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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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VLSI TECHNOLOGY, INC.
(Name Of Subject Company)
VLSI TECHNOLOGY, INC.
(Name Of Person(s) Filing Statement)
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COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title Of Class Of Securities)
918270109
(Cusip Number Of Class Of Securities)
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ALFRED J. STEIN
CHIEF EXECUTIVE OFFICER
VLSI TECHNOLOGY, INC.
1109 MCKAY DRIVE
SAN JOSE, CALIFORNIA 95131
(408) 434-3100
(Name, Address And Telephone Number Of Person Authorized To
Receive Notice And Communications On Behalf Of Person(s) Filing Statement)
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COPIES TO:
CHRISTOPHER L. KAUFMAN
LATHAM & WATKINS
135 COMMONWEALTH DRIVE
MENLO PARK, CALIFORNIA 94025
(650) 328-4600
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is VLSI Technology, Inc., a Delaware
corporation ("VLSI"), and the address of the principal executive offices of VLSI
is 1109 McKay Drive, San Jose, California 95131. The title of the class of
equity securities to which this statement relates is the Common Stock, par value
$.01 per share (the "Common Stock"), of VLSI including the associated preferred
stock purchase rights (the "Rights" and, together with the Common Stock, the
"Shares") issued pursuant to the Common Share Rights Agreement, dated as of
November 7, 1989, as amended on August 12, 1992, as amended and restated on
August 24, 1992 and as further amended and restated as of March 7, 1999, all as
set forth in the Second Amended and Restated Rights Agreement (the "Second
Amended and Restated Rights Agreement"), between VLSI and BankBoston, N.A.
(formerly The First National Bank of Boston), as Rights Agent.
ITEM 2. TENDER OFFER OF THE BIDDER.
This statement relates to the cash tender offer by Koninklijke Philips
Electronic N.V., a company organized under the laws of The Netherlands
("Philips"), and KPE Acquisition Inc., a Delaware corporation ("KPE") and an
indirect wholly owned subsidiary of Philips, relating to an offer by KPE to
purchase all outstanding Shares at a price of $17.00 per Share, net to the
seller in cash, upon the terms and subject to the conditions set forth in KPE's
Offer to Purchase dated March 5, 1999 and the related Letter of Transmittal
(which together constitute the "Philips Offer"). The Philips Offer is disclosed
in a Tender Offer Statement on Schedule 14D-1, dated March 5, 1999 and amended
March 17, 1999 (the "Schedule 14D-1"), as filed with the Securities and Exchange
Commission (the "Commission"). According to the Schedule 14D-1, the principal
executive offices of KPE are located at 1251 Avenue of the Americas, 20th Floor,
New York, New York 10020.
On March 12, 1999, Philips and KPE filed proxy materials with the Commission
to solicit VLSI's stockholders to act by written consent (the "Philips
Solicitation") to remove VLSI's directors, replace them with Philips'
hand-picked nominees, and amend the Bylaws of VLSI. VLSI has separately filed a
Consent Revocation Statement with the Commission asking stockholders to reject
the Philips Solicitation.
THIS SOLICITATION/RECOMMENDATION STATEMENT ON SCHEDULE 14D-9 DOES NOT
CONSTITUTE A SOLICITATION TO REVOKE CONSENTS. ANY SUCH SOLICITATION BY VLSI WILL
BE MADE ONLY BY MEANS OF SEPARATE CONSENT REVOCATION SOLICITATION MATERIALS
COMPLYING WITH THE REQUIREMENTS OF SECTION 14(a) OF THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of VLSI, which is the entity filing this
statement, are set forth in Item 1 above.
(b) Certain contracts, agreements, arrangements or understandings between
VLSI or its affiliates and certain of its executive officers, directors or
affiliates are described in Annex A attached hereto and incorporated by
reference herein.
Except as incorporated by reference herein or set forth in Item 4 below, to
the knowledge of VLSI, as of the date hereof, there are no material contracts,
agreements, arrangements or understandings, or any actual or potential conflicts
of interest between VLSI or its affiliates and (1) VLSI, its executive officers,
directors or affiliates or (2) KPE, Philips or their respective officers,
directors or affiliates.
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ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(A) BACKGROUND; RECOMMENDATION.
VLSI, like other companies in the semiconductor industry, continually
explores the possibility of business relationships and cooperative efforts with
other participants in its industry. During 1998, VLSI explored alliances with a
number of potential strategic partners, including Ericsson, Inc., Macronix
America Inc., Philips, and Wafer Technology Malaysia. Once established, these
relationships can involve joint ventures in fabrication, partnerships in product
and manufacturing process development, and alliances for technology and
information exchange, including licensing and benchmarking.
As part of these ongoing efforts, VLSI began such a relationship in March
1988 with Philips Export B.V., U.S. Philips Corporation and North American
Philips Corporation. VLSI licensed its application-specific integrated circuit
design tools and library technology to Philips, and Philips provided
manufacturing support to VLSI and engaged in library co-development with VLSI.
Although the agreement had a term of six years, VLSI and Philips mutually agreed
to end operational activities under the agreement after four and one-half years.
VLSI currently licenses patent rights and certain technical information as
well as trademarks regarding a communication concept for data transmission
systems, integrated circuits, or modules, known as "I(2)C", from Philips Export
B.V. and U.S. Philips Corporation. The agreement, which began in January 1991,
expires in 2004 and provides generally for payments to Philips of a 2% royalty
on the net selling price of any product manufactured by VLSI which employs the
applicable patent rights. The payments aggregated $375,231, $245,737 and
$462,971 in 1996, 1997 and 1998, respectively.
From 1993 through 1995, representatives from VLSI and Philps discussed areas
of possible cooperation between VLSI and Philips on several occasions. No
agreement on cooperative activities was reached.
On November 7, 1996 and on July 1, 1998, VLSI entered into mutual
nondisclosure agreements with Philips Consumer Communications L.P., an entity
controlled by Philips. These agreements related solely to the possibility of
VLSI manufacturing a modem chip for Philips. No agreement to manufacture the
modem chips for Philips was reached.
During 1997 and 1998, officers of VLSI and Philips discussed the possibility
of exchanging front-end technology for set-top boxes for cable and satellite
television. After several meetings and an exchange of proposals, VLSI decided
not to proceed with the technology exchange.
On September 2, 1998, Arthur van der Poel, Chairman of Philips
Semiconductors ("Philips Semiconductors"), called Alfred J. Stein, Chairman and
Chief Executive Officer of VLSI, to communicate Philips' interest in meeting to
discuss ways in which Philips and VLSI could cooperate in areas of mutual
interest. During the conversation, Mr. Stein expressed his willingness to meet
at a mutually convenient time in either Europe or the United States to discuss
cooperative ventures.
On September 7, 1998, Mr. Stein received a letter from Mr. van der Poel
thanking Mr. Stein for agreeing to discuss ways in which Philips and VLSI might
cooperate and accepting Mr. Stein's suggestion that they meet.
In October 1998, Philips retained Credit Suisse First Boston Corporation as
its financial advisor and Sullivan & Cromwell to act as its legal counsel in
connection with its exploration of a possible strategic transaction with VLSI.
The retention of Philips' financial advisor and legal counsel was not disclosed
to VLSI.
After several attempts to set a date for a meeting, Mr. Stein and Mr. van
der Poel arranged to meet for dinner on November 23, 1998.
On November 20, 1998, Mr. Stein and Robert P. Dilworth, a member of the
Board of VLSI, called Mr. van der Poel to confirm that Mr. van der Poel's
purpose was not to make an acquisition proposal at the
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meeting on November 23, 1998. Mr. Stein asked Mr. van der Poel whether he was
going to bring a written proposal to acquire VLSI to the meeting. Mr. van der
Poel replied that he would discuss broad areas in which Philips and VLSI could
work together and assured Mr. Stein and Mr. Dilworth that he would not make a
proposal to acquire VLSI.
On November 23, 1998, Mr. van der Poel met Mr. Stein for dinner in San Jose,
California. Mr. van der Poel and Mr. Stein discussed business in general. While
Mr. van der Poel suggested a possible business combination between VLSI and
Philips, he did not present a specific proposal. Mr. Stein responded that, given
VLSI's low stock price and the downturn in the semiconductor industry, there was
no interest on VLSI's part in considering the sale of VLSI to Philips or to
anyone else. However, Mr. Stein and Mr. van der Poel agreed to consider areas in
which VLSI and Philips Semiconductors might cooperate.
On December 3, 1998, Mr. van der Poel sent Mr. Stein a letter outlining
three areas in which Mr. van der Poel believed Philips Semiconductors and VLSI
could cooperate -- manufacturing, technology and cellular telephony applications
- -- and suggested that representatives of the two companies meet to discuss a
possible cooperation arrangement. In a telephone call on December 17, 1998, Mr.
Stein told Mr. van der Poel that he believed manufacturing and technology
cooperation were worth exploring and agreed to have the appropriate
representatives meet.
In December 1998, C. Clifford Roe, Vice President Corporate Strategic
Programs of VLSI, and Stuart McIntosh, Chief Operations Officer of Philips
Semiconductors, exchanged messages concerning possible cooperation on
manufacturing issues.
On January 5, 1999, Mr. Roe, Rajeeva Lahri, Chief Technical Officer of VLSI,
and Ted Malunczuk, Vice President of Operations of VLSI, participated in a call
with Mr. McIntosh and Theo Claasen, Chief Technology Officer of Philips
Semiconductors. Mr. McIntosh expressed Philips' interest in benchmarking on
manufacturing operations and Philips' desire for a partner for a wafer
manufacturing facility which Philips planned to build in Singapore.
Representatives from VLSI discussed the possibility that Philips could be a
partner for VLSI's existing manufacturing facility in San Antonio, Texas, rather
than, or in addition to, Philips building a manufacturing facility in Singapore.
The participants decided to resume discussions regarding manufacturing
cooperation at a later date. Mr. Claasen and Mr. Lahri agreed to schedule a call
for January 7, 1999 to discuss ways in which the two companies could cooperate
in the technology area.
On January 7, 1999, Mr. Claasen called Mr. Lahri to schedule a meeting at
VLSI's offices in San Jose, California on February 16, 1999.
On January 29, 1999, at VLSI's manufacturing facility in San Antonio, Texas,
Mr. McIntosh and David Ledvina, Vice President San Antonio Wafer Operations of
VLSI, discussed ways in which the two companies could cooperate in
manufacturing. At the time, VLSI was also looking for a partner to share process
technology development costs on a long-term basis.
On February 16, 1999, Mr. Claasen, Rob Horbach, Strategy Officer of Philips
Semiconductors, Lambert van den Hoven, Manager Design Technology of Philips
Semiconductors, and Mr. Bart De Loore, Marketing Manager for Design Technology
of Philips Semiconductors, met with Mr. Lahri, Mr. Roe, and Bob Payne, Vice
President Strategic Technology of VLSI, at VLSI's offices in San Jose,
California, to discuss cooperative efforts between the two companies in
technology.
In the course of the meetings concerning manufacturing and technology
issues, confidential information was disclosed to Philips.
On February 17, 1999, Mr. van der Poel sent an e-mail to Mr. Stein
suggesting that they meet on the afternoon of February 25, 1999, when Mr. van
der Poel planned to be in California. Mr. Stein replied by e-mail that he would
be available to meet that afternoon at the VLSI office in San Jose.
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In an e-mail on February 24, 1998, Mr. van der Poel stated that the
President of Philips, Mr. Cor Boonstra, would be available to join Mr. van der
Poel and Mr. Stein on Mr. Boonstra's trip from Asia to the East Coast of the
United States. Mr. van der Poel suggested in the e-mail that this was an
excellent opportunity to meet face to face and exchange views.
On February 25, 1999, Mr. Stein met with Mr. Boonstra and Mr. van der Poel
at VLSI's offices in San Jose, California. At that meeting, Mr. Boonstra and Mr.
van der Poel said that Philips intended to propose to VLSI's Board of Directors
that Philips acquire VLSI. Mr. Boonstra and Mr. van der Poel discussed Philips'
business rationale and the strategic benefits to Philips of combining the two
companies. Mr. Stein stated that he did not wish to consider a combination at
that time, believed VLSI's business position was improving and felt that the
potential for VLSI's stockholders, if VLSI remained an independent company, was
excellent. Mr. Boonstra and Mr. van der Poel indicated that Philips wished to
proceed on a much faster time schedule.
Later that day, Mr. van der Poel called Mr. Stein to inform him that Philips
would send a letter outlining Philips' proposal. On the evening of February 25,
1999, the following letter was delivered to Mr. Stein:
Mr. A. J. Stein
Chairman & CEO
VLSI Technology, Inc.
1109 McKay Drive
San Jose, CA 95131
February 25, 1999
Dear Mr. Stein,
Thank you for meeting with Arthur van der Poel and myself to discuss a
possible strategic business combination between our companies. As you know
from our recent conversations, Philips has for some time studied the
possibility of a combination of our Semiconductors division and VLSI. Those
conversations and our meeting today have convinced us that we should
progress with our discussions on a fast time track. We have therefore
summarized our proposal in this letter so that you can discuss it with your
Board of Directors and advisors.
Based upon our work to date, which has been limited to public sources,
Philips would propose to enter into an agreement to acquire VLSI in a merger
transaction in which your stockholders would receive $17 in cash for each
share.
We believe our proposal, which represents a premium of approximately 60%
to the closing VLSI market price on February 25th, offers an extremely
attractive opportunity for your stockholders. Philips would propose to
finance the transaction primarily through existing cash balances and thus
would not require any contingency or delay traditionally associated with
raising capital.
As we told you, we have the highest regard for your company and your
employees, as well as your many innovations in the semiconductor field. We
believe that the combined business of VLSI and Philips Semiconductors will
be positioned as a global leader in many of the most exciting semiconductor
growth markets. Furthermore, we are convinced that the strategic,
operational and financial merits of such a combination are compelling and
will provide significant benefits to your shareholders, employees,
customers, and other stakeholders.
We plan to use VLSI as a cornerstone of our growth strategy for Philips
Semiconductors in North America as a platform for further expansion. As a
result, we recognize that VLSI's management and employees are essential to
the success of our proposed business combination. We are therefore very
interested in discussing with you the ways in which we can properly offer
incentives and retain those managers and employees.
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As you can appreciate, with a proposal of this type, time is of the
essence, and we are prepared to move accordingly. We would be happy to meet
with you and other members of your Board of Directors, senior management and
with your advisers as soon as practical to discuss our proposal and to
answer any questions you or they may have. We believe it would be mutually
desirable if you would give us the opportunity to conduct customary due
diligence in parallel with the negotiation of a definitive acquisition
agreement.
We realize that your Board of Directors will want to carefully consider
our proposal, but we do ask that you get back to us with a response as soon
as possible, but in no event later than the close of business on Wednesday,
March 3rd.
We have discussed the highly sensitive nature of the market information
contained in this letter with our legal counsel, Sullivan & Cromwell. Based
upon those discussions, we have decided to publicly disclose our acquisition
proposal.
I hope that VLSI will respond favorably to this proposal, and that a
combination of our related businesses can be accomplished in an amicable and
mutually beneficial fashion. We look forward to your response.
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Sincerely,
Cor Boonstra
President & CEO Royal Philips Electronics
cc: Board of Directors VLSI Technology, Inc.
</TABLE>
Also on the evening of February 25, 1999, Philips issued a press release
that announced that Philips had made the proposal to Mr. Stein and VLSI's Board
of Directors (the "Board") and set forth the contents of the Philips February 25
letter.
On February 26, 1999, VLSI issued a press release acknowledging receipt of
Philips' proposal and stating that the Board would evaluate the proposal with
VLSI's financial and legal advisors.
On March 3, 1999, VLSI's Board of Directors convened a regularly scheduled
meeting. At that meeting the Board confirmed the retention of Morgan Stanley &
Co. Incorporated ("Morgan Stanley") and Hambrecht & Quist LLC ("Hambrecht &
Quist") as its financial advisors and Latham & Watkins and Richards Layton &
Finger as outside legal advisors and directed these advisors to evaluate the
Philips Offer. Later that day, VLSI issued a press release stating that VLSI had
scheduled a special meeting of its Board for March 23, 1999, at which VLSI would
consider the results of an evaluation conducted by its advisors of the proposal
set forth in Philips' February 25 letter.
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Also on March 4, 1999, Mr. Boonstra sent the following letter to Mr. Stein:
By Facsimile
Mr. A. J. Stein
Chairman & CEO
VLSI Technology, Inc.
1109 McKay Drive
San Jose, CA 95131
March 4, 1999
Dear Mr. Stein,
We were encouraged to hear that your Board of Directors has an open mind
about Philips' proposal to acquire VLSI in a merger transaction in which your
stockholders would receive $17 in cash for each share of VLSI common stock.
We have the highest regard for your company and your employees, as well
as your many innovations in the semiconductor field. Combining VLSI with
Philips Semiconductors presents both a compelling strategic and operational
opportunity for our businesses and compelling financial benefits to your
shareholders. The market's response to our proposal confirms this belief.
Given the compelling nature of this transaction, time is of the essence.
Accordingly, to keep this transaction on a fast time track and to demonstrate
that we are committed to pursuing it, we plan to commence tomorrow a $17 per
share tender offer for all the outstanding shares of VLSI.
As you are aware, the Company's rights plan is at the present time an
impediment to consummation of our offer. Accordingly, in order that your
stockholders can receive the benefits of our offer, we request that the Board
of Directors redeem the rights outstanding pursuant to the rights plan or
otherwise take action to render the rights inapplicable to our offer. If your
Board of Directors does not dismantle the rights plan, in order to pursue our
offer it would be our intention to seek to replace your Board of Directors
with nominees who, subject to their fiduciary duties, would allow the offer
to proceed. This is not our preferred course, but we are prepared to take it,
should it be necessary in order for us to accept the tenders of the
stockholders that respond to our offer.
We want you, your Board of Directors, your management and your employees
to know that we would prefer to negotiate a definitive acquisition agreement
with you. We and our advisors are prepared to start the process immediately.
In that regard, please contact me or Arthur van der Poel at any time should
you wish to discuss our proposal prior to your scheduled Board meeting on
March 23, 1999.
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Sincerely,
Cor Boonstra
President & CEO Royal Philips Electronics
cc: Board of Directors VLSI Technology, Inc.
</TABLE>
On March 5, 1999, Philips and KPE commenced the Philips Offer.
On March 7, 1999, the Board, in a telephonic meeting, approved certain
amendments to VLSI's rights plan and bylaws intended to protect the Board's
process of evaluating the Philips Offer. The bylaw amendments relate primarily
to VLSI's procedures for stockholder meetings and stockholder action by written
consent. VLSI amended and restated its stockholder rights plan to, among other
things, reduce the Common Stock ownership threshold that triggers the Rights
from 20% to 10%, remove a provision that potentially allowed an acquirer to
redeem the Rights after replacing the Board and remove "continuing
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director" provisions to bring the rights plan into compliance with a recent
Delaware Supreme Court decision.
