UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Mark One:
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 26, 1998.
--------------
Or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
------ ------
Commission file number 0-11879
VLSI TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2597282
------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1109 McKay Drive, San Jose, California, 95131
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(Address of principal executive offices) (Zip Code)
(408) 434-3100
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes (X) No ( )
Shares outstanding of the Registrant's Common Stock as of June 26, 1998:
46,475,408
<PAGE>
<TABLE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
VLSI TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME - unaudited
(thousands, except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 26, June 27, June 26, June 27,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues $137,811 $170,977 $279,097 $338,455
Cost of sales 84,987 99,445 167,927 198,535
-------- -------- -------- --------
Gross profit 52,824 71,532 111,170 139,920
-------- -------- -------- --------
Operating expenses:
Research and development 26,539 22,763 54,576 46,778
Marketing, general and
administrative 22,553 28,388 48,850 55,629
-------- -------- -------- --------
Operating income 3,732 20,381 7,744 37,513
Interest and other income and
expenses, net 8,376 3,326 12,184 6,237
Interest expense (3,220) (4,201) (6,704) (8,661)
-------- -------- -------- --------
Income from continuing
operations before
provision for taxes on income 8,888 19,506 13,224 35,089
Provision for taxes on income 2,400 6,240 3,570 11,220
-------- -------- -------- --------
Income from continuing operations 6,488 13,266 9,654 23,869
Loss from discontinued
operation, net of taxes - (933) - (2,550)
-------- -------- -------- --------
Net income 6,488 12,333 9,654 21,319
-------- -------- -------- --------
Other comprehensive income, net of tax:
Unrealized gain (loss)on available-
for-sale securities, net of
reclassification adjustment 24,929 54 25,412 (38)
-------- -------- -------- --------
Comprehensive income $ 31,417 $ 12,387 $ 35,066 $ 21,281
======== ======== ======== ========
Net income (loss) per share - Basic:
Continuing operations $ 0.14 $ 0.29 $ 0.21 $ 0.52
Discontinued operation - (0.02) - (0.06)
-------- -------- -------- --------
Total $ 0.14 $ 0.27 $ 0.21 $ 0.46
======== ======== ======== ========
Net income (loss) per share - Diluted:
Continuing operations $ 0.14 $ 0.28 $ 0.20 $ 0.49
Discontinued operation - (0.02) - (0.05)
-------- -------- -------- --------
Total $ 0.14 $ 0.26 $ 0.20 $ 0.44
======== ======== ======== ========
Weighted-average common
shares outstanding - Basic 46,109 46,124 45,928 46,311
======== ======== ======== ========
Weighted-average common
shares outstanding and
assumed conversions - Diluted 47,357 48,146 47,442 48,158
======== ======== ======== ========
See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
<TABLE>
VLSI TECHNOLOGY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS - unaudited
(thousands, except per share amounts)
<CAPTION>
June 26, December 26,
1998 1997
--------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $181,936 $193,899
Marketable securities 136,710 89,585
Accounts receivable, net of allowance
for doubtful accounts and customer
returns of $1,800
($2,000 at December 26, 1997) 88,596 110,869
Inventories:
Raw materials 2,070 2,565
Work-in-process 31,932 40,796
Finished goods 11,274 8,514
-------- --------
Total inventories 45,276 51,875
Deferred and refundable income taxes 69,156 82,870
Prepaid expenses and other current assets 7,755 4,779
-------- --------
Total current assets 529,429 533,877
Property, plant and equipment, at cost 810,435 777,316
Accumulated depreciation and amortization (420,124) (396,412)
-------- --------
Net property, plant and equipment 390,311 380,904
Other assets 9,178 7,297
-------- --------
TOTAL ASSETS $928,918 $922,078
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 53,578 $ 57,469
Accrued compensation and benefits 29,046 31,091
Income taxes 15,107 11,436
Patent matters 13,958 23,738
Other accrued liabilities 40,570 59,620
Current portion of long-term debt - 2,874
-------- --------
Total current liabilities 152,259 186,228
Long-term debt 172,500 182,039
Other long-term obligations 30,131 24,960
Deferred income taxes 12,456 12,456
Stockholders' equity:
Preferred Shares, $.01 per value - -
Common Shares, $.01 par value 473 473
Treasury Common Shares, at cost (17,344) (32,653)
Additional paid-in capital 454,341 459,539
Retained earnings 101,054 91,400
Accumulated other comprehensive income 23,048 (2,364)
-------- --------
Total stockholders' equity 561,572 516,395
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $928,918 $922,078
======== ========
See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
<TABLE>
VLSI TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - unaudited
(thousands)
<CAPTION>
Six Months Ended
---------------------------
June 26, June 27,
1998 1997
-------- --------
Increase (decrease) in cash
and cash equivalents
<S> <C> <C>
Operating activities:
Net income $ 9,654 $ 21,319
Adjustments to reconcile net income
to cash generated by operations:
Depreciation and amortization 50,819 54,750
Gain on sale of marketable securities (4,664) -
Deferred income taxes 807 10,606
Changes in operating assets and liabilities:
Accounts receivable 22,273 (226)
Inventories 6,599 2,378
Accounts payable, income taxes payable and
accrued liabilities (35,607) (8,064)
Other (5,165) (2,674)
-------- --------
Cash generated by operations 44,716 78,089
-------- --------
Investing activities:
Purchases of marketable securities (129,052) (135,799)
Proceeds from sale of marketable securities 7,923 -
Proceeds from maturities of marketable securities 119,909 107,890
Purchases of property, plant and equipment (63,366) (44,757)
Sale of property, plant and equipment 16,361 -
-------- --------
Net cash flow used for investing activities (48,225) (72,666)
-------- --------
Financing activities:
Payments on debt and capital lease obligations (13,575) (4,340)
Repurchase Treasury Shares (4,564) (17,015)
Issuance of Common and Treasury Shares, net 9,685 8,526
-------- --------
Net cash flow used for financing activities (8,454) (12,829)
-------- --------
Net decrease in cash and cash equivalents (11,963) (7,406)
Cash and cash equivalents, beginning of period 193,899 139,074
-------- --------
Cash and cash equivalents, end of period $181,936 $131,668
======== ========
Supplemental disclosures:
Cash outflows for property, plant and equipment $ 63,366 $ 44,757
Change in accrued capital acquisitions 9,463 700
-------- --------
Property, plant and equipment additions $ 72,829 $ 45,457
======== ========
Interest paid $ 8,149 $ 10,294
======== ========
Income taxes paid, net $ 2,022 $ 4,795
======== ========
See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The accompanying interim consolidated condensed financial statements have
been prepared in conformance with generally accepted accounting principles,
consistent with those applied in the VLSI Technology, Inc. Annual Report on
Form 10-K for the fiscal year ended December 26, 1997 (the 1997 Annual
Report). This Quarterly Report on Form 10-Q (Form 10-Q) should be read in
conjunction with the 1997 Annual Report. The interim financial statements are
unaudited, but reflect all normal recurring adjustments that are, in the
opinion of management, necessary for a fair statement of results for the
interim periods presented. Certain prior year second quarter and six-month
period amounts reported have been reclassified to reflect the sale of a
subsidiary, as discussed in the 1997 Annual Report. The results for the second
quarter and six months ended June 26, 1998 are not necessarily indicative of
the results that may be expected for the fiscal year ending December 25, 1998.
2. ARM Holdings PLC (ARM) made an initial public offering (IPO) of its common
stock in April 1998. As an early stage investor in ARM, the Company's
investment equated to 2.5 million shares at the time of the IPO, and the
Company participated in the IPO by selling approximately 20% of such shares.
The Company's historical cost basis and carrying value of the ARM shares was
not significant. As a result of the ARM IPO, VLSI realized a gain of almost
$4.7 million during the quarter ended June 26, 1998, which is included in
interest and other income and expenses, net. Under the provisions of the IPO,
the Company is precluded from selling its remaining investment in ARM until
October 1998.
3. Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (FAS 130) was effective beginning with the Company's
1998 first fiscal quarter. FAS 130 requires comprehensive income be reported
with the same prominence as other financial statements. As such, the Company
has included these amounts on the face of the income statement.
Comprehensive income includes net income plus other comprehensive income.
Other comprehensive income for VLSI is comprised of changes in unrealized
gains or losses on available-for-sale securities, net of tax.
Accumulated other comprehensive income and changes thereto in 1998 consist of
(thousands):
Accumulated other comprehensive income at
December 26, 1997 (unrealized loss on available-
for-sale securities, net of tax of $1,477) $(2,364)
Change for the six months ended June 26, 1998:
Unrealized gain on available-for-sale securities 40,415
Tax effect on unrealized gain (15,554)
Reclassification adjustment for recovered losses
included in net income for the six-month period,
net of tax of $344 551
-------
Accumulated other comprehensive income at
June 26, 1998 (unrealized gain on
available-for-sale securities, net of tax) $23,048
=======
The $38,000 unrealized loss for the six months ended June 27, 1997 is net of
tax benefit of $24,000.
