific terms of each grant, subject to the provisions of the 1992 Plan. The
interpretation and construction of any provision of the 1992 Plan by the
Administrator shall be final and conclusive.
STOCK OPTIONS
The term of each option will be fixed by the Administrator and may not
exceed 10 years from the date of grant in the case of ISOs, or five years from
the date of grant in the case of ISOs granted to 10% stockholders. The
Administrator determines the time or times that each option may be exercised.
Options may become exercisable in installments, and the exercisability of
options may be accelerated either automatically upon the occurrence of certain
events described in the 1992 Plan or the option agreement or on a discretionary
basis by the Administrator.
The Administrator sets the option exercise price, which may be less than
100% of the fair market value on the date of grant of the option. The method of
payment of consideration with respect to shares issued upon exercise of options
granted under the 1992 Plan shall be determined by the Administrator (and, in
the case of ISOs, determined at the time of grant) and may be any legal form of
consideration permitted by applicable laws.
In March 1996, the Compensation Committee of the Board of Directors
approved an option exchange program under which holders of outstanding options
were offered the opportunity to exchange options granted on or after April 27,
1995 with exercise prices exceeding $11.00 per share for new options having an
exercise price of $11.00 per share. New options issued in exchange for options
granted on April 27, 1995 have the same terms as the surrendered options, except
that the new options have vested at a rate of 25% per year beginning March 12,
1996 and have a term of ten years from March 12, 1996. New options issued in
exchange for options granted after April 27, 1995 have the same terms as the
surrendered options, except that the new options have vested at a rate of 25%
per year beginning one year after the date on which the surrendered option would
have begun to vest and have a term that expires ten years after the first
anniversary of the date on which the surrendered option would have begun to
vest. Options to purchase an aggregate of 1,833,775 shares at a weighted average
exercise price of $20.85 per share were surrendered in the option exchange.
The Administrator of the 1992 Plan may at any time offer to buy out, for a
payment in cash or shares of Common Stock of the Company, any option previously
granted, based on such terms and conditions as the Administrator shall establish
and communicate to the optionee at the time that such offer is made. Buy-out
offers made to persons who are subject to Section 16 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), referred to herein as "Insiders",
may only be payable in cash.
STOCK APPRECIATION RIGHTS
The 1992 Plan also permits the granting of nontransferable stock
appreciation rights. SARs may be granted in connection with all or any part of
an option, either concurrently with the grant of such option or at any time
thereafter during the term of the option, or may be granted independently of
options.
The Administrator of the 1992 Plan may place limits on the aggregate amount
that may be paid upon exercise of an SAR, provided, however, that with respect
to SARs granted in connection with options, such limits shall not restrict the
exercisability of the related option. The Company's obligation arising upon the
exercise of an SAR may be paid in Common Stock or in cash, or any combination
thereof, as the Administrator may determine.
20
<PAGE> 23
TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP
Under the 1992 Plan, the period of time during which an option or SAR may
be exercised following an optionee's termination of employment or consulting
relationship for any reason is such period as is determined by the
Administrator, up to a maximum of 10 years in the case of death or permanent
disability and five years in the case of termination for any other reason. After
termination of employment or consulting, an option or SAR may thereafter be
exercised during the specified period but in no event after the expiration of
the original term of the option or SAR. After termination, an option or SAR is
generally only exercisable to the extent it was exercisable at the date of such
termination, unless otherwise determined by the Administrator. The employment or
consulting relationship is not considered to be terminated in the event of
certain leaves of absence or transfers between the Company, its parent (if any),
its majority-owned subsidiaries or its affiliated companies (defined to be
companies with respect to which the Company owns, directly or indirectly, at
least 20% of the voting power).
STOCK PURCHASE RIGHTS
The 1992 Plan permits the Company to grant stock purchase rights, which
allow the offeree the opportunity to purchase, during a specified period of time
not exceeding 60 days, Common Stock of the Company on the terms specified by the
Administrator. The Administrator notifies the offeree in writing of the terms,
conditions and restrictions related to the offer, including the number of shares
of Common Stock that the offeree shall be entitled to purchase, the price to be
paid and the time within which the offeree must accept such offer (which shall
in no event exceed 60 days from the date upon which the Administrator made the
determination to grant the Purchase Right). Offers may be accepted by execution
of a restricted stock purchase agreement between the Company and the offeree and
payment of the purchase price.
Unless the Administrator determines otherwise, the restricted stock
purchase agreement shall grant the Company a repurchase option at the original
price paid by the purchaser with respect to unvested shares, exercisable upon
the termination of the purchaser's employment or consulting relationship for any
reason. The purchase price for shares repurchased by the Company pursuant to the
restricted stock purchase agreement may be paid by cancellation of any
indebtedness of the purchaser to the Company. The repurchase option shall lapse
at such rate as the Administrator may determine.
LONG-TERM PERFORMANCE AWARDS
The 1992 Plan also permits the granting of Long-Term Awards payable in cash
or Common Stock. The range of values subject to a Long-Term Award may be
specified in dollar amounts and/or numbers of shares. Such awards shall be based
upon Company, parent, subsidiary, affiliated company and/or individual
performance over designated periods, measured by such factors or other criteria
as the Administrator deems appropriate. Performance objectives may vary from
participant to participant, group to group and period to period. Such awards
shall not require payment by the award recipient of any consideration. The
Administrator may adjust Long-Term Awards as it deems necessary or appropriate,
based on changes in the law or in accounting or tax rules, in order to avoid
windfalls or hardships.
STOCK BONUS AWARDS
The 1992 Plan also permits the granting of Stock Bonuses based on such
performance or employment-related factors as the Administrator shall determine.
Stock Bonus awards may vary from participant to participant and group to group.
Such awards shall not require payment by the recipient of any consideration but
may, in the discretion of the Administrator, be subject to vesting or forfeiture
restrictions.
WRITTEN AGREEMENTS; RULE 16b-3
All awards granted under the 1992 Plan shall be evidenced by a written
agreement between the Company and the employee or consultant to whom such award
is granted. Awards granted to Insiders are subject to any additional applicable
restrictions under Rule 16b-3.
21
<PAGE> 24
RIGHTS NONTRANSFERABLE
Options and Rights granted pursuant to the 1992 Plan are nontransferable by
the participant, other than by will or by the laws of descent and distribution
or pursuant to a qualified domestic relations order. Options or Rights may be
exercised, during the lifetime of the participant, only by the participant or by
a permitted transferee.
USE OF STOCK FOR TAX WITHHOLDING
The 1992 Plan permits participants to satisfy tax withholding obligations
arising from the grant, vesting or exercise of options or Rights by surrendering
shares of Common Stock already owned, or by directing the Company to withhold
from the shares of Common Stock issued or issuable pursuant to the award in
question that number of shares, having a fair market value equal to the tax
withholding liability as of the applicable tax date. All elections to utilize
stock for tax withholding are subject to the approval of the Administrator.
CHANGE-IN-CONTROL PROVISIONS
The 1992 Plan provides that in the event of a change-incontrol of the
Company (as defined below), except as otherwise determined by the Administrator
in its discretion prior to the change-in-control, all stock options and Rights
granted under the 1992 Plan that are outstanding as of the date such
change-in-control is determined to have occurred and that are not yet
exercisable and vested on such date will become immediately vested and fully
exercisable. A change-in-control means the occurrence of (i) the acquisition by
a person or entity (other than the Company, one of its subsidiaries, or a
Company employee benefit plan or trustee thereof) of securities representing 50%
or more of the combined voting power of the Company, (ii) a transaction
requiring the approval of the stockholders and involving the sale of all or
substantially all of the assets of the Company or a merger of the Company with
or into another corporation, or (iii) a change in the composition of the Board
of Directors after which less than a majority of the directors in office are
incumbent directors.