On March 9, 1999, the Board held a telephonic meeting. At that meeting,
VLSI's financial advisors and legal advisors reported on the status of their
evaluation of the Philips Offer. The Board authorized management and VLSI's
financial advisors to make preliminary inquiries and hold preliminary
exploratory discussions with third parties concerning potential strategic
alternatives as part of the evaluation of the Philips Offer.
On March 14, 1999, the Board held a telephonic meeting at which the Board
was briefed by its financial advisors on the status of their evaluation of the
Philips Offer and the preliminary exploratory discussions authorized by the
Board on March 9, 1999.
On March 18, 1999, the Board held a meeting at which the Board again
reviewed the Philips Offer and its terms and conditions with VLSI's management
and its financial and legal advisors. At this meeting, the Board received a
report from management on, and discussed extensively, the March 1999 Management
Business Plan (the "1999 Management Business Plan"). Morgan Stanley and
Hambrecht & Quist presented their joint financial analysis of the Philips Offer,
discussed the 1999 Management Business Plan, reviewed various alternatives
available to VLSI, reported on the status of the preliminary exploratory
discussions conducted as part of the evaluation of the Philips Offer and
presented their oral and written opinions to the effect that the Philips Offer
is inadequate, from a financial point of view, to the holders of Shares other
than Philips and its affiliates. Presentations were also made by VLSI's legal
advisors. After the presentations and discussion by the Board, the Board
unanimously determined that the Philips Offer was inadequate and not in the best
interests of VLSI's stockholders. The Board also unanimously determined that
VLSI should explore its strategic alternatives, including a merger, sale or
recapitalization of VLSI, which alternatives could include negotiations with
interested parties, including Philips. In the context of those negotiations, the
VLSI Board believes interested parties will recognize the strong business
potential of VLSI.
THE VLSI BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE PHILIPS
OFFER IS INADEQUATE, AND IS NOT IN THE BEST INTERESTS OF VLSI AND ITS
STOCKHOLDERS. ACCORDINGLY, THE VLSI BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT VLSI'S STOCKHOLDERS REJECT THE PHILIPS OFFER AND NOT TENDER THEIR SHARES
PURSUANT TO THE PHILIPS OFFER.
A copy of the letter to VLSI's stockholders communicating the recommendation
of the VLSI Board and the press release relating thereto are filed as Exhibits 1
and 2 hereto and are incorporated by reference herein.
(b) REASONS FOR THE RECOMMENDATION.
In reaching its determination and recommendation described above, the Board
considered its familiarity with, and management's view of, VLSI's business,
financial condition, results of operations, business strategy and future
prospects, including in particular the strategy and prospects reflected in the
1999 Management Business Plan, the nature of the markets in which VLSI operates
and VLSI's position in such markets, the historical and current market prices
for the Shares, and the Board's belief, based on the factors described herein,
that the Philips Offer is inadequate. In this regard, the Board particularly
considered the following:
- The presentations by Morgan Stanley and Hambrecht & Quist concerning VLSI
and the financial aspects of the Philips Offer as well as the oral and
written opinions of each of Morgan Stanley and Hambrecht & Quist stating
that the Philips Offer is inadequate, from a financial point of view, to
the holders of Shares, other than Philips, and its affiliates. The full
text of the opinions of Morgan Stanley and Hambrecht & Quist, each dated
March 18, 1999, setting forth the assumptions made,
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matters considered and limitations on the review undertaken, are attached
hereto as Exhibits 28 and 29, respectively, and are incorporated by
reference herein.
- Information provided by Morgan Stanley and Hambrecht & Quist relating to
the preliminary exploratory discussions conducted as part of the
evaluation of the Philips Offer.
- The Board's determination to explore strategic alternatives which have the
potential of resulting in a value for the Shares in excess of the Philips
Offer.
- The Board's perception of VLSI's improved financial condition, results of
operations and business.
- The Board's perception of improving conditions in the overall
semiconductor industry generally and in VLSI's four primary business
segments--digital entertainment, wireless, networking and advanced
computing--in particular, which have been adversely affected by market
conditions in the last two years.
The foregoing discussion of the information and factors considered by the
Board is not intended to be exhaustive. In view of the variety of factors
considered in connection with its evaluation, the Board did not find it
practicable to and did not quantify or otherwise assign relative weights to the
specific factors considered in reaching its determinations and recommendation.
In addition, individual members of the Board may have given different weight to
different factors.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
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 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 shareholder 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.
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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.
VLSI has retained MacKenzie Partners, Inc. ("MacKenzie Partners") to assist
VLSI in connection with its communications with stockholders with respect to,
and to provide other services to VLSI in connection with, the Philips Offer.
VLSI will pay MacKenzie Partners reasonable and customary compensation for their
services and will reimburse MacKenzie Partners for the reasonable out-of-pocket
expenses incurred in connection therewith. VLSI has agreed to indemnify
MacKenzie Partners against certain liabilities and expenses, including certain
liabilities under the federal securities laws.
VLSI has retained Kekst & Co. ("Kekst") as its public relations advisor in
connection with the Philips Offer and related matters. VLSI will pay Kekst
reasonable and customary compensation for its services plus reimbursement for
reasonable out-of-pocket expenses. VLSI has also agreed to indemnify Kekst
against certain liabilities and expenses, including certain liabilities under
the federal securities laws.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) Except as set forth below or as described in Annex A attached hereto and
incorporated by reference herein, there have been no transactions in Shares
which were effected during the past 60 days by VLSI, or to the best knowledge of
VLSI, by any executive officer, director, affiliate or subsidiary of VLSI. Mr.
Stein exercised options for 265,000 Shares on February 19, 1999, at an average
exercise price of $7.29 per Share, and exercised options for 381,821 Shares on
February 22, 1999, at an average exercise price of $11.22 per Share.
(b) To the best knowledge of VLSI, (i) none of its executive officers,
directors, affiliates or subsidiaries presently intends to tender Shares
pursuant to the Philips Offer and (ii) none of its executive officers,
directors, affiliates or subsidiaries presently intends to otherwise sell any
Shares which are owned beneficially or held of record by such persons. The
foregoing does not include Shares over which, or with respect to which any such
executive officer, director or affiliate or subsidiary acts in a fiduciary or
representative capacity or is subject to instructions from a third party with
respect to such tender.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) As part of its evaluation of the Philips Offer, VLSI and its financial
advisors have held preliminary exploratory discussions with a number of parties
regarding potential strategic alternatives available to VLSI. VLSI will continue
to engage in discussions and such discussions are expected to lead to
negotiations with one or more potential parties with respect to a potential
strategic transaction. Any such potential strategic transaction would relate to
or result in (i) an extraordinary transaction such as a merger or
reorganization, involving VLSI or one or more subsidiaries of VLSI and another
company; (ii) a purchase, sale or transfer of a material amount of assets by
VLSI or one or more subsidiaries of VLSI; (iii) a tender offer for or other
acquisition of securities by or of VLSI; or (iv) a material change in the
present capitalization or dividend policy of VLSI.
The Board has determined that disclosure of the possible terms of any
transactions or proposals of the type referred to above in this Item 7 prior to
an agreement in principle with respect thereto would jeopardize the initiation
or continuation of negotiations with respect to such transactions and proposals
9
<PAGE>
and has, accordingly, instructed management not to disclose such possible terms,
or the parties thereto, until such agreement has been reached or as may
otherwise be required by law.
(b) Other than as set forth above, there are no transactions, Board
resolutions, agreements in principle or signed contracts in response to the
Philips Offer that relate to or would result in one of more of the events
referred to in Item 7(a).
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
RIGHTS AGREEMENT AMENDMENT
On November 7, 1989, the Board authorized and declared a dividend of one
right for each share of Common Stock of VLSI outstanding on the close of
business on December 8, 1989 (the "Record Date"), each right representing the
right to purchase one share of Common Stock, for $45.00 (the "Purchase Price")
upon the terms and subject to the conditions set forth in the original Rights
Agreement among the parties thereto, dated as of November 7, 1989 (the "Original
Agreement").
On August 12, 1992, the Board authorized the amendment and restatement of
the Original Agreement in its entirety (the "First Amended and Restated Rights
Agreement"), under which each right represented the right to purchase one
one-thousandth of a share of Series A Participating Preferred Stock (the
"Preferred Stock") for the Purchase Price. On August 24, 1992, the Board
authorized the amendment of the First Amended and Restated Rights Agreement to
except certain transactions by Intel Corporation from triggering defensive
measures under the First Amended and Restated Rights Agreement.
On March 7, 1999, the Board authorized the further amendment and restatement
of the First Amended and Restated Rights Agreement, as theretofore amended, as
set forth in a Second Amended and Restated Rights Agreement dated as of March 7,
1999. The following is a general description of the Second Amended and Restated
Rights Agreement, and is subject to the detailed terms and conditions of the
Second Amended and Restated Rights Agreement.
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (with certain
exceptions, an "Acquiring Person") has acquired beneficial ownership of 10% or
more of the outstanding Shares or (ii) such date, as determined by action of the
Board, after the date of the commencement of, or first public announcement of an
intention to make, a tender offer, or exchange offer, the consummation of which
would result in a person or group becoming an Acquiring Person, and prior to the
time any person becomes an Acquiring Person (the earlier of such dates being
called the "Distribution Date"), the Rights will be evidenced by the Common
Stock certificates and will be transferred with and only with the Common Stock.
Until the Distribution Date (or earlier expiration of the Rights), new Common
Stock certificates issued upon transfer or new issuances of Common Stock will
contain a notation incorporating the Second Amended and Restated Rights
Agreement by reference. Until the Distribution Date (or earlier expiration of
the Rights), the surrender for transfer of any certificates for Shares, even
without such notation, will also constitute the transfer of the Rights
associated with the Shares represented by such certificate. As soon as
practicable following the Distribution Date, separate certificates evidencing
the Rights ("Right Certificates") will be mailed to holders of record of the
Common Stock as of the close of business on the Distribution Date and such
separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on November 7, 1999 (the "Final Expiration Date"), unless the Final
Expiration Date is advanced or extended or unless the Rights are earlier
redeemed or exchanged by VLSI, in each case as described below.
The Purchase Price payable, and the number of shares of Preferred Stock or
other securities or property issuable, upon exercise of the Rights is subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Stock, (ii) upon the grant to holders of the Preferred Stock of certain rights
or warrants to
10
<PAGE>
subscribe for or purchase Preferred Stock at a price, or securities convertible
into Preferred Stock with a conversion price, less than the then-current market
price of the Preferred Stock or (iii) upon the distribution to holders of the
Preferred Stock of evidences of indebtedness or assets (excluding regular
periodic cash dividends or dividends payable in Preferred Stock) or of
subscription rights or warrants (other than those referred to above).
The number of outstanding Rights is subject to adjustment in the event of a
stock dividend on the Common Stock payable in shares of Common Stock or
subdivisions, consolidations or combinations of the Common Stock occurring, in
any such case, prior to the Distribution Date.
Shares of Preferred Stock purchasable upon exercise of the Rights will not
be redeemable. Each share of Preferred Stock will be entitled, when, as and if
declared, to a minimum preferential quarterly dividend payment of the greater of
(a) $1.00 per share, and (b) an amount equal to 1,000 times the dividend
declared per share of Common Stock. In the event of liquidation, dissolution or
winding up of VLSI, the holders of the Preferred Stock will be entitled to a
minimum preferential payment of the greater of (a) $1,000 per share (plus any
accrued but unpaid dividends) and (b) an amount equal to 1,000 times the payment
made per share of Common Stock. Each share of Preferred Stock will have 1,000
votes, voting together with the Common Stock. Finally, in the event of any
merger, consolidation or other transaction in which outstanding shares of Common
Stock are converted or exchanged, each share of Preferred Stock will be entitled
to receive 1,000 times the amount received per share of Common Stock. These
rights are protected by customary antidilution provisions.
Because of the nature of the Preferred Stock's dividend, liquidation and
voting rights, the value of the one one-thousandth interest in a share of
Preferred Stock purchasable upon exercise of each Right should approximate the
value of one share of Common Stock.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will thereupon become void),
will thereafter have the right to receive upon exercise of a Right that number
of shares of Common Stock having a market value of two times the exercise price
of the Right.
In the event that, after a person or group has become an Acquiring Person,
VLSI is acquired in a merger or other business combination transaction or 50% or
more of its consolidated assets or earning power are sold, proper provisions
will be made so that each holder of a Right (other than Rights beneficially
owned by an Acquiring Person which will have become void) will thereafter have
the right to receive upon the exercise of a Right that number of shares of
common stock of the person with whom VLSI has engaged in the foregoing
transaction (or its parent) that at the time of such transaction have a market
value of two times the exercise price of the Right.
At any time after any person or group becomes an Acquiring Person and prior
to the earlier of one of the events described in the previous paragraph or the
acquisition by such Acquiring Person of 50% or more of the outstanding shares of
Common Stock, the Board may exchange the Rights (other than Rights owned by such
Acquiring Person which will have become void), in whole or in part, for shares
of Common Stock or Preferred Stock (or a series of VLSI's preferred stock having
equivalent rights, preferences and privileges), at an exchange ratio of one
share of Common Stock, or a fractional share of Preferred Stock (or other
preferred stock) equivalent in value thereto, per Right.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of Preferred Stock or Common Stock
will be issued (other than fractions of Preferred Stock which are integral
multiples of one one-thousandth of a share of Preferred Stock, which may, at the
election of VLSI, be evidenced by depositary receipts), and in lieu thereof an
adjustment in cash will be made based on the current market price of the
Preferred Stock or the Common Stock.
11
<PAGE>
At any time prior to the time an Acquiring Person becomes such, the Board
may redeem the Rights in whole, but not in part, at a price of $.01 per Right
(the "Redemption Price") payable, at the option of VLSI, in cash, shares of
Common Stock or such other form of consideration as the Board shall determine.
The redemption of the Rights may be made effective at such time, on such basis
and with such conditions as the Board in its sole discretion may establish.
Immediately upon any redemption of the Rights, the right to exercise the Rights
will terminate and the only right of the holders of Rights will be to receive
the Redemption Price. All references to "Continuing Directors" in the First
Amended and Restated Rights Agreement have been removed in the Second Amended
and Restated Rights Agreement.
For so long as the Rights are then redeemable, VLSI may, except with respect
to the Redemption Price, amend the Second Amended and Restated Rights Agreement
in any manner. After the Rights are no longer redeemable, VLSI may, except with
respect to the Redemption Price, amend the Second Amended and Restated Rights
Agreement in any manner that does not adversely affect the interests of holders
of the Rights.
Until a Right is exercised or exchanged, the holder thereof, as such, will
have no rights as a stockholder of VLSI, including, without limitation, the
right to vote or to receive dividends.
The Second Amended and Restated Rights Agreement is filed as Exhibit 18
hereto and is incorporated by reference herein.
AMENDMENT OF BYLAWS
On March 7, 1999, the Board amended the Bylaws of VLSI to (i) give the Board
the sole power to set the record date for any solicitation of stockholder
consents; (ii) confirm that the Board has the sole power to set the record date
for any stockholder meeting; (iii) give the Board the discretion to set the date
of the stockholders' annual meeting without regard to any specific date; (iv)
grant the Board the power to adjourn, cancel or postpone a stockholder meeting;
(v) authorize the Board and the chair of the stockholder meeting to regulate the
conduct of business; and (vi) give the Board the exclusive power to set the date
of a special meeting within 60-75 days of the receipt by VLSI of a request for a
special meeting by 10% of VLSI's stockholders. The amendment to the Bylaws is
filed as Exhibit 19 hereto and is incorporated by reference herein.
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 in allegedly failing to
promptly negotiate with Philips, thereby failing to maximize stockholder value
and depriving the VLSI stockholders of an opportunity to obtain a
12
<PAGE>
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 using 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 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.
The texts of the respective complaints, are filed as Exhibits 20 through 27
hereto and are incorporated by reference herein.
Information regarding beneficial ownership of VLSI Shares, VLSI director
compensation and VLSI executive officer compensation is described in Annex A
attached hereto and incorporated by reference herein.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C>
1. Letter to Stockholders of VLSI dated March 18, 1999.*
2. Press Release dated March 18, 1999.*
3. Executive Performance Incentive Plan (incorporated by reference from Exhibit to
Annual Report on Form 10-K for the fiscal year ended December 29, 1985).
4. 1986 Directors' Stock Option Plan, as amended (incorporated by reference from
Exhibit to Annual Report on Form 10-K for the fiscal year ended December 30, 1994).
5. 1992 Stock Plan, as amended (incorporated by reference to Annual Report on Form 10-K
for the fiscal year ended December 26, 1997).
6. Compass Design Automation, Inc. 1992 Stock Option Plan, as amended (incorporated by
reference from Exhibit to Annual Report on Form 10-K for the fiscal year ended
December 30, 1994).
7. Form of Executive Change in Control Agreement by and between VLSI and each of the
following officers of VLSI: John S. Hodgson and Thierry M. Laurent (incorporated by
reference from Exhibit to Annual Report on Form 10-K for the fiscal year ended
December 27, 1996).
8. Long Term Incentive Plan adopted October 8, 1996 (incorporated by reference to
Annual Report on Form 10-K for the fiscal year ended December 27, 1996).
9. 1998 Nonstatutory Stock Option Plan (incorporated by reference to the Annual Report
on Form 10-K for the fiscal year ended December 26, 1997).
10. Nonqualified Deferred Compensation Plan adopted effective June 1, 1997 and as
amended on March 4, 1998 (incorporated by reference to the Annual Report on Form
10-K for the fiscal year ended December 26, 1997).
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
11. Letter Agreement (and Addendum) between VLSI and John S. Hodgson, dated March 21,
1997 (incorporated by reference to the Annual Report on Form 10-K for the fiscal
year ended December 26, 1997).
12. Letter Agreement between VLSI and Douglas M. McBurnie, dated August 6, 1997
(incorporated by reference to the Annual Report on Form 10-K for the fiscal year
ended December 26, 1997).
13. Letter Agreement between VLSI and Richard M. Beyer, dated as of August 14, 1998.
14. Severance Agreement between VLSI and Douglas M. McBurnie, dated as of October 21,
1998.
15. Employment Agreement between Alfred J. Stein and VLSI dated August 28, 1998
(incorporated by reference to the Quarterly Report on Form 10-Q for the quarterly
period September 25, 1998).
16. Supplemental Employment Agreement dated as of August 28, 1998 between Alfred J.
Stein and VLSI.
17. Employment Agreement between Alfred J. Stein and VLSI dated July 8, 1998
(incorporated by reference to the Quarterly Report on Form 10-Q for the period ended
June 26, 1998).
18. Second Amended and Restated Rights Agreement, dated as of March 7, 1999
(incorporated by reference to the Registration Statement on Form 8-A/A filed on
March 9, 1999).
19. Amendment of Bylaws of VLSI Technology, Inc., dated March 7, 1999 (incorporated by
reference to the Current Report on Form 8-K dated March 7, 1999).
20. Complaint in KPE Acquisition Inc. v. VLSI Technology, Inc., et. al., C.A. No. 16992,
filed in the Court of Chancery of the State of Delaware on March 5, 1999.