4. Prior year's second quarter and six-month period net income per share
figures have been restated as required by FAS 128. Net income per share,
Basic and Diluted, is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 26, June 27, June 26, June 27,
1998 1997 1998 1997
-------- -------- -------- --------
(thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net income (loss):
Continuing operations $ 6,488 $13,266 $ 9,654 $23,869
Discontinued operation - (933) - (2,550)
------- ------- ------- -------
Total $ 6,488 $12,333 $ 9,654 $21,319
======= ======= ======= =======
Weighted-average common shares
- Basic 46,109 46,124 45,928 46,311
Dilutive options 1,248 2,022 1,514 1,847
------- ------- ------- -------
Adjusted weighted-average
common shares and assumed
conversions - Diluted 47,357 48,146 47,442 48,158
======= ======= ======= =======
Net income (loss) per share
- Basic:
Continuing operations 0.14 0.29 0.21 0.52
Discontinued operation - (0.02) - (0.06)
------- ------- ------- -------
Total $ 0.14 $ 0.27 $ 0.21 $ 0.46
======= ======= ======= =======
Net income (loss) per share
- Diluted:
Continuing operations 0.14 0.28 0.20 0.49
Discontinued operation - (0.02) - (0.05)
------- ------- ------- -------
Total $ 0.14 $ 0.26 $ 0.20 $ 0.44
======= ======= ======= =======
</TABLE>
The effect of convertible debt is excluded in all periods from income
available to shareholders and adjusted weighted-average common shares because
they would have been antidilutive. The following amounts have been excluded:
Three Months Ended Six Months Ended
------------------ ----------------
June 26, June 27, June 26, June 27,
1998 1997 1998 1997
-------- -------- -------- --------
(thousands)
Income available to shareholders,
net of tax $ 2,597 $ 2,420 $ 5,194 $ 4,839
======= ======= ======= =======
Potentially dilutive shares 3,148 3,148 3,148 3,148
======= ======= ======= =======
5. Marketable securities are liquid investments with original maturities
greater than 90 days. The Company classifies these investments as
available-for-sale and records the unrealized gains and losses in a separate
component of equity as accumulated other comprehensive income, as well as
reporting the changes in such balances on the face of the income statement
as other comprehensive income.
6. In January 1996, the Board of Directors (Board) authorized the Company to
repurchase shares of the Company's Common Stock on the open market or in
privately negotiated transactions. The Board authorized the Company to re-
issue these shares at any later date through certain of its employee stock
plans and/or to fund stock or asset acquisitions authorized by the Board.
During the first six months of 1998, the Company repurchased 240,000 shares at
an average per share price of $19.01. The Company may, from time to time,
continue to repurchase additional shares.
7. The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights and positions. Periodically, the
Company is made aware that technology used by the Company in the manufacture
of some or all of its products may infringe on product or process technology
rights held by others. Resolution of whether the Company's manufacture of
products has infringed on valid rights held by others could have a material
adverse effect on the Company's financial position or results of operations
and may require material changes in production processes and products. The
Company continually evaluates the adequacy of its reserves for asserted and
unasserted patent matters. The reserve is based on the best available
information at the time and it is reasonably possible that the Company's
estimate of the exposure for patent matters could materially change at any
given time.
In response to a claim by Motorola of infringement by VLSI of Motorola's
patents, in April 1998 the Company concluded a multi-year patent license
agreement with Motorola. Under the agreement, the Company paid initial
consideration valued at $8 million, in a combination of cash and restricted
stock. Further, the Company has a royalty obligation through the term of the
agreement in amounts not considered material to the results of any one
quarter. The Company had previously made sufficient reserves regarding this
matter.
8. On May 14, 1998, the Company's stockholders approved an amendment to the
Company's Restated Certificate of Incorporation to increase the number of
shares of Common Stock by 100,000,000 shares and to eliminate the Series B and
Junior Common Stock, none of which was outstanding. The new number of shares
which the Company has the authority to issue is 202,000,000, of which
200,000,000 shall be Common Shares and 2,000,000 shall be Preferred Shares.
Par value continues at $.01 per each share, common or preferred.
9. On July 15, 1998, VLSI announced a reduction in force of approximately 190
positions. Certain dispersed manufacturing functions are to be consolidated
during the third quarter of 1998 and certain general and administrative
activities are to be re-sized. As a result of this action, the Company
currently anticipates a special charge of $5 million to $7 million will be
incurred against operating income in the third quarter of 1998.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results
of Operations (MDA) should be read in conjunction with the 1997 Annual Report,
inclusive of the MDA therein.
This MDA contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934. Actual results could differ materially from those projected in
the forward-looking statements as a result of a number of factors, including
the risk factors set forth herein and in the 1997 Annual Report. Statements
made herein are as of the date of filing of this quarterly report with the
Securities and Exchange Commission. The Company disclaims any obligation to
update the contents of those statements subsequent to the filing of this
Form 10-Q, except as may be required
by law.
The following table summarizes the Company's operating results for the quarter
and six months ended June 26, 1998 as compared to the quarter and six months
ended June 27, 1997 (dollars are in thousands and percentages are expressed
as a percentage of net revenues):
<TABLE>
<CAPTION>
Quarter Ended June Six Months Ended June
---------------------------------- ----------------------------------
1998 1997 1998 1997
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $137,811 100.0% $170,977 100.0% $279,097 100.0% $338,455 100.0%
Gross profit 52,824 38.3 71,532 41.8 111,170 39.8 139,920 41.3
Research & development 26,539 19.3 22,763 13.3 54,576 19.6 46,778 13.8
Marketing, general and
administrative 22,553 16.4 28,388 16.6 48,850 17.5 55,629 16.4
Operating income 3,732 2.7 20,381 11.9 7,744 2.8 37,513 11.1
Interest and other income
(expense), net 5,156 3.7 (875) (0.5) 5,480 2.0 (2,424) (0.7)
Net income from
continuing operations 6,488 4.7 13,266 7.8 9,654 3.5 23,869 7.1
Net income $ 6,488 4.7% $ 12,333 7.2% 9,654 3.5% $ 21,319 6.3%
</TABLE>
Net income was $6.5 million and $9.7 million in the second quarter and first
six months of 1998, compared to net income of $12.3 million and $21.3 million
in the second quarter and first six months of 1997. These decreases primarily
reflect decreased net revenues, offset in part by the gain on sale of ARM
securities in the second quarter of 1998, as discussed later in this section.
Net revenues in the second quarter and first six months of 1998 decreased
19.4% and 17.5% from the comparable 1997 periods. These decreases are
primarily due to lower sales of the Company's communications and computing
products, reflecting business uncertainties in the Asia-Pacific region, and
residual inventory adjustments at a range of customers.
International net revenues (including export sales) declined faster than
domestic net revenues, decreasing as a percentage of net revenues to 41.9%
and 48.6% of net revenues in the second quarter and first six months of 1998
compared to 51.6% and 52.2% in the second quarter and first six months of
1997. The decreases are a result of a decline in net revenue in Europe,
primarily in communications products with world-wide customers, including
some of which have been affected by the changes in the Asia-Pacific region.
Gross profit margins decreased to 38.3% and 39.8% in the second quarter and
first six months of 1998 from 41.8% and 41.3% for the comparable 1997
periods, due to the impact of the lower sales volume resulting in
under-utilization of fabrication capacity and related fixed costs not being
fully absorbed. The effect of under-utilization was partially offset by
lower costs due to expense reduction measures taken during the second quarter.
Research and development expenditures increased by $3.8 million and $7.8
million in the second quarter and first six months of 1998 compared to the
same 1997 periods. These increases reflect the Company's continuing
investment in new technologies and products. The increase in research and
development expenditures, combined with lower net revenues, resulted in
research and development expenditures increasing as a percentage of net
revenues to 19.3% and 19.6% in the second quarter and first six months of
1998 from 13.3% and 13.8% in the same 1997 periods.
Marketing, general and administrative expenses for the second quarter and
first six months of 1998 decreased by $5.8 million and $6.8 million from the
second quarter and the first six months of the prior year reflecting the
Company's cost control efforts, commensurate with current revenue levels. As
a percentage of net revenues, these expenses decreased to 16.4% from 16.6%
when comparing the second quarters, but increased to 17.5% from 16.4% for
the first six months of 1998 compared to 1997.
Interest and other income (expense), net was income of $5.2 million and $5.5
million in the second quarter and first six months of the current year as
compared to expense of $0.9 million and $2.4 million in the same periods a
year ago. These improvements primarily reflect a gain of almost $4.7 million
on the sale of ARM securities in their April IPO. Additionally, the recent
retirement of equipment loans resulted in interest savings, while the higher
cash and marketable securities balances yielded higher interest income.