In the event of a proposed sale of all or substantially all of the assets
of the Company or the merger of the Company with or into another corporation,
each outstanding option and Right shall be assumed or substituted by such
successor corporation or a parent or subsidiary of the successor corporation,
unless the Administrator determines, in lieu of such assumption or substitution,
that the participant shall have the right to exercise the option or Right as to
all or a portion of the shares subject to such option or Right that would not
otherwise be exercisable, for a period of time determined by the Administrator,
after which the options and Rights shall terminate.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
In the event any change, such as a stock split or dividend, is made in the
Company's capitalization, which change results in an increase or decrease in the
number of outstanding shares of Common Stock without receipt of consideration by
the Company, an appropriate adjustment shall be made in the number of shares
that have been reserved for issuance under the 1992 Plan and the price per share
covered by each outstanding option, SAR, Purchase Right and Long-Term Award. In
the event of the proposed dissolution or liquidation of the Company, all
outstanding options and Rights will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the
Administrator. The Administrator may, in its discretion, make provision for
accelerating the exercisability of shares subject to options or Rights under the
1992 Plan in such event.
AMENDMENT AND TERMINATION
The Board may amend, alter, suspend or discontinue the 1992 Plan at any
time, but any such amendment, alteration, suspension or discontinuation shall
not adversely affect any outstanding option or Right under the 1992 Plan without
the consent of the holder thereof. To the extent necessary and desirable to
comply with Rule 16b-3 or Section 422 of the Code (or any other applicable law
or regulation), the Company
22
<PAGE> 25
shall obtain stockholder approval of any amendment to the 1992 Plan in such a
manner and to such a degree as is required. The 1992 Plan will terminate by its
terms on April 30, 2002.
Subject to applicable laws and the specific terms of the 1992 Plan, the
Administrator may accelerate any option or Right or waive any condition or
restriction pertaining to such option or Right at any time. The Administrator
may also substitute new options or Rights for previously granted options or
Rights, including previously granted options or Rights having higher prices, and
may reduce the exercise price of any option or Right to the then current fair
market value if the fair market value of the Common Stock covered by such option
or Right shall have declined since the date the option or right was granted.
FEDERAL INCOME TAX INFORMATION
The following is only a brief summary of the federal income tax
consequences of transactions under the 1992 Plan based on federal income tax
laws in effect on January 1, 1997. This summary is not intended to be exhaustive
and does not discuss the tax consequences of a participant's death or provisions
of the income tax laws of any municipality, state or foreign country in which an
optionee may reside.
Stock Options
An optionee will recognize no taxable income upon grant or exercise of
incentive stock options under the 1992 Plan, unless the alternative minimum tax
rules apply. The Company will not be allowed a deduction for federal income tax
purposes in connection with the grant or exercise of an ISO. Upon an optionee's
resale of the underlying shares (assuming that the sale occurs no sooner than
two years after grant of the option and one year after exercise of the option
(the "statutory holding periods")), any gain will be taxed to the optionee as
long-term capital gain. If the statutory holding periods are not satisfied
(i.e., the optionee makes a "disqualifying disposition"), the optionee will
recognize compensation income equal to the difference between the exercise price
and the lower of (i) the fair market value of the stock at the date of the
option exercise or (ii) the sale price of the stock, and the Company will be
entitled to a deduction in the same amount. Any additional gain or loss
recognized on a disqualifying disposition of the shares will be characterized as
capital gain or loss.
An optionee will not recognize any taxable income at the time he or she is
granted an NSO under the 1992 Plan. However, upon exercise of the NSO, the
optionee will generally recognize compensation income for federal tax purposes
measured by the excess, if any, of the then fair market value of the shares over
the exercise price. The Company will be entitled to a tax deduction in the same
amount, subject to certain limitations of Code Section 162(m) with respect to
below market options/SARs. Upon an optionee's resale of such shares, any
difference between the sale price and fair market value of such shares on the
date of exercise will be treated as capital gain or loss and will qualify for
long-term capital gain or loss treatment if the shares have been held for more
than one year.
The compensation income recognized upon exercise of an NSO by an optionee
who is also an employee will be treated as wages for tax purposes and will be
subject to tax withholding by the Company out of the current compensation paid
to such person, if any. If such current compensation is insufficient to satisfy
the tax withholding obligation, such person will be required to make direct
payment to the Company for the tax liability. Any required withholding in
connection with the exercise of an NSO may, with the consent of the
Administrator, be satisfied by an optionee, in whole or in part, by surrendering
to the Company shares of Common Stock previously owned by such person or shares
issued upon exercise of the option. For such purpose, the surrendered shares are
valued at their fair market value at the time of surrender.
Stock Appreciation Rights
No income will be recognized by a recipient in connection with the grant of
an SAR. When the SAR is exercised, the recipient will generally be required to
include as taxable ordinary income in the year of exercise an amount equal to
the fair market value of any Common Stock (or cash, as the case may be) received
upon the exercise. In the case of a recipient who is also an employee, any
taxable income recognized upon exercise of an SAR will constitute wages for
which withholding will be required. The Company will be entitled to a tax
23
<PAGE> 26
deduction in the same amount, subject to certain limitations of Code Section
162(m) with respect to below market options/SARs. Any gain or loss on the resale
of Common Stock acquired, upon exercise of an SAR, will be treated as capital
gain or loss.
Stock Purchase Rights
Purchase Rights will generally be taxed in the same manner as NSOs.
Long-Term Performance Awards
Generally, no income will be recognized by a recipient in connection with
the grant of a Long-Term Award of stock that is subject to vesting restrictions
(referred to as "restricted stock"), unless an election under Section 83(b) of
the Code is filed with the Internal Revenue Service within 30 days of the date
of grant. Otherwise, at the time the Long-Term Award vests, the recipient will
generally recognize compensation income in an amount equal to the fair market
value of the award at the time of vesting. Generally, the recipient will be
subject to the same tax consequences as for NSOs. In the case of a recipient who
is also an employee, any amount included in income will be subject to
withholding by the Company. The Company will be entitled to a tax deduction in
the same amount, and at the time the recipient recognizes ordinary income with
respect to a Long-Term Award (subject to certain limitations imposed by Code
Section 162(m)).
Stock Bonuses
A recipient who receives fully vested shares of Common Stock pursuant to a
Stock Bonus will generally recognize ordinary income in the year of receipt
equal to the fair market value of the stock on the date of grant. If the
recipient receives restricted stock pursuant to a Stock Bonus Award, the
recipient will recognize ordinary income equal to the fair market value of the
stock at the time or times the restrictions lapse (unless a Section 83(b)
election is timely filed within 30 days of the date of grant). If the recipient
is an employee, any amount included in income will be subject to withholding by
the Company. As a general rule, the Company will be entitled to a tax deduction
in the amount and at the time the recipient recognizes ordinary income with
respect to the Stock Bonus (subject to certain limitations imposed by Code
Section 162(m)).
Special Rules Applicable to Insiders and Restricted Stock Purchasers
Generally, Insiders and individuals who purchase restricted stock may have
their recognition of compensation income and the beginning of their capital
gains holding period deferred until a date (the "Deferral Date") that is up to
six months after option exercise (in the case of Insiders) or the date on which
the restrictions lapse (in the case of restricted stock purchasers), with the
excess of the fair market value of the stock on the Deferral Date over the
purchase price being taxed as ordinary income, and the tax holding period for
any subsequent gain (or loss) beginning at the end of such period. However, an
Insider or restricted stock purchaser who files a timely election under Section
83(b) may instead be taxed on the difference between the excess of the fair
market value on the date of transfer by the Company to the optionee over the
purchase price, with the tax holding period beginning on such date. Similar
rules apply for alternative minimum tax purposes with respect to the exercise of
an ISO by an Insider.
