<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:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] 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
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
VLSI TECHNOLOGY, INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 14, 1998
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
Thursday, May 14, 1998, at 9:00 a.m., local time, at the Company's offices
located at 1151 McKay Drive, San Jose, California 95131, for the following
purposes:
1. To elect seven directors to serve for the ensuing year and until their
successors are elected.
2. To approve an amendment to the Company's Certificate of Incorporation
for the purpose of increasing the authorized number of shares of the
Company's Common Shares and Common Stock by 100,000,000 shares and
eliminating Junior Stock.
3. To approve an amendment to the Employee Stock Purchase Plan to increase
the number of shares reserved for issuance thereunder by 2,000,000
shares.
4. To approve an amendment to the 1992 Stock Plan to increase the number of
shares reserved for issuance thereunder by 2,000,000 shares.
5. To approve amendments to the 1986 Directors' Stock Option Plan,
including an increase in the number of shares reserved for issuance
thereunder by 300,000 shares.
6. To ratify the appointment of Ernst & Young LLP as independent auditors
of the Company for the fiscal year ending December 25, 1998.
7. 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 18, 1998 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 6, 1998
<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. ("VLSI"
or the "Company") for use at the Annual Meeting of Stockholders (the "Annual
Meeting") to be held on Thursday, May 14, 1998, at 9:00 a.m., local time, or at
any adjournment thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting of Stockholders. The meeting will be held
at the Company's offices located at 1151 McKay Drive, San Jose, California
95131. The Company's principal executive office is located at 1109 McKay Drive,
San Jose, California 95131 and its telephone number at that address is (408)
434-3100.
These proxy solicitation materials were mailed on or about April 6, 1998 to
all stockholders entitled to vote at the meeting.
RECORD DATE; OUTSTANDING SHARES
Stockholders of record at the close of business on March 18, 1998 (the
"Record Date") are entitled to notice of and to vote at the meeting. The Company
has only one series of Common Shares ("Common Shares") outstanding, which is
designated Common Stock, $.01 par value per share ("Common Stock"). At the
Record Date, 45,657,014 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 $17.75 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 $6,000, 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 with respect to such matter (the "Votes
Cast").
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
that requires a majority of the Votes Cast (such as the approval of the proposed
amendment to the Employee Stock Purchase Plan). However, with respect to a
proposal that requires a majority of the outstanding shares (such as the
proposed amendment to the Certificate of Incorporation), a broker non-vote has
the same effect as a vote against the proposal.
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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>
FMR Corp.(1)......................................... 3,569,750 7.8%
82 Devonshire Street
Boston, Massachusetts 02109
Richard M. Beyer(2).................................. 111,831 *
Pierre S. Bonelli(3)................................. 20,000 *
Robert P. Dilworth(4)................................ 25,000 *
John S. Hodgson(5)................................... 31,250 *
William G. Howard, Jr.(6)............................ 5,000 *
Balakrishnan S. Iyer(7).............................. 48,923 *
Thierry M. Laurent (8)............................... 127,350 *
Paul R. Low(9)....................................... 5,000 *
Alfred J. Stein(10).................................. 1,264,920 2.7%
Horace H. Tsiang(11)................................. 10,000 *
All current directors and executive officers as a
group
(14 persons)(2)(3)(4)(5)(6)(7)(8)(9)(10)(11)(12)... 1,681,096 3.6%
</TABLE>
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* Less than 1%.
(1) As reported in Schedule 13G, dated January 10, 1998, Fidelity Management &
Research Company ("Fidelity"), a wholly-owned subsidiary of FMR Corp. and
an investment adviser registered under Section 203 of the Investment
Advisers Act of 1940, is the beneficial owner of 3,386,750 shares, as a
result of acting as investment adviser to various investment companies
registered under Section 8 of the Investment Company Act of 1940. Edward C.
Johnson 3d, FMR Corp., through its control of Fidelity, and the funds each
has sole power to dispose of the 3,386,750 shares owned by the Funds.
Neither FMR Corp. nor Edward C. Johnson 3d, Chairman of FMR Corp., has the
sole power to vote or direct the voting of the shares owned directly by the
Fidelity Funds, which power resides with the Funds' Board of Trustees.
Fidelity carries out the voting of the shares under written guidelines
established by the Funds' Board of Trustees. Fidelity Management Trust
Company, a wholly-owned subsidiary of FMR Corp. and a bank as defined in
Section 3(a)(6) of the Securities Exchange Act of 1934, is the beneficial
owner of 183,000 shares as a result of its serving as investment manager of
the institutional account(s). Edward C. Johnson 3d and FMR Corp., through
its control of Fidelity Management Trust Company, each has sole dispositive
power over 183,000 shares and sole power to vote or to direct the voting of
33,000 shares, and no power to vote or to direct the voting of 150,000
shares owned by the institutional account(s) as reported above. Members of
the Edward C. Johnson 3d family and trusts for their benefit are the
predominant owners of Class B shares of common stock of FMR Corp.,
representing approximately 49% of the voting power of FMR Corp. Mr. Johnson
3d owns 12% and Abigail Johnson owns 24.5% of the aggregate outstanding
voting stock of FMR Corp. Mr. Johnson 3d is Chairman of FMR Corp. and
Abigail P. Johnson is a Director of FMR Corp. The Johnson family group and
all other Class B shareholders have entered into a shareholders' voting
agreement under which all Class B shares will be voted in accordance with
the majority vote of Class B shares. Accordingly, through their
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<PAGE> 6
ownership of voting common stock and the execution of the shareholders'
voting agreement, members of the Johnson family may be deemed under the
Investment Company Act of 1940, to form a controlling group with respect to
FMR Corp.
(2) Includes 110,416 shares exercisable within 60 days of the Record Date under
options held by Mr. Beyer.
(3) These 20,000 shares are exercisable within 60 days of the Record Date under
options held by Mr. Bonelli.
(4) These 25,000 shares are exercisable within 60 days of the Record Date under
options held by Mr. Dilworth.
(5) These 31,250 shares are exercisable within 60 days of the Record Date under
options held by Mr. Hodgson.
(6) These 5,000 shares are exercisable within 60 days of the Record Date under
options held by Dr. Howard.
(7) Includes 43,751 shares exercisable within 60 days of the Record Date under
options held by Mr. Iyer.
(8) Includes 119,250 shares exercisable within 60 days of the Record Date under
options held by Mr. Laurent.
(9) These 5,000 shares are exercisable within 60 days of the Record Date under
options held by Dr. Low.
(10) Includes 802,501 shares exercisable within 60 days of the Record Date under
options held by Mr. Stein.
(11) Includes 5,000 shares exercisable within 60 days of the Record Date under
options held by Mr. Tsiang.
(12) Includes 1,190,918 shares exercisable within 60 days of the Record Date
under options held by five non-employee directors and nine current
executive officers.
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 26, 1997, its officers, directors and
holders of more than 10% of the Company's Common Stock complied with all Section
16(a) filing requirements, except a Form 4 for director Robert P. Dilworth,
involving one transaction, was filed late and one transaction for director
Horace H. Tsiang that should have been reported on a Form 4 was filed on Form 5,
constituting a late filing.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at an annual meeting of the Company must be properly
presented in accordance with the Company's Bylaws. In addition, stockholder
proposals that such stockholders desire to have included in the Company's proxy
statement for its 1999 annual meeting must be received by the Company no later
than December 7, 1998 in order to be considered for possible inclusion in the
proxy statement and form of proxy relating to that meeting.
Under the Bylaws, for business to be properly brought before an annual
meeting by a stockholder, the stockholder must have given timely notice thereof
in writing to the Secretary of the Company. To be timely, a stockholder's notice
must be delivered to or mailed and received at the principal executive offices
of the Company not less than sixty (60) days nor more than ninety (90) days
prior to the meeting; provided, however, that in the event that less than fifty
(50) days notice or prior public disclosure of the date of the meeting is given
or made to stockholders, notice by the stockholder to be timely must be so
received not later than the close of business on the tenth day following the day
on which such notice of the date of the annual meeting was mailed or such public
disclosure was made. A stockholder's notice to the Secretary shall set forth as
to each matter the stockholder proposes to bring before the annual meeting: (i)
a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and address, as they appear on the Company's books, of the stockholder
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<PAGE> 7
proposing such business, (iii) the class and number of shares of the Company
which are beneficially owned by the stockholder, (iv) any material interest of
the stockholder in such business, and (v) any other information that is required
to be provided by the stockholder pursuant to Regulation 14A under the Exchange
Act, in his or her capacity as a proponent of a stockholder proposal.