The Company's tax rate was 27% in the second quarter and first six months of
1998 and 32% in each of these periods in 1997. The decrease is the result of
a larger proportion of total pre-tax income being earned in lower tax-rate
jurisdictions.
SUBSEQUENT EVENT
Conditions in the semiconductor industry continue to deteriorate. Before the
start of the year, the Semiconductor Industry Association (SIA) estimated that
world-wide semiconductor revenues for 1998 would grow approximately 17% from
previous year's levels. The June 1998 SIA outlook calls for such revenues to
decline approximately 2% from 1997 levels.
On July 15, 1998, VLSI announced a reduction in force of approximately 190
positions. Certain dispersed manufacturing functions are to be consolidated
during the third quarter of 1998, and certain general and administrative
activities are to be re-sized. As a result of this action, the Company
currently anticipates that a special charge of $5 million to $7 million will
be incurred against operating income in the third quarter of 1998. The
Company anticipates some ongoing cost savings to be realized from this
action during the third quarter of 1998 with further such savings in the
fourth quarter of 1998 and following quarters. If business conditions
significantly deteriorate, additional actions, which might include lay-offs,
together with their corresponding special charges, may occur in future
periods and would have an adverse effect on results of operations.
FACTORS AFFECTING FUTURE RESULTS
The Company's business is subject to numerous risks, any one of which, alone
or in combination, could have a material adverse effect on future results of
operations. Some of these factors are:
The Company's stock price, like that of other technology companies, is
subject to significant volatility. If revenue or earnings in any quarter fail
to meet the investment community's expectations, there could be an immediate
adverse impact on the Company's stock price. The stock price may also be
affected by broader market trends unrelated to the Company's performance.
Past financial performance should not be considered a reliable indicator of
future performance, and investors should not use historical trends to
anticipate results or trends in future periods.
During the first six months of 1998 and 1997, the Company's top 20 customers
represented approximately three-quarters of the Company's net revenues. During
1996 and 1995, the Company's top 20 customers represented approximately two-
thirds of net revenues. The Company's largest customer, Ericsson, accounted
for just over 25% of net revenues for each of the first six months of 1998
and 1997 while approximating 29% of net revenues for all of 1997. As a result
of the concentration of the Company's customer base, loss of business or
cancellation of orders from any of these customers, significant changes in
scheduled deliveries to any of these customers or decreases in the prices of
products sold to any of these customers could have a material adverse effect
on the Company's results of operations.
The Company has a high concentration of sales to the communications and
consumer digital entertainment markets. Such markets are rapidly evolving
and are characterized by intense competition among suppliers of integrated
circuits, many of whom have substantially greater experience and resources
than the Company. If the Company, due to competition or other factors, is
unable to capture and maintain significant market share in these areas, there
could be a material adverse effect on the Company's results of operations.
Since 1996, the Company has had a significant focus on the communications and
consumer digital entertainment markets. As a result, the Company's revenues
have followed a seasonal pattern, generally showing growth in the second half
of the year, reflecting the buying pattern of customers in these markets.
The Company's success depends on its ability to continue to develop and
introduce new products that compete effectively on the basis of price and
performance and that satisfy customer requirements. New product development
often requires long-term forecasting of markets, market trends, development
and implementation of new processes and technologies and substantial capital
commitments. In addition, semiconductor design and process methodologies are
subject to rapid technological change. Decreases in geometries call for
sophisticated design efforts, advanced manufacturing equipment and cleaner
fabrication environments. If the Company is unable to design, develop,
manufacture and market new products successfully or introduce new design and
process methodologies in a timely manner, its operating results will be
materially adversely affected.
The Company sells its products under terms and conditions customarily found in
the semiconductor industry. Sales of these products are subject to customer
cancellation with limited advance notice to the Company prior to scheduled
shipment. Due to the Company's relatively narrow customer base for certain
devices and the short product life cycles of such products, such cancellations
can leave the Company with significant inventory exposure, which could have a
material adverse effect on the Company's operating results.
The semiconductor industry has a history of cyclicality and is characterized
by short product life cycles, continuous evolution of process technology, high
fixed costs, additions of manufacturing capacity in large increments and wide
fluctuations in product supply and demand. The industry can move from a
period of capacity shortages to a period of excess capacity, or vice versa,
in a very short time. During a period of excess capacity, profitability can
drop sharply as factory utilization declines and high fixed costs of
operating a wafer fabrication facility are spread over a lower net revenue
base. During a period of capacity shortage, there can be no assurance that
the Company can achieve timely, cost-effective access to additional capacity
if and when needed.
The fabrication of integrated circuits is an extremely complex and precise
process consisting of hundreds of separate steps and requiring production in a
highly controlled, clean environment. Minute impurities, errors in any step of
the fabrication process, defects in the masks used to print circuits on a wafer
or a number of other factors can cause a substantial percentage of wafers to be
rejected or numerous die on each wafer to be non-functional.
Semiconductor manufacturing also requires a constant upgrading of process
technology to remain competitive. The Company is planning to commence the
conversion of its San Antonio facility from six-inch to eight-inch wafer
capability in late 1998. Any significant expansion or upgrade of semiconductor
manufacturing capacity has attendant risks. Inefficiencies caused by the work
associated with the modifications of the manufacturing facilities could
adversely affect the Company's results of operations.
The Company relies on outside suppliers for a significant portion of its
assembly and test operations. Allocations by these suppliers of assembly and
test capacity to the Company depend on the Company's needs and supply
availability during periods of capacity shortages. The Company has no
long-term contractual commitments from these suppliers. Any reduction in
allocation from these suppliers could adversely affect the Company's results
of operations. The Company's foreign subcontract manufacturing arrangements
are also subject to risks such as changes in government policies,
transportation delays, fluctuations in foreign exchange rates and export and
tax controls.
The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights and positions. Periodically, the
Company is made aware that technology used by the Company in the manufacture
of some or all of its products may infringe on product or process technology
rights held by others. Resolution of whether the Company's manufacture of
products has infringed on valid rights held by others could have a material
adverse effect on the Company's financial position or results of operations
and may require material changes in production processes and products. The
Company continually evaluates the adequacy of its reserves for asserted and
unasserted patent matters. The reserve is based on the best available
information at the time and it is reasonably possible that the Company's
estimate of the exposure for patent matters could materially change
at any given time.
VLSI has entered into licensing agreements and technology exchange agreements
with various strategic partners and other third parties in order to allow VLSI
access to third party technology or to allow third parties access to the
Company's technology. The Company is unable to predict whether license
agreements can be obtained or renewed on terms acceptable to the Company or
the magnitude of the costs associated with such terms. Failure to obtain or
renew such licenses could have a material adverse effect on the Company's
financial position or results of operations.
Other factors that may adversely affect the Company's future results include
natural disasters, environmental and other governmental regulations and the
ability to attract and retain key employees. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Factors Affecting
Future Results" in Item 7 of Part II of the 1997 Annual Report on Form 10-K.
YEAR 2000 DISCLOSURE
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year, thus rendering them
incapable of properly managing and manipulating data that includes both 20th
and 21st century dates (Year 2000 Compliant). In connection with a normal
plan of upgrading its computer resources, the Company is currently
installing various new internal information systems in connection with
operating its business. These systems are believed to be Year 2000 Compliant.
The Company is also in the process of determining what other changes to its
other information systems are necessary in order to make them Year 2000
Compliant. While the Company currently expects that the Year 2000 will not
pose significant internal operational problems, delays in the implementation
of new information systems, or a failure to fully identify all Year 2000
dependencies in the Company's systems could have a material adverse effect
on the Company's results of operations.
The Company is assessing its products to ensure that they are Year 2000
Compliant. To date, the ongoing assessment has not revealed any significant
compliance issues. However, the inability of these products to properly manage
and manipulate data in the year 2000 could result in a material adverse
impact on the Company, including increased warranty costs, customer
satisfaction issues and potential lawsuits.
The Company has initiated communications with its suppliers and customers to
determine the extent to which the Company's capabilities are vulnerable to
failure by those third parties to remediate their own Year 2000 issues. There
is no guarantee that the systems and products of other companies on which the
Company relies will be timely converted or that they will not have a material
adverse effect on the Company.
While the total cost of the Year 2000 project has not yet been determined, the
current investigation has not identified significant costs to date.
Accordingly, the Company believes it has sufficient resources for the Year
2000 project from currently available cash, cash equivalents, liquid
investments, cash flow expected from operations and/or borrowings under the
committed credit agreement.
LIQUIDITY AND CAPITAL RESOURCES
VLSI generates cash from operations, debt and equipment financings and sales
of its securities. Principal uses of cash include purchases of capital
equipment needed for semiconductor manufacturing and engineering, the
repurchase of common stock and payments of debt and lease obligations.