In order for compensation in excess of $1 million realized by any of the
Named Officers to be deductible by the Company, IRS regulations require any
option plan to state the maximum number of shares subject to options that can be
granted during a fiscal year to any one individual. The 1992 Plan, as amended,
subject to stockholder approval, has a limit of 1,500,000 shares subject to
options per employee per fiscal year. Also, the 1992 Plan provides for an
additional option grant of not more than 500,000 shares to be granted to any
newly hired employee. While the Company does not expect to grant this number of
options to an individual on a regular basis, the Company does expect that this
would be the maximum number of options that would be necessary to recruit any
outstanding top executive.
24
<PAGE> 27
PARTICIPATION IN 1992 PLAN
The grant of options, stock appreciation rights, stock purchase rights,
stock bonus awards and long-term performance awards under the 1992 Plan to
employees, including the Named Officers, is subject to the discretion of the
Administrator. As of the date of this proxy statement, there has been no
determination by the Administrator with respect to future awards under the 1992
Plan. Accordingly, future awards are not determinable. Non-employee directors
are not eligible to participate in the 1992 Plan. The following table sets forth
information with respect to the grant of options to the Named Officers, to all
current executive officers as a group and to all other employees as a group
during the last fiscal year.
AMENDED PLAN BENEFITS
1992 STOCK PLAN
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
NAME OF INDIVIDUAL SECURITIES UNDERLYING PRICE
OR IDENTITY OF GROUP AND POSITION OPTIONS GRANTED(#) ($/SH)
- -------------------------------------------------------------- --------------------- -----------
<S> <C> <C>
Alfred J. Stein............................................... 650,000(1) $ 11.00
Chairman of the Board and 300,000 15.31
Chief Executive Officer
Richard M. Beyer.............................................. 250,000 13.00
President and 125,000 15.31
Chief Operating Officer
Gregory K. Hinckley........................................... 60,000 11.00
Former Senior Vice President 90,000 15.31
and Chief Financial Officer
Dieter J. Mezger.............................................. -- --
Former Senior Vice President
of the Company and President
of COMPASS Design Automation, Inc.
Bernd U. Braune............................................... 100,000 11.00
Former Senior Vice President,
Global Business Operations
Larry L. Grant................................................ 40,000 11.00
Vice President, General Counsel 10,000 20.50
and Secretary
All current executive officers as a group (5 persons)......... 1,519,000 13.01(2)
All other employees as a group................................ 3,262,175 11.93(2)
</TABLE>
- ---------------
(1) Of such options, options to purchase 450,000 shares are subject to
stockholder approval.
(2) Represents weighted average per share exercise price.
RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors has appointed Ernst & Young LLP, independent
auditors, to audit the consolidated financial statements of the Company for the
fiscal year ending December 26, 1997 and recommends that stockholders vote "FOR"
ratification of such appointment. In the event of a negative vote on such
ratification, the Board of Directors will reconsider its selection.
Ernst & Young LLP has audited the Company's financial statements since
1980. Representatives of Ernst & Young LLP are expected to be present at the
meeting, will have the opportunity to make a statement if they desire to do so,
and are expected to be available to respond to appropriate questions.
25
<PAGE> 28
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the enclosed proxy card to vote the shares they represent as
the Board of Directors may recommend.
BY ORDER OF THE BOARD OF DIRECTORS
LARRY L. GRANT
Secretary
Date: April 4, 1997
26
<PAGE> 29
VLSI TECHNOLOGY, INC.
1992 STOCK PLAN
(As adopted by the Board of Directors on May 1, 1992 and as amended on
November 17, 1994, March 12, 1996 and March 21, 1997, and approved by the
stockholders on August 20, 1992, April 27, 1995, May 31, 1996, and subject to
stockholder approval at the 1997 Annual Meeting of Stockholders on May 7, 1997).
1. Purposes of the Plan. The purpose of this 1992 Stock Plan is to
enable the Company to provide an incentive to Employees and Consultants whose
present and potential contributions are important to the continued success of
the Company, to afford these individuals the opportunity to acquire a
proprietary interest in the Company, and to enable the Company to enlist and
retain the best available talent for positions of substantial responsibility. It
is intended that this purpose will be effected through the granting of Incentive
Stock Options, Nonstatutory Stock Options, Stock Appreciation Rights, Stock
Purchase Rights, Stock Bonus Awards and Long-Term Performance Awards.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Affiliated Company" means a corporation, whether now or
hereafter existing, which is not a Subsidiary but with respect to which the
Company owns, directly or indirectly through one or more Subsidiaries, at least
20% of the total voting power of all classes of stock.
(c) "Applicable Laws" means the legal requirements relating to the
administration of stock option and equity incentive plans under applicable state
corporate and securities laws and under the Code.
(d) "Board" means the Board of Directors of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Committee" means a Committee appointed by the Board in
accordance with Section 4 of the Plan.
(g) "Common Stock" means the Common Stock of the Company.
1
<PAGE> 30
(h) "Company" means VLSI Technology, Inc., a Delaware corporation.
(i) "Consultant" means (i) any person, including an advisor, who is
engaged by the Company or by a Parent or Subsidiary of the Company to render
consulting services to it and who is compensated for such services, provided
that the term "Consultant" shall not include Directors who are compensated,
through a director's fee or other standard director compensation, only for their
services as Directors of the Company, (ii) any currently authorized
manufacturer's representative or sales representative firm which sells products
of the Company or of a Parent or Subsidiary of the Company, as designated by the
Company in its sole discretion (which designation shall be subject to withdrawal
at any time for any or no reason), whether compensated by the Company for
service as such or not, or (iii) any individual who is employed by such a
manufacturer's representative or sales representative firm to perform services
which include the sale of products of the Company or of a Parent or Subsidiary
of the Company, whether compensated by the Company for such services or not.
(j) "Continuous Status as an Employee or Consultant" means the
absence of any interruption or termination of service as an Employee or
Consultant, provided, however, that Continuous Status as an Employee or
Consultant shall not be considered interrupted in the case of: (i) any leave of
absence approved by the Administrator, including sick leave, military leave, or
any other personal leave; provided, however, that for purposes of Incentive
Stock Options, any such leave may not exceed ninety (90) days, unless
reemployment upon the expiration of such leave is guaranteed by contract
(including certain Company policies) or statute; or (ii) transfers between
locations of the Company or between the Company, its Parent, its Subsidiaries,
its Affiliated Companies or its successor. In the case of a leave of absence
which extends for more than ninety (90) days and after which there is no
contractual or statutory guaranty of reemployment, the Employee's employment or
Consultant's service as such shall be deemed to have terminated on the
ninety-first (91st) day of such leave of absence.
(k) "Director" means a member of the Board.
(l) "Disability" means total and permanent disability, as defined in
Section 22(e)(3) of the Code.
(m) "Employee" means any person, including Officers and Directors,
employed by the Company or by any Parent or Subsidiary of the Company, as such
term is defined under common law and interpreted by the rules and regulations
under the Code. Neither service as a Director nor the payment of a director's
fee by the Company shall be sufficient to constitute "employment" by the
Company.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
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(o) "Fair Market Value" means, as of a specified date, the value of
Common Stock determined by the Administrator as follows:
(i) If the Common Stock is listed on any established stock
exchange or quoted on a national market system, including without limitation the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, the Fair Market Value of a Share of
Common Stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such exchange (or, if listed on
more than one exchange, the exchange with the greatest volume of trading in
Common Stock) or system on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Administrator deems reliable; or
(ii) If the Common Stock is quoted on the NASDAQ System (but is
not included on the National Market System thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the closing
bid and closing asked prices for the Common Stock on the last market trading day
prior to the day of determination, as reported in the Wall Street Journal or
such other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(p) "Incentive Stock Option" means an Option that satisfies the
provisions of Section 422 of the Code.
