<PAGE>
SCHEDULE 14A INFORMATION
(RULE 14-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Amendment No. 1)
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement / / Confidential, for Use of
the Commission Only(as
/ / Definitive Proxy Statement permitted by Rule
/ / Definitive Additional Materials 14a-6(e)(2))
/ / Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
VLSI TECHNOLOGY, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(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)(l) and 0-11.
(1) 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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/ / Fee paid previously with preliminary materials.
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/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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<PAGE>
PRELIMINARY COPY
SUBJECT TO COMPLETION, DATED MARCH __, 1999
VLSI TECHNOLOGY, INC.
1151 MCKAY DRIVE
SAN JOSE, CALIFORNIA 95131
CONSENT REVOCATION STATEMENT
BY THE BOARD OF DIRECTORS OF VLSI TECHNOLOGY, INC.
IN OPPOSITION TO THE SOLICITATION OF CONSENTS
BY KPE ACQUISITION INC. AND KONINKLIJKE PHILIPS ELECTRONICS N.V.
_____________, 1999
The Board of Directors (the "Board") of VLSI Technology, Inc., a
Delaware corporation ("VLSI" or the "Company"), is furnishing this Consent
Revocation Statement and the accompanying BLUE Consent Revocation Card to the
holders of the outstanding shares of VLSI's common stock, par value $.01 per
share (the "Common Stock"), in opposition to the solicitation by Koninklijke
Philips Electronics N.V. and its indirectly wholly owned subsidiary KPE
Acquisition Inc. (together, "Philips") of written consents from the
stockholders of VLSI.
On March 12, 1999, Philips began a consent solicitation to remove
your duly elected directors and replace them with two hand-picked nominees of
Philips. Both of the Philips nominees are employees of companies owned and
controlled by Philips. The action by Philips follows the unsolicited cash
tender offer commenced by Philips on March 5, 1999 to purchase all
outstanding shares of Common Stock, including the associated rights, at a
price of $17.00 per share (the "Philips Offer"). THE BOARD IS ASKING YOU TO
JOIN IT IN OPPOSING PHILIPS' ATTEMPT TO GAIN CONTROL OF YOUR BOARD IN ORDER
TO COMPLETE PHILIPS' PLANNED ACQUISITION OF THE COMPANY AT AN INADEQUATE PRICE.
We believe that Philips, by soliciting consents, is attempting to
pressure the Board into a quick decision that would disadvantage VLSI
stockholders, rather than give your Board the opportunity to explore VLSI's
strategic alternatives. We also believe that the Philips nominees, who are
employees of Philips' subsidiaries, will have numerous conflicts of interest
if elected as VLSI's directors. We further believe that your Board, not
Philips' hand-picked nominees, are the right people to explore all of VLSI's
strategic alternatives, including a merger, sale or recapitalization of VLSI.
We are therefore asking you to reject the Philips solicitation.
Your Board believes that your interests will be best
served if VLSI's current directors - acting entirely independently of
Philips - explore VLSI's strategic alternatives which could
include negotiations with interested parties, including Philips. We are also
asking you to reject Philips' other proposals, which we believe have the same
effect of pressuring your Board. CONSEQUENTLY, YOUR BOARD UNANIMOUSLY OPPOSES
THE PHILIPS CONSENT SOLICITATION AND URGES YOU NOT TO SIGN THE WHITE CONSENT
CARD SENT TO YOU BY PHILIPS.
EVEN IF YOU PREVIOUSLY SIGNED AND RETURNED PHILIPS' WHITE CONSENT CARD, YOU
CAN CHANGE YOUR CONSENT. WE URGE YOU TO SIGN, DATE AND MAIL THE
ENCLOSED BLUE CONSENT REVOCATION CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED.
YOUR PROMPT ACTION IS IMPORTANT. PLEASE RETURN THE BLUE CONSENT REVOCATION CARD
TODAY.
This Consent Revocation Statement and the enclosed BLUE Consent
Revocation Card are first being mailed to stockholders on or about __________,
1999.
If you have any questions about giving your revocation of consent or
require assistance, please call:
MACKENZIE PARTNERS, INC.
156 FIFTH AVENUE
NEW YORK, NEW YORK 10010
BANKS AND BROKERS CALL COLLECT: (212) 929-5500
ALL OTHERS CALL TOLL-FREE: (800) 322-2885
<PAGE>
REASONS YOUR BOARD OPPOSES THE PHILIPS SOLICITATION
On March 18, 1999, the Board unanimously determined that the
unsolicited cash tender offer by Philips for all outstanding shares of Common
Stock at a price of $17.00 per share is inadequate and not in the best
interests of VLSI's stockholders. The Board also unanimously determined to
explore all strategic alternatives, including a merger, sale or
recapitalization of VLSI. These alternatives could involve negotiations with
interested parties, including Philips.
Rather than give the Board the time and opportunity to explore
strategic alternatives, Philips has in our opinion attempted to put pressure
on the Board by soliciting consents to facilitate the Philips Offer. Philips
is seeking consents to five proposals (the "Philips Proposals"). The Philips
Proposal Nos. 1-4, taken together, are designed to enable Philips to take
control of your Board. Your Board believes that Philips Proposal No. 5 is
designed to nullify unspecified Bylaws which may be adopted by the Board in
its efforts to act in and protect the interests of the Company. Your Board
also believes that the purpose of the Philips consent solicitation is to
pressure your Board and limit its options and flexibility in fully evaluating
and responding to the Philips Offer. Such pressure by Philips, we believe,
has the potential to disadvantage VLSI stockholders.
The Philips nominees, if elected, would have certain obligations
under the Delaware General Corporation Law ("Delaware Law") to VLSI. If
Philips' hand-picked nominees are elected as your directors, we believe they
would have inherent conflicts of interest which can only be detrimental to
the interests of VLSI and its stockholders. Given that it is in Philips'
interest to acquire VLSI at the lowest possible cost to Philips by paying the
lowest possible price for VLSI's shares, the Board believes that it is
extremely unlikely that the Philips director nominees would have any
incentive to pursue other value creation alternatives for VLSI and its
stockholders.
Since Philips is trying to acquire VLSI, it is completely
contrary to the interests of Philips to allow any Philips-designated
directors to take any further steps to enhance the value of VLSI's Common
Stock. In this connection it is significant that, as disclosed in Philips'
consent solicitation materials, the Philips director nominees, if elected to
the Board, will be indemnified by Philips "to the fullest extent permitted by
Delaware law" if they breach their fiduciary duties to VLSI and its
stockholders. Such indemnification appears to indicate Philips' awareness
that conflicts of interest can cause its director nominees to be unable to
fulfill their duties to Philips and also fulfill their fiduciary duties to
VLSI and its stockholders. Furthermore, prior to the time Philips acquires
control over VLSI, Philips has no obligation to protect the interests of
VLSI's stockholders; its sole obligation is to the stockholders of Philips.
The Board believes that VLSI stockholders should continue to be
represented by directors who are not employees of Philips, who are not
committed to achieving only Philips' goals, who potentially are not
financially protected from liability to the VLSI stockholders by Philips'
indemnification commitments, and who will not act in furtherance of Philips'
interests. At this critical time for the future of VLSI and the value of the
VLSI stockholders' investments, it is vital that VLSI continue to have in
place an independent board of directors which will continue to act in the
best interests of VLSI and its stockholders.
The Board believes that the interests of VLSI stockholders will
be best served if VLSI's current directors - acting independently of Philips
- - are given the time and opportunity to explore all of VLSI's strategic
alternatives, including a merger, sale or recapitalization of VLSI and which
may include negotiations with interested third parties, including Philips.
THE BOARD UNANIMOUSLY OPPOSES THE PHILIPS CONSENT SOLICITATION AND
URGES YOU NOT TO SIGN THE WHITE CONSENT CARD SENT TO YOU BY PHILIPS.
---
2
<PAGE>
EVEN IF YOU PREVIOUSLY SIGNED AND RETURNED PHILIPS' WHITE CONSENT CARD,
YOU CAN CHANGE YOUR CONSENT. WE URGE YOU TO SIGN, DATE AND MAIL THE
ENCLOSED BLUE CONSENT REVOCATION CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED.
IF YOUR SHARES ARE HELD IN "STREET NAME," ONLY YOUR BROKER OR BANKER
CAN VOTE YOUR SHARES. PLEASE CONTACT THE PERSON RESPONSIBLE FOR YOUR ACCOUNT AND
INSTRUCT HIM OR HER TO VOTE A BLUE CONSENT REVOCATION CARD ON YOUR BEHALF TODAY.
IF YOU HAVE ANY QUESTIONS, PLEASE CALL MACKENZIE PARTNERS TOLL-FREE AT
(800) 322-2885. BANKS AND BROKERS SHOULD CALL COLLECT AT (212) 929-5500.
3
<PAGE>
THE CONSENT PROCEDURE
On March 7, 1999, the Board amended the Bylaws of the Company to
adopt a record date procedure in connection with written consent
solicitations. Under the new Bylaw, following a request for a record date in
connection with a consent solicitation, the Board is required to fix a record
date within ten days. The date fixed by the Board as the record date must be
no later than ten days after the date on which the Board acts. On March 12,
1999, Philips requested that the Board set a record date with respect to its
solicitation. On March 22, 1999, the Board fixed April 1, 1999 as the record
date (the "Record Date") for determining stockholders entitled to grant or
revoke their written consents with respect to the Philips Proposals. You are
entitled to grant or revoke consents for all shares of Common Stock that you
owned on the Record Date (even if you subsequently sold or transferred any of
those shares). As of the Record Date, 46,573,642 shares of Common Stock were
outstanding.