Notwithstanding the foregoing, in order to include information with respect
to a stockholder proposal in the proxy statement and form of proxy for a
stockholders' meeting, stockholders must provide notice as required by the
regulations promulgated under the Exchange Act.
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.
Stockholders who intend to make nominations for director from the floor of
the Annual Meeting must comply with the advance notice provisions of the
Company's Bylaws. Under the Bylaws, a stockholder's notice shall be delivered to
or mailed and received at the principal executive offices of the Company not
less than twenty (20) days nor more than sixty (60) days prior to the meeting;
provided, however, that in the event less than thirty (30) days notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the tenth day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made. Such
stockholder's notice shall set forth (a) as to each person, if any, whom the
stockholder proposes to nominate for election or re-election as a director: (i)
the name, age, business address and residence address of such person, (ii) the
principal occupation or employment of such person, (iii) the class and number of
shares of the Company which are beneficially owned by such person, and (iv) any
other information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Exchange Act (including without
limitation such person's written consent to be named in the proxy statement, if
any, as a nominee and to serving as a director if elected); and (b) as to the
stockholder giving the notice: (i) the name and address, as they appear on the
Company's books, of such stockholder, (ii) the class and number of shares of the
Company which are beneficially owned by such stockholder, and (iii) whether such
stockholder intends to request cumulative voting in the election of directors at
the meeting. The presiding officer of the meeting may refuse to acknowledge the
nomination of any person not made in compliance with the foregoing procedure.
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<PAGE> 8
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............. 49 President and Chief Operating 1996
Officer of the Company
Pierre S. Bonelli(1)(2)...... 58 Chief Executive Officer and 1983
Director, Sema Group, a
software, consulting and
market research firm
Robert P. Dilworth(1)(2)..... 56 Chairman of the Board, Chief 1991
Executive Officer and
Director, Metricom Inc., an
electronic wireless data
communications company
William G. Howard, Jr. (1)... 56 Independent Consulting 1996
Engineer in microelectronics
and technology-based business
planning
Paul R. Low.................. 65 President and Chief Executive 1996
Officer, P.R.L. Associates, a
technology consulting company
Alfred J. Stein.............. 65 Chairman of the Board and 1982
Chief Executive Officer of the
Company
Horace H. Tsiang............. 56 Chief Executive Officer, First 1992
International 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 Poliet S.A.
Mr. Dilworth is also a director of Photonics Corporation.
Dr. Howard has been an independent consulting engineer since 1989. 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. Dr. Low is also a director of Applied Materials, Inc.,
Integrated Packaging Assembly Corp., Network Computing Devices, Inc., Solectron
Corporation, Veeco Instruments Inc. and several privately-held companies.
6
<PAGE> 9
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.
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 26, 1997. 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 three meetings in fiscal 1997. 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 1997. 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"). The Directors' Plan provides for the
automatic grant of non-statutory options to Outside Directors upon first joining
the Board and on an annual basis thereafter in order to motivate them to
continue to serve as directors. A total of 300,000 shares of the Company's
Common Stock is reserved for issuance during the 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 under the Directors' Plan have a term of ten years.
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<PAGE> 10
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 (a "First Option"). A First 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 a First Option on the date of his or her initial
appointment or election to the Board.
After receiving a First 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 provides for the grant of an immediately exercisable
replenishment option (a "Replenishment Option") to purchase up to 20,000 shares
to any Outside Director whose First Option expires unexercised. As of December
26, 1997, options to purchase 55,000 shares had been exercised under the
Directors' Plan at a net realized value of $831,525.00, 145,000 shares were
subject to outstanding options, and 100,000 shares remained available for future
grant.
During fiscal 1997, Subsequent Options to purchase 5,000 shares at an
exercise price of $24.125 per share were granted to each of directors Bonelli,
Dilworth, Howard, Low and Tsiang. In addition, a Replenishment Option to
purchase 10,000 shares was granted to Mr. Dilworth at an exercise price of
$18.00 per share.
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. In 1997, Intel sold all of the Intel Warrant Shares. Therefore, all
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 1997 was $512,200 and the total principal amount
outstanding under all loans at fiscal 1997 year end was $350,000. Mr. Braune
resigned from his position as an executive officer in January 1997.
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<PAGE> 11
EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table, together with the footnotes thereto, summarizes the
total compensation for fiscal year 1997 of (i) the Chief Executive Officer, and
(ii) the four other most highly compensated executive officers of the Company
who were serving as such at 1997 fiscal year end (collectively, the "Named
Officers"), as well as the total compensation paid to each Named Officer for the
Company's two previous fiscal years, if applicable.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION ALL OTHER
ANNUAL COMPENSATION AWARDS COMPENSATION
------------------------------------ ------------ ------------
SECURITIES
OTHER ANNUAL UNDERLYING
SALARY BONUS COMPENSATION OPTIONS
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($)(2) ($)(3) (#) ($)(5)
--------------------------- ---- -------- -------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Alfred J. Stein 1997 $693,232 $600,000 $100,331 150,000 $381,434
Chairman of the Board and 1996 643,849 452,000 0 950,000(4) 424,989
Chief Executive Officer 1995 582,096 675,000 0 500,000 418,468
- -------------------------------
Richard M. Beyer(6) 1997 $358,089 $250,000 $ 0 25,000 $ 6,972
President and Chief Operating 1996 106,350 150,000 0 375,000 2,019
Officer
- -------------------------------
Balakrishnan S. Iyer 1997 $214,435 $ 95,000 $ 0 175,000 $ 5,503
Sr. Vice President 1996 176,591 50,000 0 20,000(4) 4,695
and Chief Financial Officer 1995 167,358 50,200 0 10,000 1,178
- -------------------------------
John S. Hodgson(7) 1997 $186,032 $130,000 $ 0 125,000 $ 1,925
Sr. Vice President, Worldwide
Sales and Technology Centers
- -------------------------------
Thierry M. Laurent(8) 1997 $252,665 $130,000 $ 0 20,000 $ 0
Sr. Vice President and
General Manager,
Communications Products Group
</TABLE>
- ---------------
(1) The amounts disclosed in this column include amounts earned in the fiscal
year indicated but deferred by the Named Officers pursuant to the Company's
401(k) Investment/Retirement Plan (the "401(k) Plan"), and, beginning in
1997, the Company's Non-Qualified Deferred Compensation Plan.
(2) The amounts disclosed in this column represent 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".
(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 an amount received by Mr. Stein for stock held in a former
subsidiary of the Company, COMPASS Design Automation, Inc., upon the sale of
the subsidiary.
(4) Includes certain options granted on March 12, 1996 pursuant to a
Company-wide option repricing, in which the following Named Officers
participated: Alfred J. Stein -- 500,000; Balakrishnan S. Iyer -- 10,000.
(5) The amounts in the "All Other Compensation" column for fiscal year 1997
include:
(a) Company contributions in fiscal 1997 under VLSI's 401(k) Plan, in the
following amounts: Alfred J. Stein $4,750; Richard M. Beyer $4,750; and
Balakrishnan S. Iyer $4,477.
(b) Company contribution in fiscal 1997 under VLSI's Non-Qualified Deferred
Compensation Plan to Balakrishnan S. Iyer in the amount of $273.
(c) Payment by the Company of 1997 premiums for term life insurance for the
Named Officers in the following amounts: Alfred J. Stein $4,174;
Richard M. Beyer $2,222; Balakrishnan S. Iyer $753; and John S. Hodgson
$1,925.
9
<PAGE> 12
(d) Payment by the Company of 1997 premiums for a split dollar life
insurance policy in the amount of $14,208 for Mr. Stein and payment by
the Company of the 1997 installment of a series of ten annual payments
under a management and consulting agreement between Mr. Stein and the
Company in the amount of $358,302.
(6) Mr. Beyer joined the Company in September 1996.
(7) Mr. Hodgson joined the Company in May 1997.
(8) Mr. Laurent became an executive officer in August 1997.
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.