21. Complaint in Olen v. Richard M. Beyer, et al., C.A. No. 16986, filed in the Court of
Chancery of the State of Delaware on March 3, 1999.
22. Complaint in Bernstein v. VLSI Technology, Inc., et al., C.A. No. 16988, filed in
the Court of Chancery of the State of Delaware on March 3, 1999.
23. Complaint in Bernstein v. VLSI Technology, Inc., et al., C.A. No. 16989, filed in
the Court of Chancery of the State of Delaware on March 4, 1999.
24. Complaint in Miller v. VLSI Technology, Inc., et al., C.A. No. 16993, filed in the
Court of Chancery of the State of Delaware on March 5, 1999.
25. Complaint in Miller v. Richard M. Beyer, et al., C.A. No. 16994, filed in the Court
of Chancery of the State of Delaware on March 5, 1999.
26. Complaint in Tehrani v. VLSI Technology, Inc., C.A. No. 16998, filed in the Court of
Chancery of the State of Delaware on March 5, 1999.
27. Complaint in Barenholtz, et al., v. Richard Beyer, et al., C.A. No. 17010, filed in
the Court of Chancery of the State of Delaware on March 9, 1999.
28. Opinion of Morgan Stanley & Co. Incorporated.*
29. Opinion of Hambrecht & Quist LLC.*
</TABLE>
- ------------------------
* Included in materials being distributed to stockholders of VLSI.
14
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
<TABLE>
<S> <C>
Dated: March 18, 1999 VLSI TECHNOLOGY, INC.
By: /s/ Alfred J. Stein
----------------------------------------
Name: Alfred J. Stein
Title: Chairman of the Board and
Chief Executive Officer
</TABLE>
15
<PAGE>
ANNEX A
In response to Items 3, 6 and 8 of this Schedule 14D-9, this Annex A
describes security ownership of VLSI Shares, VLSI director compensation and VLSI
executive officer compensation.
SECURITY OWNERSHIP
The following table sets forth the beneficial ownership of Shares as of
March 16, 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 to VLSI to be the
beneficial owner of more than five percent of VLSI's outstanding Shares.
<TABLE>
<CAPTION>
APPROXIMATE
NAME OF PERSON OR IDENTITY OF GROUP NUMBER OF 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 sale of the Shares. No client
is known to have an interest in Shares representing more than 5% of the
outstanding Shares.
(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 16, 1999 under options held by
Messrs. Beyer, Bonelli and Dilworth, Dr. Howard, Mr. Laurent, Dr. Low, and
Messrs. Stein and Tsiang, respectively.
(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 16, 1999 under
options held by four Outside Directors and seven current executive officers.
A-1
<PAGE>
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
Compensation Committee or Audit Committee (together, the "Committees") meeting
attended (if such meeting is not held within one day of a Board meeting). VLSI
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 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 Shares 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.
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 (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 VLSI 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 consulting fees from VLSI for his services totaling
$172,860. Mr. Dilworth subsequently became a Senior Vice President of VLSI in
December 1998 at which point he ceased to be the lead director and the
consulting arrangement with Mr. Dilworth was terminated. Upon becoming Senior
Vice President of VLSI, Mr. Dilworth was granted an option to purchase 200,000
Shares on December 17, 1998, his actual date of hire, with an exercise price of
$10.938 per Share.
A-2
<PAGE>
EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table, together with the footnotes thereto, summarizes the
total compensation for fiscal year 1998 of (i) the Chief Executive Officer, (ii)
the four other most highly compensated executive officers of VLSI who were
serving as such at December 25, 1998 and (iii) two former executive officers
(collectively, the "Named Executive Officers"), as well as the total
compensation paid to each Named Executive Officer for VLSI's two previous fiscal
years, if applicable.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
----------------------------------- -------------------- ALL OTHER
OTHER ANNUAL SECURITIES COMPENSATION
SALARY BONUS COMPENSATION UNDERLYING -------------
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($)(2) ($)(3) OPTIONS(#) ($)(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 Technology 1996 -- -- -- -- --
Centers
Thierry M. Laurent (7) 1998 $ 295,392 $ 0 $ 0 145,000(4) $ 0
Sr. Vice President and 1997 252,665 130,000 0 20,000 0
General Manager, 1996 -- -- -- -- --
Communications 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 1997 358,089 250,000 0 25,000 6,972
Chief 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 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
VLSI's 401(k) Investment/Retirement Plan (the "401(k) Plan"), and, beginning
in 1997, VLSI's Non-Qualified Deferred Compensation Plan.
(2) The amounts disclosed in this column represent bonus awards made by VLSI
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
A-3
<PAGE>
stock held in a former subsidiary of VLSI, 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
VLSI.
(c) Payment by VLSI 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 VLSI 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 VLSI of retroactive tax gross up payments on premiums
of $50,971 and payment by VLSI of the 1998 installment of a series of ten
annual payments under a management and consulting agreement between Mr.
Stein and VLSI in the amount of $358,302.
(e) Payment by VLSI to Richard M. Beyer of $525,000 under a severance
agreement dated August 14, 1998.
(f) Payment by VLSI to John S. Hodgson of $100,000. See "Executive Officer
Compensation-- Additional Compensation Arrangements."
(g) Payment by VLSI to Victor K. Lee of $50,000. See "Executive Officer
Compensation--Additional Compensation Arrangements."
(h) Payment by VLSI to Douglas M. McBurnie of $225,010 under a severance
agreement dated October 21, 1998.
(6) Mr. Hodgson joined VLSI in May 1997.
(7) Mr. Laurent became an executive officer in August 1997.
(8) Mr. Lee joined VLSI in August 1997 and received a $50,000 sign-on bonus.
(9) Mr. Mehta joined VLSI 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 terminated
by VLSI under certain circumstances within two years following a change in
control of VLSI, or if the officer
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<PAGE>
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
16, 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.
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<PAGE>
STOCK OPTIONS
The following table presents information with respect to options to purchase
Shares granted during fiscal 1998 to the Named Executive Officers. No stock
appreciation rights ("SARs") have been granted by VLSI.
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 (#) 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 Shares 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 Shares on the
Nasdaq National Market on the date of the grant. The options were granted
under VLSI's 1992 Stock Plan (the "1992 Plan"), which is administered by the
Compensation Committee. The Compensation Committee, consisting of Messrs.
Howard and Bonelli, 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
A-6
<PAGE>
event of 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) the
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).
(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 Shares appreciate 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 VLSI'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 Shares 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
VLSI in September 1998.
(6) These options were subsequently canceled upon Mr. McBurnie's resignation
from VLSI in October 1998
The number of Shares 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 VLSI 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($)(2)
SHARES ACQUIRED ON VALUE ----------------------- ---------------------------
NAME EXERCISE # REALIZED($)(1) 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--Employee Agreements."
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<PAGE>
LONG TERM INCENTIVE PROGRAM
On October 8, 1996, VLSI adopted a Long Term Incentive Program (the "LTIP")
for key employees. Under the LTIP, the employees are granted stock options under
VLSI'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 the grant,
$20.00 over the fair market value of the underlying stock at the date of the
grant and $30.00 over the fair market value of the underlying stock at the date
of the grant: Alfred J. Stein--300,000, Richard M. Beyer--125,000 and Thierry M.
Laurent--75,000.
In 1998, VLSI 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 Shares on
September 14, 1998. As of 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
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<PAGE>
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 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, VLSI established a supplemental retirement plan for the
benefit of a select group of management and highly compensated employees of
VLSI. 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 sum lump 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, VLSI 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.
A-9
<PAGE>
ADDITIONAL COMPENSATION ARRANGEMENTS
John S. Hodgson joined VLSI in May 1997 as Senior Vice President, Worldwide
Sales and Technology Centers. VLSI agreed to pay Mr. Hodgson 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 VLSI $50,000.
Victor K. Lee joined VLSI in August 1997 as Vice President, Corporate
Controller. VLSI agreed to pay Mr. Lee a bonus in the amount of $50,000 in
August 1997. In addition, Mr. Lee received $50,000 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, VLSI and Richard M. Beyer, VLSI'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 VLSI, 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, VLSI and Douglas M. McBurnie, VLSI's former Senior Vice
President, Computer and Consumer Products Group, entered into an agreement,
whereby Mr. McBurnie terminated his employment with VLSI 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.
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<PAGE>
EXHIBIT 1
[VLSI LETTERHEAD]
March 18, 1999
Dear Stockholder:
As you may be aware, KPE Acquisition Inc., an indirect wholly owned
subsidiary of Koninklijke Philips Electronics N.V. ("Philips"), commenced on
March 5, 1999, an unsolicited tender offer (the "Philips Offer") for all of the
Common Stock of VLSI Technology, Inc. ("VLSI") at $17.00 per share. After
careful consideration, VLSI's Board of Directors has voted unanimously to
recommend that stockholders reject the Philips Offer as inadequate.
YOUR BOARD RECOMMENDS THAT THE STOCKHOLDERS
REJECT THE PHILIPS OFFER.
In arriving at their determination that the Philips Offer is inadequate and
not in the best interests of VLSI or its stockholders, your Board gave careful
consideration to a number of factors, including the opinions of VLSI's financial
advisors, Morgan Stanley & Co. Incorporated and Hambrecht & Quist LLC, that the
Philips Offer is inadequate, from a financial point of view, to the VLSI
stockholders, other than Philips. The other factors considered by your Board are
described in the attached Schedule 14D-9.
The Board also unanimously determined that VLSI should explore its strategic
alternatives, including a merger, sale or recapitalization of VLSI, which
alternatives could include negotiations with interested parties, including
Philips. In the context of those negotiations, the Board believes interested
parties will recognize the strong business potential of VLSI.
The enclosed Schedule 14D-9 describes your Board's decision to reject the
Philips Offer and contains other important information relating to its decision.
We urge you to read it carefully.
If you have any questions or require assistance, please call MacKenzie
Partners toll-free at (800)322-2885 or at (212)929-5500 (collect).
Please be assured that your Board and the management of VLSI will continue
to act in the best interests of VLSI and its stockholders. Your Directors thank
you for your support.
Very truly yours,
The Board of Directors of VLSI Technology, Inc.
<PAGE>
EXHIBIT 2
VLSI BOARD OF DIRECTORS FINDS PHILIPS
UNSOLICITED OFFER INADEQUATE
--VLSI BOARD DECIDES TO EXPLORE STRATEGIC ALTERNATIVES--
SAN JOSE, CA, MARCH 18, 1999--VLSI Technology, Inc. (Nasdaq: VLSI) today
announced that its Board of Directors has unanimously determined that the
unsolicited cash tender offer by Royal Philips Electronics for all of the
outstanding shares of VLSI at $17.00 per share is inadequate and not in the best
interests of its stockholders, and therefore unanimously recommends that VLSI's
stockholders reject the Philips Offer and not tender their shares to Philips.
The VLSI Board also unanimously determined that VLSI should explore its
strategic alternatives, including a merger, sale or recapitalization of VLSI.
The VLSI Board said those alternatives could include negotiations with
interested parties, including Philips. In the context of those negotiations, the
VLSI Board believes interested parties will recognize the strong business
potential of VLSI.
In reaching its determination and recommendation, the Board considered a number
of factors, which included:
- The presentations by VLSI's financial advisers, Morgan Stanley & Co.
Incorporated and Hambrecht & Quist LLC concerning VLSI and the financial
aspects of the Philips Offer as well as the oral and written opinions of
each of Morgan Stanley and Hambrecht & Quist, stating that the Philips
Offer is inadequate, from a financial point of view, to VLSI's
stockholders, other than Philips.
- Information provided by its financial advisers relating to the preliminary
exploratory discussions conducted by VLSI and its financial advisers with
a number of parties as part of the evaluation of the Philips Offer.
- The Board's determination to explore strategic alternatives which have the
potential of resulting in a value for shares of VLSI common stock in
excess of the Philips Offer.
- The Board's perception of VLSI's improved financial condition, results of
operations and business.
- The Board's perception of improving conditions in the semiconductor
industry generally and in VLSI's four primary business segments--digital
entertainment, wireless, networking and advanced computing--in particular,
which have been adversely affected by market conditions in the last two
years.
VLSI will continue to engage in exploratory discussions with a number of parties
regarding potential strategic alternatives available to VLSI, and such
discussions are expected to lead to negotiations with one or more potential
parties with respect to a potential strategic transaction.
VLSI also announced today that it is filing with the Securities and Exchange
Commission, and will mail to stockholders, a Solicitation/Recommendation
Statement on Schedule 14D-9 setting forth the company's formal recommendation
with respect to the Philips Offer. Additional information with respect to the
Board's decision to recommend that stockholders reject the Philips Offer and the
matters considered by the Board in reaching such decision is contained in the
Schedule 14D-9. The full text of the Schedule 14D-9 will be available at VLSI's
homepage, www.vlsi.com.
VLSI Technology, Inc. designs and manufactures custom and semi-custom integrated
circuits for leading firms in the wireless communications, networking, consumer
digital entertainment and advanced computing markets.
The company is based in San Jose, Calif. with 1998 revenues from continuing
operations of $547.8 million, and approximately 2,200 employees worldwide.
<TABLE>
<CAPTION>
Contacts: ANALYSTS/INVESTORS MEDIA
------------------------------------ ------------------------------------
<S> <C> <C>
Lisa Ewbank Todd Fogarty/Victoria Weld
Director, Investor Relations Kekst and Company
VLSI Technology, Inc. 212-521-4800
408-474-5519
</TABLE>
# # #
<PAGE>
EXHIBIT 13
August 14, 1998
Mr. Richard M. Beyer
13503 Fremont Road
Los Altos Hills, California 94022
Dear Richard:
This letter confirms our agreement and understanding concerning your
termination from VLSI Technology, Inc. (the "Company" or "VLSI") which is to be
effective September 11, 1998 (the "Termination Date"), your resignation from
VLSI's Board of Directors which is to be effective on or before the Effective
Date (as defined in paragraph 1(b) below), and the following arrangement that is
being offered to you.
If you agree to the terms and conditions of this letter agreement, please
sign one copy and return it to me within twenty-one (21) days of receipt:
1. VLSI agrees that it will:
a. Provide continuation of your current base salary and benefits,
including, but not limited to, vacation accrual until the Termination Date.
b. Pay you $525,000 less applicable deductions on the "Effective
Date" of this letter agreement, which is the date that is eight (8) days (or the
next business day if the eighth (8th) day is not a normal workday) after VLSI
receives an executed copy of this letter agreement, provided there has been no
revocation by you.
c. Pay the premiums for your health, dental and vision benefits
under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
(COBRA), to the extent you are eligible for such COBRA benefits, until the
earlier of (i) eighteen (18) months after the month of the Termination Date or
(ii) the date that you become covered under another employer's group health,
dental or vision insurance plans. You understand that you must sign the
appropriate request for COBRA benefits and, if you wish such benefits to be
further continued and you remain eligible, you must thereafter pay the relevant
premiums.
d. Indemnify you, in accordance with the applicable provisions of
the Company's articles of incorporation and bylaws, against all expense,
liability and loss (including attorneys' fees
<PAGE>
and settlement payments) that you may incur by reason of any action, suit or
proceeding arising from or relating to the performance of your duties as an
officer or director of the Company.
2. You currently hold outstanding stock options for 500,000 shares of the
Company's common stock ("Company Options"). As of the Termination Date, the
Company Options are vested and exercisable for a total of 172,916 shares (the
"Vested Company Options") and unvested as to 327,084 shares (the "Unvested
Company Options"). Your Vested Company Options must be exercised on or before
October 10, 1998; to the extent such Vested Company Options are not exercised on
or before October 10, 1998, they shall terminate without consideration to you.
Your Unvested Company Options shall terminate as of the Termination Date;
provided, however, that as additional consideration for your release under
paragraphs 8 and 9 below, a portion of certain of your Unvested Company Options
(the "Additional Vested Portion") shall become vested and exercisable as of the
Effective Date and shall remain exercisable until September 11, 1999, subject to
the original term of such options; to the extent such Additional Vested Portion
is not exercised on or before September 11, 1999, it shall terminate without
consideration to you. The Additional Vested Portion shall consist of that
portion of the Unvested Company Options granted to you on September 9, 1996,
covering a total of 250,000 shares (Grant #013441 and Grant #013442) that would
have vested had you remained employed with the Company through September 11,
1999. The Additional Vested portion is reflected on the attached Schedule A.
Your Company Options may be exercised by you (to the extent vested) pursuant to
the terms of your stock option agreement(s). To the extent your options are
non-qualified options under the federal income tax laws, you will recognize
compensation income in connection with his exercise of those options, and you
agree to satisfy all applicable withholding taxes associated with each such
exercise.
3. I would like to remind you of your continuing obligation not to reveal
any confidential information of VLSI, and your obligations regarding inventions,
confidentiality and other matters under the agreement you signed when you
started your employment at VLSI or thereafter, a copy of which is attached.
That agreement shall continue in effect and is hereby incorporated by reference.
4. The payment of the compensation and benefits set forth above is
conditioned on your continued professional relationship with VLSI, and continued
compliance with the policies of VLSI, as well as this letter agreement and the
agreement referenced immediately above.
5. You understand that your entitlement to all salary and perquisites
provided to you by VLSI and your participation in the VLSI employee benefit
plans and arrangements will be terminated as of your Termination Date, except as
otherwise specifically provided in paragraph 2 above or in any employee benefit
plan covering employees generally and under COBRA.
6. Further, the compensation and benefits set forth above are in lieu of
any other remuneration or benefit from VLSI, and fully discharge all obligations
of VLSI to you.
7. By executing the accompanying copy of this letter and returning it to
me, you will thereby acknowledge and represent to VLSI that (i) you have had
sufficient opportunity (at least
-2-
<PAGE>
twenty-one (21) days) to consider carefully and fully understand the provisions
of this letter agreement (which includes a settlement and general release),
(ii) you have been advised and had an opportunity to consult with your attorney
prior to executing this Agreement, (iii) the consideration that is described
above to be given to you includes consideration that is in addition to what you
would be entitled to on termination under VLSI policy in the absence of this
letter agreement, (iv) you are signing the accompanying copy of this letter
agreement and returning it to me voluntarily with a full and complete
understanding of the effect and consequences of its terms and provision and
without in any respect any pressure or duress, (v) you understand that you may
revoke this letter agreement by delivering a written notice of revocation to an
authorized officer of VLSI no later than seven (7) days after your execution of
this letter agreement and this letter agreement shall not become effective or
enforceable until this seven (7) day period has expired.