Under Delaware law, unless otherwise provided in a corporation's
certificate of incorporation, stockholders may act without a meeting, without
prior notice and without a vote, if consents in writing setting forth the action
to be taken are signed by holders of outstanding shares having not less than the
minimum number of votes that would be necessary to authorize or take the action
at a meeting at which all shares entitled to vote thereon were present and
voted. The action is effective when the necessary number of written consents
describing the action taken, dated and signed by approving holders, are
delivered to the corporation's registered office in Delaware or principal place
of business.
The Company's certificate of incorporation does not prohibit
stockholder action by written consent. The unrevoked consent of the holders
of not less than (1) a majority of the outstanding shares of Common Stock
entitled to vote on the Record Date must be obtained within the time limits
specified herein to adopt the Philips Proposal Nos. 1-3 and 5 and (2) a
plurality of the outstanding shares of Common Stock entitled to vote on the
Record Date must be obtained within the time limits specified herein to adopt
the Philips Proposal No. 4 relating to the election of its nominees. Because
the effectiveness of each Philips Proposal (other than Philips Proposal No.
1) is conditioned upon approval of Philips Proposal No. 1, and because the
minimum number of consents required to adopt and effect Philips Proposal No.
1 is the consent of the holders of a majority of the outstanding shares of
Common Stock, the effectiveness of each and all of the Philips Proposals
requires delivery to the Company within the time periods specified herein of
properly executed and unrevoked written consents in favor of each of the
Philips Proposals by the holders of at least a majority of the shares of
Common Stock outstanding and entitled to vote on the Record Date.
VLSI's certificate of incorporation provides for cumulative voting in
all elections of directors. Therefore, each stockholder is entitled to cast a
total number of votes equal to the number of shares of Common Stock held by such
stockholder on the Record Date multiplied by the number of directors to be
elected, allocated among one or more nominees as desired by the stockholder.
Because Philips has nominated two individuals for election as directors, a
stockholder will have two votes for each share it owns. Under Delaware law, no
written consent is effective to take the action referred to therein unless,
within 60 days of the earliest dated consent delivered, written consents signed
by a sufficient number of stockholders required to take such action are properly
delivered to the corporation. Abstentions and broker non-votes will have the
effect of a vote against the Philips Proposals.
A stockholder may revoke any previously signed consent by signing,
dating and returning a BLUE Consent Revocation Card. If no direction is made
on the Consent Revocation Card with respect to one or more of the Philips
Proposals, or if a stockholder marks either the "revoke consent" or "abstain"
box on the Consent Revocation Card with respect to one or more of the Philips
Proposals, all previously executed consents with respect to such Philips
Proposals will be revoked. A consent may also be revoked by delivery of a
written consent revocation to VLSI or Philips. SHAREHOLDERS ARE URGED,
HOWEVER, TO DELIVER ALL CONSENT REVOCATIONS TO MACKENZIE PARTNERS, INC., THE
FIRM ASSISTING VLSI IN THIS SOLICITATION, AT 156 FIFTH AVENUE, NEW YORK, NEW
YORK 10010. VLSI requests that if a consent revocation is instead delivered
to Philips, a copy of the revocation also be delivered to VLSI, c/o MacKenzie
Partners, at the address set forth above, so that VLSI will be aware of all
revocations. Any consent revocation may itself be revoked at any time by
signing, dating and returning to Philips a subsequently dated white consent
card sent to you by Philips, or by delivery of a written revocation of such
consent revocation to VLSI or Philips.
4
<PAGE>
If any shares of Common Stock that you owned on the Record Date were
held for you in an account with a stock brokerage firm, bank nominee or other
similar "street name" holder, you are not entitled to vote such shares directly,
but rather must give instructions to the stock brokerage firm, bank nominee or
other "street name" holder to grant or revoke consent for the shares of Common
Stock held in your name. Accordingly, you should contact the person responsible
for your account and direct him or her to execute the enclosed BLUE Consent
Revocation Card on your behalf. You are urged to confirm in writing your
instructions to the person responsible for your account and provide a copy of
those instructions to VLSI, c/o MacKenzie Partners, at the address set forth
above so that VLSI will be aware of your instructions and can attempt to ensure
such instructions are followed.
YOU HAVE THE RIGHT TO REVOKE ANY CONSENT YOU MAY HAVE PREVIOUSLY GIVEN
TO PHILIPS. TO DO SO, YOU NEED ONLY SIGN, DATE AND RETURN IN THE ENCLOSED
POSTAGE-PAID ENVELOPE THE BLUE CONSENT REVOCATION CARD WHICH ACCOMPANIES THIS
CONSENT REVOCATION STATEMENT. IF YOU DO NOT INDICATE A SPECIFIC VOTE ON THE BLUE
REVOCATION CARD WITH RESPECT TO ONE OR MORE OF THE PHILIPS PROPOSALS, THE
CONSENT REVOCATION CARD WILL BE USED IN ACCORDANCE WITH THE BOARD'S
RECOMMENDATION TO REVOKE ANY CONSENT WITH RESPECT TO SUCH PROPOSALS.
IF YOU DO NOT SUPPORT THE PHILIPS PROPOSALS AND HAVE NOT SIGNED A
PHILIPS CONSENT, YOU MAY SHOW YOUR OPPOSITION TO THE PHILIPS PROPOSALS BY
SIGNING, DATING AND RETURNING THE ENCLOSED BLUE CONSENT REVOCATION CARD. THIS
WILL BETTER ENABLE VLSI TO KEEP TRACK OF HOW MANY STOCKHOLDERS OPPOSE THE
PHILIPS PROPOSALS.
VLSI has retained MacKenzie Partners to assist in communicating with
stockholders in connection with the Philips consent solicitation and to assist
in our efforts to obtain consent revocations. If you have any questions about
how to complete or submit your BLUE Consent Revocation Card or any other
questions, MacKenzie Partners will be pleased to assist you. You may call
MacKenzie Partners toll-free at (800) 322-2885. Banks and brokers should call
collect at (212) 929-5500.
THE PHILIPS PROPOSALS
The "Philips Proposals" are to: (1) Remove each of the six current
members of the Board and any other person or persons who may be members of
the Board at the time the Philips Proposals become effective (other than the
persons elected as a result of the adoption of Philips Proposal No. 4); (2)
Amend Section 3.13 of the VLSI Bylaws to provide for the filling of vacancies
resulting from the removal of directors pursuant to Section 3.13 by adding
the following sentences to the end of Section 3.13: "In the event that one or
more directors are removed pursuant to this Section 3.13, the vacancy or
vacancies created thereby may be filled by the stockholders acting at a
meeting or by written consent. If less than all of the vacancies created
following the removal of directors pursuant to this Section 3.13 are filled
by action of the stockholders, a majority of the directors elected by the
stockholders shall have the power to fill any remaining vacancy"; (3) Amend
Section 3.2 of the Bylaws to fix the number of directors of VLSI at three, by
replacing the phrase "shall consist of six (6) persons" with the phrase
"shall consist of three (3) persons"; (4) Elect each of John T. Losier and
Barry Singer as a member of the Board, to serve until the next annual meeting
of stockholders and until his successor has been elected and qualified; and
(5) Repeal each amendment of the Bylaws (whether effected by supplement to,
deletion from or revision of the Bylaws) adopted subsequent to March 12, 1996
and at or prior to the time the Philips Proposals become effective (other
than amendments made on March 7, 1999 and the amendments adopted as a result
of the adoptions of Philips Proposal Nos. 2 and 3).
Each of Philips Proposal Nos. 2-5 is conditioned upon the approval
of Philips Proposal No. 1. Philips Proposal No. 1 is in turn conditioned upon
at least one of the Philips nominees listed in Proposal No. 4 being elected
as a member of the Board.
5
<PAGE>
BOARD OF DIRECTORS
The names of the current members of the VLSI Board, their ages as of
March 22, 1999 and certain information about them are set forth below.
<TABLE>
<CAPTION>
DIRECTOR
DIRECTORS AGE PRINCIPAL OCCUPATION SINCE
--------- --- -------------------- --------
<S> <C> <C>
Pierre S. Bonelli (1)(2)........... 59 Chief Executive Officer and Director, Sema Group, a software, 1983
consulting and market research firm
Robert P. Dilworth ............... 57 Senior Vice President of the Company 1991
William G. Howard, Jr. (1)(2) ..... 57 Independent Consulting Engineer 1996
in microelectronics and technology-based
business planning
Paul R. Low........................ 66 President and Chief Executive Officer, 1996
P.R.L. Associates, a technology consulting company
Alfred J. Stein.................... 66 Chairman of the Board and Chief Executive Officer of the 1982
Company
Horace H. Tsiang................... 57 Chief Executive Officer, First International 1992
Computer, Inc., a computer manufacturing company
</TABLE>
- -------------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Except as set forth below, each of the directors has been engaged in
his principal occupation set forth above during the past five years. There are
no family relationships between any directors or executive officers of the
Company.