Under the 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
agreements, 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, change-in-control agreements had been entered into with Alfred J. Stein,
Richard M. Beyer, Balakrishnan S. Iyer, Thierry M. Laurent, John S. Hodgson,
Douglas M. McBurnie and two other employees who are not executive officers.
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 Messrs. Iyer, Laurent, Hodgson and McBurnie two times their annual
salaries.
10
<PAGE> 13
STOCK OPTIONS
The following table presents information with respect to options to
purchase the Company's Common Stock during fiscal 1997. No stock appreciation
rights ("SARs") have been granted by the Company.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
------------------------------------------------
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS ASSUMED ANNUAL RATES OF
UNDERLYING GRANTED TO STOCK PRICE APPRECIATION
OPTIONS EMPLOYEES EXERCISE FOR OPTION TERM(2)
GRANTED IN FISCAL PRICE EXPIRATION ------------------------------
NAME (#)(3) YEAR(4) ($/SH) DATE 5%($) 10%($)
---- ----------- ---------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alfred J. Stein............... 150,000 4.8% $ 18.00 4/14/07 $1,698,015 $4,303,105
Richard M. Beyer.............. 25,000 0.8% 18.00 4/14/07 283,003 717,184
Balakrishnan S. Iyer.......... 75,000 2.4% 15.625 1/29/07 736,986 1,867,667
10,000 0.3% 18.00 4/14/07 113,201 286,874
15,000 0.5% 24.188 7/07/07 228,176 578,242
75,000 2.4% 31.625 8/22/07 1,491,659 3,780,158
------- ---
175,000 5.6%
John S. Hodgson............... 125,000 4.0% 18.50 4/21/07 1,454,319 3,685,529
Thierry M. Laurent............ 20,000 0.6% 18.00 4/14/07 226,402 573,747
</TABLE>
- ---------------
(1) All options to purchase the Company's Common Stock granted in 1997 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
options granted under the Company's Long Term Incentive Program (see
footnote (3) 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) 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%).
Potential realizable value listed for the Named Officers is net of the
option exercise price or fiscal year end price. The assumed rates of
appreciation are specified in SEC rules and do not represent the Company's
estimate or projection of future stock prices. Actual gains, if any,
resulting from stock option exercises and Common Stock holdings are
dependent on the future performance of the Common Stock and the option
holders' continued employment through the vesting period. There can be no
assurance that the amounts reflected in this table will be achieved.
(3) Includes options issued to the following officer under the Company's Long
Term Incentive Program: Balakrishnan S. Iyer -- 75,000 shares. See "Long
Term Incentive Program" below.
(4) Based on options to purchase a total of 3,114,750 shares granted to all
employees during fiscal 1997.
11
<PAGE> 14
The number of shares of Company's stock issued upon exercise of options and
the value realized from any such exercise during the fiscal year ended December
26, 1997 and the number of exercisable and unexercisable options held and their
value at December 26, 1997 for the Named Officers of the Company are set forth
in the following table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FY-END(#) OPTIONS AT FY-END($)(2)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE # REALIZED($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- --------------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Alfred J. Stein.......... 130,000 $3,197,125 583,751/856,249 $6,692,448/$7,164,552
Richard M. Beyer......... 0 0 104,166/295,834 $ 802,183/$2,234,067
Balakrishnan S. Iyer..... 0 0 16,251/191,249 $ 212,511/$657,489
John S. Hodgson.......... 0 0 0/125,000 $ 0/$390,625
Thierry M. Laurent....... 7,500 188,750 99,250/127,750 $1,151,344/$1,000,156
</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.
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 consecutive trading days. Upon meeting each price level, 1/6 of the
granted options vest immediately and 1/6 vest 120 days later. Options to
purchase 75,000 shares were granted under the Program in fiscal 1997 to
Balakrishnan S. Iyer at the following price levels: $12.00 over grant price,
$24.00 over grant price and $36.00 over grant price. Options were granted under
the Program to the following Named Officers in previous years at a price level
of $10.00 over grant price, $20.00 over grant price and $30.00 over grant price:
Alfred J. Stein -- 300,000 shares, Richard M. Beyer -- 125,000 and Thierry M.
Laurent -- 75,000.
EXECUTIVE SALARY CONTINUATION AGREEMENT
In December 1996, the Company entered into an Executive Salary Continuation
Agreement (the "Agreement") with Alfred J. Stein, now age 65, the Company's
Chairman of the Board and Chief Executive Officer. Under the Agreement, upon any
future voluntary termination 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.
NON-QUALIFIED DEFERRED COMPENSATION PLAN
In June 1997, the Company established a supplemental retirement plan for
the benefit of a select group of management or highly compensated employees of
the Company. Under the Non-Qualified Deferred
12
<PAGE> 15
Compensation Plan, eligible employees, including officers and directors, may
elect to defer up to 100% of their salary, commissions or bonuses. Participants
who terminate with less than five years of service or $20,000, for reasons other
than disability or death, receive a single lump payment on termination. In all
other cases, a participant may elect various methods of payment, including lump
sum, quarterly, annual or percentage installments over up to 20 years provided
the election is made more than one year prior to termination. Subject to
Internal Revenue Service limits, the Company may, at its discretion, elect to
match the deferred amount to the lesser of fifty percent (50%) of the
compensation deferred or three percent (3%) of a participant's compensation for
a Plan Year. During 1997, one matching payment was made in the amount of $273 to
Balakrishnan S. Iyer.
ADDITIONAL COMPENSATION ARRANGEMENTS
Douglas M. McBurnie joined the Company in August 1997 as Senior Vice
President, Consumer and Computer Products Group. At that time, it was agreed
that the Company will credit into a deferred compensation account for the
benefit of Mr. McBurnie the sum of $500,000 each year on the date of completion
of each of his first three years of service.
John S. Hodgson joined the Company in May 1997 as Senior Vice President,
Worldwide Sales and Technology Centers. At that time, it was agreed that Mr.
Hodgson will be paid a bonus in the amount of $100,000 on the date of completion
of his first year of service. If Mr. Hodgson leaves after one year of service
but before completing two years of service, he must repay the Company $50,000.
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
1997 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
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.
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 1997, awards were made based on revenue, gross
margin or operating profit goals and upon individual performance goals and
considerations. 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.
Occasionally, in order to attract high-level executives it is necessary to
enter into special arrangements concerning additional compensation. In 1997, the
Company agreed to pay John S. Hodgson, who joined the Company as Senior Vice
President, Worldwide Sales and Technology Centers, a bonus of $100,000 payable
after one year of service. If Mr. Hodgson leaves after one year of service but
before completing two years of service, he must repay the Company $50,000. Also,
under an arrangement entered into with Douglas M. McBurnie, who joined the
Company as Senior Vice President, Consumer and Computer Products Group, the
Company will credit into a deferred compensation account for the benefit of Mr.
McBurnie the sum of $500,000 each year on the date of completion of each of his
first three years of service.
14
<PAGE> 17
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 917 employees (or approximately 37% of all employees at
December 26, 1997) hold options under the various stock option plans. At
December 26, 1997, 7,410,904 stock options were outstanding under the 1982
Incentive Stock Option Plan (the "1982 Plan"), which expired in May 1992, and
the 1992 Plan.
In determining the number of shares subject to options to be granted to
executive officers, the Compensation Committee considers 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 1997, 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 1997 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.
Generally, these options become exercisable cumulatively at an annual rate of
25% of the total shares granted commencing one year from such date. In 1997, as
part of his initial compensation package, the Company granted Douglas M.
McBurnie options to purchase 150,000 shares, which vest one-third per year over
three years. 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.
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 under the 1982 Plan or the 1992 Plan.
CHANGE-IN-CONTROL AGREEMENTS
The Company is a party to change-in-control agreements with certain of its
officers and key employees. 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. The Company may
enter into such agreements with additional officers and key employees from time
to time. See "EXECUTIVE OFFICER COMPENSATION -- Change-In-Control Agreements"
above.
1997 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.