8. By executing the accompanying copy of this letter and returning it to
me, you agree that, in consideration of the additional benefits and payment
specified above (which VLSI is extending to you without any obligation to do
so), you thereby release VLSI, each of its affiliates, and each of their
respective agents, employees, investors, officers, shareholders, divisions,
subsidiaries, parents, directors, successors and assigns (a "Release") from any
and all claims, demands, rights, actions, and causes of action that could be
asserted, whether known or unknown, including claims for attorney's fees and
costs, existing prior to the date of this letter or accruing or occurring at any
time in the future, (except those rights and claims arising after the effective
date of this agreement) arising out of your employment relationship with VLSI or
any of its affiliates or the termination thereof, or any other relationship with
any of them, including, but not limited to, those whether arising out of any
claims for violations of any alleged contract, express or implied, any covenant
of good faith and fair dealing, whether express or implied any tort, or any
federal, state or local statute, order, rule or regulation including, but not
limited to, the Age Discrimination in Employment Act (ADEA), Title VII of the
Civil Rights Act of 1964, the California Fair Employment Act, and the California
Labor Code; except for your rights and benefits specified in this letter
agreement. VLSI acknowledges that at this time it has no knowledge of any claims
against you that might be an offset to any payments required to be made to you
hereunder. For purposes of the preceding sentence, knowledge of VLSI shall be
deemed to be the knowledge of the members of its Board of Directors and its
senior executive officers.
9. You expressly waive all rights under Section 1542 of the Civil Code of
the State of California, which section provides as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR."
10. By executing the accompanying copy of this letter agreement and
returning it to me, and in consideration of the benefits and payments specified
above, you also agree that you will not commence any civil or administrative
action or otherwise assert any claim against any Releasee in connection with
your employment relationship with VLSI or the termination thereof, or any other
relationship with any of them, under any statutory, regulatory, constitutional,
or common law theory or
-3-
<PAGE>
provision, state or federal, except in respect of your rights and benefits
specified in this letter agreement.
11. Both you and VLSI mutually covenant not to disclose the fact of and
terms of this letter and further agree we will not publicize or otherwise
disclose any of the terms of this letter, except as required by applicable law
and except that you may disclose this information in confidence to your spouse
and attorney and VLSI may disclose it in confidence to those in its employ who
have a need to know and its attorneys. Both you and VLSI agree not to disparage
the other to any and all third parties.
12. Both you and VLSI agree that in signing this letter agreement each of
us does not rely and has not relied upon any representation or statement not set
out herein made by anyone with respect to this letter agreement.
13. This letter agreement (including the agreement regarding inventions,
confidentiality and other matters expressly referenced above in paragraph 3)
sets out the entire agreement between you and VLSI and fully supersedes all
prior agreements and understandings pertaining to the subject matter hereof.
The laws of the state of California shall govern the validity, performance and
construction of this agreement.
14. In the event that any law governing its construction, performance or
enforcement prohibits any provision of this letter agreement, such provision
shall be ineffective only to the extent of such prohibition without invalidating
any of the remaining provisions.
On behalf of the management of VLSI, I would like to wish you success in
your future endeavors.
Very truly yours,
/s/ Alfred J. Stein
Alfred J. Stein
Chief Executive Officer
THIS AGREEMENT CONTAINS A SETTLEMENT AND RELEASE. PLEASE CAREFULLY READ AND
CONSIDER BEFORE SIGNING.
I ACCEPT AND AGREE TO THE ABOVE AS OF THE BELOW DATE:
/s/ Richard M. Beyer
- ------------------------------------
Richard M. Beyer
August 19, 1998
-4-
<PAGE>
SCHEDULE A
Richard M. Beyer
Vested/Exercisable as of 9/11/98
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Grant # Date # Shares OP Vested Unvested
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
013441 9/9/96 30,000 $13.00 15,000 15,000
- --------------------------------------------------------------------------------
013442 9/9/96 220,000 $13.00 110,000 110,000
- --------------------------------------------------------------------------------
013445 10/8/96 125,000 $15.31 41,666 83,334
- --------------------------------------------------------------------------------
014095 4/14/97 25,000 $18.00 6,250 18,750
- --------------------------------------------------------------------------------
015309 3/17/98 100,000 $17.563 0 100,000
- --------------------------------------------------------------------------------
172,916 327,084
---------------------
</TABLE>
Additional Vesting (for period 9/11/98-9/11/99)
(Additional Vested Portion)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Grant # Date # of Shares OP Additional
Vesting
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
013441 9/9/96 30,000 $13.00 7,500
- --------------------------------------------------------------------------------
013442 9/9/96 220,000 $13.00 55,000
- --------------------------------------------------------------------------------
013445 10/8/96 125,000 $15.31 0
- --------------------------------------------------------------------------------
014095 4/14/97 25,000 $18.00 0
- --------------------------------------------------------------------------------
015309 3/17/98 100,000 $17.563 0
- --------------------------------------------------------------------------------
62,500
------
</TABLE>
<PAGE>
EXHIBIT 14
SEVERANCE AGREEMENT
This Severance Agreement ("Agreement") is entered into between VLSI
Technology, Inc. (the "Company"), with offices at 1109 McKay Drive, San Jose,
CA 95131 and Douglas McBurnie ("Employee"), with an address at 31 Carver
Lane, Sunol, CA 94586.
The parties agrees as follows:
1. CONSIDERATION
A. Employee's employment with the Company is ended effective October 21, 1998.
B. The Company will pay Employee, subject to customary and applicable
withholding, the following:
(i) Nine months' salary, amounting to $225,010.53.
(ii) The sum of $89,014.00 as a prorata payment for any bonus due
Employee, to be paid into Employee's existing deferred compensation
account.
C. The Company will pay the premiums for a period of nine months from October
21, 1998 for Employee's health and benefits under the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended ("COBRA"), to the extent
Employee is eligible for such COBRA benefits.
(i) Employee understands that Employee must sign the appropriate request
for COBRA benefits.
(ii) If Employee wants such benefits to be continued further and remains
eligible for such benefits, Employee must thereafter pay the relevant
premiums.
D. Employee understands and agrees that his entitlement to all salary and
perquisites provided to him by the Company and Employee's participation in
the Company's employee benefit plans and arrangements will be terminated as
of Employee's termination date, except as otherwise specifically provided
in any employee benefit plan covering employees generally and under COBRA.
E. The compensation and benefits set forth above are in lieu of any other
remuneration or benefit from the Company, and fully discharge the Company's
obligations to Employee.
2. CONFIDENTIALITY OF THE COMPANY'S PROPRIETARY INFORMATION
Employee is reminded of his continuing obligations to the Company with respect
to the confidential and/or proprietary information regarding the Company and its
business that he
Page 1
<PAGE>
received as an employee. Such information includes his knowledge of Company
customers and current and future product lines, as well as his knowledge of
the strengths and weaknesses of Company personnel. This information is
highly confidential and is proprietary to the Company. The Company considers
any disclosure or use of this or any other such Company proprietary
information to be a violation of his employment relationship with the
Company, the written confidentiality agreement he entered into with the
Company, as well as a violation of the laws relating to the protection of
confidential and proprietary information.
3. RELEASE
A. Employee, on behalf of himself, and any other person or entity which could
make any claims through him forever releases and fully discharges the
Company, and each of its subsidiaries and affiliates, together with each of
their respective officers, directors, employees, agents, representatives,
heirs, successors, assigns, insurers, subsidiaries, partners, and any other
person or entity that could be made liable through any of them from any and
all claims, demands, rights, and causes of action that could be asserted,
whether known or unknown, which Employee has, or may in the future have,
arising from or related to Employee's relationship with the Company or any
of its subsidiaries and affiliates, or the termination thereof, or any
relationship with any of them, including, but not limited to, claims
arising out of or related in any manner to any breach of contract, express
or implied, any covenant of good faith and fair dealing, express or
implied, any tort, or any violation of any federal, state, or local
statute, order, rule or regulation.
B. The Company, on behalf of itself, and any other person or entity that could
make any claims through it, forever releases and fully discharges Employee
and any other person or entity that could be made liable through him from
any and all claims, demands, rights, actions and causes of action that
could be asserted, whether known or unknown, which the Company had, now
has, or may in the future have, arising from or related to Employee's
relationship with Company or any of its affiliates, or the termination
thereof, or any other relationship with any of them, including, but not
limited to, claims arising out of or related in any manner to any breach of
contract, express or implied, any covenant of good faith and fair dealing,
express or implied, any tort, or any violation of any federal, state, or
local statute, order, rule or regulation.
C. Employee expressly acknowledges that he may have presently unknown or
unsuspected claims against the Company, and has been provided the
consideration detailed above in exchange for and full satisfaction and
discharge of any such claims. The parties specifically waive all rights
that they may have under California Civil Code section 1542, which provides
that:
"A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which is known by him must have materially affected his settlement with the
debtor."
Page 2
<PAGE>
D. The parties specifically waive any rights they may have under any similar
Federal or State statute or law.
E. This release does not supersede any rights Employee may have for
indemnification as an officer of the Company.
4. CONFIDENTIALITY OF AGREEMENT
Neither the Company nor Employee shall disclose the terms of this Agreement
to any other person or entity, except that any part may disclose such matters
on a limited need to know basis to their respective attorneys, accountants,
or financial advisors, and only as necessary for the proper accounting and/or
tax treatment for the consideration herein. Notwithstanding the foregoing,
Employee may disclose the terms and conditions of this Agreement with his
spouse with the understanding and caution that such information is not shared
beyond this individual. Employee and the Company each specifically
acknowledges that the confidentiality of this Agreement and its terms is a
material part of this Agreement for which consideration has been provided.
5. NO DISPARAGEMENT
Both parties agree not to disparage the other to any and all third parties.
6. NO SOLICITATION OF EMPLOYEES
Employee agrees that for a period of one year after his employment has
terminated, he will not, solicit any of the Company's employees, directly or
indirectly, for a competing business or otherwise induce or attempt to induce
such employees to terminate their employment with the Company.
7. AUTHORITY
The Company represents and warrants that the undersigned has the authority to
act on its behalf and to bind it any and all that may claim through it to
this Agreement. Employee represents and warrants that he has the capacity to
act on his own behalf and on behalf of all whom might claim through him to
bind him to this Agreement.
8. GENERAL
A. The validity, performance and construction of this Agreement shall be
governed by the laws of the State of California. If any action is brought
by any party to enforce any provisions of this Agreement, the prevailing
party shall be entitled to an award of reasonable attorney's fees.
Page 3
<PAGE>
B. If a court, which has jurisdiction, finds that any provision of this
Agreement is invalid, unenforceable, or void, the remainder of this
Agreement shall remain in full force.
C. Employee specifically acknowledges that he has been given at least 21 days
to consider this Agreement, if desired by him, prior to signing this
Agreement. Employee further acknowledges that he has seven days after
signing this Agreement in which to rescind and that this Agreement does not
become effective until the 8th day after signing by him.
D. Employee and the Company each acknowledges that each has read this
Agreement and understands and agrees to all the terms and conditions of
this Agreement and of the releases it contains, and is fully aware of the
legal and binding effect of this Agreement.
E. This Agreement contains the entire agreement between Employee and the
Company pertaining to Employee's relationship with the Company. This
Agreement supersedes all prior or concurrent agreements and understandings,
whether written or oral.
F. This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the
same instrument.
Date: October 21, 1998 EMPLOYEE
/s/ Douglas McBurnie
-------------------------------------------
Douglas McBurnie
Date: October 21, 1998 VLSI TECHNOLOGY, INC.
/s/ Thomas C. Tokos
-------------------------------------------
Thomas C. Tokos
Vice President, General Counsel & Secretary
Page 4
<PAGE>
EXHIBIT 16
SUPPLEMENTAL EMPLOYMENT AGREEMENT
This supplemental employment agreement (the "Agreement") is entered into
this 28th day of August, 1998 (the "Effective Date") between Alfred J. Stein
("Executive") and VLSI Technology, Inc., a Delaware corporation (the
"Company") is intended to supplement that Employment Agreement between the
parties entered into on the same date.
The Company and Executive hereby agree as follows:
This Agreement shall not supersede or amend in any way that agreement
between the Company and Executive entered into as of July 8, 1998 (the "Prior
Agreement"), that Employment Agreement between the Company and Executive
entered into as of August 28, 1998,(the "Employment Agreement"), and any
other agreements, arrangements or programs dealing with Executive's
compensation for providing services to the Company.
In addition to the other compensation and benefits to be provided to
Executive under Executive's various agreements, arrangements and programs
with the Company, the Company agrees to provide the following benefits on the
same terms and conditions as set forth in the Employment Agreement except as
otherwise expressly set forth in this Agreement: (1) the installation of a
home security system of Executive's choosing for each of Executive's
residences either currently owned by Executive or acquired by Executive
during the term of the Employment Agreement or within three (3) years
thereafter, but in no event later than the sixth anniversary of the effective
date of the Employment Agreement, (2) the purchase for Executive of a new car
of Executive's choosing, or reimbursement to Executive for the cost of a new
car of Executive's choosing if such car has already been purchased, in 1998
and, if the Employment Agreement remains in effect for three years, in 2001,
(3) the provision of a driver/security guard for Executive's use of
Executive's choosing and the payment of the periodic service fees for the
home security system for Executive's residence or residences during the term
of the Employment Agreement, and (4) during the term of the Employment
Agreement, the payment for (or reimbursement to Executive of) a country club
membership at a club of Executive's choosing and the monthly dues for such
club membership.
The terms of Articles 4 through 7, inclusive, of the Employment
Agreement are hereby incorporated into this Agreement by reference.
IN WITNESS WHEREOF, Executive and a duly authorized representative of
the Company have executed this Agreement as of the day and year written
above.
VLSI TECHNOLOGY, INC. ALFRED J. STEIN
By: /s/ Robert P. Dilworth /s/ Alfred J. Stein
--------------------------------- -------------------------------------
Name: ROBERT P. DILWORTH, MEMBER
--------------------------
BOARD OF DIRECTORS
Title: VLSI TECHNOLOGY, INC.
<PAGE>
EXHIBIT 20
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
KPE ACQUISITION INC., )
)
a Delaware corporation, )
)
Plaintiff, )
)
v. ) C.A. No. 16992NC
)
VLSI TECHNOLOGY, INC., )
)
a Delaware corporation, )
ALFRED J. STEIN, PIERRE )
BONELLI, ROBERT P. )
DILWORTH, WILLIAM G. )
HOWARD, JR., PAUL R. LOW )
and HORACE TSIANG, )
)
Defendants. )
- -----------------------------------------------
COMPLAINT
KPE Acquisition Inc. ("KPE") by its undersigned attorneys, alleges
for its complaint herein as follows:
NATURE OF THE ACTION
1. KPE brings this action for declaratory and injunctive relief
to prevent VLSI Technology, Inc. ("VLSI") from using a shareholder rights
plan (the "Poison Pill" or "Pill") to impede KPE's acquisition of VLSI common
stock in an all-cash tender offer.
2. As is typical of such a rights plan, the Poison Pill prohibits
the consummation of a tender offer for VLSI by rendering such an acquisition
prohibitively
<PAGE>
expensive. The VLSI Board has refused to redeem the Pill despite the
attractiveness of KPE's offer, thereby delaying VLSI's shareholders' ability
to receive the consideration that KPE is offering until KPE can replace the
Board with new members who might be more amenable to KPE's offer (consistent
with their fiduciary duties to VLSI and all of its shareholders) than the
current Board. By this action, KPE seeks to avoid this needless delay so that
shareholders can promptly receive the benefits of its offer and KPE can
commence the process of incorporating VLSI's business into its own.
3. Moreover, the Pill has a "dead hand" feature that, under
certain circumstances and for a limited period of time, prevents a
duly-elected board from carrying out their fiduciary duties and redeeming the
P ill. This provision is in violation of Delaware law and the Board's
fiduciary duties and should be declared invalid.
THE PARTIES
4. Plaintiff KPE is a Delaware corporation with its principal
place of business in New York, New York. It is a wholly-owned subsidiary of
Royal Philips Electronics NV ("Philips") and was incorporated for the purpose
of acquiring VLSI. KPE is an owner of common stock of VLSI.
5. Defendant VLSI is a Delaware corporation with its principal
place of business in San Jose, California. VLSI manufactures and markets
electronic semiconductors, including integrated circuits for wireless
communications and customized chips for the networking, digital entertainment
and advanced computer markets.
2
<PAGE>
6. Defendants Alfred J. Stein, Pierre Bonelli, Robert P.
Dilworth, William G. Howard, Jr., Paul R. Low and Horace Tsiang are members
of the board of directors of VLSI (collectively, the "Directors" or the
"Board").
FACTUAL BACKGROUND
THE OFFER
7. On February 26, 1999, Royal Philips Electronics NV
("Philips") delivered a letter to VLSI in which Philips offered $17 in cash
for each of VLSI's outstanding shares and requested a response by March 3,
1999. Based on the closing price of VLSI's common stock on February 25, 1995,
the offer represented a 58% premium over the market value of VLSI's common
stock at the time of the letter.
8. On March 3, 1999, rather than embracing the immediate
premium to its stockholders created by the Initial Offer, VLSI responded
through its chairman and chief executive officer, Alfred Stein, by stating
that although the Board had "an open mind" toward the Initial Offer, it would
not consider it until a special Board meeting twenty days later on March 23,
1999. The Poison Pill was kept in place by the VLSI Board.
9. On March 4, 1999, Philips wrote to VLSI stating that it
intended to go directly to VLSI's shareholders with its $17 cash offer by
commencing a tender offer on March 5, 1999, for all of VLSI's outstanding shares
(the "Tender Offer"). The letter went on to request that VLSI redeem its Poison
Pill or otherwise take action to render the plan inapplicable to the KPE offer
so that the offer could be consummated expeditiously. The letter explained that
"time is of the essence" because the business combination is a "compelling
strategic and
3
<PAGE>
operational opportunity" for KPE and provides "compelling financial benefits"
to VLSI's shareholders.
VLSI'S POISON PILL
10. On November 6, 1989, VLSI adopted the Poison Pill and
distributed rights (the "Rights") pursuant to it. The Poison Pill, which
contains typical "flip in" and "flip over" provisions, is designed to prevent
the consummation of any tender offer -- even one providing substantial
benefits to VLSI's stockholders -- without the current Board's approval.
11. Unless the Tender Offer is declared by VLSI's Board to be a
"Permitted Offer" under the Poison Pill -- that is, an offer that is in the
Board's view adequate and otherwise in the best interests of VLSI and its
stockholders -- or the Pill is otherwise made inapplicable to the Tender
Offer, the Rights would be triggered if KPE were to purchase 20% or more of
the outstanding shares of VLSI's common stock pursuant to the Tender Offer.
12. Once triggered, the Rights entitle the holder to purchase,
in essence, $90 worth of VLSI common stock for $45 for each share owned.
Given this favorable price, it is expected that holders of the Rights will
exercise them once triggered thereby diluting the economic and voting value
of the shares purchased by KPE in the Tender Offer and making any back-end
merger prohibitively expensive.
13. The Rights can be redeemed by the Board at any point up to ten
days after an announcement that a party has acquired 20% or more of VLSI's
shares at a redemption price of $0.01 per Right. However, pursuant to a "dead
hand provision," during the 10-day period
4
<PAGE>
after the triggering of the Rights, the Pill can only be redeemed by the
"Continuing Directors," defined as the current members of the Board who are
not affiliated with an "acquiring person" (KPE would qualify as such an
acquiring person) or any person whose nomination or election to the Board was
recommended or approved by a majority of the Continuing Directors.