Mr. Bonelli is also a director of Poliet S.A.
Mr. Dilworth has been the Chairman of the Board of Metricom Inc.
("Metricom"), an electronic wireless data communications company, since July
1998. He held the position of Chief Executive Officer of Metricom from August
1987 to July 1998. In November 1998, the Board gave its approval for the Company
to hire Mr. Dilworth as a Senior Vice President, at which time he resigned as a
member of the Audit and Compensation Committees. He is currently working within
the Company's Computer and Consumer Products Group and continues to serve as a
member of the Board. He is also a director of Photonics Corporation, Cortelco
Systems, Inc. and GraphOn Corporation.
Since 1989, Dr. Howard has been a self-employed independent
consulting engineer. 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, Thunderbird Technologies, Lockheed Martin
Energy Research and Lockheed Martin Idaho Technologies (wholly owned
subsidiaries of Lockheed Martin Corporation).
6
<PAGE>
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., Xionics, NCD and Dym.
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. Under that 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, 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.
BOARD MEETINGS AND COMMITTEES
The Board held seven meetings during the fiscal year ended December 25,
1998. During such year, each director attended at least 75% of all meetings held
while such director served as a member of the Board and any committees upon
which he served.
The Board has a Compensation Committee and an Audit Committee
(together, the "Committees"). The current members of the Committees are
identified in the list of directors under "Board of Directors" above. On
November 25, 1998, Mr. Dilworth resigned as a member of the Committees, at
which time Dr. Howard was elected to serve on the Compensation Committee.
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. The Compensation Committee held one
meeting in fiscal 1998. The Compensation Committee consists 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 1998. The Audit Committee consists solely of
non-employee directors.
The Board performs the duties of a nominating committee.
DIRECTOR COMPENSATION
Non-employee members of the Board ("Outside Directors") receive an
annual retainer of $10,000, a fee of $2,000 per Board meeting attended and
$500 per 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 stock 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 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 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.
7
<PAGE>
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 for so long as the holder of the
option is an Outside Director on such date. 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 for so long as he or she remains an Outside Director. 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 25, 1998,
options to purchase 65,000 shares had been exercised under the Directors'
Plan at a net realized value of $519,375, 160,000 shares were subject to
outstanding options, and 75,000 shares remained available for future grant.
During fiscal 1998, Subsequent Options to purchase 5,000 shares at an
exercise price of $21.625 per share were granted to each of directors Bonelli,
Dilworth, Howard, Low and Tsiang. Mr. Dilworth exercised Subsequent Options,
which were due to expire on December 26, 1998, to purchase an aggregate of 5,000
shares during fiscal 1998 for a net realized value of $12,190.
During 1998, Robert P. Dilworth, a Board member since 1991, was
selected by the Board as the lead director in connection with compensation
and special matters. Mr. Dilworth earned $172,860 in consulting fees for his
services to the Company during 1998 prior to joining the Company. Mr.
Dilworth subsequently became a Senior Vice President of the Company in
December 1998 at which point he ceased to be the lead director and the
consulting arrangement with Mr. Dilworth was terminated. Upon becoming a
Senior Vice President of VLSI, Mr. Dilworth was granted an option to purchase
200,000 shares of the Common Stock on December 17, 1998, his actual date of
hire, with an exercise price of $10.938 per share.
EXECUTIVE OFFICERS OF THE COMPANY
Information concerning executive officers of the Company who are not
also directors is set forth below:
Mr. John S. Hodgson, age 54, joined the Company in May 1997 as
Senior Vice President, Worldwide Sales and Technology Centers. From 1990
until joining VLSI, Mr. Hodgson was Vice President, Sales and Marketing
Electronics Group of Lucent Technologies (formerly AT&T), a communications
company.
Mr. Thierry M. Laurent, age 46, who joined the Company in 1981, was
elected to the position of Senior Vice President and General Manager,
Communications and Embedded Products Group in December 1996. From 1995 until
1996, he held the position of Group Vice President and General Manager of the
Communications Product Group. From 1992 until 1995, he was Vice President and
General Manager of the Wireless Communications Product Division.
Mr. Victor K. Lee, age 42, was elected to the position of Acting Chief
Financial Officer in November 1998. He joined the Company as Vice President and
Corporate Controller in August 1997. From 1989 until joining VLSI, Mr. Lee was
Director of Finance at Advanced Micro Devices, a semiconductor manufacturer.
Mr. Sunil Mehta, age 46, joined the Company in June 1997 as Vice
President and Treasurer. From 1996 until joining VLSI, he was Corporate
Treasurer at Maxtor Corporation, a disk drive manufacturer. From 1983 until
1996, he was International Treasurer at Amdahl Corporation, a computer
manufacturer.
Mr. Thomas C. Tokos, age 46, joined the Company in October 1998 as Vice
President, General Counsel and Secretary. From 1996 until joining VLSI, Mr.
Tokos was Vice President, General Counsel and Secretary of Syquest Technology,
Inc., a manufacturer of computer storage devices that filed for protection from
its creditors
8
<PAGE>
under Chapter 11 of the Bankruptcy Code in November 1998. From 1994 until
1996, he was Assistant General Counsel and Assistant Secretary at VLSI. Mr.
Tokos was a partner in the corporate law firm of Keck, Mahin & Cate from 1993
to 1994.
9
<PAGE>
SECURITY OWNERSHIP
The following table sets forth the beneficial ownership of the
Common Stock as of March 22, 1999: (i) by each director, (ii) by each
executive officer, and two former executive officers, 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 any
person known by VLSI to be the beneficial owner of more than five percent of
VLSI's outstanding Common Stock.
<TABLE>
<CAPTION>
NUMBER OF APPROXIMATE
NAME OF PERSON OR IDENTITY OF GROUP SHARES PERCENTAGE
----------------------------------- --------- -----------
<S> <C> <C>
Lazard Freres & Co. LLC (1) 3,117,022 6.69%
30 Rockefeller Plaza
New York, New York 10020
Richard M. Beyer (2) (3) 64,872 *
Pierre S. Bonelli (2) 25,000 *
Robert P. Dilworth (2) 25,000 *
John S. Hodgson -0- *
William G. Howard, Jr. (2) 10,000 *
Thierry M. Laurent (2) 112,250 *
Victor K. Lee 1,341 *
Paul R. Low (2) 10,000 *
Douglas McBurnie (3) -0- *
Sunil Mehta 95 *
Alfred J. Stein (2) 1,438,430 3.07%
Horace H. Tsiang (2) 10,000 *
All current directors and executive officers as a group
(11 persons) (2) (4) 1,634,116 3.47%
</TABLE>
- ------------------------
* Less than 1%.
(1) As reported in Schedule 13G, dated February 16, 1999, Lazard Freres &
Co. LLC, a registered investment adviser, has sole power to vote or to
direct the vote of 2,487,210 shares and sole power to dispose or to
direct the disposition with respect to all 3,117,022 shares. Such
firm's clients have the right to receive dividends and proceeds of
sales of shares of Common Stock. No client is known to have an interest
in shares representing more than 5% of the outstanding shares of Common
Stock.
(2) Includes 62,500, 25,000, 25,000, 10,000, 104,750, 10,000, 330,680 and 5,000
shares exercisable within 60 days of March 22, 1999 under options held by
Messrs. Beyer, Bonelli and Dilworth, Dr. Howard, Mr. Laurent, Dr. Low, and
Messrs. Stein and Tsiang, respectively.
10
<PAGE>
(3) Messrs. Beyer and McBurnie resigned as executive officers of VLSI in
August 1998 and October 1998, respectively.
(4) Includes 572,930 shares exercisable within 60 days of March 22, 1999 under
options held by four Outside Directors and seven 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 Common Stock to file with the Securities and
Exchange Commission 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 25, 1998, its officers, directors and holders of more
than 10% of the Common Stock complied with all Section 16(a) filing requirements
with the following exceptions: (1) one transaction that should have been
reported on a Form 4 for Thierry M. Laurent was reported late on a Form 5; and
(2) Douglas M. McBurnie filed a late Form 5 reporting two transactions.
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 have been 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 Company's 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 60 days nor more than
90 days prior to the meeting; provided, however, that in the event that less
than 50 days notice or prior public disclosure of the date of the meeting is
given 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. Such deadline is referred to herein as the "Bylaw
Deadline." A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting: (1) 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; (2) the name and
address, as they appear on the Company's books, of the stockholder proposing
such business; (3) the class and number of shares of the Company which are
beneficially owned by the stockholder; (4) any material interest of the
stockholder in such business; and (5) 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. Notice of
a proposal to the stockholders pursuant to the aforementioned Bylaw rules shall
be the responsibility of the stockholder making the 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.
If a stockholder wishes to present a proposal at the Company's annual
meeting in the year 1999 and the proposal is not intended to be included in the
Company's proxy statement relating to that meeting, the stockholder must give
advance notice to the Company prior to the Bylaw Deadline for such meeting
determined in accordance with the Bylaws, as described above. If a stockholder
gives notice of such a proposal after the Bylaw Deadline, the stockholder will
not be permitted to present the proposal to the stockholders for a vote at the
meeting.