At June 26, 1998, total cash, cash equivalents and marketable securities
increased $35.2 million from the 1997 fiscal year-end balance. As of June 26,
1998, the fair market value gain adjustment included in marketable securities
was $37.5 million. Working capital increased to $377.2 million at June 26,
1998 compared to $347.6 million at December 26, 1997.
During the six months ended June 26, 1998, the Company generated $44.7
million of cash from operations, a 42.8% decrease from the $78.1 million of
cash generated for the six months ended June 27, 1997. A decrease in net
revenues in 1998 resulted in less net income and related deferred taxes,
offset by a reduction in accounts receivable. The 1998 gain on sale of
marketable securities reflects the sale of ARM securities in connection with
their IPO. Inventories were reduced to lower levels in 1998 to reflect recent
lower net revenues. Accounts payable, income taxes payable and accrued
liabilities at June 26, 1998 decreased by $35.6 million from December 26,
1997 compared to a decrease of $8.1 million for the first six months of 1997.
The larger decrease in 1998 primarily reflects consideration paid in relation
to the Motorola settlement, as discussed in footnote 7, and payments of
larger prior fiscal year-end balances due in the first six months of the
year, as well as the effects of the Company's cost reduction programs.
Cash used for investing activities was $48.2 million for the six months ended
June 26, 1998, as compared to $72.7 million for the six months ended June 27,
1997. Marketable securities' transactions, including the sale of ARM
securities, resulted in decreased cash outflow of $26.7 million in 1998 from
1997 levels. VLSI invested $63.4 million in property, plant and equipment
during the first six months of 1998 compared to $44.8 million in the
comparable 1997 period, and sold an additional $16.4 million of equipment in
connection with sale-leaseback transactions. VLSI currently estimates that
total capital expenditures for 1998 will be approximately $150 million. These
expenditures are anticipated to be used for converting from six-inch to
eight-inch wafer technology at the San Antonio fabrication facility,
sub-micron wafer fabrication capability, EDA tools deployment and other
equipment upgrades. The Company expects to utilize primarily existing cash
balances and cash from operations for its 1998 capital expenditures.
Cash used for financing activities was $8.5 million in the first six months of
1998 compared to $12.8 million in the same 1997 period. The decrease is a
result of lower purchases of treasury stock, partially offset by the
repayment of certain secured equipment loans in conjunction with the
sale-leaseback of equipment.
On July 15, 1998, VLSI announced a reduction in force of approximately 190
positions. Certain dispersed manufacturing functions are to be consolidated
during the third quarter of 1998, as well as resizing certain general and
administrative activities. As a result of this action, the Company currently
anticipates a special charge of $5 million to $7 million will be incurred
against operating income in the third quarter of 1998. VLSI expects to pay
for the special charge utilizing available cash.
The Company has a committed credit agreement for $100.0 million, expiring in
December 2000. While the Company believes that its current capital resources
are sufficient to meet its near-term needs, in order to meet its longer-term
needs, VLSI continues to investigate the possibility of generating financial
resources through technology or manufacturing partnerships, additional
equipment financings, operating leases and offerings of debt or equity
securities.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is currently a party to various legal actions arising out of the
normal course of business, none of which are expected to have a material
adverse effect on the Company's financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders of the Company was held on May 14,
1998 (the Meeting).
(b) The following directors were elected at the Meeting:
Richard M. Beyer
Pierre S. Bonelli
Robert P. Dilworth
William G. Howard, Jr.
Paul R. Low
Alfred J. Stein
Horace H. Tsiang
(c) The results of the vote on the matters voted upon at the Meeting are:
(i) Nominee For Withheld
--------------------- ---------- --------
Richard M. Beyer 41,621,012 313,874
Pierre S. Bonelli 41,567,053 367,833
Robert P. Dilworth 41,603,357 331,529
William G. Howard, Jr. 41,620,738 314,148
Paul R. Low 41,618,399 316,487
Alfred J. Stein 41,567,298 367,588
Horace H. Tsiang 41,607,641 327,245
<TABLE>
<CAPTION>
Broker
For Against Abstain Non Vote
---------- --------- ------- ----------
<S> <C> <C> <C> <C>
(ii) Approval of an amendment
to the Company's
Certificate of
Incorporation 39,042,790 2,473,763 152,052 266,281
(iii) Approval of an amendment
to the Company's
Employee Stock
Purchase Plan 29,297,816 1,934,364 179,276 10,523,430
(iv) Approval of an amendment
to the Company's
1992 Stock Plan 11,452,689 19,775,987 182,780 10,523,430
(v) Approval of an amendment
to the Company's
1986 Directors'
Stock Option 15,311,955 15,885,806 213,695 10,523,430
(vi) Appointment of the selection
of Ernst & Young as
independent auditors
for the 1998
fiscal year 41,750,079 96,638 88,169 -
</TABLE>
The foregoing matters are described in more detail in the Registrant's
definitive proxy statement dated April 6, 1998.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - See Index to Exhibits on Page 17
(b) Reports on Form 8-K - None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VLSI TECHNOLOGY, INC.
(Registrant)
Date: August 6, 1998 By: /s/ Balakrishnan S. Iyer
-------------------------- -------------------------------
Balakrishnan S. Iyer
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: August 6, 1998 By: /s/ Victor K. Lee
-------------------------- -------------------------------
Victor K. Lee
Vice President and Controller
(Principal Accounting Officer)
<PAGE>
VLSI TECHNOLOGY, INC.
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.49 Employment Agreement between the Company and Alfred J. Stein
dated July 8, 1998.
27 Financial Data Schedule
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, entered into as of this 8th day of July,
1998, is made by and between VLSI TECHNOLOGY, INC., a Delaware corporation
(hereinafter the "Company"), and ALFRED J. STEIN (hereinafter "Executive").
Certain capitalized terms used in this Agreement are defined in
Article 8.
RECITALS
WHEREAS, Executive is currently employed as the Chief Executive
Officer of the Company; and
WHEREAS, the Company and Executive have entered into that certain
Agreement (the "Services Agreement") dated October 31, 1995, and that
certain Executive Change in Control Severance Benefits Agreement (the
"Change in Control Agreement") dated as of the 26th day of April, 1996, and
that certain Executive Salary Continuation Agreement (the "Salary
Agreement") effective December 20, 1996, and that certain Amendment to
Change in Control Agreement and Salary Continuation Agreement (the
"Amendment") dated as of the 10th day of June, 1998 (all such agreements
being collectively referred to hereafter as the "Prior Agreements"); and
WHEREAS, the Company and Executive wish to set forth in this Agreement
the terms and conditions of the Prior Agreements, with the intent that this
Agreement shall thereupon supersede the terms and conditions of the Prior
Agreements, and to make such additional changes and clarifications to the
Prior Agreements as mutually agreed to by both the Company and Executive.
NOW, THEREFORE, the Company and Executive, in consideration of the
mutual promises set forth herein, agree as follows:
ARTICLE 1
EFFECT OF AGREEMENT
1.1 Effect of Agreement. This Agreement shall be effective as of
July 8, 1998 (the "Effective Date") and shall remain in effect so long as
Executive is employed by the Company; provided, however, that the rights
and obligations of the parties hereto contained in Articles 6 and 7 of this
Agreement, and as otherwise explicitly provided in this Agreement, shall
survive any termination of this Agreement until such time as such duty or
obligation is satisfied in full. This Agreement shall supersede the Prior
Agreements as of the Effective Date.
1.2 Consideration. The duties and obligations of the Company to
Executive under this Agreement shall be in consideration of Executive's
continued employment with the Company.
ARTICLE 2
EMPLOYMENT DUTIES
2.1 Title/Responsibilities. Executive hereby accepts the terms of
this Agreement and agrees to continue to serve as the Chief Executive
Officer of the Company and Chairman of the Company's Board of Directors
(the "Board"). Executive shall report directly to the Board. Executive
shall have all powers and duties commensurate with such position, including
but not limited to hiring personnel necessary to carry out the
responsibilities for such position.
2.2 Full-Time Attention. Executive shall devote his best efforts
and his full business time and attention to the performance of the services
customarily incident to such office and to such other services as the Board
may reasonably request, provided that Executive may also serve on the board
of directors of one or more other companies with the prior consent of the
Compensation Committee of the Board, which shall not be unreasonably
withheld.
2.3 Other Activities. Except upon the prior consent of the
Compensation Committee of the Board, Executive shall not during the period
of this Agreement engage, directly or indirectly, in any other business
activity (whether or not pursued for pecuniary advantage) that is or may be
competitive with, or that might place him in a competing position to that
of the Company or any other corporation or entity that directly or
indirectly controls, is controlled by, or is under common control with the
Company (an "Affiliated Company"), provided that Executive may own less
than five percent (5%) of the outstanding securities of any such publicly
traded competing corporation. Nothing in this Agreement is intended to
prevent Executive from accepting employment with another employer, or
providing other services to another business, after Executive's departure
from the Company.