(q) "Insider" means an Officer or Director.
(r) "Long-Term Performance Award" means an award granted pursuant to
Section 10 of the Plan.
(s) "Nonstatutory Stock Option" means an Option that is not an
Incentive Stock Option.
(t) "Notice of Grant" means a written notice evidencing certain
terms and conditions of an individual Option, Stock Purchase Right, SAR,
Long-Term Performance Award or Stock Bonus Award grant. The Notice of Grant is
part of the Option Agreement, the Restricted Stock Purchase Agreement, the SAR
Agreement, the Long-Term Performance Award agreement or the Stock Bonus Award
agreement, as the case may be.
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(u) "Officer" means an officer of the Company within the meaning of
Section 16 of the Exchange Act and the rules and regulations promulgated
thereunder.
(v) "Option" means a stock option granted pursuant to the Plan.
(w) "Option Agreement" means a written agreement between the
Company and an Optionee evidencing the terms and conditions of an individual
Option grant. The Option Agreement is subject to the terms and conditions of the
Plan and the Notice of Grant.
(x) "Optioned Stock" means the Common Stock subject to an Option or
Right.
(y) "Optionee" means an Employee or Consultant who holds an
outstanding Option or Right.
(z) "Option Exchange Program" means a program whereby outstanding
options (whether originally granted under this Plan or under other plans of the
Company) are surrendered in exchange for Options with a lower exercise price.
(aa) "Outside Director" shall mean a Director who is not an
Employee.
(bb) "Parent" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(cc) "Plan" means this 1992 Stock Plan.
(dd) "Restricted Stock" means shares of Common Stock purchased
pursuant to Stock Purchase Rights granted under Section 8 of the Plan.
(ee) "Restricted Stock Purchase Agreement" means a written agreement
between the Company and an Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(ff) "Right" means and includes SARs, Long-Term Performance Awards,
Stock Purchase Rights and Stock Bonus Awards granted pursuant to the Plan.
(gg) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange
Act (or any successor to Rule 16b-3), as in effect when discretion is being
exercised with respect to the Plan.
(hh) "SAR" means a stock appreciation right granted pursuant to
Section 7 of the Plan.
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(ii) "SAR Agreement" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The SAR Agreement is subject to the terms and conditions of the Plan and
the Notice of Grant.
(jj) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(kk) "Stock Bonus Award" means an award granted pursuant to Section
9 of the Plan.
(ll) "Stock Purchase Right" means a right to purchase Common Stock
granted pursuant to Section 8 of the Plan.
(mm) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
In addition, the term "waiting period", the term "Performance Period",
the terms "Change in Control" and "Incumbent Directors" and the term "Tax Date"
shall have the meanings set forth in Sections 7, 10, 12 and 13 of the Plan,
respectively.
3. Stock Subject to the Plan. Subject to the provisions of Section 12
of the Plan, the total number of Shares reserved and available for distribution
pursuant to awards made under the Plan shall be 9,500,000. The Shares may be
authorized but unissued or reacquired stock.
If an Option or Right should expire or become unexercisable for any
reason without having been exercised in full, the unpurchased Shares which were
subject thereto shall, unless the Plan shall have been terminated, become
available for other Options or Rights granted under the Plan.
Notwithstanding any other provision of the Plan, Shares issued upon
exercise of Options or Rights under the Plan and later repurchased by the
Company shall not become available for future grant or sale under the Plan.
4. Administration of the Plan.
(a) Multiple Administrative Bodies. If permitted by Rule 16b-3, the
Plan may be administered by different bodies with respect to Outside Directors,
Directors who are Employees, Officers who are not Directors, and Employees and
Consultants who are neither Directors nor Officers.
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(b) Administration With Respect to Directors and Officers. With
respect to grants of Options or Rights to Employees or Consultants who are also
Officers or Directors, the Plan shall be administered by (A) the Board, if the
Board may administer the Plan in compliance with the rules governing a plan
intended to qualify as a discretionary grant or award plan under Rule 16b-3, or
(B) a Committee designated by the Board to administer the Plan, which Committee
shall be constituted (I) in such a manner as to permit the Plan to comply with
the rules governing a plan intended to qualify as a discretionary grant or award
plan under Rule 16b-3 and (II) in such a manner as to satisfy the Applicable
Laws.
(c) Administration With Respect to Other Persons. With respect to
grants of Options or Rights or to Employees or Consultants who are neither
Directors nor Officers, the Plan shall be administered by (A) the Board or (B) a
Committee designated by the Board, which Committee shall be constituted in such
a manner as to satisfy the Applicable Laws.
(d) Committee Composition. Once a Committee has been appointed
pursuant to subsection (b) or (c) of this Section 4, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of any Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies (however caused) or
remove all members of the Committee and thereafter directly administer the Plan,
all to the extent permitted by the Applicable Laws and, in the case of a
Committee appointed under subsection (b), to the extent permitted by Rule 16b-3
as it applies to a plan intended to qualify thereunder as a discretionary grant
or award plan.
(e) Powers of the Administrator. Subject to the provisions of the
Plan and, in the case of a Committee, the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to grant Incentive Stock Options, Nonstatutory Stock
Options, SARs, Stock Purchase Rights, Stock Bonus Awards and Long-Term
Performance Awards;
(ii) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(o) of the Plan;
(iii) to select the Employees and Consultants to whom Options
and Rights may from time to time be granted hereunder;
(iv) to determine whether and to what extent Options and
Rights, or any combination thereof, are granted hereunder;
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(v) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(vi) to approve forms of agreements for use under the Plan;
(vii) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder and of the Options or
Rights so awarded (including, but not limited to, the exercise or purchase price
and any restriction or limitation regarding any Option or Right and/or the
shares of Common Stock relating thereto, based in each case on such factors as
the Administrator shall determine, in its sole discretion);
(viii) to determine whether and under what circumstances an
Option or Right may be settled in cash instead of Common Stock;
(ix) to reduce the exercise price of any Option or Right to
the then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option or Right shall have declined since the date the Option
was granted;
(x) to modify or amend the terms and conditions of any Option
or Right, subject to Section 15 of the Plan (including, but not limited to,
accelerating vesting or waiving forfeiture restrictions);
(xi) to institute an Option Exchange Program;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Right
previously granted by the Administrator;
(xiii) to interpret the Plan and to prescribe, amend and rescind
rules and regulations relating to the Plan; and
(xiv) to make all other determinations deemed necessary or
advisable for administering the Plan.
(f) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding.
(g) Suspension or Termination of Option or Right. If the Chief
Executive Officer or his or her designee reasonably believes that an Optionee
has committed an act of misconduct, the Chief Executive Officer may suspend the
Optionee's right to exercise any Option or Right or to receive any benefits
relating thereto pending a determination by the Administrator. If the
Administrator determines that an Optionee has committed an act of embezzlement,
fraud, dishonesty, nonpayment of an obligation owed to the Company,
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<PAGE> 36
breach of fiduciary duty or deliberate disregard of the Company's rules
resulting in loss, damage or injury to the Company, or if an Optionee makes an
unauthorized disclosure of any Company trade secret or confidential information,
engages in any conduct constituting unfair competition, induces any Company
customer to breach a contract with the Company or induces any principal for whom
the Company acts as agent to terminate such agency relationship, neither the
Optionee nor his or her estate shall be entitled to exercise any Option or Right
or to receive any benefits relating to Options or Rights whatsoever. In making
such determination, the Administrator shall act fairly and shall give the
Optionee an opportunity to appear and present evidence on Optionee's behalf at a
hearing before the Administrator.
5. Eligibility. Nonstatutory Stock Options and Rights may be granted to
Employees and Consultants. Incentive Stock Options may be granted only to
Employees. An Employee or Consultant who has been granted an Option or Right
may, if he or she is otherwise eligible, be granted additional Options or
Rights.