14. In light of the nature and value of KPE's Tender Offer,
VLSI's Board should declare that the Offer is "Permitted," redeem the Rights
under the Poison Pill, or amend it to make it inapplicable to KPE's Tender
Offer. Considering the fair, non-coercive nature of the Tender Offer, the
Pill serves no legitimate purpose and only delays the benefits of the offer.
Forcing KPE to conduct a proxy campaign to replace the Board is needless and
wasteful and will harm KPE's and VLSI's shareholders.
DECLARATORY RELIEF
15. The Court may grant the declaratory relief sought herein
pursuant to 10 Del. C. Section 6501. In light of VLSI's refusal to redeem
the Pill in the context of KPE's Tender Offer, there is a real and actual
controversy between the parties. Moreover, the dead hand feature of the Pill
is invalid as a matter of law and constitutes a breach of the Board's
fiduciary duties. The adverse legal interests of the parties are real and
immediate because the VLSI's Board's unreasonable use of the Poison Pill will
interfere with KPE's Tender Offer.
5
<PAGE>
IRREPARABLE INJURY
16. VLSI's use of and reliance upon its Poison Pill to obstruct
KPE's Tender Offer will delay KPE from acquiring VLSI and prevent VLSI's
shareholders from promptly obtaining the benefits of the offer. KPE's
resulting injury will not be compensable in money damages and KPE has no
adequate remedy at law.
COUNT I
(Declaratory and Injunctive Relief against VLSI and
the Defendant Directors to Prevent a Breach of
Fiduciary Duty)
17. Plaintiff repeats and realleges each and every allegation
set forth in paragraphs I through 16 hereof.
18. KPE's Tender Offer is non-coercive and non-discriminatory;
it is fair to VLSI's stockholders; and it represents a substantial premium
over the market price of VLSI's shares prior to the public announcement of
the Philips February 26 letter.
19. The VLSI Board's use of the Poison Pill is not proportionate
to any threat posed by, or within the range of reasonable responses to, the
Tender Offer.
20. Thus, the VLSI Board's refusal to redeem the Pill or
otherwise render it inapplicable to the Tender Offer is a breach of fiduciary
duty.
21. KPE has no adequate remedy at law.
6
<PAGE>
COUNT II
(To declare invalid the dead hand feature of VLSI's Poison Pill)
22. KPE repeats and realleges each and every allegation set
forth in paragraphs I through 21 hereof.
23. Once triggered, the Poison Pill can only be redeemed by the
Continuing Director defendants or their hand-picked successors. This
provision prevents a new board from redeeming the Pill after it has been
triggered.
24. The "dead hand" provision is a violation of the Board's
fiduciary duties and Delaware statutory law, in particular 8 Del. C. Section
141(a), which states that "[t]he business and affairs of every corporation
... shall be managed by or under the direction of a board of directors...."
25. The "dead hand" feature of the Poison Pill should therefore
be declared invalid.
26. KPE has no adequate remedy at law.
WHEREFORE, plaintiff prays for an order:
(a) declaring that the failure of VLSI and the Directors to
declare KPE's Tender Offer to be a "Permitted Offer" or to redeem the Rights
under the Poison Pill or otherwise to amend the Poison Pill to make it
inapplicable to both the Tender Offer and any follow-on merger constitutes a
breach of the Directors' fiduciary duty to the stockholders;
(b) granting injunctive relief compelling VLSI and the Directors
to declare VLSI's Tender Offer to be a "Permitted Offer," or to redeem the
Rights under the Poison Pill, or
7
<PAGE>
to otherwise amend the Poison Pill to make it inapplicable to both the Tender
Offer and any follow-on merger;
(c) declaring the "dead hand" features of the Poison Pill
invalid; and
(d) granting plaintiff such other and further relief as the
Court deems just and proper.
POTTER ANDERSON & CORROON LLP
By: /s/ Stephen C. Norman
OF COUNSEL: -------------------------------------
James F. Burnett
Richard L. Horwitz
John L. Hardiman Stephen C. Norman
Edward A. Harris P. 0. Box 951
SULLIVAN & CROMWELL 1313 N. Market Street
125 Broad Street Wilmington, DE 19801
New York, New York 10004 (302) 984-6000
(212) 558-4000
Attorneys for Plaintiff
KPE Acquisition Inc.
Dated: March 5, 1999
8
<PAGE>
EXHIBIT 21
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
DAVID OLEN, ) CLASS ACTION COMPLAINT
)
Plaintiff, ) Civil Action No. 16986NC
)
- against - )
)
RICHARD M. BEYER, PIERRE S. BONELLI, )
ROBERT P. DILWORTH, WILLIAM G. HOWARD, )
JR., PAUL R. LOW, ALFRED J. STEIN, HORACE )
H. TSIANG and VLSI TECHNOLOGY, INC., )
)
Defendants. )
- -----------------------------------------------
Plaintiff alleges upon information and belief, except for paragraph
1 hereof which is alleged upon knowledge, as follows:
1. Plaintiff has been the owner of shares of the common stock of
VLSI Technology, Inc. ("VLSI" or the "Company") since prior to the
transaction herein complained of and continuously to date.
2. VLSI is a corporation duly organized and existing under the
laws of the State of Delaware. The Company manufactures customized chips for
the wireless phone, networking, setup, and game console industries.
3. Defendant Alfred J. Stein ("Stein") is and was at all relevant
times the Chairman of the Board and Chief Executive Officer of VLSI.
4. Defendant Richard M. Berger is President, Chief Operating
Officer and a Director of VLSI.
<PAGE>
5. Defendants Pierre S. Bonelli, Robert P. Dilworth, William G.
Howard, Jr., Paul R. Low and Horace H. Tsiang are and were at all relevant
times directors of VLSI.
6. The Individual Defendants are in a fiduciary relationship with
plaintiff and the other public stockholders of VLSI and owe them the highest
obligations of good faith, due dare, candor and fair dealing.
CLASS ACTION ALLEGATIONS
7. Plaintiff brings this action on his own behalf and as a class
action, pursuant to Rule 23 of the Rules of the Court of Chancery, on behalf
of all security holders of the Company (except the defendants herein and any
person, firm, trust, corporation, or other entity related to or affiliated
with any of the defendants) and their successors in interest, who are or will
be threatened with injury arising from defendants' actions as more fully
described herein.
8. This action is properly maintainable as a class action because:
(a) The class is so numerous that joinder of all members is
impracticable. As of March 18, 1998, there were approximately 45.6 million
shares of VLSI common stock outstanding, held by hundreds, if not thousands,
of beneficial owners located throughout the country.
(b) There are questions of law and fact which are common to the
class including, INTER ALIA, the following: (i) whether defendants have
breached their fiduciary and other common law duties owed by them to
plaintiff and the members of the
-2-
<PAGE>
class; (ii) whether defendants are unlawfully seeking to entrench themselves
in their own positions at the expense of the public shareholders of VLSI; and
(iii) whether the class is entitled to injunctive relief or damages as a
result of the wrongful conduct committed by defendants.
(c) Plaintiff is committed to prosecuting this action and has
retained competent counsel experienced in litigation of this nature. The
claims of the plaintiff are typical of the claims of other members of the
class and plaintiff has the same interests as the other members of the class.
Accordingly, plaintiff will fairly and adequately represent the class.
(d) Defendants have acted in a manner which affects plaintiff and
all members of the class alike, thereby making appropriate injunctive relief
and/or corresponding declaratory relief with respect to the class as a whole.
(e) The prosecution of separate actions by individual members of
the Class would create a risk of inconsistent or varying adjudications with
respect to individual members of the Class, which would establish
incompatible standards of conduct for defendants, or adjudications with
respect to individual members of the Class which would, as a practical
matter, be dispositive of the interests of other members or substantially
impair or impede their ability to protect their interests.
SUBSTANTIVE ALLEGATIONS
9. On February 26, 1999 Royal Philips Electronics, N.V., ("Royal
Philips") offered to purchase all of VLSI' outstanding common stock for $17.00
per share. The total value
-3-
<PAGE>
of the transaction would be approximately $776.9 million. The $17.00 per
share offer represented a 60% premium over the closing price for VLSI stock
for the previous trading days. In response to this announcement, the price
of VLSI common stock soared from approximately $10-3/4 per share to close at
$15-1/2 per share.
10. Royal Philips' offer follows extensive attempts by Royal
Philips between September and November 1998 to negotiate an acquisition of
VLSI, which attempts have been repeatedly rebuffed by defendant Stein.
Indeed, on February 25, 1999, defendant Stein again rebuffed Royal Philips'
attempt to negotiate an acquisition and repeatedly "suggested" that Royal
Philips wait another six months to resume the discussions. Defendant Stein's
refusal to negotiate flies in the face of the candid observation by defendant
Low, as reported in The WALL STREET JOURNAL on March 3, 1999, that: "there
are good arguments for pursing this kind of transaction."
11. The Individual Defendants have refused to negotiate with Royal
Philips in order to protect their own substantial salaries, and perquisites
and to entrench themselves in their positions of authority and control with
the Company. Instead of fulfilling their fiduciary duties to the public
shareholders of VLSI by immediately beginning negotiations with Royal Philips
to maximize shareholder value, defendants have adopted a course of delay in
order to thwart Royal Philips and protect their own interests.
12. Defendants' refusal to negotiate with Royal Philips has
deprived and will continue to deprive the Company's public shareholders of
the very substantial premium which Royal
-4-
<PAGE>
Philips is prepared to pay or the enhanced premium which further negotiations
could secure.
13. Moreover, defendants have refused to take those steps
necessary to ensure that the Company's shareholders will receive maximum
value for their shares of VLSI stock. Defendants have refused to seriously
consider the pending Royal Philips offer, and have not announced their
intention to conduct an active auction or to establish an open bidding
process in order to maximize shareholder value in selling the Company.
14. The Individual Defendants are acting to entrench themselves in
their offices and positions and maintain their substantial salaries and
prerequisites, all at the expense and to the detriment of the public
shareholders of VLSI.
15. By virtue of the acts and conduct alleged herein the
Individual Defendants, who control the actions of the Company have carried
out a preconceived plan and scheme to place their own personal interests
ahead of the interests of the shareholders of VLSI and thereby entrench
themselves in their offices and positions within the Company. The Individual
Defendants have violated their fiduciary duties owed to plaintiff and the
Class in that they have not and are not exercising independent business
judgment and have acted and are acting to the detriment of the Company's
public shareholders for their own personal benefit.
16. As a result of the actions of the Individual Defendants,
plaintiff and the other members of the Class have been and will be damaged in
that they have not and will not receive their fair proportion of the value of
VLSI's assets and
-5-
<PAGE>
businesses and/or have been and will be prevented from obtaining fair
consideration for their shares of VLSI's common stock in a value maximizing
transaction.
17. Unless enjoined by this Court, defendants will continue to
breach their fiduciary duties owed to plaintiff and the Class, and will
succeed in their plan to entrench themselves and deprive the Class of the
opportunity to maximize the value of their VLSI holdings either in a
transaction with Royal Philips or some other BONA FIDE offeror, to the
irreparable harm of the Class.
18. Plaintiff and the Class have no adequate remedy at law.
WHEREFORE, plaintiff demands judgment as follows:
A. declaring this to be a proper class action;
B. ordering the individual defendants to carry out their
fiduciary duties to plaintiff and the other members of the class by
announcing their intention to:
1) cooperate fully with any person or entity, having a BONA
FIDE interest in proposing any transaction which would maximize shareholder
value, including, but not limited to, a buyout or takeover of the Company by
Royal Philips;
2) undertake an appropriate evaluation of VLSI's worth as a
merger/acquisition candidate;
3) take all appropriate steps to enhance VLSI's value and
attractiveness as a merger/acquisition candidate; and
4) take all appropriate steps to effectively expose VLSI to
the marketplace in an effort to create an active auction for VLSI;
-6-
<PAGE>
C. ordering the individual defendants, jointly and severally, to
account to plaintiff and the class for all damages suffered and to be
suffered by them as a result of the wrongs complained of herein;
D. preliminarily and permanently enjoining defendants from
proceeding with any action that will entrench the Individual Defendants to
the detriment of the Company's public shareholders;
E. awarding plaintiff the costs and disbursements of this action,
including a reasonable allowance for plaintiff's attorneys' and experts'
fees; and
F. granting such other and further relief as may be just and
proper in the premises.
ROSENTHAL, MONHAIT,GROSS &
GODDESS, P.A.
By: /s/ J.A. Rosenthal
-------------------------------
Suite 1401, Mellon Bank Center
P.O. Box 1070
Wilmington, DE 19899-1070
(302) 656-4433
Attorneys for Plaintiff
OF COUNSEL:
BERNSTEIN LIEBHARD & LIFSHITZ, LLP
10 East 40th Street
New York, New York 10016
(212) 779-1414
-7-
<PAGE>
EXHIBIT 22
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
MICHAEL BERNSTEIN on behalf of himself and )
all others similarly situated, )
)
Plaintiff, )
)
v. ) C.A. No. 16988NC
)
VLSI TECHNOLOGY, INC., RICHARD M. BEYER, )
WILLIAM G. HOWARD, JR., )
)
PAUL R. LOW, HORACE H. TSIANG, )
ROBERT P. DILWORTH, PIERRE S.E. BONELLI and )
ALBERT J. STEIN, )
)
Defendants. )
- -------------------------------------------------
COMPLAINT
Plaintiff, by his attorneys, for his complaint against defendants,
alleges upon personal knowledge with respect to himself, and upon information
and belief based, INTER ALIA, upon the investigation of counsel, as to all
other allegations herein, as follows:
NATURE OF THE ACTION
1. Plaintiff brings this action as a class action on behalf
of himself and all other stockholders of VLSI Technology, Inc. ("VLSI" or the
"Company") who are similarly situated, against the individual defendants, who
comprise the Board of Directors of VLSI, to enjoin their wrongful conduct
which is intended to thwart any takeover of the Company.
2. In particular, VLSI's shareholders are currently being
deprived of the opportunity to realize the full benefits of their investment in
VLSI. Among other things, the director defendants have failed to adequately
consider and negotiate a premium offer to acquire
<PAGE>
control of VLSI by Royal Philips Electronics NV ("Royal Philips"). The
director defendants are utilizing their fiduciary positions of control over
VLSI to thwart Royal Philips and others in their legitimate attempts to
acquire VLSI.
3. Such action and inaction represent an effort by the
Individual Defendants to entrench themselves in office so that they may
continue to receive the substantial salaries, compensation and other benefits
and perquisites of their offices. The actions of the Individual Defendants
constitute a breach of their fiduciary duties to maximize shareholder value,
to not consider their own interests over those of the public shareholders,
and to respond reasonably and on an informed basis to BONA FIDE offers for
the Company.
THE PARTIES
4. Plaintiff Michael Bernstein is and at all relevant times has
been the owner of shares of VLSI common stock.
5. VLSI is a Delaware corporation. VLSI designs and manufactures
"System-Level Silicon" integrated circuits based on its "FSB" functional
system blocks library.
6. (a) Defendants Richard M. Beyer, Dr. William G. Howard, Jr.,
Paul R. Low, Horace H. Tsiang, Robert P. Dilworth, Pierre S.E. Bonelli and
Alfred J. Stein serve as directors of VLSI (collectively, the "Individual
Defendants").
(b) In addition, defendant Stein is Chairman and Chief
Executive Officer of the Company.
7. The Individual Defendants owe VLSI's public stockholders
fiduciary obligations and were and are required to: use their ability to
manage VLSI in a fair, just and
2
<PAGE>
equitable manner; act in furtherance of the best interests of VLSI's public
stockholders; govern VLSI in such a manner as to heed the expressed views of
its public shareholders, refrain from abusing their positions of control; and
not to favor their own interests at the expense of VLSI's public stockholders.
CLASS ACTION ALLEGATIONS
8. Plaintiff brings this action pursuant to Rule 23 of the Rules
of this Court, on behalf of himself and all other shareholders of the Company
(except the defendants herein and any persons, firm, trust, corporation, or
other entity related to or affiliated with them) and their successors in
interest, who are or will be threatened with injury arising from defendants'
actions, as more fully described herein (the "Class").
9. This action is properly maintainable as a class action for the
following reasons:
(a) The Class is so numerous that joinder of all members is
impracticable. There are in excess of 45 million shares of VLSI common stock
which are outstanding, held by hundreds, if not thousands, of owners of VLSI
stock who are members of the Class.
(b) There are questions of law and fact that are common to
the Class and that predominate over questions affecting any individual class
member. The common questions include, INTER ALIA, the following:
(i) whether defendants have breached their fiduciary
and other common law duties owed by them to plaintiff and the other members
of the Class by failing and refusing to act in good faith to maximize
shareholder value in the sale of VLSI; and
3
<PAGE>
(ii) whether plaintiff and the other members of the
Class are being and will continue to be injured by the wrongful conduct
alleged herein and, if so, what is the proper remedy and/or measure of
damages.
(c) The claims of plaintiff are typical of the claims of the
other members of the Class in that all members of the Class will be damaged
alike by defendants' actions.
(d) Plaintiff is committed to prosecuting this action and has
retained competent counsel experience in litigation of this nature.
Accordingly, plaintiff is an adequate representative of the Class.
SUBSTANTIVE ALLEGATIONS
10. On February 26, 1999, Royal Philips announced that it had
submitted a proposal to the VLSI Board of Directors to acquire all of the
outstanding VLSI stock for $17 per share cash -- a 58 percent premium to the
then-prevailing market price. It was reported that VLSI was "considering"
the proposal.
11. The Individual Defendants have failed to embrace Royal
Philips's premium offer and have been content to remain behind the
protections of the Company's defenses from unwanted takeovers. To act
consistent with their fiduciary duties, the Individual Defendants should
evaluate all reasonable alternatives, including negotiating with Royal
Philips which they have failed to do.
12. The Individual Defendants owe fundamental fiduciary
obligations under the present circumstances to take all necessary and
appropriate steps to maximize shareholder value and explore in good faith the
Royal Philips proposal. In addition, the Individual Defendants have the
responsibility to act independently so that the interests of VLSI's public
stockholders will be
4
<PAGE>
protected, to seriously consider all BONA FIDE offers for the Company, and to
conduct fair and active bidding procedures or other mechanisms for checking
the market to assure that the highest possible price is achieved. Further,
the directors of the Company must adequately ensure that no conflict of
interest exists between defendants' own interests and their fiduciary
obligations to maximize stockholder value and act in the shareholders' best
interests or, if such conflicts exist, ensure that they will be resolved in
the best interests of the Company's public stockholders.
13. VLSI represents a highly attractive acquisition candidate.
Defendants' conduct has deprived and will continue to deprive the Company's
public shareholders of the very substantial premium which Royal Philips is
prepared to pay or of the enhanced premium which further exposure of the
Company to the market could provide. Defendants are precluding the
shareholders' enjoyment of the full economic value of their investment by
failing to pursue a premium acquisition proposal which would provide for an
acquisition for all shares at a very attractive price.