15
<PAGE> 18
Mr. Stein's annual base salary was increased from $660,000 to $700,000 in
June 1997, primarily based on personal accomplishments and Company performance
in 1996 and 1997. Mr. Stein's Incentive Plan award for 1997, as discussed above
under "Executive Officer Compensation," was based on individual performance
considerations. Major factors taken into account included the continued
recruitment of top management, the successful closing of the San Jose
fabrication facility, the sale of the Company's subsidiary, COMPASS Design
Automation, Inc., and the strategic relationship entered into with Wafer
Technology Malaysia. The 1997 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. In addition, Mr. Stein has an Executive
Salary Continuation Agreement entered into with the Company in 1996. See
"EXECUTIVE OFFICER COMPENSATION -- Executive Salary Continuation Agreement"
above.
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
Robert P. Dilworth, Chairman
16
<PAGE> 19
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 VLSI H & Q
(FISCAL YEAR COVERED) TECHNOLOGY S & P 500 TECHNOLOGY
<S> <C> <C> <C>
12/26/92 100.00 100.00 100.00
12/28/93 132.31 110.08 117.41
12/30/94 147.69 111.53 141.04
12/29/95 223.08 153.45 210.89
12/27/96 293.85 188.68 262.10
12/26/97 290.77 251.63 307.39
</TABLE>
Assumes $100 invested on December 26, 1992
*Total return assumes reinvestment of dividends
Note: Total returns for the S&P 500 index and for the H&Q Technology
index are weighted based on market capitalization.
<TABLE>
<CAPTION>
12/26/92 12/28/93 12/30/94 12/29/95 12/27/96 12/26/97
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
VLSI TECHNOLOGY................ $100.00 $132.31 $147.69 $223.08 $293.85 $290.77
S&P 500........................ 100.00 110.08 111.53 153.45 188.68 251.63
H&Q TECHNOLOGY................. 100.00 117.41 141.04 210.89 262.10 307.29
</TABLE>
The Stock Price Performance Graph shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement (or any portion hereof) into any filing under the Acts, except to the
extent that the Company specifically incorporates this performance graph by
reference, and shall not otherwise be deemed filed under such Acts.
17
<PAGE> 20
APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED SHARES AND ELIMINATE JUNIOR STOCK
GENERAL
The Company's Restated Certificate of Incorporation, as amended, as
currently in effect (the "Certificate"), provides that the Company is authorized
to issue two classes of stock, consisting of 100,000,000 shares designated as
Common Shares, $.01 par value per share, and 2,000,000 shares designated as
Preferred Shares, $.01 par value per share. The Common Shares are issuable in
series and currently consist of 99,000,000 authorized shares of Common Stock,
600,000 authorized shares of Series B Common Stock and 400,000 shares of
authorized but undesignated Junior Common Stock.
PROPOSED AMENDMENT
In March 1998, the Board of Directors of the Company authorized an
amendment to the Certificate (the "Certificate Amendment"), subject to
stockholder approval, to increase the authorized number of shares of Common
Shares and Common Stock by 100,000,000 shares and to eliminate the Series B and
Junior Common Stock, none of which is outstanding. Under the proposed amendment,
subparagraphs (c) and (e) of paragraph 4 of the Certificate relating to the
rights, preferences, privileges and restrictions for Junior Common Stock and
Series B Common Stock would be deleted in their entirety and subparagraphs (a)
and (b) of paragraph 4 of the Certificate would be amended to read as follows:
"(a) Classes of Stock. This Corporation is authorized to issue two classes
of shares designated respectively "Common Shares" and "Preferred
Shares". The total number of shares which this Corporation shall have
the authority to issue is Two Hundred Two Million (202,000,000), of
which Two Hundred Million (200,000,000) shall be Common Shares and Two
Million (2,000,000) shall be Preferred Shares. Each Common Share and
each Preferred Share shall have a par value per share of $.01, and the
aggregate par value of the Common Shares and the Preferred Shares
shall be $2,000,000 and $20,000, respectively, for an aggregate par
value of $2,020,000.
(b) Common Shares. The Common Shares authorized by this Certificate of
Incorporation shall be designated "Common Stock" and shall consist of
Two Hundred Million (200,000,000) shares."
The stockholders are being asked to approve such Certificate Amendment. The
proposed Certificate Amendment would give the Board the authority to issue
additional shares of Common Stock without requiring future stockholder approval
of such issuances, except as may otherwise be required by applicable law.
SHARES RESERVED
Of the 99,000,000 currently authorized shares of Common Stock, 45,805,566
shares of Common Stock were issued and outstanding as of December 26, 1997. In
addition, as of such date, approximately 8,820,923 shares were reserved for
issuance under the Company's option plans, approximately 2,987,186, 2,000,000 of
which are subject to stockholder approval, shares were reserved for issuance
under the Purchase Plan and approximately 3,147,810 shares are reserved for
issuance under the terms of the Company's Convertible Subordinated Notes.
Accordingly, as of December 26, 1997, the Company has 38,238,515 shares of
authorized but unissued and unreserved Common Stock available for issuance.
PURPOSE AND EFFECT OF THE AMENDMENT
The principal purpose of this proposed amendment to the Company's
Certificate of Incorporation to increase the authorized shares of Common Stock
is to make such shares available for use by the Board of Directors as it deems
appropriate or necessary. For example, such shares may be needed in connection
with a stock split, raising additional capital through the sale of the Company's
securities, acquisition of another company or its business or assets,
establishing a strategic relationship with a corporate partner, or providing
options or other stock incentives to the Company's employees, consultants or
others.
18
<PAGE> 21
The Board of Directors has no present agreement or arrangement, plan or
understanding with respect to the issuance of any such shares. If the
Certificate Amendment is approved by the stockholders, the Board of Directors
does not intend to solicit further stockholder approval prior to the issuance of
any additional shares of Common Stock, except as may be required by applicable
law. Holders of the Company's securities as such have no statutory preemptive
rights with respect to issuances of Common Stock.
The increase in authorized Common Stock will not have any immediate effect
on the rights of existing stockholders. To the extent that the additional
authorized shares are issued in the future, they will decrease the existing
stockholders' percentage equity ownership and, depending on the price at which
they are issued, could be dilutive to the existing stockholders.
The purpose of eliminating Junior Common Stock is that the Company has no
intention of ever using Junior Common Stock in the future.
POTENTIAL ANTI-TAKEOVER EFFECT
The increase in the authorized number of shares of Common Stock and the
subsequent issuance of such shares could have the effect of delaying or
preventing a change in control of the Company without further action by the
stockholders. Shares of authorized and unissued Common Stock could (within the
limits imposed by applicable law) be issued in one or more transactions that
would make a change in control of the Company more difficult, and therefore less
likely. Any such issuance of additional stock could have the effect of diluting
the earnings per share and book value per share of outstanding shares of Common
Stock, and such additional shares could be used to dilute the stock ownership or
voting rights of a person seeking to obtain control of the Company.
VLSI has previously adopted certain measures that may have the effect of
helping to resist an unsolicited takeover attempt, including (i) the First
Amended and Restated Rights Agreement dated as of August 12, 1992, as amended,
providing for the distribution of rights to purchase additional shares of the
Company's Preferred Stock in the event of certain attempts to acquire control of
the Company; (ii) provisions in the 1992 Plan and the Directors' Plan providing
for the acceleration of exercisability of outstanding options in the event of a
sale of assets, merger or change in control; (iii) provisions of the Certificate
authorizing the Board to issue up to 2,000,000 shares of Preferred Shares with
terms, provisions and rights fixed by the Board; and (iv) provisions in the
Company's bylaws regarding certain procedural matters relating to stockholder
proposals, cumulative voting and nomination of directors. The Named Officers are
also party to Change-In-Control Agreements. (See "EXECUTIVE OFFICER
COMPENSATION -- Change-In-Control Agreements").
REQUIRED VOTE
The adoption of the amendment to the Certificate of Incorporation requires
the affirmative vote of not less than a majority of the votes entitled to be
cast by all shares of Common Stock issued and outstanding on the Record Date.
The effect of an abstention is the same as that of a vote against the proposal.
Management recommends voting "FOR" approval of the proposed Certificate
Amendment. If the Certificate Amendment is not so approved, the Company's
authorized capital stock will not change.
APPROVAL OF AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN
The Employee Stock Purchase Plan (the "Purchase Plan") was adopted by the
Board of Directors of the Company in August 1983 and has been amended numerous
times since then. Initially, 600,000 shares were reserved for issuance under the
Purchase Plan. In 1988, 1989, 1991, 1993 and 1995, the stockholders approved
increases of 1,000,000, 1,000,000, 2,000,000, 2,000,000 and 2,400,000 shares,
respectively, bringing the number of shares issuable under the Purchase Plan to
a total of 9,000,000. The Purchase Plan provides an opportunity and incentive
for all employees to become stockholders of their Company.