6. Term of Plan. Subject to Section 19 of the Plan, the Plan shall
become effective upon the earlier to occur of its adoption by the Board or its
approval by the stockholders of the Company as described in Section 19. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 15 of the Plan.
7. Options and SARs.
(a) Options. The Administrator, in its discretion, may grant Options
to eligible participants and shall determine whether such Options shall be
Incentive Stock Options or Nonstatutory Stock Options. Each Option shall be
evidenced by a Notice of Grant, which shall expressly identify the Options as
either Incentive Stock Options or as Nonstatutory Stock Options and which shall
be in such form and contain such provisions as the Administrator shall from time
to time deem appropriate. Without limiting the foregoing, the Administrator may,
at any time, or from time to time, authorize the Company, with the consent of
the respective holders of outstanding options or rights, to issue Options or
Rights in exchange for the surrender and cancellation of any or all outstanding
options or rights held by such person. Option agreements shall contain the
following terms and conditions:
(i) Exercise Price; Number of Shares. The Notice of Grant shall
specify the per Share exercise price for the Shares issuable pursuant to an
Option, which shall be such price as is determined by the Administrator. The
Notice of Grant shall also specify the number of Shares which are subject to the
Option.
(ii) Waiting Period, Exercise Dates and Term. At the time an
Option is granted, the Administrator will determine the terms and conditions to
be satisfied before Shares may be purchased upon exercise of the Option,
including the date or dates on which Shares subject to the Option first become
available for purchase.
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The Administrator may specify that an Option may not be exercised until the
completion of a specified service period or until certain Company, Subsidiary,
Affiliated Company or individual performance objectives are met. Any such period
is referred to herein as the "waiting period". At the time an Option is granted,
the Administrator shall fix the period within which the Option may be exercised,
which shall not be earlier than the end of the waiting period, if any, nor, in
the case of an Incentive Stock Option, later than ten (10) years, from the date
of grant. The Notice of Grant shall specify the term of the Option.
(iii) Form of Payment. The form of payment acceptable to
the Company in payment by an Optionee of the exercise price of Shares to be
issued upon exercise of an Option shall be determined by the Administrator (and,
in the case of an Incentive Stock Option, shall be determined at the time of
grant) and, subject to compliance with the Delaware General Corporation Law, may
consist entirely of:
(a) cash;
(b) check (personal, cashier's or certified) or money
order;
(c) promissory note;
(d) other Shares which (I) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six months on the date of surrender and (II) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which the Option is being exercised;
(e) delivery to the Company of (I) a properly
executed exercise notice, (II) irrevocable instructions to a broker to sell a
sufficient number of the Shares being exercised to cover the exercise price and
to promptly deliver to the Company the amount of sale proceeds required to pay
the exercise price and any required tax withholding relating to the exercise,
and (III) such other documentation as the Administrator and the broker shall
require to effect a same-day exercise and sale;
(f) delivery to the Company of (I) a properly
executed exercise notice, (II) irrevocable instructions to a broker or other
third party acceptable to the Company to hold the Shares being exercised as
collateral for a loan to the Optionee of an amount sufficient to cover the
exercise price and to promptly deliver to the Company the amount of loan
proceeds required to pay the exercise price and any required tax withholding
relating to the exercise and (III) such other documentation as the Administrator
and the broker or other third party shall require to effect the transaction;
(g) delivery of an irrevocable subscription agreement
for the Shares which irrevocably obligates the Optionee to take and pay for the
Shares not more than twelve months after the date of delivery of such
subscription agreement;
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(h) any combination of the foregoing methods
of payment; or
(i) such other method of payment for the
issuance of Shares as is permitted by the Applicable Laws.
(iv) Special Incentive Stock Option Provisions.
In addition to the foregoing, Options granted under the Plan which are intended
to be Incentive Stock Options under Section 422 of the Code shall be subject to
the following terms and conditions:
(a) Exercise Price. The per share exercise
price of an Incentive Stock Option shall be no less than 100% of the Fair Market
Value per Share on the date of grant.
(b) Dollar Limitation. If an Option granted
hereunder to an Optionee is intended to be an Incentive Stock Option, then to
the extent that such Option, when considered together with all other incentive
stock options held by Optionee (whether granted hereunder or under other plans
of the Company or its Parent or Subsidiaries), would cause the Fair Market Value
of all shares of stock of the Company, its Parent and Subsidiaries first
becoming exercisable by the Optionee during any calendar year to exceed
$100,000, such Option shall be treated as a Nonstatutory Stock Option. For
purposes of the preceding sentence, (1) options shall be taken into account in
the order in which they were granted, and (2) the Fair Market Value of the
shares subject to the option shall be determined as of the time the Option or
other incentive stock option is granted.
(c) 10% Stockholder. If any Optionee to whom
an Incentive Stock Option is to be granted pursuant to the provisions of the
Plan is, on the date of grant, the owner (as determined under Section 424(d) of
the Code) of stock possessing more than 10% of the total combined voting power
of all classes of stock of the Company or of a Parent or Subsidiary of the
Company, then the following special provisions shall be applicable to the
Incentive Stock Option granted to such individual:
(1) 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
(2) 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.
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(v) Other Provisions. Each Option granted under the Plan may
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator.
(vi) Buy-out Provisions. The Administrator may at any time offer on
behalf of the Company to buy out, for a payment in cash or Shares, an Option
previously granted, based on such terms and conditions as the Administrator
shall establish and communicate to the Optionee at the time that such offer is
made, provided, however, that buy-out offers made to Insiders may only be
payable in cash. Any such cash offer made to an Officer or Director shall comply
with the applicable provisions of Rule 16b-3, if any.
(b) SARs.
(i) In Connection with Options. At the sole discretion of the
Administrator, SARs may be granted in connection with all or any part of an
Option, either concurrently with the grant of the Option or at any time
thereafter during the term of the Option. The following provisions apply to SARs
that are granted in connection with Options:
(a) The SAR shall entitle the Optionee to exercise the SAR by
surrendering to the Company unexercised a portion of the related Option. The
Optionee shall receive in exchange from the Company an amount equal to the
excess of (1) the Fair Market Value, on the date of exercise of the SAR, of the
Common Stock covered by the surrendered portion of the related Option over (2)
the exercise price of the Common Stock covered by the surrendered portion of the
related Option. Notwithstanding the foregoing, the Administrator may place
limits on the amount that may be paid upon exercise of an SAR; provided,
however, that such limit shall not restrict the exercisability of the related
Option.
(b) When an SAR is exercised, the related Option, to the extent
surrendered, shall be cancelled and shall cease to be exercisable.
(c) An SAR shall be exercisable only when and to the extent
that the related Option is exercisable and shall expire no later than the date
on which the related Option expires.
(d) An SAR may only be exercised at a time when the Fair Market
Value of the Common Stock covered by the related Option exceeds the exercise
price of the Common Stock covered by the related Option.
(ii) Independent of Options. At the sole discretion of the
Administrator, SARs may be granted independently without related Options. The
following provisions apply to SARs that are not granted in connection with
Options:
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(a) The SAR shall entitle the Optionee, by exercising the
SAR, to receive from the Company an amount equal to the excess of (1) the Fair
Market Value of the Common Stock covered by the exercised portion of the SAR, as
of the date of such exercise, over (2) the Fair Market Value of the Common Stock
covered by the exercised portion of the SAR, as of the date on which the SAR was
granted; provided, however, that the Administrator may place limits on the
aggregate amount that may be paid upon exercise of an SAR.
(b) To the extent that an SAR is exercised, it shall be
cancelled and shall cease to be exercisable.
(c) SARs shall be exercisable, in whole or in part, at such
times as the Administrator shall specify in the Optionee's SAR Agreement.