11
<PAGE>
Securities and Exchange Commission rules establish a different
deadline for submission of stockholder proposals that are not intended to be
included in the Company's proxy statement with respect to discretionary
voting (the "Discretionary Vote Deadline"). The Discretionary Vote Deadline
for the year 1999 annual meeting is 45 calendar days prior to the anniversary
of the mailing date of the proxy statement for the 1998 annual meeting. If a
stockholder gives notice of such a proposal after the Discretionary Vote
Deadline, the Company's proxy holders will be allowed to use their
discretionary voting authority to vote against the stockholder proposal when
and if the proposal is raised at the Company's year 1999 annual meeting.
Because the Bylaw Deadline is not capable of being determined until the
Company publicly announces the date for its next annual meeting, it is
possible that the Bylaw Deadline may occur after the Discretionary Vote
Deadline. In such a case, a proposal received after the Discretionary Vote
Deadline but before the Bylaw Deadline would be eligible to be presented at
next year's annual meeting and the Company believes that its proxy holders
would be allowed to use the discretionary authority granted by the proxy card
to vote against the proposal at the meeting without including any disclosure
of the proposal in the proxy statement relating to such meeting.
12
<PAGE>
EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table, together with the footnotes thereto, summarizes
the total compensation for fiscal year 1998 of (i) the Chief Executive
Officer, (ii) the four other most highly compensated executive officers of
the Company who were serving as such at December 25, 1998 and (iii) two
former executive officers (collectively, the "Named Executive Officers"), as
well as the total compensation paid to each Named Executive Officer for the
Company's two previous fiscal years, if applicable.
<TABLE>
<CAPTION>
ALL OTHER
LONG-TERM COMPEN-
ANNUAL COMPENSATION COMPENSATION AWARDS SATION
------------------------------------ ------------------- ---------
OTHER ANNUAL SECURITIES
SALARY BONUS COMPENSATION UNDERLYING OPTIONS
NAME AND PRINCIPAL POSITION YEAR ($) (1) ($) (2) ($) (3) (#) ($) (5)
- --------------------------- ---- ------- ---------- ------------- ------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Alfred J. Stein 1998 $726,922 $ 0 $ 0 1,450,000 (4) $454,779
Chairman of the Board and 1997 693,232 600,000 100,331 150,000 381,434
Chief Executive Officer 1996 643,849 452,000 0 950,000 424,989
- ---------------------------------------------------------------------------------------------------------------------------
John S. Hodgson (6) 1998 $296,169 $ 0 $ 0 181,250 (4) $104,873
Sr. Vice President, 1997 186,032 130,000 0 125,000 1,925
Worldwide Sales and 1996 -- -- -- -- --
Technology Centers
- ---------------------------------------------------------------------------------------------------------------------------
Thierry M. Laurent (7) 1998 $295,392 $ 0 $ 0 145,000 (4) $ 0
Sr. Vice President and General 1997 252,665 130,000 0 20,000 0
Manager, Communications 1996 -- -- -- -- --
Products Group
- ---------------------------------------------------------------------------------------------------------------------------
Victor K. Lee (8) 1998 $184,423 $ 0 $ 0 55,000 (4) $ 55,447
Acting Chief Financial Officer, 1997 58,558 20,000 0 20,000 51,014
Vice President and Corporate 1996 -- -- -- -- --
Controller
- ---------------------------------------------------------------------------------------------------------------------------
Sunil Mehta (9) 1998 $154,616 $ 0 $ 0 30,000 (4) $ 5,537
Vice President and Treasurer 1997 76,404 20,000 0 20,000 11,550
1996 -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Richard M. Beyer (10) 1998 $255,778 $ 0 $ 0 100,000 (4) $529,019
Former President and Chief 1997 358,089 250,000 0 25,000 6,972
Operating Officer 1996 106,350 150,000 0 375,000 2,019
- ---------------------------------------------------------------------------------------------------------------------------
Douglas M. McBurnie (11) 1998 $251,418 $ 0 $ 0 15,000 (4) $818,221
Former Sr. Vice President, 1997 102,697 75,000 0 150,000 1,717
Computer and Consumer 1996 -- -- -- -- --
Products Group
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------------
(1) The amounts disclosed in this column include amounts earned in the
fiscal year indicated but deferred by the Named Executive Officer
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.
13
<PAGE>
(2) The amounts disclosed in this column represent bonus awards made by the
Company under its Executive Performance Incentive Plan.
(3) Amounts exclude perquisites if the aggregate amount of the Named
Executive Officer's perquisites was less than the lesser of $50,000 or
10% of such Named Executive 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 in 1997.
(4) The amounts in this column for 1998, include (1) certain options
granted on September 14, 1998 and October 12, 1998 pursuant to a
company-wide option repricing, of which the following Named Executive
Officers participated: Alfred J. Stein - 150,000 shares; John S.
Hodgson - 145,000 shares; Thierry M. Laurent - 120,000 shares; Victor
Lee - 30,000 shares; and Sunil Mehta - 25,000 shares; and (2) options
for Messrs. Beyer - 100,000 shares and McBurnie - 15,000 shares,
which were subsequently canceled upon their resignations.
(5) The amounts in the "All Other Compensation" column for fiscal year
1998 include:
(a) VLSI contributions in fiscal 1998 under VLSI's 401(k) Plan, in
the following amounts: Alfred J. Stein $4,800; Victor K. Lee
$4,150; Sunil Mehta $4,638; and Richard M. Beyer $1,279.
(b) VLSI contributions in fiscal 1998 under VLSI's Non-Qualified
Deferred Compensation Plan to Victor K. Lee - $650; and Douglas M.
McBurnie - $589,014. For three years, Mr. McBurnie earned an
additional $500,000 annually payable at the end of each year of
his service with the Company.
(c) Payment by the Company of 1998 premiums for term life insurance
for the Named Executive Officers in the following amounts: Alfred
J. Stein $26,305; John S. Hodgson $4,873; Victor K. Lee $647;
Sunil Mehta $899; Richard M. Beyer $2,740; and Douglas M. McBurnie
$4,196.
(d) Payment by the Company of tax gross up payments on 1998 premiums
for a split dollar life insurance policy in the amount of $14,401
for Mr. Stein, payment by the Company of retroactive tax gross up
payments on premiums of $50,971 and payment by the Company of the
1998 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.
(e) Payment by the Company to Richard M. Beyer of $525,000 under a
severance agreement dated August 14, 1998.
(f) Payment by the Company to John S. Hodgson of $100,000. See
"Executive Officer Compensation - Additional Compensation
Arrangements."
(g) Payment by the Company to Victor K. Lee of $50,000. See
"Executive Officer Compensation - Additional Compensation
Arrangements."
(h) Payment by the Company to Douglas M. McBurnie of $225,010 under a
severance agreement dated October 21, 1998.
(6) Mr. Hodgson joined the Company in May 1997.
(7) Mr. Laurent became an executive officer in August 1997.
(8) Mr. Lee joined the Company in August 1997 and received a $50,000
sign-on bonus.
(9) Mr. Mehta joined the Company in June 1997 and received a $10,000
sign-on bonus.
(10) Mr. Beyer resigned from VLSI effective September 11, 1998.
(11) Mr. McBurnie resigned from VLSI on October 21, 1998.
CHANGE-IN-CONTROL AGREEMENTS
VLSI 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 VLSI in the event of a change in control.
Under the agreements, benefits are payable only if the officer's employment
is
14
<PAGE>
terminated by VLSI under certain circumstances within two years following
a change in control of VLSI, or if the officer is constructively discharged
during that period. For purposes of the agreements, a change in control of
VLSI is deemed to have occurred in the event of: (1) VLSI stockholder
approval of (i) a merger or consolidation of VLSI with any other corporation,
other than a merger or consolidation upon which the voting securities of VLSI
outstanding immediately before such merger or consolidation continue to
represent at least 50% of the voting power of VLSI or such surviving entity
immediately afterwards, (ii) a plan of liquidation or dissolution of VLSI, or
(iii) the sale, lease or exchange of more than 50% of VLSI's assets; (2)
acquisition by any person or entity of beneficial ownership of 25% or more of
the combined voting power of VLSI's then outstanding securities; or (3) a
change of the majority of the Incumbent Directors (as defined therein) within
a three-year period.
If, within two years after a change in control, an officer's
employment is terminated by VLSI without cause or the officer resigns for
good reason, the officer will receive: (1) a severance benefit based on a
multiple of his or her current annual base salary and the greater of (i) his
or her most recent annual bonus or (ii) his or her projected annual bonus for
the fiscal year in which the termination or resignation of employment occurs;
and (2) continued welfare benefits for the two years following the officer's
termination, on the same terms and conditions in effect prior to such
officer's termination or resignation. In addition, the agreements provide
that VLSI will take all actions necessary to amend all of the officer's stock
option agreements to provide for full vesting of stock options upon a change
in control and to permit the officer to exercise his stock options for a
certain period following his termination of service. VLSI has also agreed to
pay the officer the amount of any excise tax on the payment of any of the
above benefits which constitute an "excess parachute payment" under Section
4999 of the Internal Revenue Code of 1986. As of March 22, 1999,
change-in-control agreements had been entered into with the following Named
Executive Officers: Thierry M. Laurent and John S. Hodgson. Under their
agreements, Messrs. Laurent and Hodgson are to receive two times their annual
salaries and annual bonuses. For information concerning the change in control
provisions in Mr. Stein's employment agreement, see "Executive Officer
Compensation--Employment Agreements."