14. VLSI's Board and its top management have frustrated and
rejected Royal Philips's current acquisition overtures and offers, even
though these proposals would result in VLSI's shareholders receiving a
substantial premium over the then market-price of VLSI stock. The Individual
Defendants have done this because they know that in the event VLSI were
acquired by any potential bidders, most or all of the directors of VLSI and
its senior management would, either in connection with the acquisition or
shortly thereafter, be removed from the Board of the surviving company
because their services would not be necessary and they would be mere
surplusage and thus an acquisition would bring an end to their power,
prestige and profit. In so
5
<PAGE>
acting, VLSI's directors and those in management allied with them have been
aggrandizing their own personal positions and interests over those of VLSI's
broader shareholder constituency to whom they owe fundamental fiduciary
duties not to entrench themselves in office.
15. By virtue of the acts and conduct alleged herein, the
Individual Defendants, who control the actions of the Company, have carried
out a preconceived plan and scheme to place their own personal interests
ahead of the interests of the shareholders of VLSI and thereby entrench
themselves in their offices and positions within the Company. The Individual
Defendants have violated their fiduciary duties owed to plaintiff and the
Class in that they have not and are not exercising independent business
judgment and have acted and are acting to the detriment of the Company's
public shareholders for their own personal benefit.
16. Plaintiff seeks preliminary and permanent injunctive relief
and declaratory relief preventing defendants from inequitably and unlawfully
depriving plaintiff and the Class of their rights to realize a full and fair
value for their stock at a substantial premium over the market price and to
compel defendants to carry out their fiduciary duties to maximize shareholder
value in selling VLSI.
17. Only through the exercise of this Court's equitable powers can
plaintiff and the Class be fully protected from the immediate and irreparable
injury which the defendants' actions threaten to inflict.
18. Unless enjoined by the Court, defendants will continue to
breach their fiduciary duties owed to plaintiff and the members of the Class,
will continue to entrench
6
<PAGE>
themselves in office, and will prevent the sale of VLSI at a substantial
premium, all to the irreparable harm of plaintiff and the other members of
the Class.
19. Plaintiff and the Class have no adequate remedy at law.
WHEREFORE, plaintiff demands judgment as follows:
A. Declaring this to be a proper class action and certifying
plaintiff as class representative;
B. Ordering the Individual Defendants to carry out their
fiduciary duties to plaintiff and the other members of the Class by
announcing their intention to:
(i) cooperate fully with any entity or person, including
Royal Philips, having a BONA FIDE interest in proposing any transaction which
would maximize shareholder value, including, but not limited to, a buy-out or
takeover of the Company;
(ii) immediately undertake an appropriate evaluation of
VLSI's worth as a merger or acquisition candidate;
(iii) take all appropriate steps to effectively expose VLSI
to the marketplace in an effort to create an active auction of the Company;
(iv) act independently so that the interests of the
Company's public shareholders will be protected; and
(v) adequately ensure that no conflicts of interest exist
between the Individual Defendants' own interests and their fiduciary
obligation to maximize shareholder value or, in the event such conflicts
exist, ensure that all conflicts of interest are resolved in the best
interests of the public shareholders of VLSI.
C. Enjoining defendants from abusing the corporate machinery of
the Company for the purpose of entrenching themselves in office;
7
<PAGE>
D. Ordering the Individual Defendants to take steps to facilitate
a premium acquisition by utilizing the Company's anti-takeover defense
exclusively in a manner designed to maximize shareholder value;
E. Ordering the Individual Defendants, jointly and severally, to
account to plaintiff and the Class for all damages suffered and to be
suffered by them as a result of the wrongs alleged herein;
F. Awarding plaintiff the costs and disbursements of this action,
including a reasonable allowance for plaintiff's attorney's and experts'
fees; and
G. Granting such other and further relief as may be just and
proper.
ROSENTHAL, MONHAIT, GROSS &
GODDESS, P.A.
By: /s/ J. A. Rosenthal
--------------------------------
1401 Mellon Bank Center
Suite 1401
Post Office Box 1070
Wilmington, Delaware 19899
(302) 656-4433
Attorneys for Plaintiff
OF COUNSEL:
MILBERG WEISS BERSHAD
HYNES & LERACH LLP
One Pennsylvania Avenue
New York, New York 10119
(212) 594-5300
8
<PAGE>
EXHIBIT 23
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
FELICIA BERNSTEIN on behalf of herself and all others ) C.A. No. 16989
similarly situated, )
)
Plaintiff, ) Class Action
) Complaint
)
v. )
)
VLSI TECHNOLOGY, INC., RICHARD M. BEYER, )
PIERRE BONELLI, ROBERT P. DILWORTH, )
WILLIAM G. HOWARD, JR., PAUL R. LOW, )
ALBERT J. STEIN AND HORACE H. TSIANG, )
)
Defendants. )
- ---------------------------------------------------------
Plaintiff, by her attorneys, alleges upon information and belief
except with respect to her ownership of VLSI Technology Inc. ("VLSI" or the
"Company") common stock, which is alleged upon personal knowledge, as follows:
PARTIES
1. Plaintiff is the owner of common stock of defendant VLSI.
2. VLSI Technology Inc. is a Delaware corporation with executive
offices at 1151 McKay Drive, San Jose, California 9513 1. As of March 18, 1998,
VLSI had approximately 45 million shares of common stock outstanding.
3. Defendant Richard M. Beyer is President, Chief Operating
Officer and a Director of VLSI.
<PAGE>
4. Defendant Pierre S. Bonelli is a Director of VLSI.
5. Defendant Robert P. Dilworth is a Director of VLSI.
6. Defendant William G. Howard, Jr. is a Director of VLSI.
7. Defendant Paul R. Low is a Director of VLSI.
8. Defendant Alfred J. Stein is Chairman of the Board, Chief
Executive Officer and a Director of VLSI.
9. Defendant Horace H. Tsiang is a Director of VLSI.
10. The foregoing individuals (collectively the "Individual
Defendants"), as directors and/or officers of VLSI, owe fiduciary duties to
VLSI and its public shareholders. The Defendants are using their fiduciary
positions of control over the Company to thwart others in their legitimate
attempts to acquire the Company and the Individual Defendants are trying to
entrench themselves in their positions with VLSI.
CLASS ACTION ALLEGATIONS
11. Plaintiff brings this action on behalf of herself and as a
class action on behalf of all public shareholders of defendant VLSI (except
defendants herein and any person, firm, trust, corporation or other entity
related to or affiliated with any of the defendants) or their successors in
interest, who have been or will be adversely affected by the conduct of
defendants alleged herein.
12. This action is properly maintainable as a class action for
the following reasons:
2
<PAGE>
(a) The class of shareholders for whose benefit this
action is brought is so numerous that joinder of all class members is
impracticable. As of March 1998, there were over 45 million shares of
defendant VLSI's common stock outstanding owned by shareholders scattered
throughout the United States.
(b) There are questions of law or fact which are common
to members of the Class and which predominate over any questions affecting
any individual members. The common questions include, INTER ALIA, the
following:
(i) Whether the Defendants have breached their
fiduciary duties owed by them to Plaintiff and members of the Class, and/or
have aided and abetted in such breach, by virtue of their participation
and/or acquiescence and by their other conduct complained of herein; and
(ii) Whether Plaintiff and the other members of
the Class will be irreparably damaged by the conduct complained of herein.
13. Plaintiff is committed to prosecuting this action and has
retained competent counsel experienced in litigation of this nature. The
claims of Plaintiff are typical of the claims of the other members of the
Class and Plaintiff has the same interests as the other members of the Class.
Accordingly, Plaintiff is an adequate representative of the Class and will
fairly and adequately protect the interests of the Class.
14. Plaintiff anticipates that there will not be any difficulty
in the management of this litigation as a class action.
3
<PAGE>
15. For the reasons stated herein, a class action is superior to
other available methods for the fair and efficient adjudication of this action.
SUBSTANTIVE ALLEGATIONS
16. On February 26, 1999, Royal Philips Electronics NV proposed
to acquire VLSI for $17 a share in cash, i.e. a 58% premium over the unaffected
trading price.
17. A WALL STREET JOURNAL ("WSJ") article of March 1, 1999
reported that Philips made this unsolicited offer because it had not received
any responses to discussions it had had with the Company. A March 3, 1999
WSJ article revealed that Philips had actually opened discussions as far back
as September, 1998 and had met on numerous occasions since, hence Philips'
announcement on March 3, 1999 that it had no choice but to prepare for a full
blown proxy fight. Philips announced on that day that if it did not receive a
response by that evening it would begin its tender offer.
18. The VLSI board met on March 3, 1999 and announced that it
would evaluate the Philips proposal with its bankers at a board meeting on
March 23, 1999. The VLSI board is now further delaying dealing with Philips,
after previously failing to properly entertain the Philips offer to acquire
the Company. In response, and evidencing Philips' dissatisfaction with
VLSI's improper foot dragging, Philips announced on March 4, 1999 it would
commence a tender offer at $17 per share.
19. Defendants' failure to promptly and properly act upon Philips
offer evidences their disregard for the premium being offered to VLSI
shareholders. By failing to
4
<PAGE>
properly pursue the offer, defendants are depriving plaintiff and the Class
of the opportunity to receive maximum value for their shares.
20. VLSI represents a highly attractive acquisition candidate.
Defendants' actions are depriving the Company's public shareholders of the
premium that Philips is prepared to pay, or of the enhanced premium that
further negotiation or exposure of VLSI to the market could provide.
21. Defendants owe fundamental fiduciary obligations to VLSI's
stockholders to take all necessary and appropriate steps to maximize the
value of their shares. In addition, the Individual Defendants have the
responsibility to act independently so that the interests of the Company's
public stockholders will be protected, to consider seriously all BONA FIDE
offers for the Company, and to conduct fair and active bidding procedures or
other mechanisms for checking the market to assure that the highest possible
price is achieved. Further, the directors of VLSI must adequately ensure that
no conflict of interest exists between the Individual Defendants' own
interests and their fiduciary obligations to maximize stockholder value or,
if such conflicts exist, to insure that all such conflicts will be resolved
in the best interests of the Company's stockholders.
22. Because defendants dominate and control the business and
corporate affairs of VLSI and because they are in possession of private
corporate information concerning VLSI's assets, businesses and future
prospects, there exists an imbalance and disparity of knowledge of economic
power between defendants and the public stockholders of VLSI. This
5
<PAGE>
discrepancy makes it inherently unfair for defendants to entrench
themselves at the expense of VLSI's stockholders.
23. In connection with the conduct described herein, the
Individual Defendants have breached their fiduciary duties by, among other
things, failing to consider promptly and properly the possibility of a
transaction with Philips.
24. The Individual Defendants have acted to entrench themselves
in their offices and positions all at the expense and to the detriment of the
public stockholders of VLSI.
25. As a result of the actions of the Individual Defendants,
plaintiffs and the other members of the Class have been and will be damaged
in that they are being prevented from obtaining a premium for their shares of
VLSI's common stock.
26. Plaintiffs seek preliminary and permanent injunctive relief
and declaratory relief preventing defendants from inequitably and unlawfully
depriving plaintiffs and the Class of their rights to realize value for their
stock at a premium over the market price, by unlawfully entrenching
themselves in their positions of control, and to compel defendants to carry
out their fiduciary duties to maximize shareholder value.
27. Only through the exercise of this Court's equitable powers
can plaintiffs be fully protected from the irreparable injury which defendants'
actions threaten to inflict.
28. Plaintiff and the Class have no adequate remedy at law.
WHEREFORE, plaintiff demands judgment as follows:
6
<PAGE>
(a) Declaring this to be a proper class action and
certifying plaintiff as a class representative;
(b) Ordering the Individual Defendants to fulfill their
fiduciary duties to plaintiff and the other members of the Class by
announcing their intention to:
(i) Cooperate fully with any entity or person,
including Philips, having a bona fide interest in proposing any transactions
that would maximize shareholder value, including, but not limited to, a
merger or acquisition of VLSI;
(ii) Take all appropriate steps to enhance VLSI's
value and attractiveness as a merger/acquisition candidate;
(iii) Act independently so that the interests of the
Company's public stockholders will be protected; and
(iv) Adequately ensure that no conflicts of interest
exist between the Individual Defendants' own interests and their fiduciary
obligation to maximize shareholder value or, in the event such conflicts
exist, to ensure that all conflicts of interest are resolved in the best
interests of the public stockholders of VLSI;
(c) Ordering the Individual Defendants, jointly and
severally, to account to plaintiff and the Class for all damages suffered and
to be suffered by them as a result of the acts and transactions alleged
herein;
(d) Awarding plaintiff the costs and disbursements of this
action, including a reasonable allowance for plaintiff s attorneys' and
experts' fees; and
7
<PAGE>
(e) Granting such other and further relief as may be just
and proper.
Dated: March 4, 1999
CHIMICLES & TIKELLIS LLP
/s/ James C. Strum
------------------------------------
Pamela Tikellis
James C. Strum
Robert J. Kriner, Jr.
One Rodney Square
Wilmington, Delaware 19899
(302) 656-2500
OF COUNSEL:
WOLF HALDENSTEIN ADLER FREEMAN HERZ LLP
270 Madison Avenue
New York, New York 10016
(212) 545-4600
8
<PAGE>
EXHIBIT 24
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
CHARLES MILLER, ) C.A. NO. 16993NC
)
Plaintiff, ) COMPLAINT
)
- against - )
)
VLSI TECHNOLOGY, INC., RICHARD )
M. BEYER, PIERRE S. BONELLI, ROBERT )
P. DILWORTH, WILLIAM G. HOWARD, )
JR., PAUL R. LOW, ALFRED J. STEIN )
and HORACE H. TSIANG, )
)
Defendants. )
- -----------------------------------------------
Plaintiff, by his attorneys, for his complaint against defendants,
alleges upon personal knowledge with respect to himself, and upon information
and belief as to all other allegations herein, as follows:
THE PARTIES
1. Plaintiff is and has been at all relevant times the owner of
shares of the common stock of VLSI Technology, Inc. ("VLSI" or the "Company).
2. VLSI is a corporation organized and existing under the laws
of the State of Delaware. VLSI designs and manufactures custom and
semi-custom integrated circuits for the wireless communications industry. As
of March 18, 1998, VLSI had issued and outstanding 45,657,014 shares of
common stock.
3. Defendant Richard M. Beyer is and was at all relevant times
the President, Chief Operating Officer and a director of VLSI. In the 1997
fiscal year, Beyer received $608,089 in cash compensation.
4. Defendant Alfred J. Stein is and was at all relevant times
Chairman and Chief Executive Officer of VLSI. In the 1997
<PAGE>
fiscal year Stein received $1,393,563 in cash compensation.
5. Defendants Pierre S. Bonelli, Robert P. Dilworth, William G.
Howard, Jr., Paul R. Low and Horace H. Tsiang are and were at all relevant
times directors of VLSI.
6. The Individual Defendants owe the highest fiduciary duties
of good faith, loyalty, fair dealing, due care, and candor to plaintiff and
the other members of the Class (as defined below).
CLASS ACTION ALLEGATIONS
7. Plaintiff brings this action pursuant to Rule 23 of the
Rules of the Court of Chancery, individually and on behalf of all other
stockholders of the Company (except the defendants herein and any persons,
firm, trust, corporation, or other entity related to or affiliated with them)
and their successors in interest, who are or will be threatened with injury
arising from defendants' actions, as more fully described herein (the
"Class").
8. This action is properly maintainable as a class action for
the following reasons:
(a) The Class is so numerous that joinder of all members
is impracticable. There are over hundreds of record owners of VLSI common
stock and many more beneficial owners who are members of the Class.
(b) There are questions of law and fact which are common
to the Class and which predominate over questions affecting any individual
class member. The common questions include, INTER ALIA, the following;
(c) Whether defendants have engaged and are continuing
to engage in a plan and scheme to entrench themselves at
2
<PAGE>
the expense of the members of the Class;
(d) Whether the Individual Defendants, as officers and
directors of the VLSI, have fulfilled and are capable of fulfilling, their
fiduciary duties to plaintiff and the other members of the Class, including
their duties of entire fairness, fair dealing, loyalty, due care, and candor;
and
(e) Whether plaintiff and the other members of the Class
would be irreparably damaged were defendants not enjoined from committing the
wrongs complained of herein.
9. The claims of plaintiff are typical of the claims of the
other members of the Class in that all members of the Class will be damaged
alike by defendants' actions.
10. Plaintiff is committed to prosecuting this action and has
retained competent counsel experienced in litigation of this nature.
Accordingly, plaintiff is an adequate representative of the Class.
11. Defendants have acted and will continue to act on grounds
generally applicable to the Class, thereby making appropriate final
injunctive or corresponding declaratory relief with respect to the Class as a
whole.
SUBSTANTIVE ALLEGATIONS
12. On or about February 26, 1999, Royal Philips Electronics,
N.V. ("Philips") announced in a press release that it had offered to purchase
all of VLSI's outstanding common stock at a price of $17 per share (the
"Offer"). The total value of the Offer is $776.9 million.
3
<PAGE>
13. The price offered by Philips represents an approximate 60%;
premium over the closing price for VLSI stock on the prior trading day.
14. The market responded favorably to the Offer, with the price
of VLSI common stock rising from $10.75 per share to close at $15.50 per
share.
15. According to an article in The WALL STREET JOURNAL on March
3, 1999 ("WSJ article") Philips and VLSI have been engaged in discussions
about a possible transaction since September, 1998. However, defendant Stein
has repeatedly rebuffed Philips. Nonetheless, fellow board member, defendant
Low reportedly said to BLOOMBERG "There are good arguments for pursuing this
kind of transaction."
16. The Individual Defendants have refused to negotiate with
Philips in order to protect their own substantial salaries, and perquisites
and to entrench themselves in their positions of authority and control with
the Company. Instead of fulfilling their fiduciary duties to the public
shareholders of VLSI by immediately beginning negotiations with Philips to
maximize shareholder value, defendants have adopted a course of delay in
order to thwart Philips and protect their own interests. VLSI had a regular
Board meeting scheduled for March 3, 1999; instead of responding to the
Offer, VLSI announced that it would respond by March 23.
17. On March 4, 1999, Philips announced that it would commence a
tender offer for all VLSI shares on March 5, 1999 at $17 per share.
4
<PAGE>
18. Defendants' refusal to negotiate with Philips has deprived
and will continue to deprive the Company's public shareholders of the very
substantial premium which Philips is prepared to pay or an enhanced premium
which further negotiations might secure.
19. Moreover, defendants have refused to take steps necessary to
ensure that the Company's shareholders will receive maximum value for their
shares of VLSI stock. Defendants have refused to seriously consider the
Offer, nor have defendants announced their intention to conduct an active
auction or to establish an open bidding process in order to maximize
shareholder value in selling the Company.
20. The Individual Defendants are acting to entrench themselves
in their offices and positions and maintain their substantial salaries and
prerequisites, all at the expense and to the detriment of the public
shareholders of VLSI.
21. By virtue of the acts and conduct alleged herein, the
Individual Defendants, who control the actions of the Company, have carried
out a preconceived plan and scheme to place their own personal interests
ahead of the interests of the shareholders of VLSI and thereby entrench
themselves in their offices and positions within the Company. The Individual
Defendants have violated their fiduciary duties owed to plaintiff and the
Class in that they have not and are not exercising independent business
judgment and have acted and are acting to the detriment of the Company's
public shareholders for their own personal benefit.