2.4 Directorship. Executive will be nominated for re-election to
the Company's Board and to continue serving as Chairman of the Board
throughout the time that this Agreement is in effect. While he remains an
employee of the Company, Executive agrees to serve as a member of the Board
at no additional compensation.
ARTICLE 3
COMPENSATION
3.1 Annual Base Pay. The Annual Base Pay of Executive is currently
seven hundred thousand dollars ($700,000). For as long as this Agreement
is effective, the Board shall review Executive's annual base pay at least
annually and may, in its discretion, increase but not decrease Executive's
Annual Base Pay.
3.2 Annual Incentive Bonus. For each of the Company's fiscal
years, commencing with the Company's 1998 fiscal year and for each fiscal
year thereafter as long as this Agreement is in effect, the Board shall
establish a set of performance targets for Executive, which if fully
achieved shall result in a cash payment to Executive equal to eighty
percent (80%) of Executive's Annual Base Pay for that fiscal year (the
"Target Bonus"). If Executive's performance shall exceed the selected
performance targets, the Board may award a cash incentive bonus payment in
excess of eighty percent (80%) of Executive's Annual Base Pay for that
fiscal year. If Executive's performance does not fully achieve the set of
performance targets, the Board may nonetheless award a cash incentive bonus
of less than eighty percent (80%) of Executive's Annual Base Pay. Any
bonus payment to which Executive becomes entitled hereunder shall be paid
to Executive by March 1 after the end of the applicable fiscal year.
3.3 Life Insurance.
3.3.1 Split-Dollar Life Insurance Policy. Pursuant to
resolutions of the Board adopted at its May 3, 1993 meeting, the Company
purchased a one million dollar ($1,000,000) split-dollar life insurance
policy with Executive as the insured. The Company agrees that it will
continue to make any premium payments over a sixteen (16)-year period from
the time of such policy's issuance based on the current dividend schedule
with a guaranteed minimum benefit of one million dollars ($1,000,000);
provided, however, that in the event of a Change in Control of the Company,
the Company shall make a single premium payment equal to the present value
of the remaining payments described above using a six percent (6%) discount
rate, simple interest. Furthermore, the Company agrees that it will pay
Executive an additional amount to offset fully any tax liability incurred
by Executive during his lifetime with respect to such life insurance
policy, including but not limited to any tax liability previously
recognized by Executive in taxable years prior to 1998, such that the
after-tax cost to Executive of maintaining this policy shall be zero
dollars ($0). This obligation shall remain in effect even if this
Agreement has terminated.
3.3.2 MetLife Life Insurance Policy.
(a) The Company agrees to make ten (10) annual payments
to Executive or such person or persons as Executive may designate, on or
before October 31 of each year, beginning on October 31, 1995, in an amount
equal to the annual premium necessary to endow a single life policy
(Corporate Universal Life) on the life of Executive issued by the
Specialized Benefit Resources division of Metropolitan Life Insurance
Company (the "MetLife Policy") and based on the following policy
assumptions: level death benefit of five million dollars ($5,000,000);
premiums payable for ten (10) years; policy crediting rate assumption equal
to seven percent (7%); mortality rates and loads current as of October 31,
1995; nonsmoker unisex rates; and, standard risk based on full
underwriting. The amount of the annual premium necessary to endow the
policy described above will be adjusted upward or downward annually in view
of the actual policy crediting rate in effect for the year.
(b) In the event that fewer than all payments set forth
in Article 3.3.2(a) have been made to Executive and (i) Executive becomes
disabled as defined in Article 8 hereof, (ii) the Company undergoes a
Change in Control (as defined in Article 8 hereof) or (iii) the Company
notifies Executive that it no longer desires that Executive perform the
services described under Article 2 hereof, the Company shall make a single
lump-sum payment to Executive equal to the sum of the present values of all
payments provided in Article 3.3.2(a) which have not been paid to Executive
at the time of such Disability, Change in Control or notification.
(c) The lump sum payment payable under Article 3.3.2(b)
hereof shall be calculated based on the assumptions set forth in Article
3.3.2(a) with a discount rate equal to the lesser of the prime rate on the
date of termination and 5.5%.
(d) In addition, the Company also agrees to make any
additional premium payments with respect to the MetLife Policy so that such
policy is endowed at age ninety-five (95) and the policy's cash value at
that time is equal to or greater than five million dollars ($5,000,000),
but in no event shall the Company pay fewer than ten (10) annual premium
payments after June 10, 1998, each in the amount of one hundred eighty-
three thousand one hundred sixty-four dollars ($183,164). The premium
payment period may be changed by the Company, with the written concurrence
of Executive, to the extent necessary to maintain compliance of such policy
with Sections 7702 and 7702A of the Code. Furthermore, as described in
further detail in Article 3.3.2(e), the Company agrees that it will pay
Executive an additional amount to offset fully any tax liability incurred
by Executive during his lifetime with respect to such premium payments,
such that the after-tax cost to Executive of maintaining this policy shall
be zero dollars ($0). If an event described in Article 3.3.2(b) occurs,
any additional payment shall be made at the same time as the payment called
for in Article 3.3.2(b) but any such additional payment shall not discharge
the Company from satisfying its obligation set forth in this paragraph.
The Company's obligations under this paragraph shall survive termination of
this Agreement.
(e) All payments payable under this Article 3.3.2 shall
be grossed up, and made free and clear of and without deduction, for any
and all present or future income taxes, payroll taxes, excise taxes,
deductions, charges or withholdings, and all liabilities with respect
thereto, (all such taxes, deductions, charges, withholdings and liabilities
being hereinafter referred to as "Taxes"). If the Company shall be
required by law to deduct any Taxes from or in respect of a payment, (i)
the payment shall be increased as may be necessary so that after making all
required deductions (including deductions applicable to additional sums
payable under this Article 3.3.2(e)) the payment shall be made in an amount
equal to the amount payable had no such deductions been made, (ii) the
Company shall make such deductions and (iii) the Company shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with applicable law. For purposes of computing increases in
payments payable under this Article 3.3.2(e), the Company shall, in all
cases, assume that Executive is taxable at the highest marginal tax rate
applicable to an individual.
(f) In the event that Executive is taxable at a
marginal tax rate less than the rate assumed in Article 3.3.2(e) hereof,
Executive shall reimburse the Company for the excess of such increase paid
to Executive over the increase computed on the basis of Executive's actual
marginal tax rate.
ARTICLE 4
EXPENSE ALLOWANCES AND FRINGE BENEFITS
4.1 Benefits. While this Agreement is in effect, the Company
shall provide Executive with the same or greater benefits which it provides
to any of its other senior executives, including but not limited to
medical, pension, vacation, bonus, stock, profit-sharing and savings plans
and similar benefits as such plans and benefits may be adopted by the
Company from time to time.
4.2 Business Expense Reimbursement. While this Agreement is in
effect, Executive shall be entitled to receive proper reimbursement for all
reasonable out-of-pocket expenses incurred by him (in accordance with the
policies and procedures established by the Company for its senior executive
officers) in performing services hereunder. Executive agrees to furnish
the Company reasonably adequate records and other documentary evidence of
such expenses for which Executive seeks reimbursement. Such expenses shall
be accounted for under the policies and procedures established by the
Company.
ARTICLE 5
OTHER RIGHTS AND BENEFITS
5.1 Nonexclusivity. Nothing in this Agreement shall prevent or
limit Executive's continuing or future participation in any benefit, bonus,
incentive or other plans, programs, policies or practices provided by the
Company and for which Executive may otherwise qualify, nor shall anything
herein limit or otherwise affect such rights as Executive may have under
any stock option or other agreements with the Company. Except as otherwise
expressly provided herein, amounts which are vested benefits or which
Executive is otherwise entitled to receive under any plan, policy, practice
or program of the Company at or subsequent to the date of a Covered
Termination, a Change in Control or a Change in Control Termination shall
be payable in accordance with such plan, policy, practice or program.
ARTICLE 6
TERMINATION OF EMPLOYMENT
6.1 Covered Termination.
6.1.1 Entitlement to Salary Continuation Payments. If
Executive's employment terminates due to a Covered Termination, Executive
shall receive salary continuation benefits. The amount of the salary
continuation payment shall be equal to three hundred percent (300%) of the
sum of Annual Base Pay and Annual Bonus, to be paid in one lump sum within
sixty (60) days of the termination, or if greater, at Executive's election,
sixty percent (60%) of Executive's highest Annual Base Pay from the Company
or its successor, payable within sixty (60) days of Executive's Covered
Termination and on each anniversary date of such termination thereafter for
the duration of Executive's life. If Executive has previously become
entitled to receive payment under Article 6.2.2 of this Agreement on
account of the occurrence of a Change in Control, Executive shall not be
entitled to any additional payments under this Article 6.1.1.