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<PAGE> 22
PROPOSED AMENDMENT
In November 1997, the Board of Directors authorized an amendment to the
Purchase Plan (the "Amendment") to increase the shares reserved for issuance
thereunder by 2,000,000 shares, bringing the total number of shares issuable
under the Purchase Plan to 11,000,000 shares.
At the Annual Meeting, the stockholders are being requested to approve the
amendment to the Purchase Plan increasing the shares reserved for issuance
thereunder.
REQUIRED VOTE
The affirmative vote of a majority of the Votes Cast will be required to
approve the amendment of the Purchase Plan. The Board of Directors recommends
voting "FOR" approval of the amendment to the Purchase Plan.
GENERAL
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Sections 421 and 423
of the Code. The purpose of the Purchase Plan is to provide employees of the
Company and its majority-owned subsidiaries that participate in the Purchase
Plan with an opportunity to purchase Common Stock of the Company at discounted
prices through payroll deductions.
As of December 26, 1997, 8,012,814 shares had been purchased under the
Purchase Plan at a weighted average purchase price of $7.21 per share, and
987,186 shares remained available for future purchase under the Purchase Plan.
Giving effect to the increase in shares approved by the Board of Directors in
November 1997, which is subject to stockholder approval at the Annual Meeting,
there will be 2,987,186 shares available for purchase under the Purchase Plan.
As of December 26, 1997, approximately 2,483 employees were eligible for the
Purchase Plan, of whom 1,613 were participants.
ADMINISTRATION
The Purchase Plan is to be administered by the Compensation Committee or,
if no such committee has been appointed by the Board of Directors, then by the
Board of Directors itself. The Purchase Plan also requires that the body
administering it meet the requirements, if any, of Rule 16b-3, promulgated under
the Exchange Act, for plans of this type.
ELIGIBILITY AND PARTICIPATION
Any person who is customarily employed for at least 20 hours per week and
at least five months per calendar year by the Company or its majority-owned
subsidiaries is eligible to participate in offerings under the Purchase Plan.
Eligible employees become participants in the Purchase Plan by delivering to the
Company a subscription agreement authorizing payroll deductions at least 15 days
prior to the applicable offering period, as defined below, unless a later time
for filing the subscription agreement has been set by the Board of Directors for
all eligible employees with respect to a given offering period. An employee who
becomes eligible to participate in the Purchase Plan after the commencement of
an offering period may not participate in the Purchase Plan until the
commencement of the next offering period.
Participation in the Purchase Plan is voluntary and is dependent on each
eligible employee's election to participate and his or her respective
determination as to the level of payroll deductions. Accordingly, future
purchases under the Purchase Plan are not determinable. The following table sets
forth, as to the Named Officers, all current executive officers as a group and
all other employees who participated in the Purchase Plan: (i) the number of
shares of the Company's Common Stock purchased under the Purchase Plan during
the last fiscal year; (ii) the dollar value of the benefit; and (iii) the amount
of payroll deductions for future
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<PAGE> 23
purchases accumulated through December 26, 1997 for the current purchase period
under the Purchase Plan, which purchase period commenced November 1, 1997:
AMENDED PLAN BENEFITS
EMPLOYEE STOCK PURCHASE PLAN
LAST FISCAL YEAR
---------------------------------
<TABLE>
<CAPTION>
PAYROLL
NUMBER OF DOLLAR DEDUCTIONS
NAME OF INDIVIDUAL OR SHARES VALUE AS OF FISCAL
IDENTITY OF GROUP AND POSITION PURCHASED(#) ($)(1) YEAR END(2)
------------------------------ ------------ ---------- ------------
<S> <C> <C> <C>
Alfred J. Stein........................... 1,423 $ 15,509 $ 9,693
Chairman of the Board and
Chief Executive Officer
Richard M. Beyer.......................... 1,415 15,395 4,955
President and
Chief Operating Officer
Balakrishnan S. Iyer...................... 1,702 19,506 4,629
Senior Vice President and
Chief Financial Officer
John S. Hodgson........................... 0 0 0
Senior Vice President,
Worldwide Sales and Technology Centers
Thierry M. Laurent........................ 0 0 0
Senior Vice President and General
Manager, Communications Products Group
All current executive officers as a group
(9 persons)............................. 6,112 68,054 29,589
All other employees as a group............ 562,174 5,381,362 2,629,559
</TABLE>
- ---------------
(1) Market value on the date of purchase, minus the purchase price under the
Purchase Plan.
(2) Represents payroll deduction amounts since last purchase date.
OFFERING DATES
The Purchase Plan is currently implemented by two 6-month offering periods
per year that commence on May 1 and November 1 of each year. The Board of
Directors has the power to alter the duration of the offering periods or
purchase periods without stockholder approval, if such change is announced at
least 15 days prior to the scheduled beginning of the first offering period or
purchase period, as the case may be, to be affected.
PURCHASE PRICE
Shares are purchased on the last business day of each offering period (a
"purchase date") unless a participant withdraws from the offering period prior
to such purchase date. The purchase price per share is the lower of: 85% of the
fair market value of a share of Common Stock on the date of commencement of the
offering period (the "Entry Price"), or 85% of the fair market value of a share
of Common Stock on the purchase date.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions over
the offering period. A participant may choose any percentage of their
compensation, which is deducted from his or her compensation through payroll
deductions. A participant may discontinue his or her participation in the
Purchase Plan at any time during an offering period and may decrease, but not
increase, the rate of payroll deductions once during an offering period.
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<PAGE> 24
PURCHASE OF STOCK; EXERCISE OF OPTION
By executing a subscription agreement to participate in the Purchase Plan,
the employee is entitled to have shares placed under option to him or her that
are exercisable on each purchase date. The maximum number of shares placed under
option to a participant is the lesser of: (a) that number determined by dividing
the amount accumulated in such participant's account during the purchase period
by the lower of: (i) the Entry Price or (ii) 85% of the fair market value of the
Common Stock on the last day of such offering period; (b) 8,400 shares; (c) a
maximum number of shares set in respect of each purchase period by the
Compensation Committee, if any (the "Maximum Share Amount"); and (d) the limit
imposed on yearly purchases under qualified employee stock purchase plans by
Section 423 of the Code and the regulations thereunder. Employees must be
notified of the Maximum Share Amount, if any, not less than 15 days prior to the
beginning of the first affected offering period. Once set, such Maximum Share
Amount remains in effect for all succeeding offering periods until re-set or
eliminated by the Board of Directors. Currently, the Board of Directors has
implemented a restriction that shares purchased in excess of 500 shares during
any offering period must be held for a period of at least one year.
Unless the employee's participation is discontinued prior to a purchase
date, his or her option for the purchase of shares will be exercised
automatically at the end of the offering period at the applicable price.
WITHDRAWAL; TERMINATION OF EMPLOYMENT
A participant's interest in a given offering period may be terminated in
whole, but not in part, by signing and delivering to the Company a notice of
withdrawal from the Purchase Plan. Such withdrawal may be made at any time prior
to the end of the applicable offering period. A participant's withdrawal from
one offering period does not have any effect upon such participant's eligibility
to participate in subsequent offerings under the Purchase Plan. Upon withdrawal
from an offering period, all payroll deductions that have been credited to the
participant's account and that have not been applied toward the purchase of
shares of Common Stock will be returned to the participant without interest.
Termination of a participant's employment for any reason, including
retirement or death, cancels the participant's participation in the Purchase
Plan immediately. In such event, the payroll deductions credited to the
participant's account will be returned to such participant or to his or her
beneficiaries without interest.
CAPITAL CHANGES
In the event any change is made in the Company's capitalization, such as a
stock split or payment of a stock dividend, which change results in an increase
or decrease in the number of shares of Common Stock outstanding without receipt
of consideration by the Company, appropriate adjustment shall be made in the
exercise price and in the number of shares subject to options outstanding under
the Purchase Plan, as well as in the number of shares reserved for issuance
under the Purchase Plan.