(d) An SAR may only be exercised at a time when the Fair
Market Value of the Common Stock on the exercise date exceeds the Fair Market
Value of the Common Stock on the date of grant of the SAR.
(iii) Form of Payment. Unless otherwise specified in the SAR
Agreement, the Company's obligation arising upon the exercise of an SAR may be
paid in Common Stock or in cash, or in any combination of Common Stock and cash,
as the Administrator, in its sole discretion, may determine. Shares issued upon
the exercise of an SAR shall be valued at their Fair Market Value as of the date
of exercise.
(iv) Rule 16b-3. SARs granted to Insiders shall be subject to any
additional restrictions of Rule 16b-3 applicable to SARs granted to such
persons. An Insider may only exercise an SAR during such time or times as are
permitted by Rule 16b-3.
(c) Exercise of Options and SARs.
(i) Right to Exercise. Any Option or SAR granted hereunder shall
be exercisable at such times and under such conditions as are determined by the
Administrator and as shall be permissible under the terms of the Plan.
(ii) No Fractional Shares. An Option or SAR may not be exercised
for a fraction of a Share.
(iii) Procedure for Exercise. An Option or SAR shall be deemed to
be exercised when written notice of such exercise has been given to the Company
in accordance with the terms of the Option or SAR by the person entitled to
exercise the Option or SAR and full payment for the Shares with respect to which
the Option or SAR is being exercised has been received by the Company. Full
payment may, as authorized by the Administrator (and, in the case of an
Incentive Stock Option, determined at the time of
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grant) and permitted by the Option Agreement, consist of any consideration and
method of payment allowable under the Plan.
(iv) Rights as a Stockholder. Until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a stockholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. No adjustment will be made for a dividend or other right for which the
record date is prior to the date the stock certificate is issued, except as
provided in Section 12 of the Plan.
(v) Effect of Exercise. Exercise of an Option in any manner shall
result in a decrease in the number of Shares which thereafter shall be
available, both for purposes of the Plan and for sale under the Option, by the
number of Shares as to which the Option is exercised. Exercise of an SAR in any
manner shall, to the extent the SAR is exercised, result in a decrease in the
number of Shares which thereafter shall be available for purposes of the Plan,
and the SAR (and the related Option, if any) shall cease to be exercisable to
the extent it has been exercised.
(vi) Leave of Absence. Options and SARs held by an Optionee shall
not be exercisable during the Optionee's leave of absence from his or her
employment or consulting relationship with the Company, any Parent or Subsidiary
or any Affiliated Company, regardless of the length of such leave, except as
otherwise required by law. With respect to an Optionee's leave of absence which
is ninety (90) days or less in duration, vesting of all Options and SARs held by
the Optionee shall continue uninterrupted during such leave unless otherwise
provided in the Option or SAR Agreement. With respect to an Optionee's leave of
absence which is more than ninety (90) days in duration, vesting of any or all
Options and SARs held by such Optionee shall be suspended until the end of such
leave unless (i) otherwise expressly provided in the Option or SAR Agreement or
(ii) prohibited by an applicable law or regulation. The employment of an
Optionee who takes a leave of absence of more than 90 days after which such
Optionee is not guaranteed re-employment by contract or statute shall be deemed
to have terminated for purposes of the Plan on the ninety-first (91st) day of
such leave of absence.
(d) Rule 16b-3. Options and SARs granted to Insiders must comply with
the applicable provisions of Rule 16b-3 and shall contain such additional
conditions or restrictions as may be required thereunder to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
(e) Effect of Termination.
(i) Termination of Employment or Consulting Relationship. In the
event an Optionee's Continuous Status as an Employee or Consultant terminates
(other
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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.
(ii) Disability of Optionee. In the event an Optionee's
Continuous Status as an Employee or Consultant terminates as a result of the
Optionee's Disability, the Optionee may exercise his or her Option or SAR, but
(A) only to the extent that the Optionee was entitled to exercise it at the date
of such termination, unless otherwise permitted by the Administrator, and (B)
only within such period of time following the date of termination due to
Disability not exceeding ten (10) years as is determined by the Administrator
(with such determination being made at the time of grant of the Option in the
case of an Incentive Stock Option and not exceeding one (1) year) and in no
event later than the expiration of the term of such Option or SAR as set forth
in the Option or SAR Agreement. To the extent that Optionee was not entitled to
exercise an Option or SAR at the date of such termination, and to the extent
that the Optionee does not exercise such Option or SAR (to the extent otherwise
so entitled) within the time specified herein, the Option or SAR shall
terminate.
(iii) Death of Optionee. In the event of an Optionee's death
during the term of an Option or SAR, the Optionee's estate or a person who
acquired the right to exercise the deceased Optionee's Option or SAR by bequest
or inheritance may exercise the Option or SAR, but (A) only to the extent that
the Optionee was entitled to exercise it at the date of death, unless otherwise
permitted by the Administrator and (B) only within such period of time following
the date of death not exceeding ten (10) years as is determined by the
Administrator, and in no event later than the expiration of the term of such
Option or SAR as set forth in the Option or SAR Agreement. To the extent that
Optionee was not entitled to exercise an Option or SAR at the date of death, and
to the extent that the Optionee's estate or a person who acquired the right to
exercise such Option does not exercise such Option or SAR (to the extent
otherwise so entitled) within the time specified herein, the Option or SAR shall
terminate.
8. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either
alone, in addition to or in tandem with other awards granted under the Plan
and/or awards made outside of the Plan. After the Administrator determines that
it will offer
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Stock Purchase Rights under the Plan, it shall advise the offeree in a written
Notice of Grant of the terms, conditions and restrictions related to the offer,
including the number of Shares that the offeree shall be entitled to purchase,
the price to be paid, the form of payment that is acceptable (which may, in the
discretion of the Administrator, include any form of payment enumerated in
Section 7(a)(iii) hereof), and the time within which the offeree must accept
such offer, which shall in no event exceed sixty (60) days from the date upon
which the Administrator made the determination to grant the Stock Purchase
Right. The offer shall be accepted by execution of a Restricted Stock Purchase
Agreement in the form determined by the Administrator and payment of the
purchase price. Shares purchased pursuant to a Stock Purchase Right shall be
referred to herein as "Restricted Stock".
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's Continuous Status as an Employee or Consultant for any reason
(including death or Disability). The purchase price for Shares repurchased by
the Company pursuant to the provisions of the Restricted Stock Purchase
Agreement shall be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to the Company, whether or not
such indebtedness is related to the original purchase of the Shares being
repurchased by the Company. The repurchase option shall lapse at such rate as
the Administrator may determine.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. The
provisions of Restricted Stock Purchase Agreements need not be the same with
respect to each purchaser.
(d) Rule 16b-3. Stock Purchase Rights granted to Insiders, and
Shares purchased by Insiders pursuant to Stock Purchase Rights, shall be subject
to such additional conditions or restrictions of Rule 16b-3 as may be applicable
thereto in order to qualify for the maximum exemption from Section 16 of the
Exchange Act with respect to Plan transactions.
(e) Rights as a Stockholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
stockholder and shall be a stockholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 12
of the Plan.
9. Stock Bonus Awards. Stock Bonus Awards may be granted either alone,
in addition to or in tandem with other awards granted under the Plan and/or
awards made
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outside of the Plan. Stock Bonus Awards shall not require payment by the
Optionee of any consideration for the Shares covered by the Stock Bonus Award.
The Administrator shall determine, in its sole discretion, the terms, conditions
and restrictions relating to each Stock Bonus Award and shall determine any
performance or employment-related factors to be considered in the granting of
Stock Bonus Awards and the extent to which such Stock Bonus Awards have been
earned. Shares issued pursuant to a Stock Bonus Award may be made subject to
various conditions, including vesting or forfeiture provisions. Stock Bonus
Awards may vary from participant to participant and between groups of
participants. Each Stock Bonus Award shall be confirmed by, and be subject to
the terms of, a Stock Bonus Award agreement.