6.1.2 Welfare Benefits. Following a Covered Termination,
Executive and his spouse will each be eligible (a) to continue their
Welfare Benefits coverage under any Welfare Benefit plan or program
maintained by the Company on the same terms and conditions (including cost
to Executive) as in effect immediately prior to the Covered Termination for
the lives of each of Executive and his spouse, or the survivor of them,
and/or (b) to purchase such additional or substitute Welfare Benefits
coverage as Executive or his spouse may determine in his or her sole
discretion, including reimbursement of expenses for health care expenses
not otherwise paid by insurance, Medicare, or otherwise; provided, however,
that the cost to the Company shall not exceed, by payment of premium or
otherwise, twenty-five thousand dollars ($25,000.00) per year, as adjusted
for cost of living increases.
With respect to any Welfare Benefits provided through an
insurance policy, the Company's obligation to provide such Welfare Benefits
following a Covered Termination shall be limited by the terms of such a
policy; provided that (i) the Company shall make reasonable efforts to
amend such policy to provide the continued coverage, and (ii) if a policy
providing health benefits is not amended to provide the continued benefits,
the Company shall pay for the cost of comparable replacement coverage. The
cost of any such insurance shall be included and subject to the twenty-five
thousand dollars ($25,000.00) per year limit set forth above.
This Article 6.1.2 is not intended to affect, nor does it
affect, the rights of Executive, or Executive's covered dependents, under
any applicable law with respect to health insurance continuation coverage.
6.1.3 Stock Options. All stock options granted to Executive
by the Company which are outstanding on the Effective Date and all stock
options granted to Executive in the future, are hereby amended or shall
provide as follows: (i) to fully vest upon a Covered Termination, and (ii)
to permit Executive to exercise the vested options for at least twelve (12)
months following a Covered Termination, unless an extension of an option's
term would cause the Company to incur a change to earnings for financial
accounting purposes, in which case the amendment to such option extending
the term shall not be made until the first time that such amendment would
not cause the Company to incur a charge to earnings, at which time such
amendment shall automatically occur.
6.1.4 Bonus. If a Covered Termination occurs, Executive
shall receive a bonus for the fiscal year in which the Covered Termination
occurs. The amount of the bonus shall be equal to the amount Executive
would have been paid if the Covered Termination had not occurred prior to
the end of such fiscal year multiplied by a fraction in which (i) the
numerator is the number of days from and including the first day of the
fiscal year until and including the date of the Covered Termination, and
(ii) the denominator is three hundred sixty-five (365). Such bonus shall
be paid on the date Executive would have received the bonus if the Covered
Termination had not occurred during such fiscal year.
6.2 Termination Due to Change in Control.
6.2.1 Entitlement To Severance Benefits. Upon the occurrence
of a Change in Control while Executive is employed by the Company, the
Company shall provide Executive the compensation and benefits described in
Articles 6.2.2, 6.2.3 and 6.2.6 below. If Executive's employment
terminates due to an Involuntary Termination without Cause or a Voluntary
Termination for Good Reason within twenty-four (24) months following a
Change in Control, the termination of employment will be a Change in
Control Termination and the Company shall pay Executive the compensation
and benefits described in Articles 6.2.4 and 6.2.5. If Executive's
employment terminates, but not due to an Involuntary Termination without
Cause or a Voluntary Termination for Good Reason within twenty-four (24)
months following a Change in Control, then the termination of employment
will not be a Change in Control Termination.
6.2.2 Lump Sum Severance Payment. Within thirty (30) days
following a Change in Control, Executive shall receive a lump sum payment
equal to three hundred percent (300%) of the sum of Annual Base Pay and
Annual Bonus, subject to any applicable withholding of federal, state or
local taxes.
6.2.3 Stock Options. All stock options granted to Executive
by the Company which are outstanding on the Effective Date and all stock
options granted to Executive in the future, are hereby amended or shall
provide as follows: (i) to provide for full vesting of stock options upon a
Change in Control, (ii) to permit Executive to exercise any vested options
following his termination of service to the Company as an employee or
consultant for up to three (3) months (or such longer period as may be
currently provided in Executive's stock option agreement without giving
effect to this Article 6.2.3) and (iii) to permit Executive to exercise the
options for at least the twelve (12) months following a Change in Control
Termination, unless an extension of an option's term would cause the
Company to incur a charge to earnings for financial accounting purposes, in
which case no amendment to such option extending the term shall be made
until the first time that such amendment would not cause the Company to
incur a charge to earnings, at which time such amendment shall
automatically occur.
6.2.4 Welfare Benefits. Following a Change in Control
Termination, Executive and his spouse shall be eligible for the same
Welfare Benefits as following a Covered Termination (as such Welfare
Benefits are described in Article 6.1.2 above). In addition, for the three
(3) year period following a Change in Control Termination, the Company
shall reimburse Executive for any income tax liability due as a result of
the provision of Welfare Benefits under this Article 6.2 (and as a result
of any payments due under this paragraph) in order to put Executive in the
same after-tax position as if no taxable Welfare Benefits had been
provided.
6.2.5 Office Space; Secretarial Support. For three (3) years
following a Change in Control Termination, Executive shall be provided an
office and secretarial support comparable to those provided to Executive
prior to the Change of Control; provided, however, that the Company's
obligation to provide office space and secretarial support under this
Article 6.2.5 shall terminate upon Executive's obtaining full-time
employment or full-time consulting work.
6.2.6 Stock Purchase Promissory Note. In the event of the
occurrence of a Change in Control, Executive shall be entitled to exercise
any or all of his outstanding stock options to acquire shares of the
Company's common stock using a full recourse promissory note. Any such
note shall be due and payable after five (5) years, subject to earlier
prepayment voluntarily by Executive. Any such note shall bear the minimum
rate of interest required to avoid imputed income to Executive under all
applicable provisions of the Code.
6.2.7 Excise Tax Gross-up. In the event it shall be
determined that any payment by the Company to or for the benefit of
Executive, whether paid or payable under this Agreement or otherwise, but
determined without regard to any additional payments required under this
Article 6.2.7 (a "Payment"), would be subject to the excise tax imposed by
Section 4999 of the Code, or any comparable federal, state, or local excise
tax (such excise tax, together with any interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then Executive
shall be entitled to receive an additional payment (a "Gross-Up Payment")
in such an amount that after the payment of all taxes (including without
limitation, any interest and penalties on such taxes and the excise tax) on
the Payment and on the Gross-Up Payment, Executive shall retain an amount
equal to the Payment minus all applicable income and employment taxes on
the Payment. The intent of the parties is that the Company shall be solely
responsible for, and shall pay, any Excise Tax on the Payment and Gross-Up
Payment and any income, employment and other taxes (including, without
limitation, penalties and interest) imposed on any Gross-Up Payment, as
well as any loss of tax deduction caused by the Gross-Up Payment or
applicable provisions of the Code. All determinations required to be made
under this Article 6.2.7, including without limitation, whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determinations, shall be
made by a nationally recognized accounting firm that is the Company's
outside auditor at the time of such determinations, which firm must be
reasonably acceptable to Executive (the "Accounting Firm"). All fees and
expenses of the Accounting Firm shall be borne solely by the Company.
6.3 Termination for Cause. The Company may terminate Executive's
employment for Cause (as defined below) without liability at any time with
or without advance notice to Executive. The Company shall pay Executive
all Accrued Compensation, but no other compensation or reimbursement of any
kind, including without limitation, severance compensation, shall be paid
to Executive. The Company's obligations under this Article 6.3 shall
terminate upon complete payment of Accrued Compensation.
6.4 Mitigation. Except as otherwise specifically provided herein,
Executive shall not be required to mitigate damages or the amount of any
payment provided under this Agreement by seeking other employment or
otherwise, nor shall the amount of any payment provided for under this
Agreement be reduced by any compensation earned by Executive as a result of
employment by another employer or by retirement benefits after the date of
a Covered Termination or a Change in Control Termination.
6.5 Indemnification. For a period no less than six (6) years
following the date of a Covered Termination or a Change in Control
Termination, Executive shall be indemnified by the Company (or any
successor entity) for any act, or omission, taken while Executive was
employed by the Company (or any successor entity), and the Company shall
maintain insurance coverage which is either at least equivalent to such
indemnification coverage provided for Executive prior to such termination,
or if such equivalent coverage is not available at a commercially
reasonable price, then at least equivalent to the indemnification coverage
provided to the then current executive officers of the Company (or in the
event of the occurrence of a Change in Control of the Company, the
executive officers of the controlling entity of which the Company is then a
part).
ARTICLE 7
LIMITATIONS AND CONDITIONS ON BENEFITS
7.1 Withholding of Taxes. The Company shall withhold appropriate
federal, state and local income and employment taxes from any payments
hereunder.