In the event of the proposed dissolution or liquidation of the Company, all
options will terminate immediately prior to the consummation of such proposed
actions, unless otherwise provided by the Board. 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, all options shall be assumed by such
successor corporation or, in the Board's sole discretion, the Board may, in lieu
of such assumption, give all participants the right to exercise their options as
to all of the shares subject to option.
AMENDMENT AND TERMINATION OF THE PURCHASE PLAN
The Board of Directors may at any time amend, suspend or terminate the
Purchase Plan. Termination or suspension of the Purchase Plan automatically
terminates all outstanding options. Amendments to the Purchase Plan or to
options thereunder that would adversely affect the rights of any participant
under an option theretofore granted shall only be effective as to such options
if the participant's consent is obtained. No amendment may be made to the
Purchase Plan without approval of the stockholders of the Company if
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<PAGE> 25
stockholder approval of such amendment is necessary and desirable to comply with
Section 423 of the Code or with Rule 16b-3, or any successor rule.
TAX INFORMATION
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Sections 421 and 423
of the Code. Under these provisions, no income will be taxable to a participant
at the time of grant of the option or purchase of shares. Upon disposition of
the shares, the participant will generally be subject to tax and the amount of
the tax will depend upon the holding period.
If the shares have been held by the participant for more than two years
after the date of option grant and for more than one year after the date of
purchase, the lesser of (a) the excess of the fair market value of the shares at
the time of such disposition over the purchase price or (b) 15% of the fair
market value of the shares at the date of commencement of the offering period,
will be treated as ordinary income. Any additional gain will be treated as
capital gain. If the shares are sold and the sale price is less than the
purchase price, there is no ordinary income and the participant has a capital
loss for the difference. If the shares are disposed of before the expiration of
these holding periods, the excess of the fair market value of the shares on the
purchase date over the purchase price will be treated as ordinary income, and
any further gain or loss on such disposition will be long-term or short-term
capital gain or loss, depending on the holding period.
The Company is not entitled to a deduction for amounts taxed as ordinary
income or capital gain to a participant except to the extent of ordinary income
recognized by participants upon dispositions of shares prior to the expiration
of the holding periods described above. Any such deduction may be limited in the
case of the Company's Chief Executive Officer and each of the other four most
highly compensated executive officers under Internal Revenue Code Section
162(m).
The foregoing is only a brief summary of the effect of federal income
taxation upon the participant and the Company with respect to the shares
purchased under the Purchase Plan, does not purport to be complete, and does not
discuss the tax consequences of a participant's death or the income tax laws of
any municipality, state or foreign country in which a participant may reside.
APPROVAL OF AN AMENDMENT TO THE 1992 STOCK PLAN
Since 1982, the Company has provided stock options as an incentive to its
key employees and executives as a means to promote increased stockholder value.
Management believes stock options are one of the prime ways to attract and
retain key personnel responsible for the continued development and growth of the
Company's business. In addition, stock options are considered a competitive
necessity in the semiconductor/high technology industries.
PROPOSED AMENDMENT
In March 1998, the Company's Board of Directors, subject to stockholder
approval, adopted an amendment to the 1992 Stock Plan (the "1992 Plan") to
increase the number of shares reserved for issuance under the 1992 Plan from
9,500,000 shares to 11,500,000 shares. At the Annual Meeting, stockholders are
being asked to approve the increase in shares reserved under the 1992 Plan.
PURPOSE OF THE AMENDMENT
In January 1998, the Board of Directors adopted the 1998 Nonstatutory Stock
Option Plan (the "1998 Plan") and reserved 6,000,000 shares of Common stock for
issuance thereunder. The Company currently intends to use the 1992 Plan
primarily for options granted to officers (as defined in the rules under Section
16 of the Exchange Act) and the 1998 Plan for options granted to non-officers,
since by its terms, such officers are excluded from participating in the 1998
Plan. Purposes for which options are intended to be granted to officers under
the 1992 Plan include recruitment of new officers and the retention, promotion
or retirement of existing officers. It is anticipated that substantially all of
the shares the stockholders are being asked to approve will be used for such
purposes over the next one to three years.
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<PAGE> 26
REQUIRED VOTE
The affirmative vote of a majority of the Votes Cast will be required to
approve the amendment to the 1992 Plan. The Board of Directors recommends that
stockholders vote "FOR" ratification of the increase in shares reserved under
the 1992 Plan.
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". In 1997, the Company granted stock bonuses
to various employees in connection with patent bonus programs. The Company does
not currently have any specific plans to grant any awards under the 1992 Plan
other than options or stock bonuses.
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 26, 1997, the Company's 2,483
employees and its consultants would have been eligible to participate in the
1992 Plan.
ADMINISTRATION
The 1992 Plan may be administered by the Board of Directors or by a
committee of the Board (the "Administrator"), and is currently administered by
the Compensation Committee, which is composed solely of non-employee directors.
The Administrator has full power to select, from among the employees and
consultants eligible for awards, the individuals to whom awards will be granted,
to make any combination of awards to any participant and to determine the
specific terms of each grant, subject to the provisions of the 1992 Plan. The
interpretation and construction of any provision of the 1992 Plan by the
Administrator shall be final and conclusive.
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.
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
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<PAGE> 27
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 Exchange Act, referred to herein as "Insiders", may only be payable in
cash.
STOCK APPRECIATION RIGHTS
The 1992 Plan also permits the granting of nontransferable stock
appreciation rights. SARs may be granted in connection with all or any part of
an option, either concurrently with the grant of such option or at any time
thereafter during the term of the option, or may be granted independently of
options.
The Administrator of the 1992 Plan may place limits on the aggregate amount
that may be paid upon exercise of an SAR, provided, however, that with respect
to SARs granted in connection with options, such limits shall not restrict the
exercisability of the related option. The Company's obligation arising upon the
exercise of an SAR may be paid in Common Stock or in cash, or any combination
thereof, as the Administrator may determine.
TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP
Under the 1992 Plan, the period of time during which an option or SAR may
be exercised following an optionee's termination of employment or consulting
relationship for any reason is such period as is determined by the
Administrator, up to a maximum of 10 years in the case of death or permanent
disability and five years in the case of termination for any other reason. After
termination of employment or consulting, an option or SAR may thereafter be
exercised during the specified period but in no event after the expiration of
the original term of the option or SAR. After termination, an option or SAR is
generally only exercisable to the extent it was exercisable at the date of such
termination, unless otherwise determined by the Administrator. The employment or
consulting relationship is not considered to be terminated in the event of
certain leaves of 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
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<PAGE> 28
may adjust Long-Term Awards as it deems necessary or appropriate, based on
changes in the law or in accounting or tax rules, in order to avoid windfalls or
hardships.
STOCK BONUS AWARDS
The 1992 Plan also permits the granting of Stock Bonuses based on such
performance or employment-related factors as the Administrator shall determine.
Stock Bonus awards may vary from participant to participant and group to group.
Such awards shall not require payment by the recipient of any consideration but
may, in the discretion of the Administrator, be subject to vesting or forfeiture
restrictions.
WRITTEN AGREEMENTS; RULE 16B-3
All awards granted under the 1992 Plan shall be evidenced by a written
agreement between the Company and the employee or consultant to whom such award
is granted. Awards granted to Insiders are subject to any additional applicable
restrictions under Rule 16b-3.
RIGHTS NONTRANSFERABLE
Options and Rights granted pursuant to the 1992 Plan are nontransferable by
the participant, other than by will or by the laws of descent and distribution
or pursuant to a qualified domestic relations order. Options or Rights may be
exercised, during the lifetime of the participant, only by the participant or by
a permitted transferee.
USE OF STOCK FOR TAX WITHHOLDING
The 1992 Plan permits participants to satisfy tax withholding obligations
arising from the grant, vesting or exercise of options or Rights by surrendering
shares of Common Stock already owned, or by directing the Company to withhold
from the shares of Common Stock issued or issuable pursuant to the award in
question that number of shares, having a fair market value equal to the tax
withholding liability as of the applicable tax date. All elections to utilize
stock for tax withholding are subject to the approval of the Administrator.