10. Long-Term Performance Awards.
(a) Awards. Long-Term Performance Awards are cash or stock
bonus awards that may be granted either alone, in addition to or in tandem with
other awards granted under the Plan and/or awards made outside of the Plan.
Long-Term Performance Awards shall not require payment by the Optionee of any
consideration for the Long-Term Performance Award or for the Shares covered by
such award. The Administrator shall determine the nature, length and starting
date of any performance period (the "Performance Period") for each Long-Term
Performance Award and shall determine the performance or employment factors, if
any, to be used in the determination of the value of Long-Term Performance
Awards and the extent to which such Long-Term Performance Awards have been
earned. Shares issued pursuant to a Long-Term Performance Award may be made
subject to various conditions, including vesting or forfeiture provisions.
Long-Term Performance Awards may vary from participant to participant and
between groups of participants and shall be based upon the achievement of
Company, Subsidiary, Parent, Affiliated Company and/or individual performance
factors or upon such other criteria as the Administrator may deem appropriate.
Performance Periods may overlap and participants may participate simultaneously
with respect to Long-Term Performance Awards that are subject to different
Performance Periods and different performance factors and criteria. Long-Term
Performance Awards shall be confirmed by, and be subject to the terms of, a
Long-Term Performance Award agreement.
(b) Value of Awards. At the beginning of each Performance
Period, the Administrator may determine for each Long-Term Performance Award
subject to such Performance Period the range of dollar values and/or numbers of
shares of Common Stock to be awarded to the participant at the end of the
Performance Period if and to the extent that the relevant measures of
performance for such Long-Term Performance Award are met. Such dollar values or
numbers of shares of Common Stock may be fixed or may vary in accordance with
such performance or other criteria as may be determined by the Administrator.
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<PAGE> 45
(c) Adjustment of Awards. Notwithstanding the provisions of
Section 15 hereof, the Administrator may, after the grant of Long-Term
Performance Awards, adjust the performance factors applicable to such Long-Term
Performance Awards to take into account changes in the law or in accounting or
tax rules and to make such adjustments as the Administrator deems necessary or
appropriate to reflect the inclusion or exclusion of the impact of extraordinary
or unusual items, events or circumstances in order to avoid windfalls or
hardships.
11. Non-Transferability of Options. Options and Rights may not be
sold, pledged, assigned, hypothecated, transferred or disposed of in any manner
other than by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act, or the rules thereunder. The
designation of a beneficiary by an Optionee does not constitute a transfer. An
Option or Right may be exercised, during the lifetime of the Optionee, only by
the Optionee or by a transferee permitted by this Section 11.
12. Adjustments Upon Changes in Capitalization, Dissolution,
Merger, Asset Sale or Change of Control.
(a) Changes in Capitalization. Subject to any required action
by the stockholders of the Company, the number of shares of Common Stock covered
by each outstanding Option and Right, and the number of shares of Common Stock
which have been authorized for issuance under the Plan but as to which no
Options or Rights have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option or Right, as well as the price per
share of Common Stock covered by each such outstanding Option or Right, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Administrator, whose determination in that respect shall be final,
binding and conclusive.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option or Right
has not been previously exercised, it will terminate immediately prior to the
consummation of such proposed action. The Administrator may, in the exercise of
its sole discretion in such instances, declare that all Options and Rights shall
terminate as of a date fixed by the Administrator and give each Optionee the
right to exercise his or her Option or Right as to all or any part of the
Optioned Stock, including Shares as to which the Option or Right would not
otherwise be exercisable.
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<PAGE> 46
(c) Merger or Asset Sale. In the event of a merger of the
Company with or into another corporation or the sale of substantially all of the
assets of the Company, each outstanding Option and Right shall be assumed or an
equivalent option or right substituted by the successor corporation or a Parent
or Subsidiary of the successor corporation. However, the Administrator may, in
lieu of such assumption or substitution, provide for the Optionee to have the
right to exercise the Option or Right in full, including Shares as to which such
Options or Rights would not otherwise be exercisable. If the Administrator makes
an Option or Right fully exercisable in lieu of assumption or substitution in
the event of a merger or sale of assets, the Administrator shall notify the
Optionee that the Option or Right shall be fully exercisable for a period of
time determined by the Administrator from the date of such notice, and the
Option or Right will terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Right shall be considered assumed if,
immediately following the merger or sale of assets, the option or right confers
the right to purchase, for each Share of Optioned Stock subject to the Option or
Right immediately prior to the merger or sale of assets, the consideration
(whether stock, cash, or other securities or property) received in the merger or
sale of assets by holders of Common Stock for each Share held on the effective
date of the transaction (and, if such holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger or sale of assets was not solely common stock of the successor
corporation or its Parent, the Administrator may, with the consent of the
successor corporation and the participant, provide for the consideration to be
received upon the exercise of the Option or Right, for each Share of Optioned
Stock subject to the Option or Right, to be solely common stock of the successor
corporation or its Parent equal in Fair Market Value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
(d) Change in Control. In the event of a "Change in Control"
of the Company, as defined in paragraph (e) below, unless otherwise determined
by the Administrator prior to the occurrence of such Change in Control, any
Options and Rights outstanding on the date such Change in Control is determined
to have occurred that are not yet exercisable and vested on such date shall
become fully exercisable and vested.
(e) Definition of "Change in Control". For purposes of this
Section 12, a "Change in Control" means the happening of any of the following:
(i) When any "person", as such term is used in Sections
13(d) and 14(d) of the Exchange Act (other than the Company, a Subsidiary or a
Company employee benefit plan, including any trustee of such plan acting as
trustee) is or becomes the "beneficial owner" (as defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of securities of
the Company representing fifty percent (50%) or more of the combined voting
power of the Company's then outstanding securities; or
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<PAGE> 47
(ii) The stockholders of the Company approve a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve an agreement for the sale or disposition by the Company
of all or substantially all of the Company's assets; or
(iii) A change in the composition of the Board of
Directors of the Company, as a result of which fewer than a majority of the
directors in office are Incumbent Directors. "Incumbent Directors" shall mean
directors who either (A) are directors of the Company as of the date the Plan is
approved by the stockholders, or (B) are elected, or nominated for election, to
the Board of Directors of the Company with the affirmative votes of at least a
majority of the Incumbent Directors at the time of such election or nomination
(but shall not include an individual whose election or nomination is in
connection with an actual or threatened proxy contest relating to the election
of directors to the Company).
(f) No Other Adjustments. Except as expressly provided or
authorized herein, no issuance by the Company of shares of stock of any class,
or securities convertible into or exercisable for shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Right.
13. Stock Withholding to Satisfy Withholding Tax Obligations.
(a) Ability to Use Stock to Satisfy Withholding. At the
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this Section 13. When an Optionee incurs tax liability in
connection with the award, vesting or exercise of an Option or Right, which tax
liability is subject to tax withholding under applicable tax laws (including
federal, state and local laws), and the Optionee is obligated to pay the Company
an amount required to be withheld under such applicable tax laws, the Optionee
may satisfy the withholding tax obligation (up to an amount calculated by
applying such Optionee's maximum marginal tax rate) by electing to have the
Company withhold from the Shares to be issued upon award, vesting or exercise of
the Option or Right that number of Shares, or by delivering to the Company that
number of previously owned Shares, having a Fair Market Value equal to the
amount required to be withheld. The Fair Market Value of the Shares to be
withheld or delivered, as the case may be, shall be determined on the date that
the amount of tax to be withheld is determined (the "Tax Date").