22. By reason of the foregoing acts, practices, and courses of
conduct by defendants, plaintiff and the other members
5
<PAGE>
of the Class have been and will be damaged because they will be denied the
opportunity to benefit from a value maximizing transaction and will be
prevented from obtaining fair consideration for their shares of VLSI's common
stock.
23. Unless enjoined by this Court, defendants will continue to
breach their fiduciary duties owed to plaintiff and the Class and will
entrench themselves in office, to the irreparable harm of plaintiff and the
Class.
24. Plaintiff and the other members of the Class have no
adequate remedy at law.
WHEREFORE, plaintiff demands judgment as follows:
A. Declaring this to be a proper class action and naming
plaintiff as Class representative;
B. Granting preliminary and permanent injunctive relief against
any action(s) which would entrench defendants;
C. Ordering that defendants explore all strategic alternatives
to maximize shareholder value;
D. Ordering defendants, jointly and severally, to account to
plaintiff and to all other members of the Class for all damages suffered and
to be suffered by them as the result of the wrongs complained of herein;
E. Awarding plaintiff the costs and disbursements of this
action including allowances for plaintiff's reasonable attorneys and experts
fees; and
6
<PAGE>
F. Granting such other and further relief as may be just and
proper.
ROSENTHAL, MONHAIT,GROSS &
GODDESS, P.A.
By: /s/ J.A. Rosenthal
----------------------------------
Suite 1401, Mellon Bank Center
P.O. Box 1070
Wilmington, DE 19899-1070
(302) 656-4433
Attorneys for Plaintiff
OF COUNSEL:
GOODKIND LABATON RUDOFF &
SUCHAROW LLP
100 Park Avenue
New York, New York 10017
(212) 907-0700
7
<PAGE>
EXHIBIT 25
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
RUTH ELLEN MILLER, on behalf of ) C.A. No. 16994NC
herself and all others similarly )
situated, ) COMPLAINT
)
Plaintiff, )
)
v. )
)
RICHARD M. BEYER, PIERRE S. )
BONELLI, ROBERT P. DILWORTH, )
WILLIAM G. HOWARD, JR., PAUL R. )
LOW, ALFRED J. STEIN, HORACE H. )
TSIANG and VLSI TECHNOLOGY, INC., )
)
Defendants. )
- -----------------------------------------------
Plaintiff, by her attorneys, alleges upon personal knowledge as to
her own acts and upon information and belief as to all other matters, as
follows:
NATURE OF THE ACTION
1. This action is brought on behalf of the public stockholders
of VLSI Technology, Inc. ("VLSI" or the "Company"), who have been, and
continue to be, deprived of the opportunity to realize fully the benefits of
their investment in the Company. The individual defendants have wrongfully
refused to properly consider a BONA FIDE offer for the Company from Royal
Philips Electronics, N.V. ("Royal Philips"), at a significant premium over
the trading price of the Company's stock prior to the offer. The individual
defendants have specifically refused to negotiate with Royal Philips despite
its repeated attempts to negotiate a transaction with the Company. By virtue
of their failure to date
<PAGE>
to negotiate with Royal Philips, Royal Philips has stated that it will
formally launch a $777 million hostile takeover bid (the "Tender Offer") for
VLSI. The conduct of the Individual Defendants constitutes unfair dealing
and a breach of fiduciary duty to maximize stockholder value. The individual
defendants are using their fiduciary positions of control over VLSI to thwart
others in their legitimate attempts to acquire VLSI in order to entrench
themselves in their positions with the Company.
PARTIES
2. Plaintiff is and, at all relevant times, has been the owner
of shares of VLSI common stock.
3. VLSI is a Delaware corporation that designs, manufactures,
and markets custom and semi-custom integrated circuits for a range of
applications in the wireless communications, networking, consumer digital
entertainment and advanced computing markets.
4. Defendant Alfred J. Stein ("Stein") is and at all times
relevant hereto has been the Chairman and Chief Executive Officer of VLSI.
5. Defendant Richard M. Berger ("Berger") is and at all times
relevant hereto has been the President, Chief Operating Officer, and a
director of VLSI.
6. Defendants Pierre S. Bonelli, Robert P. Dilworth, William G.
Howard, Jr., Paul R. Low, and Horace H. Tsiang are and at all times relevant
hereto have been directors of VLSI.
2
<PAGE>
7. Because of their positions as officers /directors of the
Company, the Individual Defendants owe fiduciary duties of loyalty and due
care to plaintiff and the other members of the class.
CLASS ACTION ALLEGATIONS
8. Plaintiff brings this action on her own behalf and as a
class action, pursuant to Rule 23 of the Rules of the Court of Chancery, on
behalf of all stockholders of the Company (except defendants herein and any
person, firm, trust, corporation, or other entity related to or affiliated
with any of the defendants) who are and will be threatened with injury
arising from defendants' actions as described more fully below.
9. This action is properly maintainable as a class action.
10. The class is so numerous that joinder of all members is
impracticable. The Company has in excess of 45 million shares outstanding
with hundreds, if not thousands, of stockholders who are scattered throughout
the United States.
11. There are questions of law and fact common to the class that
predominate over questions affecting any individual class member. The common
questions include, INTER ALIA, whether:
a. defendants have breached their fiduciary duties owed by
them to plaintiff and other members of the Class by failing and refusing to
attempt in good faith to maximize stockholder value in the sale of VLSI;
b. defendants have engaged in a plan and scheme
3
<PAGE>
to thwart and reject offers and proposals from third parties, including Royal
Philips, to entrench defendants in their offices and deprive VLSI public
stockholders of the maximum value of their holdings; and
c. plaintiff and the other members of the Class are being
and will continue to be injured by the wrongful conduct alleged herein and,
if so, what is the proper remedy.
12. Plaintiff is committed to prosecuting this action and has
retained competent counsel experienced in litigation of this nature.
Plaintiff's claims are typical of the claims of the other members of the
class and plaintiff has the same interests as the other members of the class.
Accordingly, Plaintiff is an adequate representative of the class.
SUBSTANTIVE ALLEGATIONS
13. On February 26, 1999, Royal Philips publicly disclosed that
it had formally offered to acquire all of VLSI's outstanding common stock for
$17.00 per share in a transaction valued at approximately $776.9 million.
Royal Philip's offer represents an approximate 60% premium over VLSI's
trading price during the days prior to Royal Philip's offer.
14. This latest offer follows repeated attempts by Royal Philips
during September and November 1998, and February 1999 to negotiate a
transaction with the defendants. Each such attempt was soundly rejected by
defendant Stein. In fact, on February 25, 1999, Stein suggested that Royal
Philips wait an
4
<PAGE>
additional six months before approaching the Company to negotiate a
transaction.
15. Defendants, recalcitrance to consider and promptly act upon
Royal Philips' earlier overtures and the Tender offer evidences their
disregard for their fiduciary duties owed to VLSI's public stockholders. By
failing to meet and negotiate or offer to meet and negotiate with Royal
Philips, defendants are depriving plaintiff and the Class of the right to
benefit from a value maximizing transaction.
16. VLSI represents a highly attractive acquisition candidate.
Defendants' conduct would deprive VLSI's public shareholders of the very
substantial premium that Royal Philips is prepared to pay, or of the enhanced
premium which further negotiation or exposure of VLSI to the market could
provide.
17. Defendants' failure to negotiate with Royal Philips has led
Royal Philips to make the Tender Offer and, in addition, has also led it to
state that it will ask defendants to remove VLSI's "poison pill." If the
"poison pill" is not removed Royal Philips has stated it will seek to oust
the Individual Defendants from their board positions.
18. Defendants owe fundamental fiduciary obligations to VLSI's
shareholders to take all necessary and appropriate steps to maximize the value
of their shares. In addition, the Individual Defendants have the responsibility
to act independently so that the interests of VLSI's public stockholders will be
protected, to seriously consider all BONA FIDE offers for the Company, and to
conduct fair and active bidding procedures or
5
<PAGE>
other mechanisms for checking the market to assure that the highest possible
price is achieved. Further, the directors of VLSI must adequately ensure
that no conflict of interest exists between the Individual Defendants' own
interests and their fiduciary obligations to maximize stockholder value or,
if such conflicts exist, ensure that all such conflicts will be resolved in
the best interests of the Company's shareholders.
19. The Individual Defendants have breached their fiduciary and
other common law duties owed to plaintiff and other members of the Class in
that they have not and are not exercising independent business judgment and
have acted and are acting to the detriment of the Class.
20. Defendants have refused to take those steps necessary to
ensure that VLSI's shareholders will receive maximum value for their shares
of VLSI stock. Defendants have refused to seriously consider the Tender
Offer, and have failed to announce any active auction or open bidding
procedures best calculated to maximize shareholder value in selling the
Company.
21. The Individual Defendants are acting to entrench themselves
in their offices and positions and maintain their substantial salaries and
perquisites, at the expense and to the detriment of the public shareholders
of VLSI.
22. By the acts, transactions and courses of conduct alleged
herein, the Individual Defendants, individually and as part of a common plan and
scheme in breach of their fiduciary duties and obligations, are attempting
unfairly to deprive
6
<PAGE>
plaintiff and other members of the Class of the premium they could realize in
an acquisition transaction and to ensure continuance of their positions as
directors and officers, to the detriment of VLSI's public shareholders. The
Individual Defendants are engaged in a wrongful effort to entrench themselves
in their offices and positions of control and prevent the acquisition of VLSI.
23. As a result of the actions of the Individual Defendants,
plaintiff and the other members of the Class have been and will be damaged in
that they have not and will not receive their fair proportion of the value of
VLSI's assets and businesses and/or have been and will be prevented from
obtaining a fair price for their shares of VLSI's common stock.
24. Plaintiff seeks preliminary and permanent injunctive relief
and declaratory relief preventing defendants from inequitably and unlawfully
depriving plaintiff and the Class of their right to realize full and fair
value for their stock at a substantial premium over the market price, and
from unlawfully entrenching themselves in their positions of control, and to
compel defendants to carry out their fiduciary duties to maximize shareholder
value.
25. Unless enjoined by this Court, defendants will continue to
breach their fiduciary duties owed to plaintiff and the members of the Class,
and will prevent the sale of VLSI at a substantial premium, to the
irreparable harm of plaintiff and other members of the Class.
7
<PAGE>
26. Plaintiff and the Class have no adequate remedy at law.
WHEREFORE, plaintiff demands judgment as follows:
(a) Declaring this to be a proper class action and
certifying plaintiff as class representative;
(b) Ordering the Individual Defendants to carry out
their fiduciary duties to plaintiff and the other members of the Class by
announcing their intention to:
(i) cooperate fully with any entity or person,
including Royal Philips, having a BONA FIDE interest in proposing any
transaction which would maximize shareholder value, including but not limited
to, the Tender Offer;
(ii) immediately undertake an appropriate
evaluation of VLSI's worth as a merger/acquisition candidate;
(iii) take all appropriate steps to enhance VLSI's
value and attractiveness as a merger/acquisition candidate; and
(iv) take all appropriate steps to effectively
expose VLSI to the marketplace in an effort to create an active auction of
the Company.
(c) Ordering the Individual Defendants, jointly and
severally to account to plaintiff and the Class for all damages suffered and
to be suffered by them as a result of the acts and transactions alleged
herein;
8
<PAGE>
(d) Awarding plaintiff the costs and disbursements of
this action, including a reasonable allowance for plaintiff's attorneys' and
expert' fees; and
(e) Granting such other and further relief as may be
just and proper.
ROSENTHAL, MONHAIT, GROSS &
GODDESS, P.A.
By: /S/ J.A. Rosenthal
---------------------------------
Suite 1401, Mellon Bank Center
P.O. Box 1070
Wilmington, DE 19899-1070
(302) 656-4433
Attorneys for Plaintiff
OF COUNSEL:
WECHSLER HARWOOD
HALEBIAN & FEFFER LLP
488 Madison Avenue
New York, New York 10022
(212) 935-7400
9
<PAGE>
EXHIBIT 26
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
MISHEL S. TEHRANI, )
)
Plaintiff, )
) CLASS ACTION COMPLAINT
- against - )
) Civil Action No. 16998NC
RICHARD M. BEYER, PIERRE S. BONELLI, )
ROBERT P. DILWORTH, WILLIAM G. HOWARD, )
JR., PAUL R. LOW, ALFRED J. STEIN, HORACE )
H. TSIANG and VLSI TECHNOLOGY, INC., )
)
Defendants. )
- -----------------------------------------------
Plaintiff alleges upon information and belief, except for paragraph 1
hereof which is alleged upon knowledge, as follows:
1. Plaintiff has been the owner of shares of the common stock of
VLSI Technology, Inc. ("VLSI" or the "Company") since prior to the transaction
herein complained of and continuously to date.
2. VLSI is a corporation duly organized and existing under the
laws of the State of Delaware. The Company manufactures customized chips for
the wireless phone, networking, setup, and game console industries.
3. Defendant Alfred J. Stein ("Stein") is and was at all relevant
times the Chairman of the Board and Chief Executive officer of VLSI.
4. Defendant Richard M. Berger is President, Chief Operating
Officer and a Director of VLSI.
<PAGE>
5. Defendants Pierre S. Bonelli, Robert P. Dilworth, William G.
Howard, Jr., Paul R. Low and Horace H. Tsiang are and were at all relevant times
directors of VLSI.
6. The Individual Defendants are in a fiduciary relationship with
plaintiff and the other public stockholders of VLSI and owe them the highest
obligations of good faith, due dare, candor and fair dealing.
CLASS ACTION ALLEGATIONS
7. Plaintiff brings this action on his own behalf and as a class
action, pursuant to Rule 23 of the Rules of the Court of Chancery, on behalf of
all security holders of the Company (except the defendants herein and any
person, firm, trust, corporation, or other entity related to or affiliated with
any of the defendants) and their successors in interest, who are or will be
threatened with injury arising from defendants' actions as more fully described
herein.
8. This action is properly maintainable as a class action
because:
(a) The class is so numerous that joinder of all members is
impracticable. As of March 18, 1998, there were approximately 45.6 million
shares of VLSI common stock outstanding, held by hundreds, if not thousands, of
beneficial owners located throughout the country.
(b) There are questions of law and fact which are common to
the class including, INTER ALIA, the following: (i) whether defendants have
breached their fiduciary and other common law duties owed by them to plaintiff
and the members of the
2
<PAGE>
class; (ii) whether defendants are unlawfully seeking to entrench themselves in
their own positions at the expense of the public shareholders of VLSI; and (iii)
whether the class is entitled to injunctive relief or damages as a result of the
wrongful conduct committed by defendants.
(c) Plaintiff is committed to prosecuting this action and
has retained competent counsel experienced in litigation of this nature. The
claims of the plaintiff are typical of the claims of other members of the class
and plaintiff has the same interests as the other members of the class.
Accordingly, plaintiff will fairly and adequately represent the class.
(d) Defendants have acted in a manner which affects
plaintiff and all members of the class alike, thereby making appropriate
injunctive relief and/or corresponding declaratory relief with respect to the
class as a whole.
(e) The prosecution of separate actions by individual
members of the Class would create a risk of inconsistent or varying
adjudications with respect to individual members of the Class, which would
establish incompatible standards of conduct for defendants, or adjudications
with respect to individual members of the Class which would, as a practical
matter, be dispositive of the interests of other members or substantially impair
or impede their ability to protect their interests.
SUBSTANTIVE ALLEGATIONS
9. On February 26, 1999 Royal Philips Electronics, N.V., ("Royal
Philips") offered to purchase all of VLSI' outstanding common stock for $17.00
per share. The total value
3
<PAGE>
of the transaction would be approximately $776.9 million. The $17.00 per
share offer represented a 60% premium over the closing price for VLSI stock
for the previous trading days. In response to this announcement, the price
of VLSI common stock soared from approximately $10-3/4 per share to close at
$15-1/2 per share.
10. Royal Philips' offer follows extensive attempts by Royal
Philips between September and November 1998 to negotiate an acquisition of VLSI,
which attempts have been repeatedly rebuffed by defendant Stein. Indeed, on
February 25, 1999, defendant Stein again rebuffed Royal Philips' attempt to
negotiate an acquisition and repeatedly "suggested" that Royal Philips wait
another six months to resume the discussions. Defendant Stein's refusal to
negotiate flies in the face of the candid observation by defendant Low, as
reported in THE WALL STREET JOURNAL on March 3, 1999, that: "there are good
arguments for pursing this kind of transaction."
11. The Individual Defendants have refused to negotiate with Royal
Philips in order to protect their own substantial salaries, and perquisites and
to entrench themselves in their positions of authority and control with the
Company. Instead of fulfilling their fiduciary duties to the public
shareholders of VLSI by immediately beginning negotiations with Royal Philips to
maximize shareholder value, defendants have adopted a course of delay in order
to thwart Royal Philips and protect their own interests.
12. Defendants' refusal to negotiate with Royal Philips has
deprived and will continue to deprive the Company's public shareholders of the
very substantial premium which Royal
4
<PAGE>
Philips is prepared to pay or the enhanced premium which further negotiations
could secure.
13. Moreover, defendants have refused to take those steps
necessary to ensure that the Company's shareholders will receive maximum value
for their shares of VLSI stock. Defendants have refused to seriously consider
the pending Royal Philips offer, and have not announced their intention to
conduct an active auction or to establish an open bidding process in order to
maximize shareholder value in selling the Company.
14. The Individual Defendants are acting to entrench themselves in
their offices and positions and maintain their substantial salaries and
prerequisites, all at the expense and to the detriment of the public
shareholders of VLSI.
15. By virtue of the acts and conduct alleged herein the
Individual Defendants, who control the actions of the Company have carried out a
preconceived plan and scheme to place their own personal interests ahead of the
interests of the shareholders of VLSI and thereby entrench themselves in their
offices and positions within the Company. The Individual Defendants have
violated their fiduciary duties owed to plaintiff and the Class in that they
have not and are not exercising independent business judgment and have acted and
are acting to the detriment of the Company's public shareholders for their own
personal benefit.
16. As a result of the actions of the Individual Defendants,
plaintiff and the other members of the Class have been and will be damaged in
that they have not and will not receive their fair proportion of the value of
VLSI's assets and
5
<PAGE>
businesses and/or have been and will be prevented from obtaining fair
consideration for their shares of VLSI's common stock in a value maximizing
transaction.
17. Unless enjoined by this Court, defendants will continue to
breach their fiduciary duties owed to plaintiff and the Class, and will succeed
in their plan to entrench themselves and deprive the Class of the opportunity to
maximize the value of their VLSI holdings either in a transaction with Royal
Philips or some other BONA FIDE offeror, to the irreparable harm of the Class.