15
<PAGE>
STOCK OPTIONS
The following table presents information with respect to options to
purchase Common Stock granted during fiscal 1998 to the Named Executive
Officers. No stock appreciation rights ("SARs") have been granted by the
Company.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
---------------------------------
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 (#) YEAR (4) ($/SH) DATE 5% ($) 10% ($)
- ---- ------ -------- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Alfred J. Stein 300,000 2.2 15.310 10/08/06 $2,214,740.00 $ 5,314,348.00
1,000,000 1.1 7.031 09/17/08 4,421,758.12 11,205,603.24
150,000(3) 7.3 7.375 04/14/07 568,883.43 1,381,812.09
----------- -----
1,450,000 10.6
John S. Hodgson 125,000(3) 0.9 7.50 04/21/07 $ 488,761.79 $ 1,190,386.06
20,000(3) 0.15 7.50 03/17/08 88,525.45 221,197.70
36,250 0.27 7.50 09/14/08 170,980.73 433,298.73
----------- ------
181,250 1.32
Thierry M. Laurent 75,000(3) 0.55 7.50 10/08/06 $ 271,239.14 $ 650,848.95
20,000(3) 0.15 7.50 04/14/07 77,988.46 189,840.02
25,000(3) 0.18 7.50 03/17/08 110,656.82 276,497.13
25,000 0.18 7.50 09/14/08 117,917.74 298,826.71
----------- ------
145,000 1.06
Victor K. Lee 20,000(3) 0.15 7.50 08/21/07 $ 81,953.90 $ 201,482.51
10,000(3) 0.07 7.50 03/17/08 44,272.29 110,627.94
25,000 0.18 7.50 09/14/08 117,917.74 298,826.71
----------- ------
55,000 0.40
Sunil Mehta 20,000(3) 0.15 7.50 07/10/07 $ 80,655.31 $ 197,648.79
5,000(3) 0.04 7.50 03/17/08 22,131.36 55,299.43
5,000 0.04 7.50 09/14/08 23,583.55 59,765.34
---------- ------
30,000 0.23
Richard M. Beyer 100,000(5) 0.73 17.563 03/17/08 $1,104,527.63 $ 2,799,089.88
Douglas M. McBurnie 15,000(6) 0.11 17.563 03/17/08 $ 164,147.98 $ 417,425.37
</TABLE>
- -------------------
(1) All options to purchase Common Stock granted in 1998 to the Named Executive
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. Also
includes options granted in the repricing (see footnote (3) below). The per
share exercise price is equal to the fair market value of the Common Stock
on the Nasdaq National Market 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 generally provides for 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. Under the 1992
Plan, a change of control is deemed to have occurred in the event of (1)
VLSI stockholder approval of (i) a merger or consolidation of VLSI with
any other corporation, other than a merger or consolidation upon which
the voting securities of VLSI outstanding immediately before such merger
or consolidation continue to represent at least 50% of the voting power
of VLSI or such surviving entity immediately afterwards or (ii) the sale
or disposition of all or substantially all of VLSI's assets;
(2) acquisition by any person or entity of beneficial ownership of 50%
or more of the combined voting power of VLSI's then outstanding
securities; or (3) a change of the majority of the Incumbent Directors
(as defined therein).
16
<PAGE>
(2) For the Named Executive Officers, the potential realizable value is
calculated starting with the fair market value on the date of grant and
assuming that the 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 Executive Officers is net
of the option exercise price. The assumed rates of appreciation are
specified in Securities and Exchange Commission rules and do not represent
the Company's estimate or projection of future stock prices. Actual gains,
if any, resulting from stock option exercises 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) Represents options granted in connection with a company-wide option
repricing on September 14, 1998 and October 12, 1998.
(4) Based on options to purchase a total of 13,635,380 shares granted to all
employees during fiscal 1998.
(5) These options were subsequently canceled upon Mr. Beyer's resignation
from the Company in September 1998.
(6) These options were subsequently canceled upon Mr. McBurnie's resignation
from the Company in October 1998.
The number of shares of the Company's stock issued upon exercise of
options and the value realized from any such exercise during the fiscal year
ended December 25, 1998 and the number of exercisable and unexercisable options
held and their value at December 25, 1998 for the Named Executive Officers of
the Company are set forth in the following table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FY-END (#) OPTIONS AT FY-END ($) (2)
SHARES ACQUIRED VALUE ------------------------- -------------------------
ON EXERCISE # REALIZED ($) (1)
NAME ------------- ---------------- EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------------------- --------------------------
<S> <C> <C> <C> <C>
Alfred J. Stein(3) 0 0 777,501/1,662,499 1,058,125/4,697,125
John S. Hodgson 0 0 0/181,250 0/657,031
Thierry M. Laurent 0 0 94,500/182,500 220,688/530,313
Victor K. Lee 0 0 0/55,000 0/199,375
Sunil Mehta 0 0 0/30,000 0/108,750
Richard M. Beyer 0 0 62,500/0 0/0
Douglas M. McBurnie 0 0 0/0 0/0
</TABLE>
- ---------------------
(1) Market value of underlying securities on the date of exercise, minus the
exercise price.
(2) Market value of underlying securities at fiscal year end (for
in-the-money options only) minus the exercise price.
(3) See "Executive Officer Compensation - Employment Agreements."
17
<PAGE>
LONG TERM INCENTIVE PROGRAM
On October 8, 1996, the Company adopted a Long Term Incentive
Program (the "LTIP") for key employees. Under the LTIP, 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 20 consecutive trading days. Upon meeting each of the
three price levels, 1/6 of the granted options vest immediately upon meeting
the applicable price level and 1/6 vest 120 days after the applicable price
level is met. Options were granted under the LTIP to the following Named
Executive Officers in previous years at a price level of $10.00 over the fair
market value of the underlying stock at the date of grant, $20.00 over the
fair market value of the underlying stock at the date of grant and $30.00
over the fair market value of the underlying stock at the date of grant:
Alfred J. Stein - 300,000, Richard M. Beyer - 125,000 and Thierry M.
Laurent - 75,000.
In 1998, the Company allowed employees to reprice certain options held
under the LTIP. The terms of the repriced options (the "New Options") are as
follows: (1) all such New Options have no accelerating trigger events and full
vesting occurs on the fourth year of such grant; (2) vesting of the New Options
shall be 25% per year with any previously vested portion to
remain vested; (3) all such New Options shall be subject to a nine-month
blackout period in which such options may not be exercised except in the event
of involuntary termination due to a reduction in force or employee's death or
disability; and (4) the exercise price of such New Options was $7.50 per share,
the closing price of the Common Stock on September 14, 1998. As of the end of
fiscal 1998, 50% of the options held by Messrs. Stein and Laurent were vested
with 25% to vest in each of 1999 and 2000.
EMPLOYMENT AGREEMENTS
During July and August of 1998, VLSI entered into two Employment
Agreements (the "Employment Agreements") with Alfred J. Stein pursuant to
which Mr. Stein will serve as VLSI's Chief Executive Officer and/or Chairman
of the Board for a five year term beginning in August 1998. Under the
Employment Agreements, Mr. Stein receives an annual salary of $700,000, a
bonus of 100% of his annual salary if VLSI's performance meets or exceeds
selected performance targets, a $1,000,000 split-dollar life insurance policy
with Mr. Stein as the insured, and 10 annual payments equal to the premium
necessary to endow a single life insurance policy with a level death benefit
of $5 million. In the event of Mr. Stein's voluntary or involuntary
termination (including death or disability, mental or physical) other than
for cause, he will receive (i) a lump sum payment equal to three years'
compensation, defined as annual base pay plus an annual bonus, or, if
greater, at his election, 60% of his highest annual base pay annually for his
life, (ii) full vesting of outstanding stock options which shall be
exercisable for twelve months following such termination and (iii) a bonus,
pro rated for the amount he would have been paid if the termination had not
occurred. In addition, Mr. Stein will be eligible to receive welfare
benefits, as in effect at the date of termination, for his life and that of
his spouse, at a cost to VLSI not to exceed $25,000 per year. Upon a change
in control while Mr. Stein is employed by VLSI, Mr. Stein will receive (i) a
lump sum payment equal to three years' compensation, defined as annual base
pay plus an annual bonus, (ii) full vesting of all stock options which shall
be exercisable for up to three months following his termination and (iii)
entitlement to purchase his current outstanding options with a full recourse
promissory note. Upon Mr. Stein's voluntary termination for good reason or
involuntary termination, without cause, within two years of a change in
control, Mr. Stein will also receive (i) welfare benefits, as in effect at
the date of termination, for his life and that of his spouse, at a cost to
VLSI not to exceed $25,000 per year, and for the three-year period following
such termination, reimbursement for any income tax liability resulting from
the receipt of such welfare benefits, and (ii) office and secretarial support
until Mr. Stein obtains full-time employment or consulting work. In
addition, if any payment (a "Payment") by VLSI to or for the benefit of Mr.
Stein (whether paid or payable under the Employment Agreements or otherwise)
would be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code, or any comparable federal, state, or local excise tax, then Mr.