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<PAGE> 48
(b) Election to Have Stock Withheld. All elections by an
Optionee to have Shares withheld or to deliver previously owned Shares pursuant
to this Section 13 shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(i) the election must be made on or prior to the
applicable Tax Date;
(ii) all elections shall be subject to the consent or
disapproval of the Administrator; and
(iii) if the Optionee is an Insider, the election must
comply with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
(c) Section 83(b) Elections. In the event that an election to
have Shares withheld is made by an Optionee, no election is filed under Section
83(b) of the Code by such Optionee and the Tax Date is deferred under Section 83
of the Code, the Optionee shall receive the full number of Shares with respect
to which the Option or Right has been awarded, has vested or has been exercised,
as the case may be, but such Optionee shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
14. Time of Granting Options and Rights. The date of grant of an
Option or Right shall, for all purposes, be the date on which the Administrator
makes the determination granting such Option or Right or such future date as is
specified in the resolutions of the Administrator grating such Option or Right.
Notice of the determination shall be given to each Employee or Consultant to
whom an Option or Right is so granted within a reasonable time after the date of
such grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time
amend, alter, suspend or terminate the Plan, but no amendment, alteration,
suspension or termination shall be made which would impair the rights of any
Optionee under any Option or Right theretofore granted without his or her
consent.
(b) Stockholder Approval. The Company shall obtain stockholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Rule 16b-3 or with Section 422 of the Code (or any successor statute or
rule or other applicable law, rule or regulation, including the requirements of
any exchange or quotation system on which the Common Stock is listed or quoted).
Such stockholder
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<PAGE> 49
approval, if required, shall be obtained in such a manner and to such a degree
as is required by the applicable law, rule or regulation.
(c) Effect of Amendment or Termination. Any such amendment,
alteration, suspension or termination of the Plan shall not adversely affect
Options or Rights already granted and such Options and Rights shall remain in
full force and effect as if this Plan had not been amended, altered, suspended
or terminated, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee and
the Company.
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to
the award, vesting or exercise of an Option or Right unless the award, vesting
or exercise of such Option or Right, as the case may be, and the issuance and
delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder,
applicable state securities laws and the requirements of any stock exchange or
quotation system upon which the Shares may then be listed or quoted, and shall
be further subject to the approval of counsel for the Company with respect to
such compliance.
(b) Investment Representation. As a condition to the receipt
of Shares upon the award, vesting or exercise of an Option or Right, the Company
may require the person receiving such Shares to represent and warrant at the
time of any such award, vesting or exercise that the Shares are being acquired
only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation is
required by any of the aforementioned relevant provisions of law.
(c) Regulatory Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
(d) Grants Exceeding Allotted Shares. If the Optioned Stock
covered by an Option or Right exceeds, as of the date of grant, the number of
Shares which may be issued under the Plan without additional stockholder
approval, such Option or Right shall be void with respect to such excess
Optioned Stock, unless stockholder approval of an amendment sufficiently
increasing the number of Shares subject to the Plan is timely obtained in
accordance with Section 15(b) of the Plan.
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<PAGE> 50
17. Reservation of Shares. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
18. Agreements. Options and Rights shall be evidenced by written
agreements in such form as the Administrator shall approve from time to time.
19. Stockholder Approval. Continuance of the Plan shall be subject
to approval by the stockholders of the Company within twelve (12) months before
or after the date the Plan is adopted as provided in Section 6. Such stockholder
approval shall be obtained in the degree and manner required under applicable
state and federal law.
20. No Employment or Consulting Agreement. Neither the Plan nor
any Option or Right nor any agreement evidencing such awards nor the vesting
thereof shall confer upon an Optionee any right with respect to continuing the
Optionee's employment or consulting relationship with the Company, nor shall
they interfere in any way with the Optionee's right or the Company's right to
terminate such employment or consulting relationship at any time, with or
without cause.
21. Performance-Based Plan Limitation. The following limitations
shall apply to grants of Options to Employees:
(i) No Employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 1,500,000 Shares, of which 1,000,000
shares are subject to stockholder approval at the 1997 Annual Meeting of
Stockholders.
(ii) In connection with his or her initial employment, an
Employee may be granted Options to purchase up to an additional 500,000 Shares,
which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 12.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 12), the cancelled Option will be counted against the limit
set forth in this Section 21. For this purpose, if the exercise price of an
Option is reduced, the transaction will be treated as a cancellation of the
Option and the grant of a new Option.
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<PAGE> 51
[VLSI TECHNOLOGY LETTERHEAD]
March 28, 1997
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders to be
held at 9:00 a.m., local time, on Wednesday, May 7, 1997, at the Company's
offices located at 9651 Westover Hills Boulevard, San Antonio, Texas. Detailed
information as to the business to be transacted at the meeting is contained in
the accompanying Notice of Annual Meeting and Proxy Statement.
Regardless of whether you plan to attend the meeting, it is important that your
shares be voted. Accordingly, we ask that you mark, sign and return your proxy
as soon as possible in the envelope provided. If you do plan to attend the
meeting, please mark the appropriate box on the proxy.
Sincerely,
Alfred J. Stein
Chairman of the Board and
Chief Executive Officer
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
VLSI TECHNOLOGY, INC.
Proxy for 1997 Annual Meeting of Stockholders
The undersigned stockholder of VLSI Technology, Inc. a Delaware
corporation, hereby acknowledges receipt of the 1996 Annual Report to
Stockholders and the Notice of Annual Meeting of Stockholders and Proxy
Statement for the Annual Meeting of Stockholders of VLSI Technology, Inc. to be
held on Wednesday, May 7, 1997 at 9:00 a.m. local time, at the Company's offices
located at 9651 Westover Hills Boulevard, San Antonio, Texas 78251, and hereby
appoints Alfred J. Stein and Larry L. Grant, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at such meeting, and at
any adjournment or adjournments thereof, and to vote all shares of Common Stock
that the undersigned would be entitled to vote if then and there personally
present on the matters set forth on the reverse side:
Either of such proxies and attorneys-in-fact, or their substitutes, as
shall be present and shall act at said meeting or any adjournment or
adjournments thereof shall have and may exercise all the powers of said proxies
and attorneys-in-fact hereunder.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder(s).
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
(SEE REVERSE SIDE)
<PAGE> 52
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE COMPANY'S
NOMINEES FOR DIRECTOR AND FOR PROPOSALS 2 AND 3.
1. ELECTION OF DIRECTORS.
Nominees: Richard M. Beyer, Pierre S. Bonelli, Robert P. Dilworth,
William G. Howard, Jr., Paul R. Low, Alfred J. Stein
and Horace H. Tsiang.
// FOR all nominees // WITHHELD from all Nominees
Mark here if you // Mark here for address //
plan to attend change and note
the meeting below
//
-----------------------------------------------------------------------
FOR all nominees except those listed on the line above
2. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT
AUDITORS FOR 1997.
// FOR // AGAINST // ABSTAIN
3. PROPOSAL TO RATIFY AND APPROVE AN AMENDMENT TO THE COMPANY'S 1992
STOCK PLAN TO INCREASE THE LIMIT ON THE NUMBER OF SHARES THAT CAN BE
GRANTED TO ANY ONE EMPLOYEE IN ANY FISCAL YEAR UNDER AN OPTION TO
PURCHASE FROM 500,000 TO 1,500,000 AND TO RATIFY THE ISSUANCE OF
OPTIONS IN 1996 THEREUNDER.
// FOR // AGAINST // ABSTAIN
4. IN THEIR DISCRETION, THE PROXIES AND ATTORNEYS-IN-FACT ARE AUTHORIZED TO
VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING,
AND ANY ADJOURNMENT OR ADJOURNMENTS THEREOF.
(This Proxy should be dated, signed by the stockholder(s) exactly as
his or her name(s) appears hereon, and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate.)
Signature:_________________________ Date: ______________
Signature:_________________________ Date: ______________