CHANGE-IN-CONTROL PROVISIONS
The 1992 Plan provides that in the event of a change in control of the
Company, 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
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<PAGE> 29
receipt of consideration by the Company, an appropriate adjustment shall be made
in the number of shares that have been reserved for issuance under the 1992 Plan
and the price per share covered by each outstanding option, SAR, Purchase Right
and Long-Term Award. In the event of the proposed dissolution or liquidation of
the Company, all outstanding options and Rights will terminate immediately prior
to the consummation of such proposed action, unless otherwise provided by the
Administrator. The Administrator may, in its discretion, make provision for
accelerating the exercisability of shares subject to options or Rights under the
1992 Plan in such event.
AMENDMENT AND TERMINATION
The Board may amend, alter, suspend or discontinue the 1992 Plan at any
time, but any such amendment, alteration, suspension or discontinuation shall
not adversely affect any outstanding option or Right under the 1992 Plan without
the consent of the holder thereof. To the extent necessary and desirable to
comply with Rule 16b-3 or Section 422 of the Code (or any other applicable law
or regulation), the Company shall obtain stockholder approval of any amendment
to the 1992 Plan in such a manner and to such a degree as is required. The 1992
Plan will terminate by its terms on April 30, 2002.
Subject to applicable laws and the specific terms of the 1992 Plan, the
Administrator may accelerate any option or Right or waive any condition or
restriction pertaining to such option or Right at any time. The Administrator
may also substitute new options or Rights for previously granted options or
Rights, including previously granted options or Rights having higher prices, and
may reduce the exercise price of any option or 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, 1998. 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, any gain will be taxed to the optionee as
ordinary income or capital gain, depending on how long the optionee has held the
stock.
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 ordinary income for federal tax purposes
measured by the excess, if any, of the then fair market value of the shares over
the exercise price. 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.
The ordinary 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.
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
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<PAGE> 30
of an SAR will constitute wages for which withholding will be required. 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.
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.
DEDUCTIBILITY BY THE COMPANY
Ordinarily, the Company will receive a tax deduction for federal income tax
purposes in connection with awards under the 1992 Plan in the same amount as the
compensation income recognized by the participant. However, Internal Revenue
Code Section 162(m) contains special rules limiting the federal income tax
deductibility of compensation paid to the Company's Chief Executive Officer and
each of the other four most highly compensated executive officers. The general
rule is that annual compensation paid to any of these specified executives will
be deductible only to the extent that it does not exceed $1,000,000.
Compensation that qualified as "performance-based compensation" is excluded from
the $1,000,000 deductibility cap, and therefore remains fully deductible by the
Company. To qualify as "performance-based' within the meaning of Section 162(m),
options and stock appreciation rights must be granted with an exercise price of
not less than 100% of the fair market value of the Common Stock on the date of
grant, among other things. To the extent these requirements are met,
compensation attributable to options and stock appreciation rights granted to
executive officers under the 1992 Plan will qualify as performance-based
compensation for purposes of Section 162(m), and the Company will generally be
entitled to a tax deduction in the amount recognized by such officers in
connection with such awards. Compensation attributable to stock purchase rights,
long-term performance awards and stock bonuses will not generally qualify as
"performance-based" within the meaning of Section 162(m). As a result, income
recognized by executive officers in connection with such awards will be subject
to the limitations on deductibility under such Section.
PARTICIPATION IN 1992 PLAN
The grant of options, stock appreciation rights, stock purchase rights,
stock bonus awards and long-term performance awards under the 1992 Plan to
employees, including the Named Officers, is subject to the discretion of the
Administrator. Accordingly, future awards are not determinable. Non-employee
directors are not eligible to participate in the 1992 Plan. The following table
sets forth information with respect to the grant of options to the Named
Officers, to all current executive officers as a group and to all other
employees as a group during the last fiscal year.
28
<PAGE> 31
AMENDED PLAN BENEFITS
1992 STOCK PLAN
------------------------
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
NAME OF INDIVIDUAL OR UNDERLYING
IDENTITY OF GROUP AND POSITION OPTIONS GRANTED (#) EXERCISE PRICE ($/SH)
------------------------------ -------------------- ---------------------
<S> <C> <C>
Alfred J. Stein................................. 150,000 $18.000
Chairman of the Board and
Chief Executive Officer
Richard M. Beyer................................ 25,000 18.000
President and
Chief Operating Officer
Balakrishnan S. Iyer............................ 75,000 15.625
Senior Vice President and 10,000 18.000
Chief Financial Officer 15,000 24.188
75,000 31.625
John S. Hodgson................................. 125,000 18.500
Senior Vice President,
Worldwide Sales and Technology Centers
Thierry M. Laurent.............................. 20,000 18.000
Senior Vice President and General Manager,
Communications Products Group
All current executive officers as a group....... 715,000 23.094(1)
(9 persons)
All other employees as a group.................. 2,343,950 20.857(1)
</TABLE>
- ---------------
(1) Represents weighted average per share exercise price.
APPROVAL OF AMENDMENTS TO THE 1986 DIRECTORS' STOCK OPTION PLAN
The 1986 Directors' Stock Option Plan (the "Directors' Plan") was adopted
by the Board of Directors of the Company in August 1986 and has been amended
several times since then. Currently, a total of 300,000 shares of the Company's
Common Stock are reserved for issuance under the Directors' Plan. The Directors'
Plan provides an opportunity for all non-employee members of the Board of
Directors to become stockholders of the Company.
PROPOSED AMENDMENTS
In March 1998, the Board approved amendments to the Directors' Plan
(collectively, the "Amendments"), subject to stockholder approval, to: (1)
increase the number of shares reserved for issuance thereunder by 300,000; (2)
extend the term of the Plan until August, 2006; (3) increase the Directors'
annual option to purchase shares from 5,000 to 6,000 shares; (4) allow the
Directors to elect to receive their annual retainer and future Board fees in
either cash or the Company's Common Stock; if a Director elects to receive his
retainer and fees in Common Stock and holds such stock for three years, he will
receive an additional stock award in the amount of 25% of the shares held; (5)
permit the directors to elect to convert their retainer and Board fees into
Common Stock equivalents on a tax-deferred basis, which will be issued when
their services on the Board ceases; if a Director elects to defer his retainer
and Board fees into Common Stock equivalents and the deferral continues for the
three years, the Director will receive an additional award of Common Stock
equivalents in the amount of 25% of the amount originally deferred. The
Amendments are subject to stockholder approval. Accordingly, no action will be
taken under the Amendments until the approval by the stockholders.
At the Annual Meeting, the stockholders are being requested to ratify and
approve the Amendments to the Directors' Plan. The Board believes that the
continued service of its outside directors is extremely valuable to the Company
and recommends approval of the Amendments, which are intended both to recognize
past
29
<PAGE> 32
service and to provide additional incentive for non-employee directors to
continue serving on the Company's Board of Directors.
REQUIRED VOTE
Affirmative votes constituting a majority of the Votes Cast will be
required to approve the proposed Amendments to the Directors' Plan. The Board of
Directors recommends voting "FOR" approval of the Amendments to the Directors'
Plan.
GENERAL
Options granted under the Directors' Plan are nonstatutory options. The
purposes of the Directors' Plan are to attract and retain the best available
personnel for service as directors of the Company, to provide additional
incentive to the non-employee directors of the Company (the "Outside Directors")
and to encourage their continued service on the Board.
ADMINISTRATION
The Directors' Plan is administered by the Board of Directors. The
interpretation and construction of any provisions of the Directors' Plan shall
be within the sole discretion of the Board, whose determination shall be final
and conclusive.
ELIGIBILITY
The Directors' Plan provides that options may be granted only to Outside
Directors. There are currently five eligible Outside Directors. All grants are
automatic and are not subject to the discretion of any person. No option is
granted under the Directors' Plan to an Outside Director who holds other options
or warrants not granted under the Directors' Plan that have not yet become
exercisable.
AUTOMATIC GRANT OF OPTIONS
Each Outside Director who was serving as such on the date of adoption of
the Directors' Plan (August 6, 1986) received an automatic grant on such date of
an option to purchase 20,000 shares of Common Stock (the "First Option"). Each
Outside Director who becomes a director subsequent to the date of adoption of
the Directors' Plan receives an automatic grant of a First Option on the date of
his or her appointment or election to the Board. A First Option becomes
exercisable cumulatively with respect to 5,000 shares on the first day of each
fiscal year following the date of grant.