Stein will be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after the payment of all taxes on the
Payment and on the Gross-Up Payment, Mr. Stein will retain an amount equal to
the Payment minus all applicable income and employment taxes on the Payment.
VLSI will establish a non-discretionary supplemental retirement
arrangement whereby, in 2003, Mr. Stein will receive a lump sum cash payment.
On December 31 of each year of continued service with VLSI, the supplemental
retirement benefit shall increase by an amount equal to 55% of Mr. Stein's
annual base salary as in effect on the relevant date until December 31, 2002.
In the event of Mr. Stein's involuntary termination, other than for cause,
or voluntary termination, Mr. Stein shall receive 165% of his annual base
salary in addition to any other benefits he may otherwise be entitled to
receive. Mr. Stein will also receive up to $50,000 each year through August
2003 for expenses he incurs for estate, tax and financial planning or
attorney's fees.
In August of 1998, VLSI entered into a Supplemental Employment
Agreement with Mr. Stein which provides that in addition to the compensation
and benefits described above, VLSI will provide the following benefits to Mr.
Stein: (1) installation of a home security system in each of the residences
owned or acquired by Mr. Stein during his employment term or within three
years thereafter (but not later than August, 2004), and the payment of
periodic service fees for such systems, (2) the purchase of a new car in 1998
and, if the Employment Agreements are still in effect, in 2001, (3) the
provision of a driver/security guard for Mr. Stein's use, and (4) during the
term of the August, 1998 Employment Agreement, the payment for a country club
membership and the monthly dues for such membership.
For purposes of Mr. Stein's Employment Agreements, a change in
control is deemed to have occurred in the event of (1) VLSI stockholder
approval of (i) a merger or consolidation of VLSI with any other corporation,
other than a merger or consolidation upon which the voting securities of VLSI
outstanding immediately before such merger or consolidation continue to
represent at least 50% of the voting power of VLSI or such surviving entity
immediately afterwards, (ii) a plan of liquidation or dissolution, or (iii)
the sale, lease or exchange of more than 50% of VLSI's assets; (2)
acquisition by any person or entity of beneficial ownership of 25% or more of
the combined voting power of VLSI's then outstanding securities; or (3) a
change of the majority of the Incumbent Directors (as defined therein) within
a three-year period.
VLSI loaned Mr. Stein $6,215,031 to finance Mr. Stein's purchase
of 646,821 shares of Common Stock pursuant to his exercise of options on
February 19, 1999 and February 22, 1999. The loan is unsecured, is due in
2004 and has an interest rate of 4.71% per annum.
NON-QUALIFIED DEFERRED COMPENSATION PLAN
In June 1997, the Company established a supplemental retirement plan
for the benefit of a select group of management and highly compensated
employees of the Company. Under the Non-Qualified Deferred 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, for reasons other than disability or
death, or with a distributable amount less than or equal to $20,000, receive a
single lump sum payment upon termination. In all other cases, a participant
may elect various methods of payment, including lump sum, quarterly, annual
or percentage installments over a period ranging up to 15 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 of the compensation
deferred under both the Non-Qualified Deferred Compensation Plan and VLSI's
401(k) plan or three percent of a participant's compensation for a Plan Year
reduced by any matching contributions by VLSI pursuant to VLSI's 401(k) plan.
During 1998, the following matching payments were made: one payment in the
amount of $650 was made to Victor K. Lee; and two payments were made to
Douglas M. McBurnie, one in the amount of $500,000 and another in the amount
of $89,014.
18
<PAGE>
ADDITIONAL COMPENSATION ARRANGEMENTS
John S. Hodgson joined the Company in May 1997 as Senior Vice
President, Worldwide Sales and Technology Centers. The Company paid Mr.
Hodgson a bonus in the amount of $100,000 after 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.
Victor K. Lee joined the Company in August 1997 as Vice President,
Corporate Controller. The Company paid Mr. Lee a bonus of $50,000 in August
1997. In addition, Mr. Lee received $50,000 in August 1998 after completing
one year of service, and will receive an additional $25,000 upon completing
two years of service.
SEVERANCE AGREEMENTS
On August 14, 1998, the Company and Richard M. Beyer, the Company's
former President and Chief Operating Officer, entered into an agreement,
whereby Mr. Beyer terminated his employment with VLSI effective September 11,
1998 and was paid the sum of $525,000, less applicable deductions. Mr. Beyer
held 500,000 options when he resigned, of which 327,084 unvested options were
canceled upon his termination from the Company, and the exercise period for
62,500 vested stock options, previously granted to Mr. Beyer, was extended
until September 11, 1999.
On October 21, 1998, the Company and Douglas M. McBurnie, the Company's
former Senior Vice President, Computer and Consumer Products Group, entered into
an agreement, whereby Mr. McBurnie terminated his employment with the Company
and was paid nine months' salary amounting to $225,010.53, less applicable
deductions. Mr. McBurnie was also paid the sum of $89,014 as a bonus payable in
connection with an existing employment agreement between Mr. McBurnie and
VLSI to be paid into his existing deferred compensation account.
CERTAIN LITIGATION
On March 5, 1999, KPE Acquisition Inc. ("KPE") filed a complaint against
VLSI in the Delaware Court of Chancery styled KPE ACQUISITION INC. V. VLSI
TECHNOLOGY, INC., ET AL., C.A. No. 16992. KPE seeks an order from the Court (i)
declaring that VLSI's refusal to redeem VLSI's rights plan in response to the
Philips Offer, declare the Philips Offer to be a "Permitted Offer" within the
meaning of VLSI's rights plan, or otherwise render the rights plan inapplicable
to the Philips Offer constitutes a breach of the VLSI directors' fiduciary
duties to VLSI's stockholders; (ii) compelling the VLSI directors to declare the
Philips Offer to be a "Permitted Offer" within the meaning of VLSI's rights
plan, redeem the rights, or otherwise render the rights plan inapplicable to the
Philips Offer; (iii) declaring that the continuing director provision in VLSI's
rights plan is invalid under Delaware law; and (iv) granting such other and
further relief as the Court deems just and proper.
From March 3, 1999 through March 8, 1999, six purported class action
lawsuits were filed by alleged stockholders of VLSI against VLSI and the
Board in the Delaware Court of Chancery, styled MICHAEL BERNSTEIN V. VLSI
TECHNOLOGY, INC., ET AL., C.A. No. 16988; FELICIA BERNSTEIN V. VLSI
TECHNOLOGY, INC., ET AL., C.A. No. 16989; CHARLES MILLER V. VLSI TECHNOLOGY,
INC., ET AL., C.A. No. 16993; RUTH ELLEN MILLER V. RICHARD M. BEYER, ET AL.,
C.A. No. 16994; DAVID OLEN V. RICHARD M. BEYER, ET AL., C.A. No. 16986; and
MISHEL S. TEHRANI V. RICHARD M. BEYER, ET AL., C.A. No. 16998. The class
actions set forth substantially similar allegations of purported misconduct
by the Board by allegedly failing to promptly negotiate with Philips, thereby
failing to maximize stockholder value and depriving the VLSI stockholders of
an opportunity to obtain a substantial premium for their shares. The
stockholder plaintiffs seek an order from the Court (i) declaring the actions
to be class actions; (ii) compelling the Board to carry out its fiduciary
duties to the VLSI stockholders; (iii) enjoining the Board from abusing the
corporate machinery to entrench itself in office; (iv) ordering the VLSI
directors to take steps to facilitate a premium acquisition of VLSI; (v)
requiring the VLSI directors to account for all damages suffered by VLSI's
stockholders; (vi) awarding the plaintiffs attorneys' fees and costs; and
(vii) granting such other relief as may be just and proper.
On March 9, 1999, a seventh purported class action lawsuit was filed by
alleged stockholders of VLSI against VLSI, its directors, and certain of its
officers in the Delaware Court of Chancery styled LILLIE BARENHOLTZ ET AL. V.
RICHARD BEYER, ET AL., C.A. No. 17010. In addition to reciting allegations
substantially similar to the six previously filed purported class actions, the
BARENHOLTZ complaint alleges that the VLSI directors breached their fiduciary
duties by lowering the trigger for VLSI's rights plan from 20% to 10%. The
BARENHOLTZ complaint seeks
19
<PAGE>
an order (i) declaring the action to be a proper class action; (ii)
compelling the VLSI directors to carry out their fiduciary duties to VLSI's
stockholders; (iii) enjoining the implementation of VLSI's rights plan unless
deployed in a way that will maximize stockholder value; (iv) awarding the
plaintiffs attorneys' fees and costs; and (v) granting such other and further
relief as may be just and proper.
SOLICITATION OF CONSENT REVOCATIONS
Consent revocations may be solicited by mail, telephone, facsimile
transmission or other electronic media and in person. Solicitation of consent
revocations may be made by directors, officers and regular employees of the
Company for which they will receive no additional compensation.
In addition, the Company has retained MacKenzie Partners to assist in
the solicitation of the consent revocations, for which MacKenzie Partners will
receive reasonable and customary compensation and will be reimbursed for its
reasonable out-of-pocket expenses. The Company has also agreed to indemnify
MacKenzie Partners for certain liabilities in connection with this solicitation.