7.2 Employee Agreement and Release Prior to Receipt of Benefits.
Upon the occurrence of a Covered Termination or a Change in Control
Termination and prior to the receipt of any benefits under this Agreement
on account of the occurrence of a Covered Termination or a Change in
Control Termination, Executive shall, as of the date of a Covered
Termination or a Change in Control Termination, as applicable, execute an
employee agreement and release in the form attached hereto as Exhibit A.
Such employee agreement and release shall specifically relate to all of
Executive's rights and claims in existence at the time of such execution
and shall confirm Executive's obligations under the Company's standard form
of proprietary information agreement. It is understood that Executive has
twenty-one (21) days to consider whether to execute such employee agreement
and release and Executive may revoke such employee agreement and release
within seven (7) business days after execution of such employee agreement
and release. In the event Executive does not execute such employee
agreement and release within the twenty-one (21) day period, or if
Executive revokes such employee agreement and release within the seven (7)
business day period, no benefits shall be payable to Executive on account
of the occurrence of a Covered Termination or a Change in Control
Termination under this Agreement.
ARTICLE 8
DEFINITIONS
For purposes of the Agreement, the following terms shall have the meanings
set forth below:
8.1 "Accrued Compensation" means any accrued Annual Base Pay, any
bonus compensation to the extent actually awarded by the Board but not yet
paid, any vested deferred compensation (other than pension plan or profit-
sharing plan benefits which will be paid in accordance with the applicable
plan), any benefits under any plans of the Company in which Executive is a
participant to the full extent of Executive's rights under such plans, any
accrued vacation pay and any appropriate business expenses incurred by
Executive in connection with his duties hereunder, all to the date of
termination.
8.2 "Agreement" means this Employment Agreement.
8.3 "Annual Base Pay" means the annual base pay of Executive as
determined in accordance with Article 3.1 of this Agreement.
For the purposes of a payment made pursuant to Article 6.1 of this
Agreement relating to a Covered Termination, Annual Base Pay means
Executive's Annual Base Pay at the rate in effect during the last regularly
scheduled payroll period immediately preceding the Covered Termination.
For the purposes of a payment made pursuant to Article 6.2 of this
Agreement relating to a Change in Control, Annual Base Pay means
Executive's annual base pay in effect during the last regularly scheduled
payroll period immediately preceding the Change in Control.
8.4 "Annual Bonus" means the annual incentive bonus of Executive
as determined in accordance with Article 3.2 of this Agreement.
For purposes of a payment made pursuant to Article 6.1 or Article 6.2 of
this Agreement relating to a Covered Termination or a Change in Control,
Annual Bonus means the greater of (i) Executive's Target Bonus (which for
the Company's fiscal year ending December 31, 1998 is eighty percent (80%)
of Executive's Annual Base Pay) of the year in which the Covered
Termination or the Change in Control occurs or (ii) Executive's most recent
actual annual cash incentive bonus for the fiscal year of the Company
preceding the year in which the Covered Termination or the Change in
Control occurs.
8.5 "Cause" the occurrence of any of the following (and only the
following): (i) conviction of any felony involving fraud or act of
dishonesty against the Company, (ii) conduct by Executive which, based upon
good faith and reasonable factual investigation and determination of the
Board of Directors of the Company, demonstrates gross unfitness to serve,
or (iii) intentional, material violation by Executive of any statutory or
fiduciary duty of Executive to the Company, provided that in the event that
any of the foregoing events is capable of being cured, the Company shall
provide written notice to Executive describing the nature of such event and
Executive shall thereafter have thirty (30) days to cure such event.
8.6 "Change in Control" means the consummation of any of the
following transactions:
(a) 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 a plan of
liquidation or dissolution of the Company or an agreement for the sale,
lease, exchange or other transfer or disposition by the Company of all or
substantially all (more than fifty percent (50%)) of the Company's assets;
(b) any person (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), is or becomes the beneficial owner (within the meaning of Rule 13d-
3 under the Exchange Act) directly or indirectly of 25% or more of the
Company's outstanding Common Stock; or
(c) a change in the composition of the Board within a three
(3) year period, as a result of which fewer than a majority of the
directors are Incumbent Directors. "Incumbent Directors" shall mean
directors who either:
(i) are directors of the Company as of the date hereof;
(ii) are elected, or nominated for election, to the
Board with the affirmative votes of at least a majority of the directors of
the Company who are Incumbent Directors described in (i) above at the time
of such election or nomination; or
(iii) are elected, or nominated for election, to the
Board with the affirmative votes of at least a majority of the directors of
the Company who are Incumbent Directors described in (i) or (ii) above at
the time of such election or nomination.
Notwithstanding the foregoing, "Incumbent Directors." 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.
8.7 "Change in Control Termination" means an Involuntary
Termination without Cause or a Voluntary Termination with Good Reason
within twenty-four (24) months following a Change in Control. No other
event shall be deemed a Change in Control Termination for purposes of this
Agreement.
8.8 "Code" means the Internal Revenue Code of 1986, as amended.
8.9 "Company" means VLSI Technology, Inc., a Delaware corporation,
and any successor thereto.
8.10 "Covered Termination" means any voluntary termination of
Executive and any Involuntary Termination (including death or Disability,
mental or physical) other than for Cause.
8.11 "Disability" means a physical or mental condition, illness, or
injury of Executive such that (a) Executive's personal physician, or (b) a
physician selected by Executive's personal physician, or (c) if neither of
such physicians is reasonably acceptable to the Company, a physician
selected by Executive's personal physician and a physician selected by the
Company, determines that Executive is no longer capable of providing
services as described under Article 2 of this Agreement.
8.12 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
8.13 "Involuntary Termination" means Executive's dismissal or
discharge by the Company (or, if applicable, by the successor entity).
For purposes of a Covered Termination pursuant to Article 6.1 of this
Agreement, Involuntary Termination includes the death or Disability
(physical or mental) of Executive.
For purposes of a Change in Control Termination pursuant to Article 6.2 of
this Agreement, the termination of Executive's employment would not be
deemed to be an "Involuntary Termination" if such termination occurs as a
result of the death or Disability of Executive.
8.14 "Voluntary Termination for Good Reason" means that the
Executive voluntarily terminates his employment after any of the following
are undertaken without Executive's express written consent:
(a) the assignment to Executive of any duties or
responsibilities which result in any diminution or adverse change of
Executive's position, status or circumstances of employment as in effect
immediately prior to a Change in Control of the Company; a change in
Executive's titles or offices as in effect immediately prior to a Change in
Control of the Company; any removal of Executive from or any failure to
reelect Executive to any of such positions, except in connection with the
termination of his employment for death, Disability, retirement, fraud,
misappropriation, embezzlement or any other voluntary termination of
employment by Executive other than Voluntary Termination for Good Reason;
(b) a reduction by the Company in Executive's Annual Base Pay;
(c) any failure by the Company to continue in effect any
benefit plan or arrangement, including incentive plans or plans to receive
securities of the Company, in which Executive is participating at the time
of a Change in Control of the Company (hereinafter referred to as "Benefit
Plans"), or the taking of any action by the Company which would adversely
affect Executive's participation in or reduce Executive's benefits under
any Benefit Plans or deprive Executive of any fringe benefit enjoyed by
Executive at the time of a Change in Control of the Company, provided,
however, that Executive may not terminate for Good Reason following a
Change in Control of the Company if the Company offers a range of benefit
plans and programs which, taken as a whole, are comparable to the Benefit
Plans as determined in good faith by Executive;
(d) a relocation of Executive or the Company's principal
executive offices to a location more than fifteen (15) miles from the
location at which Executive performed Executive's duties prior to a Change
in Control of the Company, except for required travel by Executive on the
Company's business to an extent substantially consistent with Executive's
business travel obligations at the time of a Change in Control of the
Company;
(e) any breach by the Company of any provision of this
agreement; or
(f) any failure by the Company to obtain the assumption of
this agreement by any successor or assign of the Company.
8.15 "Welfare Benefits" means benefits providing for coverage or
payment in the event of Executive's death, disability, illness or injury of
a type provided to Executive immediately before a Covered Termination,
whether taxable or non-taxable and whether funded through insurance or
otherwise.
ARTICLE 9
GENERAL PROVISIONS
9.1 Governing Law. The validity, interpretation, construction and
performance of this Agreement and the rights of the parties hereunder shall
be interpreted and enforced under California law without reference to
principles of conflicts of laws. The parties expressly agree that inasmuch
as the Company's headquarters and principal place of business are located
in California, it is appropriate that California law govern this Agreement.
9.2 Assignment; Successors; Binding Agreement.
9.2.1 Executive may not assign, pledge or encumber his
interest in this Agreement or any part thereof and any attempt to do so
shall be void.