After receiving a First Option, an Outside Director is automatically
granted an additional option to purchase 5,000 (6,000 shares if the Amendments
are approved) under the Directors' Plan (the "Subsequent Option") on the first
day of each fiscal year of the Company. The Subsequent Option becomes
exercisable in full on the first day of the fourth fiscal year beginning after
the date of grant of such option.
After an Outside Director is granted a First Option and upon the date on
which such Outside Director's First Option or a Replenishment Option (as defined
below) expires unexercised, such Outside Director shall be automatically granted
an option (a "Replenishment Option") to purchase a number of shares equal to
20,000 minus the aggregate number of shares, if any, that were issued to such
Outside Director upon exercise of his or her First Option and any previously
granted Subsequent Options and Replenishment Options. A Replenishment Option is
exercisable in full on the date of grant.
TERMS AND CONDITIONS OF OPTIONS
Options granted under the Directors' Plan have a ten-year term from the
date of grant. The options become exercisable as described above under
"Automatic Grant of Options". Payment for shares issued upon exercise of an
option may consist of cash or other shares of Common Stock having a fair market
value on the date of surrender equal to the aggregate exercise price, or any
combination thereof. The exercise price of options granted under the Directors'
Plan is the fair market value of the Company's Common Stock on the
30
<PAGE> 33
date of grant. The Directors' Plan provides that, if the Outside Director ceases
to serve as a director due to death or permanent disability, options may be
exercised at any time within six months after termination of service. Following
termination of service as a director for any other reason, options may be
exercised within 30 days after such termination. An option is nontransferable by
the optionee, other than by will or 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 ("ERISA"), or the rules
thereunder, and may be exercised, during the lifetime of the optionee, only by
the optionee or by a permitted transferee.
CAPITAL CHANGES
In the event any change, such as a stock split or payment of a stock
dividend, is made in the Company's capitalization that results in an exchange of
Common Stock for a greater or lesser number of shares without receipt of
consideration by the Company, appropriate adjustment shall be made in the
exercise price and in the number of shares subject to options outstanding under
the Directors' Plan, as well as in the number of shares reserved for issuance
under the Directors' Plan. In the event of the proposed dissolution or
liquidation of the Company, all options will terminate immediately prior to the
consummation of such proposed action. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, all options shall be assumed by such successor
corporation.
AMENDMENT, TERMINATION AND TERM OF THE DIRECTORS' PLAN
The Board of Directors may amend the Directors' Plan from time to time or
may terminate it without approval of the stockholders of the Company. However,
the provisions of the Directors' Plan that relate to the amount, price and
timing of options granted under the Directors' Plan may not be amended more than
once every six months, other than to comport with changes in the Code, ERISA or
the rules thereunder. Furthermore, stockholder approval is required for any
amendment that increases the number of shares subject to the Directors' Plan,
changes the designation of persons eligible for grants under the Directors'
Plan, materially increases the benefits that may accrue to participants under
the Directors' Plan or changes the number of shares subject to options granted
under the Directors' Plan or the terms thereof. However, no such action by the
Board of Directors or stockholders may unilaterally alter or impair any option
previously granted under the Directors' Plan without the consent of the
optionee. In any event, the Directors' Plan will expire by its terms in August
2001 (August 2006 if the Amendments are approved by the stockholders).
PARTICIPATION IN THE DIRECTORS' PLAN
The grant of options under the Directors' Plan is automatic, as described
above. Only non-employee directors are eligible to receive options under the
Directors' Plan; executive officers (including the Named Officers) are not
eligible. The following table sets forth information with respect to the grant
of options under the Directors' Plan during the last fiscal year:
AMENDED PLAN BENEFITS
1986 DIRECTORS' STOCK OPTION PLAN
---------------------------------
<TABLE>
<CAPTION>
NUMBER OF
NAME OF INDIVIDUAL OR SHARES UNDERLYING EXERCISE PRICE
IDENTITY OF GROUP AND POSITION OPTIONS GRANTED ($/SH)
------------------------------ ----------------- --------------
<S> <C> <C>
Pierre S. Bonelli, Outside Director.............. 5,000 $24.125
Robert P. Dilworth, Outside Director............. 5,000 24.125
10,000 18.000
------
15,000
William G. Howard, Jr., Outside Director......... 5,000 24.125
Paul R. Low, Outside Director.................... 5,000 24.125
Horace H. Tsiang, Outside Director............... 5,000 24.125
</TABLE>
31
<PAGE> 34
TAX INFORMATION
An optionee will not recognize any taxable income at the time he or she is
granted a nonstatutory option under the Directors' Plan. However, upon exercise
of the option, the optionee will recognize compensation income for federal tax
purposes generally measured by the excess, if any, of the fair market value of
the shares over the exercise price. Upon a resale of such shares by the
optionee, any difference between the sale price and the fair market value of the
shares on the date of exercise of the nonstatutory option will be treated as
capital gain or loss. The Company will be entitled to a tax deduction in the
amount that an optionee recognizes ordinary income with respect to shares
acquired upon exercise of a nonstatutory option granted under the Directors'
Plan. The foregoing summary of the effect of federal income taxation upon the
optionee and the Company with respect to the grant of options and purchase of
shares under the Directors' Plan does not purport to be complete. In addition,
this summary does not discuss the consequences of an optionee's death or the
provisions of the income tax laws of any municipality, state or foreign country
in which the participant may reside.
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 25, 1998 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.
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 6, 1998
32
<PAGE> 35
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
VLSI TECHNOLOGY, INC.
Proxy for 1998 Annual Meeting of Stockholders
The undersigned stockholder of VLSI Technology, Inc., a Delaware
corporation, hereby acknowledges receipt of the 1997 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 Thursday, May 14, 1998 at 9:00 a.m. local time, at the Company's
offices located at 1151 McKay Drive, San Jose, California 95131, and hereby
appoints Alfred J. Stein and 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 below:
1. ELECTION OF DIRECTORS.
/ / FOR all nominees listed / / WITHHOLD AUTHORITY
below (except as marked to vote for all nominees
to the contrary below). below.
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
RICHARD M. BEYER, PIERRE S. BONELLI, ROBERT P. DILWORTH, WILLIAM G.
HOWARD, JR., PAUL R. LOW, ALFRED J. STEIN AND HORACE H. TSIANG.
2. TO APPROVE AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION
FOR THE PURPOSE OF INCREASING THE AUTHORIZED NUMBER OF SHARES OF THE
COMPANY'S COMMON SHARES AND COMMON STOCK BY 100,000,000 SHARES AND
ELIMINATING JUNIOR STOCK.
/ / FOR / / AGAINST / / ABSTAIN
3. TO APPROVE AN AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN TO INCREASE
THE NUMBER OF SHARES RESERVED FOR ISSUANCE THEREUNDER BY 2,000,000.
/ / FOR / / AGAINST / / ABSTAIN
4. TO APPROVE AN AMENDMENT TO THE 1992 STOCK PLAN TO INCREASE THE NUMBER
OF SHARES RESERVED FOR ISSUANCE THEREUNDER BY 2,000,000.
/ / FOR / / AGAINST / / ABSTAIN
5. TO APPROVE AMENDMENTS TO THE 1986 DIRECTORS' STOCK OPTION PLAN,
INCLUDING AN INCREASE IN THE NUMBER OF SHARES RESERVED FOR ISSUANCE
THEREUNDER BY 300,000.
/ / FOR / / AGAINST / / ABSTAIN
6. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT
AUDITORS FOR 1998.
/ / FOR / / AGAINST / / ABSTAIN
(Continued on back)
<PAGE> 36
(Continued from front)
7. IN THEIR DISCRETION, THE PROXIES AND ATTORNEYS-IN-FACT ARE AUTHORIZED
TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
MEETING, AND ANY ADJOURNMENT OR ADJOURNMENTS THEREOF.
Either of such proxies and attorneys-in-fact, or their substitutes, as shall be
present and shall act at said meeting or any adjournment or adjournments
thereof shall have and may exercise all the powers of said proxies and
attorneys-in-fact hereunder.
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned stockholder(s).
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3, 4, 5
AND 6.
Signature ________________________ Date __________________
Signature ________________________ Date __________________
(This Proxy should be dated, signed by the stockholder(s) exactly as
his or her name(s) appears hereon, and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate.)
I do / / do not / / plan to attend the Annual Meeting in person.