Approximately 60 persons will be employed by MacKenzie Partners to solicit
stockholders.
Banks, brokers, custodians, nominees and fiduciaries will be requested
to forward solicitation material to beneficial owners of shares of the Common
Stock. The Company will reimburse banks, brokers, custodians, nominees and
fiduciaries for their reasonable expenses for sending solicitation material to
the beneficial owners.
The entire cost of soliciting the consent revocations (including,
without limitation, costs, if any, relating to advertising, printing, fees of
attorneys, financial advisors, proxy solicitors, accountants, public relations,
transportation, litigation and related expenses and filing fees) will be borne
by the Company. The Company estimates that total expenditures relating to the
Board's solicitation of the consent revocations will be approximately $750,000.
Approximately $50,000 has been expended by the Company to date.
ABSENCE OF APPRAISAL RIGHTS
Pursuant to Delaware law, the stockholders of the Company are not
entitled to appraisal rights in connection with the Philips Proposals.
PARTICIPANTS IN THE SOLICITATION
Under applicable regulations of the Securities and Exchange
Commission, each member of the Board, certain executive officers and other
employees of VLSI and certain other persons may be deemed to be a
"participant" in VLSI's solicitation of revocations of consent. The principal
occupations and business addresses of each participant are set forth in
Schedule A. Information about the present ownership by directors and certain
executive officers of VLSI of VLSI's securities is provided in this Consent
Revocation Statement, and the present ownership of VLSI's securities by other
participants is listed on Schedule A.
20
<PAGE>
SCHEDULE A
INFORMATION CONCERNING THE DIRECTORS AND CERTAIN EXECUTIVE OFFICERS AND
EMPLOYEES OF VLSI AND OTHER PARTICIPANTS WHO MAY ALSO SOLICIT
REVOCATIONS OF CONSENTS
The following tables set forth the name, principal business address and
the present office or other principal occupation or employment, and the name,
principal business and the address of any corporation or other organization in
which such employment is carried on, of the directors and certain executive
officers and employees of VLSI and other representatives of VLSI who may also
solicit revocations of consents from stockholders of VLSI. Unless otherwise
indicated, the principal occupation refers to such person's position with VLSI
and the business address is VLSI Technology, Inc., 1151 McKay Drive, San Jose,
California 95131.
DIRECTORS
The principal occupations of the Company's directors who are deemed
participants in the solicitation are set forth on pages 6 and 7 of this Consent
Revocation Statement. The name, business and address of the other participants'
organization of employment are as follows:
<TABLE>
<CAPTION>
Name Principal Business Address
- ---- --------------------------
<S> <C>
Pierre S. Bonnelli Sema Group
16-18, rue Barbes
92126 Montrouge, France
William G. Howard, Jr. 10642 E. San Salvador Dr.
Scottsdale, AZ 85258
Paul R. Low P.R.L. Associates
11 Birchwood Drive
Greenwich, CT 06831
Horace H. Tsiang First International Computer, Inc.
118 Nan-Lin Road
Taishan Hsiang 24306
Taipei Hsien, Taiwan ROC
Robert P. Dilworth VLSI Technology, Inc.
1109 McKay Drive
San Jose, CA 95131
</TABLE>
EXECUTIVE OFFICERS, MANAGEMENT AND OTHER EMPLOYEES
The principal occupations of certain of the Company's executive
officers and certain other members of management who are deemed participants in
the solicitation are set forth below. The principal business address of each of
such persons is that of the Company.
<TABLE>
<CAPTION>
Name Principal Occupation
- ---- --------------------
<S> <C>
Alfred J. Stein Chairman of the Board and Chief Executive Officer of the Company
Victor K. Lee Acting Chief Financial Officer, Vice President and Corporate Controller of the
Company
A-1
<PAGE>
Thomas Tokos Vice President, General Counsel and Secretary of the Company
Lisa Ewbank Director, Investor Relations of the Company
</TABLE>
INFORMATION REGARDING OWNERSHIP OF THE COMPANY'S SECURITIES BY PARTICIPANTS
None of the participants owns any of the Company's securities of record
but not beneficially. The number of shares of Common Stock held by directors and
certain executive officers is set forth on page 10 of this Consent Revocation
Statement. Thomas Tokos beneficially owns 2,000 shares of the Common Stock. Lisa
Ewbank does not beneficially own any shares of the Common Stock.
INFORMATION REGARDING TRANSACTIONS IN THE COMPANY'S SECURITIES BY PARTICIPANTS
The following table sets forth purchases and sales of VLSI's Common
Stock by the participants listed below during the past two years. Unless
otherwise indicated, all transactions are in the public market.
<TABLE>
<CAPTION>
Number of Shares
Name Transaction Date Acquired or (Sold) Footnote
- ---- ---------------- ------------------ --------
<S> <C> <C> <C>
Robert P. Dilworth 12/10/98 5,000 (1)
12/10/98 (5,000) (2)
05/23/97 5,000 (1)
05/23/97 (5,000) (2)
Horace H. Tsiang 11/24/98 1,000 (1)
11/24/98 (1,000) (2)
11/24/98 4,000 (1)
11/24/98 (4,000) (2)
07/21/97 10,000 (1)
07/21/97 (10,000) (2)
07/21/97 5,000 (1)
Alfred J. Stein 02/22/99 75,000 (1)
02/22/99 247,648 (1)
02/22/99 59,173 (1)
02/19/99 150,000 (1)
02/19/99 75,000 (1)
02/19/99 40,000 (1)
10/30/98 182 (3)
04/30/98 2,058 (3)
10/31/97 923 (3)
08/27/97 10,000 (1)
08/27/97 (10,000) (2)
08/27/97 5,000 (1)
08/27/97 (5,000) (2)
08/27/97 10,000 (1)
08/27/97 (10,000) (2)
08/27/97 25,000 (1)
08/27/97 (25,000) (2)
08/25/97 25,000 (1)
08/25/97 (25,000) (2)
A-2
<PAGE>
08/25/97 13,000 (1)
08/25/97 (13,000) (2)
08/25/97 10,000 (1)
08/25/97 (10,000) (2)
08/25/97 2,000 (1)
08/25/97 (2,000) (2)
04/30/97 500 (3)
Victor K. Lee 10/30/98 743 (3)
04/30/98 598 (3)
</TABLE>
- -----------------------------------
(1) Exercise of stock option.
(2) Open market sale following exercise of stock option.
(3) Participant-directed transaction in ongoing acquisition plan.
MORGAN STANLEY & CO. INC. AND HAMBRECHT & QUIST
Certain employees of Morgan Stanley & Co. Inc. ("Morgan Stanley")
and Hambrecht & Quist may also assist in the solicitation of proxies,
including by communicating in person, by telephone or otherwise with a
limited number of institutions, brokers or other persons who are stockholders
of VLSI. Neither Morgan Stanley nor Hambrecht & Quist will receive any
separate fee for its solicitation activities. Morgan Stanley and Hambrecht &
Quist are investment banking firms that provide a full range of financial
services for institutional and individual clients. Although neither Morgan
Stanley nor Hambrecht & Quist admit that they or any of their respective
directors, officers, employees or affiliates are a "participant," as defined
in Schedule 14A promulgated under the Exchange Act, or that such Schedule 14A
requires the disclosure of certain information concerning Morgan Stanley and
Hambrecht & Quist, each of Morgan Stanley and Hambrecht & Quist may assist
VLSI in such a solicitation. In the normal course of business, each of Morgan
Stanley and Hambrecht & Quist may trade securities of VLSI for its own
account and the account of its customers and, accordingly, may at any time
hold a long or short position in such securities. As of March 22, 1999,
Morgan Stanley held a net long position of 44,962 shares of VLSI Common
Stock. As of March 22, 1999, Hambrecht & Quist held no shares of VLSI Common
Stock. In addition, in the normal course of business, Morgan Stanley and
Hambrecht & Quist may finance their respective securities positions by bank
and other borrowings and repurchase and securities borrowing transactions.
Information with respect to the employees of Morgan Stanley who may
be deemed "participants" is set forth below. None of the individuals named
below owns any shares of Common Stock or has engaged in any transaction
involving the Common Stock during the past two years. The principal business
address of Morgan Stanley and each of the persons listed below is 2725 Sand
Hill Road, Building C - Suite 200, Menlo Park, California 94025.
<TABLE>
<CAPTION>
Name Principal Occupation
- ---- --------------------
<S> <C>
Charles Cory Managing Director
John Marren Managing Director
Mark Menell Principal
Timothy Sullivan Principal
Mark Waissar Associate
</TABLE>
Information with respect to the employees of Hambrecht & Quist who
may be deemed "participants" is set forth below. None of the individuals
named below owns any shares of Common Stock or has engaged in any transaction
involving the Common Stock during the past two years, except that Dan Case
acquired 5,000 shares of Common Stock on September 9, 1998, acquired 7,500
shares on September 10, 1998, and disposed of 5,000, 1,000, 2,500 and 4,000
shares on October 15, 1998, January 8, 1999, January 13, 1999 and January 21,
1999, respectively, in the open market. The principal business address of
Hambrecht & Quist and each of the persons listed below is One Bush Street,
San Francisco, California 94104.