9.2.2 The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by
operation of law or by agreement in form and substance reasonably
satisfactory to Executive, to assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required
to perform it if no such succession had taken place.
9.2.3 This Agreement shall inure to the benefit of and be
enforceable by Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Executive should die while any amount is at such time payable to him
hereunder, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to Executive's devisee,
legatee or other designee or, if there be no such designee, to his estate.
9.3 Notices. Any notices provided hereunder must be in writing and
such notices or any other written communication shall be deemed effective
upon the earlier of personal delivery (including personal delivery by telex
or facsimile) or the third day after mailing by first class mail, to the
Company at its primary office location and to Executive at his address as
listed in the Company's payroll records. Any payments made by the Company
to Executive under the terms of this Agreement shall be delivered to
Executive either in person or at his address as listed in the Company's
payroll records.
9.4 Modification; Waiver; Entire Agreement. No provisions of this
Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing signed by Executive and
such officer or other representative of the Company as may be specifically
designated by the Board. No waiver by either party hereto at any time of
any breach by the other party of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the
same or any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter
hereof have been made by either party which are not expressly set forth or
referred to in this Agreement.
9.5 Validity. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law
or rule in any jurisdiction, such invalidity, illegality or
unenforceability will not affect any other provision or any other
jurisdiction, but this Agreement will be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable
provisions had never been contained herein.
9.6 Controlling Document. In case of conflict between any of the
terms and conditions of this Agreement and the documents herein referred
to, or any other documents or agreements affecting the same terms and
conditions of Executive's employment as are addressed in this Agreement,
the terms and conditions of this Agreement shall control, and such other
documents shall be deemed to be amended hereby.
9.7 Employment Status. This Agreement does not constitute a
contract of employment or impose on Executive any obligation to remain as
an employee, or impose on the Company any obligation (i) to retain
Executive as an employee, (ii) to change the status of Executive as an at-
will employee, or (iii) to change the Company's policies regarding
termination of employment.
9.8 Headings. The headings of the Articles hereof are inserted
for convenience only and shall not be deemed to constitute a part hereof
nor to affect the meaning thereof.
9.9 Non-Publication. The parties mutually agree not to disclose
publicly the terms of this Agreement except to the extent that disclosure
is mandated by applicable law.
9.10 Tax and Attorney Fees. The Company will reimburse Executive,
Executive's successor-in-interest, or the holder of any life insurance
policy referred to in this Agreement for all attorney fees and costs
associated with bringing any action under this Agreement to enforce their
rights hereunder, regardless of the outcome of such proceeding, provided
the court finds the claim was brought in good faith. In addition, the
Company will reimburse Executive for all fees and costs associated with
advice, execution or negotiation of this Agreement and Executive's ongoing
employment relationship with the Company on or before the Effective Date.
9.11 Construction. In the event of a conflict between the text of
the Agreement and any summary, description or other information regarding
the Agreement, the text of the Agreement shall control.
9.12 Counterparts. This Agreement may be executed in one or more
counterparts any one of which need not contain signatures of more than one
party, all of which taken together shall constitute one and the same
Agreement.
Executed by the parties as of the day and year first above written.
VLSI TECHNOLOGY, INC.
By: /s/ Robert P. Dillworth
---------------------------
Its: Director
---------------------------
EXECUTIVE:
/s/ Alfred J. Stein
--------------------------------
Alfred J. Stein
<PAGE>
EXHIBIT A
EMPLOYEE AGREEMENT AND RELEASE
I understand and agree completely to the terms set forth in the
foregoing agreement.
I hereby confirm my obligations under the Company's standard form of
proprietary information agreement.
I acknowledge that I have read and understand Section 1542 of the
California Civil Code which reads as follows: "A general release does not
extend to claims which the creditor does not know or suspect to exist in
his favor at the time of executing the release, which if known by him must
have materially affected his settlement with the debtor." I hereby
expressly waive and relinquish all rights and benefits under that section
and any law of any jurisdiction of similar effect with respect to my
release of any claims I may have against the Company.
Except as otherwise set forth in this Agreement, I hereby release,
acquit and forever discharge the Company, its parents and subsidiaries, and
their officers, directors, agents, servants, employees, shareholders,
successors, assigns and affiliates, of and from any and all claims,
liabilities, demands, causes of action, costs, expenses, attorneys fees,
damages, indemnities and obligations of every kind and nature, in law,
equity, or otherwise, known and unknown, suspected and unsuspected,
disclosed and undisclosed (other than any claim for indemnification I may
have as a result of any third party action against me based on my
employment with the Company), arising out of or in any way related to
agreements, events, acts or conduct at any time prior to and including the
Effective Date of this Agreement, including but not limited to: all such
claims and demands directly or indirectly arising out of or in any way
connected with my employment with the Company or the termination of that
employment, including but not limited to, claims of intentional and
negligent infliction of emotional distress, any and all tort claims for
personal injury, claims or demands related to salary, bonuses, commissions,
stock, stock options, or any other ownership interests in the Company,
vacation pay, fringe benefits, expense reimbursements, severance pay, or
any other form of compensation; claims pursuant to any federal, state or
local law or cause of action including, but not limited to, the federal
Civil Rights Act of 1964, as amended; the federal Age Discrimination in
Employment Act of 1967, as amended ("ADEA"); the federal Americans with
Disabilities Act of 1990; the California Fair Employment and Housing Act,
as amended; tort law; contract law; wrongful discharge; discrimination;
fraud; defamation; emotional distress; and breach of the implied covenant
of good faith and fair dealing; provided, however, that nothing in this
paragraph shall be construed in any way to release the Company from its
obligation to indemnify you pursuant to the Company's Indemnification
Agreement.
I acknowledge that I am knowingly and voluntarily waiving and
releasing any rights I may have under ADEA. I also acknowledge that the
consideration given for the waiver and release in the preceding paragraph
hereof is in addition to anything of value to which I was already entitled.
I further acknowledge that I have been advised by this writing, as required
by the ADEA, that: (A) my waiver and release do not apply to any rights or
claims that may arise after the Effective Date of this Agreement; (B) I
have the right to consult with an attorney prior to executing this
Agreement; (c) I have twenty-one (21) days to consider this Agreement
(although I may choose to voluntarily execute this Agreement earlier); (D)
I have seven (7) days following the execution of this Agreement by the
parties to revoke the Agreement; and (E) this Agreement shall not be
effective until the date upon which the revocation period has expired,
which shall be the eighth day after this Agreement is executed by me,
provided that the Company has also executed this Agreement by that date
("Effective Date").
By:
--------------------------
Alfred J. Stein
Date:
-------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE 1 Effect of Agreement 1
1.1 Effect of Agreement 1
1.2 Consideration 1
ARTICLE 2 Employment Duties 2
2.1 Title/Responsibilities 2
2.2 Full-Time Attention 2
2.3 Other Activities 2
2.4 Directorship 2
ARTICLE 3 Compensation 2
3.1 Annual Base Pay 2
3.2 Annual Incentive Bonus 2
3.3 Life Insurance 3
ARTICLE 4 Expense Allowances And Fringe Benefits. 4
4.1 Benefits 4
4.2 Business Expense Reimbursement 5
ARTICLE 5 Other Rights and Benefits 5
5.1 Nonexclusivity 5
ARTICLE 6 Termination of Employment 5
6.1 Covered Termination 5
6.2 Termination Due to Change in Control 6
6.3 Termination for Cause 8
6.4 Mitigation 8
6.5 Indemnification 8
ARTICLE 7 Limitations and Conditions on Benefits 8
7.1 Withholding of Taxes 8
7.2 Employee Agreement and Release Prior to Receipt of Benefits 9
ARTICLE 8 Definitions 9
8.1 "Accrued Compensation" 9
8.2 "Agreement" 9
8.3 "Annual Base Pay" 9
8.4 "Annual Bonus" 9
8.5 "Cause" 10
8.6 "Change in Control" 10
8.7 "Change in Control Termination" 11
8.8 "Code" 11
8.9 "Company" 11
8.10 "Covered Termination" 11
8.11 "Disability" 11
8.12 "Exchange Act" 11
8.13 "Involuntary Termination" 11
8.14 "Voluntary Termination for Good Reason" 11
8.15 "Welfare Benefits" 12
ARTICLE 9 General Provisions 12
9.1 Governing Law 12
9.2 Assignment; Successors; Binding Agreement 12
9.3 Notices. 13
9.4 Modification; Waiver; Entire Agreement 13
9.5 Validity 13
9.6 Controlling Document 13
9.7 Employment Status 14
9.8 Headings 14
9.9 Non-Publication 14
9.10 Tax and Attorney Fees 14
9.11 Construction 14
9.12 Counterparts 14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements in the Quarterly Report on Form 10-Q of VLSI Technology,
Inc. for the six months ended June 26, 1998 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
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<NAME> VLSI TECHNOLOGY, INC.
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