A-3
<PAGE>
<TABLE>
<CAPTION>
Name Principal Occupation
- ---- --------------------
<S> <C>
Dan Case Chief Executive Officer
Paul Cleveland Managing Director, Mergers & Acquisitions
Kenneth Hao Managing Director
Glover Lawrence Vice President
Denise Curd Analyst
John Houston Analyst
</TABLE>
Pursuant to the terms of separate engagement letters, each effective
as of March 1, 1999, VLSI retained Morgan Stanley and Hambrecht & Quist as
its financial advisors with respect to the Philips Offer and the evaluation
of strategic alternatives to such offer.
Pursuant to the engagement letters, VLSI has agreed to pay each of
Morgan Stanley and Hambrecht & Quist the following fees: (i) a fee of
$1,000,000 payable upon execution of the relevant engagement letter, (ii) a
fee of $500,000 payable upon notification to the Board of the subject
advisor's readiness to deliver a written opinion to the Board as to the
adequacy or fairness of the Philips Offer, (iii) a fee of $4,300,000 (subject
to offset for any fees paid under clauses (i) or (ii) above) payable if the
Board concludes that the Philips Offer is not in the best interests of VLSI's
common stockholders and the Philips Offer is withdrawn or abandoned or does
not result, by March 1, 2000, in an "acquisition transaction" and (iv) with
respect to an "acquisition transaction," a fee equal to 0.55% of the
aggregate value of the acquisition transaction plus an incentive fee for any
excess in aggregate value resulting from Prices Per Share (as defined in the
engagement letters) greater than $17 (subject to offset for any fees paid
under clauses (i) or (ii) above).
"Acquisition transaction" means: (i) any merger, consolidation,
reorganization or other combination pursuant to which the business of VLSI is
combined with another entity and the equity holders of VLSI prior to such
merger, consolidation, reorganization or other business combination do not
own 50% or more of the equity securities of the combined entity resulting
from such merger, consolidation, reorganization or other business
combination; (ii) the acquisition of a majority of the voting stock of the
Company by way of a tender or exchange offer, negotiated or open market
purchase or otherwise; (iii) the acquisition of all or substantially all of
the assets of the Company; (iv) any change in the composition of the Board of
VLSI, whether by a proxy contest, the solicitation of stockholder action by
written consent or otherwise, over a period of 12 consecutive months (or
less) such that a majority of the members of the Board ceases to be comprised
of individuals who either (a) have been members of the Board since the
beginning of such period, or (b) have been elected or nominated for election
as members of the Board during such period by at least a majority of the
members of the Board described in clause (a) who were still in office at the
time such election or whose nomination was approved by the Board; or (v) the
acquisition of VLSI whether effected, in any case, in one transaction or a
series of transactions.
VLSI has also agreed to indemnify each of Morgan Stanley and
Hambrecht & Quist against certain liabilities (including those under the
federal securities laws) incurred in connection with their respective
engagement. VLSI has also agreed to reimburse each of Morgan Stanley and
Hambrecht & Quist for their reasonable out-of-pocket expenses, including fees
and expenses of their respective legal advisors.
The engagement of each of Morgan Stanley and Hambrecht & Quist may
be terminated at any time by either the relevant financial advisor or VLSI.
The terminated financial advisor will be entitled to any compensation earned
by it to the date of termination, including the reimbursement of all
reasonable expenses to such date. In certain circumstances, the fees under
the respective engagement letters will also be payable for up to one year
after such termination.
MISCELLANEOUS INFORMATION CONCERNING PARTICIPANTS
Except as described in this Schedule A or in the Consent Revocation
Statement, none of the participants nor any of their respective affiliates or
associates (together, the "Participant Affiliates"), (1) directly or indirectly
beneficially own any shares of Common Stock of the Company or any securities of
any subsidiary of the Company or (2) has had any relationship with the Company
in any capacity other than as a stockholder, employee, officer and director.
Furthermore, except as described in this Schedule A or in the Consent Revocation
Statement, no Participant Affiliate is either a party to any transaction or
series of transactions since January 1, 1998, or has knowledge of any currently
proposed transaction or series of transactions, (1) to which the Company or any
of its subsidiaries was or is to be a party, (2) in which the amount involved
exceeds $60,000, and (3) in which any Participant Affiliate had, or will have, a
direct or indirect material interest.
Except for the employment agreements described in the Consent
Revocation Statement, no Participant Affiliate has entered into any agreement or
understanding with any person respecting any future employment by the Company or
its affiliates or any future transactions to which the Company or any of its
affiliates will or may be a party. Except as described in this Schedule A or in
the Consent Revocation Statement, there are no contracts, arrangements or
understandings by any Participant Affiliate within the past year with any person
with respect to the Company's securities.
A-4
<PAGE>
[FORM OF CONSENT REVOCATION CARD]
PRELIMINARY COPY -- SUBJECT TO COMPLETION, DATED MARCH ___, 1999
BLUE CONSENT REVOCATION CARD
THIS REVOCATION OF CONSENT IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
VLSI TECHNOLOGY, INC. IN OPPOSITION TO THE PHILIPS' CONSENT SOLICITATION.
Revocation of any and all consents heretofore executed with respect to the
matters set forth herein, as described in the statement enclosed herewith.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A "REVOKE CONSENT" ON EACH
PROPOSAL SET FORTH BELOW.
YOUR REVOCATION OF CONSENT IS IMPORTANT. PLEASE INDICATE YOUR OPPOSITION TO
THE PHILIPS PROPOSALS BY MARKING, SIGNING, DATING AND MAILING THIS CARD TODAY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE. IF NOT OTHERWISE MARKED, THIS
REVOCATION OF CONSENT REVOKES ALL PREVIOUS CONSENTS.
1. The removal of each of the following current directors of the Company:
Pierre S. Bonelli, Robert P. Dilworth, William G. Howard, Jr., Paul R.
Low, Alfred J. Stein and Horace H. Tsiang, and any other person or
persons who may be members of the Board at the time the Proposals
become effective (other than the persons elected as a result of the
adoption of Proposal No. 4 below).
/ / REVOKE CONSENT / / DO NOT REVOKE CONSENT / / ABSTAIN
2. The amendment of Section 3.13 of the VLSI Bylaws to provide for the
filling of vacancies resulting from the removal of directors pursuant
to Section 3.13 (for complete text of the amendment see VLSI's Consent
Revocation Statement).
/ / REVOKE CONSENT / / DO NOT REVOKE CONSENT / / ABSTAIN
3. The amendment of Section 3.2 of the VLSI Bylaws to fix the number of
directors of VLSI at three (for complete text of the amendment see
VLSI's Consent Revocation Statement).
/ / REVOKE CONSENT / / DO NOT REVOKE CONSENT / / ABSTAIN
4. The election of each of John T. Losier and Barry Singer (together, the
"Nominees") as directors of VLSI to serve until the next annual meeting
of stockholders and until their successors are elected and qualified.
/ / REVOKE CONSENT / / DO NOT REVOKE CONSENT / / ABSTAIN
5. The repeal of each amendment of the Bylaws adopted subsequent to March
12, 1996 and at or prior to the time the Proposals become effective
(other than (i) the amendments adopted on March 7, 1999 and (ii) the
amendments adopted as a result of the adoption of Proposal Nos. 2 and 3
above).
/ / REVOKE CONSENT / / DO NOT REVOKE CONSENT / / ABSTAIN
(continued and to be dated and signed on reverse side)
<PAGE>
INSTRUCTION: TO REVOKE CONSENT, WITHHOLD REVOCATION OF CONSENT OR
ABSTAIN FROM REVOKING THE CONSENT FOR THE ELECTION OF
ALL THE PERSONS NAMED ON THE REVERSE, CHECK THE
APPROPRIATE BOX ON THE REVERSE. IF YOU WISH TO REVOKE
THE CONSENT TO THE ELECTION OF CERTAIN OF THE PERSONS
NAMED ON THE REVERSE, BUT NOT ALL OF THEM, CHECK THE
"REVOKE CONSENT" BOX ON THE REVERSE AND WRITE THE
NAME OF EACH SUCH PERSON AS TO WHOM YOU DO NOT WISH
TO REVOKE CONSENT IN THE FOLLOWING SPACE:
-----------------------------------------------------
IN THE ABSENCE OF DISSENT OR ABSTENTION BEING INDICATED ON THE REVERSE, THE
UNDERSIGNED HEREBY REVOKES CONSENT TO EACH ACTION LISTED ON THE REVERSE.
Each of Proposal Nos. 2-5 is conditioned upon the approval of Proposal No. 1.
Proposal No. 1 is conditioned upon at least one of the Nominees listed in
Proposal No. 4 being elected as a member of the Board.
Please sign exactly as name appears on stock certificates or on label affixed
hereto. When shares are held by joint tenants, both should sign. In case of
joint owners, EACH joint owner should sign. When signing as attorney, executor,
administrator, trustee, guardian, corporate officer, etc., give full title as
such.
Dated:
----------------------------------
- ----------------------------------------
Signature
- ----------------------------------------
Signature, if held jointly
- ----------------------------------------
Title of Authority
IN ORDER FOR YOUR REVOCATION OF CONSENT TO BE VALID, IT MUST BE DATED. PLEASE
MARK, SIGN, DATE AND MAIL YOUR REVOCATION OF CONSENT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