18. Plaintiff and the Class have no adequate remedy at law.
WHEREFORE, plaintiff demands judgment as follows:
A. declaring this to be a proper class action;
B. ordering the individual defendants to carry out their
fiduciary duties to plaintiff and the other members of the class by announcing
their intention to:
1) cooperate fully with any person or entity, having a
BONA FIDE interest in proposing any transaction which would maximize shareholder
value, including, but not limited to, a buyout or takeover of the Company by
Royal Philips;
2) undertake an appropriate evaluation of VLSI's worth as
a merger/acquisition candidate;
3) take all appropriate steps to enhance VLSI's value and
attractiveness as a merger/acquisition candidate; and
4) take all appropriate steps to effectively expose VLSI
to the marketplace in an effort to create an active auction for VLSI;
6
<PAGE>
C. ordering the individual defendants, jointly and severally, to
account to plaintiff and the class for all damages suffered and to be suffered
by them as a result of the wrongs complained of herein;
D. preliminarily and permanently enjoining defendants from
proceeding with any action that will entrench the Individual Defendants to the
detriment of the Company's public shareholders;
E. awarding plaintiff the costs and disbursements of this action,
including a reasonable allowance for plaintiff's attorneys' and experts' fees;
and
F. granting such other and further relief as may be just and
proper in the premises.
ROSENTHAL, MONHAIT, GROSS &
GODDESS, P.A.
By: /s/ J.A. Rosenthal
------------------------------
Suite 1401, Mellon Bank Center
919 Market Street
Wilmington, DE 19801
(302) 656-4433
Attorneys for Plaintiff
OF COUNSEL:
BEATIE AND OSBORN
599 Lexington Avenue
New York, New York 10022
(212) 888-9000
7
<PAGE>
EXHIBIT 27
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
LILLIE BARENHOLTZ and, )
NORMAN SILVERBERG, )
)
Plaintiffs, )
)
v. ) C.A. No. 17010NC
)
RICHARD BEYER, PIERRE S. BONELLI, )
ROBERT P. DILWORTH, WILLIAM G. ) CLASS ACTION COMPLAINT
HOWARD, JR., PAUL R. LOW, ALFRED J. )
STEIN, HORACE H. TSAING and VLSI )
TECHNOLOGY, INC., )
Defendants.
- -----------------------------------
Plaintiffs, by their attorneys, for their complaint against
defendants, allege upon information and belief, except for paragraph 1 hereof,
which is alleged upon knowledge, as follows:
1. Plaintiffs are and at all relevant times were the owners of
shares of common stock of VLSI Technology, Inc. ("VLSI" or the "Company").
2. VLSI is a corporation duly organized and existing under the
laws of the State of Delaware with its principal offices located in San Jose,
California. VLSI manufactures and markets electronic semiconductors,
including integrated circuits for wireless communications and customized chips
for the networking, digital and advanced computer markets.
3. The Company's Board of Directors consists of seven persons
as follows:
(a) Defendant Alfred J. Stein ("Stein") is and was at
all relevant times the Chairman of the Board and Chief Executive Officer of
the Company.
<PAGE>
(b) Defendant Richard M. Berger is and was at all relevant
times President, Chief Operating, Officer and a Director of the Company.
(c) Defendants Pierre S. Bonelli, Robert P. Dilworth,
William G. Howard, Jr., Paul R. Low and Horace H. Tsiang are and were at all
relevant times directors of VLSI.
4. The seven persons named in paragraph 3) above shall be
collectively referred to herein as the "Individual Defendants."
5. The Individual Defendants stand in a fiduciary position
relative to the Company's shareholders, which fiduciary relationship, at all
times relevant herein, required the Individual Defendants to exercise their
best judgment, and to act in a prudent manner, and in the best interests of
the Company's shareholders. They were and are required to use their ability
to control and manage the Company in a fair, just and equitable manner; to
act in furtherance of the best interests of the Company's shareholders; to
refrain from abusing their positions of control; and not to favor their own
interests at the expense of the Company's shareholders.
CLASS ACTION ALLEGATIONS
6. Plaintiffs bring this action on their own behalf and as a
class action, pursuant to Rule 23 of the Rules of the Court of Chancery, on
behalf of all stockholders of the Company (except the defendants herein and
any person, firm, trust, corporation, or other entity related to or affiliated
with any of the defendants) and their successors in interest, who are or will
be threatened with injury arising from defendants' actions as more fully
described herein.
7. This action is properly maintainable as a class action.
2
<PAGE>
8. The class is so numerous that joinder of all members is
impracticable. There were approximately 45.6 million shares of VLSI common
stock outstanding, as of March 18, 1998, held by hundreds, if not thousands
of persons throughout the country.
9. There are questions of law and fact which are common to the
class and which predominate over questions affecting any individual class
member. The common questions include, INTER ALIA, the following:
(a) whether the Individual Defendants have breached
their fiduciary duties by engaging in actions to entrench themselves in their
corporate offices at the expense of VLSI's public stockholders;
(b) whether the Individual Defendants are unlawfully
impeding beneficial takeover attempts at the expense of VLSI's public
stockholders;
(c) whether the Individual Defendants have failed and
will fail to negotiate in good faith with prospective purchasers of the
Company;
(d) whether defendants have improperly amended the
Company's poison pill; and
(e) whether plaintiffs and the other members of the
class would be irreparably damaged were the defendants not enjoined from the
conduct described herein below.
10. Plaintiffs are committed to prosecuting this action and have
retained competent counsel experienced in litigation of this nature. The
claims of plaintiffs are typical of the claims of the other members of the
class and plaintiffs have the same interests as the other members of the
class. Accordingly, plaintiffs are adequate representatives of the class.
3
<PAGE>
SUBSTANTIVE ALLEGATIONS
11. On November 6, 1989, VLSI adopted a Shareholder Rights Plan
("Poison Pill") and distributed the rights (the "Rights") pursuant to it.
The Poison Pill, which contains typical "'flip in" and "flip over" provisions,
is designed to prevent the consummation of any takeover -- even one providing
substantial benefits to VLSI's shareholders -- without the current Board's
approval.
12. On February 26, 1999, Royal Philips Electronics, N.V.
("Philips") offered to purchase all of VLSI's outstanding common stock for
$17.00 per share. The total value of the transaction would be approximately
$776.9 million. The $17.00 per share offer represented about a 60% premium
over the closing price for VLSI stock for the previous trading days. In
response to this announcement, the price of VLSI common stock soared from
approximately $10-3/4 per share to close at $15 1/2 per share.
13. Philips' offer followed extensive attempts by Philips between
September and November 1998 to negotiate an acquisition of VLSI, which attempts
have been repeatedly rebuffed by defendant Stein. Indeed, on February 25,
1999, defendant Stein again rebuffed Philips' attempt to negotiate an
acquisition and repeatedly "suggested" that Philips wait another six months
to resume the discussions. Defendant Stein's refusal to negotiate flies in
the face of the comment by defendant Low as reported in THE WALL STREET
JOURNAL on March 3, 1999, that: "there are good arguments for pursuing this
kind of transaction."
14. In addition, on March 3, 1999, regarding the Philips proposal,
Stein stated that although the Board of Directors had an open mind toward the
offer, it would not consider it until a special board meeting on March 23,
1999. VLSI's Poison Pill was kept in place by the VLSI board in the interim.
4
<PAGE>
15. On March 4, 1999, Philips wrote to VLSI stating that it
intended to go directly to VLSI's shareholders with its $17 per share cash
offer by causing its wholly owned subsidiary, KPE Acquisition ("KPE"), to
commence a tender offer on March 5, 1999 for all of VLSI's outstanding shares
(the "Tender Offer"). Philips went on to request, among other things, that
VLSI redeem its Poison Pill or otherwise take action to render the plan
inapplicable to the Philips offer so that the offer could be consummated
expeditiously. The letter indicated that "time is of the essence" because
the business combination is a "compelling strategic and operational
opportunity" for Philips and provides "compelling financial benefits" to
VLSI's shareholders.
16. On March 5, 1999, Philips, through KPE, did in fact commence
the Tender Offer for all outstanding shares of VLSI at $17 per share in cash.
On the same date, KPE also commenced an action against VLSI in this Court to
cause VLSI to redeem its Poison Pill. Philips claimed that the VLSI board has
"refused to redeem the pill despite the attractiveness" of its $17 per share
offer.
17. On March 8, 1999, VLSI announced that its Board of Directors
had amended the Company's Poison Pill in response to Philips' offer to reduce
the "trigger" threshold from 20 percent to 10 percent, thus making it even
more difficult for Philips to pursue its acquisition of VLSI.
18. Unless the Tender Offer is declared by VLSI's Board of
Directors to be a "Permitted Offer" under the Poison Pill, or the Poison Pill
is otherwise made inapplicable to the Tender Offer, the Rights will now be
triggered if KPE were to purchase 10% or more of the outstanding, shares of
VLSI's common stock pursuant to the Tender Offer.
5
<PAGE>
19. The Individual Defendants were and are obligated to adequately
consider, in a timely fashion and on an informed basis, any reasonable
proposal from any party, not to place their own self-interests and personal
considerations ahead of the interests of the public stockholders and to make
corporate decisions in good faith. The Individual Defendants in delaying a
decision on the Philips proposal, while maintaining and in fact amending the
Poison Pill, were fundamentally motivated to further their own self-interests
and objectives and correspondingly preserve and protect their emoluments and
positions in the Company, all in violation of their fiduciary duties to and
at the expense of the public shareholders of the Company.
20. The Individual Defendants have at all times been fiduciaries
of VLSI shareholders. As set forth herein, they have breached and are
continuing to breach their fiduciary duties to VLSI's shareholders in order
to entrench themselves in office and to continue receiving their compensation,
fees and emoluments of office.
21. The Individual Defendants have breached their fiduciary duties
by reason of the acts and transactions complained of herein, including their
refusal to negotiate an advantageous acquisition of VLSI and the amendment of
the Poison Pill.
22. Plaintiffs and the other members of the class have been and
will be damaged in that they have not and will not receive their fair
proportion of the value of VLSI's assets and businesses, and have been and
will be prevented from obtaining a fair price for their shares of the Company's
common stock.
23. Unless enjoined by this Court, the Individual Defendants
will continue to breach their fiduciary duties owed to plaintiffs and the
other members of the class, and will entrench themselves in their corporate
offices, to the irreparable harm of the class.
6
<PAGE>
24. Plaintiffs and the class have no adequate remedy at law.
WHEREFORE, plaintiffs demand judgment, as follows:
A. Declaring this to be a proper class action;
B. Ordering the Individual Defendants to carry out their
fiduciary duties to plaintiffs and the other members of the class by
announcing their intention to:
1. cooperate fully with Philips, KPE or any person or entity
having a bona fide interest in proposing any transaction which would maximize
shareholder value, including, but not limited to, a buyout or takeover of the
Company;
2. undertake an appropriate evaluation of VLSI's worth as a
merger/acquisition candidate;
3. take all appropriate steps to enhance VLSI's value and
attractiveness as a merger/acquisition candidate; and
4. take all appropriate steps to effectively expose VLSI to
the marketplace in an effort to create an active auction for VLSI;
C. Preliminary and permanently enjoining the implementation of
the Company's Poison Pill, as amended, unless it is deployed in a way which
will maximize shareholder value;
D. Awarding plaintiffs the costs and disbursements of this
action, including a reasonable allowance for plaintiffs' attorneys' and
experts' fees; and
7
<PAGE>
E. Granting such other and further relief as may be just and
proper.
ROSENTHAL, MONHAIT, GROSS &
GODDESS, P.A.
By: /s/ J. A. Rosenthal
------------------------------
Suite 1401, Mellon Bank Center
919 Market Street
P.O. Box 1070
Wilmington, DE 19899
(302) 656-4433
Attorneys for Plaintiffs
Of Counsel:
STULL, STULL & BRODY
6 East 45th Street
New York, NY 10017
(212) 687-7230
8
<PAGE>
EXHIBIT 28
MORGAN STANLEY DEAN WITTER
2725 SAND HILL ROAD
BUILDING C -- SUITE 200
MENLO PARK, CALIFORNIA 94025
(650) 234-5500
March 18, 1999
Board of Directors
VLSI Technology, Inc.
1109 McKay Drive
San Jose, CA 95131
Members of the Board:
We understand that on March 5, 1999, KPE Acquisition Inc. ("KPE"), a subsidiary
of Koninklijke Philips Electronics N.V. ("Philips"), commenced a tender offer to
purchase all outstanding shares of Common Stock, par value $0.01 per share (the
"Common Stock"), including associated rights to purchase Preferred Stock, of
VLSI Technology, Inc. ("VLSI" or the "Company"), other than shares of Common
Stock owned by Philips and its affiliates, at a price of $17.00 per share net to
the seller in cash upon the terms and subject to the conditions set forth in the
Offer to Purchase, dated March 5, 1999 (as amended on March 17, 1999, the "Offer
to Purchase"), and the related Letter of Transmittal (which together constitute
the "Philips Offer"). The terms of the Philips Offer are more fully set forth in
the Schedule 14D-1 (the "Schedule 14D-1") filed by KPE and Philips with the
Securities and Exchange Commission on March 5, 1999, as amended on March 17,
1999.
You have asked for our opinion as to whether the Philips Offer is adequate from
a financial point of view to the holders of Common Stock other than Philips and
its affiliates.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company;
(ii) reviewed certain internal financial statements and other financial and
operating data concerning the Company prepared by the management of the
Company;
(iii) reviewed certain financial projections prepared by the management of
the Company;
<PAGE>
VLSI Technology, Inc.
March 18, 1999 MORGAN STANLEY DEAN WITTER
Page - 2
(iv) discussed the past and current operations and financial condition and
the prospects and business strategy of the Company with senior
executives of the Company;
(v) reviewed the reported prices and trading activity for the Common Stock;
(vi) compared the financial performance of the Company and the prices and
trading activity of the Common Stock with that of certain other
comparable publicly-traded companies and their securities;
(vii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(viii) participated in preliminary exploratory discussions with third parties
in connection with our evaluation of the Philips Offer;
(ix) reviewed the Offer to Purchase, the Schedule 14D-1 and certain related
documents; and
(x) performed such other analyses and considered such other factors as we
have deemed appropriate.
We have assumed and relied upon, without independent verification, the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the Company's financial projections, we have assumed
that they have been reasonably prepared on bases reflecting management's best
currently available estimates and judgments of the future financial performance
of the Company. We have not made any independent valuation or appraisal of the
assets or liabilities of the Company, nor have we been furnished with any such
appraisals. Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by the Company in respect of the tender offer, or otherwise
required, with the Securities and Exchange Commission. This opinion is not
intended to be and shall not constitute a recommendation to any holder of Common
Stock as to whether to tender shares of Common Stock pursuant to the Philips
Offer.
We have acted as financial advisor to the Board of Directors of the Company in
connection with this transaction and will receive a fee for our services. In the
past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory services to Philips on matters unrelated to VLSI and have
received fees for the rendering of those services.
<PAGE>
VLSI Technology, Inc.
March 18, 1999 MORGAN STANLEY DEAN WITTER
Page - 3
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Philips Offer is inadequate from a financial point of view to
the holders of Common Stock other than Philips and its affiliates.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ CHARLES R. CORY
--------------------------------------
Charles R. Cory
MANAGING DIRECTOR
<PAGE>
EXHIBIT 29
HAMBRECHT & QUIST LLC
ONE BUSH STREET
SAN FRANCISCO, CA 94104
(415) 439-3000
March 18, 1999
Confidential
- ----------
The Board of Directors
VLSI Technology, Inc.
1109 McKay Drive
San Jose, CA 95131
Gentlemen:
You have requested our opinion as to the adequacy, from a financial point of
view, to the holders of the outstanding shares of common stock, par value $0.01
per share (the "Common Stock") of VLSI Technology, Inc. ("VLSI" or the
"Company"), other than Koninklijke Philips Electronics N.V. and its affiliates
(collectively "Philips"), of the terms of the Offer to Purchase (as hereinafter
defined). For purposes of this opinion, the "Offer to Purchase" means the offer
described below pursuant to that certain Offer to Purchase included in the
Schedule 14D-1 filed with the Securities and Exchange Commission on March 5,
1999, as amended on March 17, 1999, by KPE Acquisition Inc. (the "Bidder"), a
wholly-owned subsidiary of Philips.
As more specifically set forth in the Schedule 14D-1, the Bidder has offered,
subject to certain conditions set forth in the Offer to Purchase, to purchase
all the outstanding shares of Common Stock of the Company, other than shares of
Common Stock owned by Philips, and the associated preferred stock purchase
rights issued pursuant to the First Amended and Restated Rights Agreement
between the Company and the First National Bank of Boston, dated August 12,
1992, and amended on August 22, 1992, as Rights Agent (the "Rights Agreement"),
at a purchase price of $17.00 per share (and associated right) net to seller in
cash (together with the related Letter of Transmittal, the "Philips Offer").
Hambrecht & Quist LLC ("Hambrecht & Quist"), as part of its investment banking
services, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, strategic transactions,
corporate restructurings, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. We have acted as a financial advisor to the Board of
Directors of VLSI in connection with the proposed Offer to Purchase, and we will
receive a fee for our services. We will also receive a fee upon delivery of this
opinion.
In the past, we have provided investment banking and other financial advisory
services to VLSI and have received fees for rendering these services. Hambrecht
& Quist served as co-manager in the Company's February 1983 initial public
offering as well as the Company's June 1995 follow-on offering and
SAN FRANCISCO - NEW YORK - BOSTON - NEWPORT BEACH - SAN DIEGO - LONDON
MEMBERS NEW YORK STOCK EXCHANGE - AMERICAN STOCK EXCHANGE - PACIFIC STOCK
EXCHANGE
<PAGE>
The Board of Directors
VLSI Technology, Inc.
Page 2
received fees for general financial advisory services performed in 1991, 1992
and 1993. In the ordinary course of business, Hambrecht & Quist acts as a market
maker and broker in the publicly traded securities of VLSI and receives
customary compensation in connection therewith. In the ordinary course of
business, Hambrecht & Quist actively trades in the equity and derivative
securities of VLSI for its own account and for the accounts of its customers
and, accordingly, may at any time hold a long or short position in such
securities.
In connection with our review of the Philips Offer, and in arriving at our
opinion, we have, among other things:
(i) reviewed the publicly available consolidated financial statements of
VLSI for recent years and interim periods to date and certain other
relevant financial and operating data of VLSI (including its capital
structure) made available to us from published sources and from the
internal records of VLSI;
(ii) reviewed the Offer to Purchase, the Schedule 14D-1 and certain related
documents;
(iii) reviewed certain internal financial and operating information,
including certain projections, relating to VLSI prepared by the
management of VLSI;
(vi) discussed the operations, business strategy, financial condition and
prospects of VLSI with certain of its officers and employees;
(v) reviewed the recent financial performance, reported prices and trading
activity for the common stock of VLSI and compared such information and
certain financial information for VLSI with similar information for
certain other companies engaged in businesses we deemed comparable;
(vi) reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions;
(vii) participated in preliminary exploratory discussions with third parties
in connection with our evaluation of the Philips Offer; and
(viii) performed such other analyses and examinations and considered such
other information, financial studies, analyses and investigations and
financial, economic and market data as we deemed relevant.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all of the information concerning VLSI considered in connection
with our review of the Philips Offer, and we have not assumed any responsibility
for independent verification of such information. We have not prepared any
independent valuation or appraisal of any of the assets or liabilities of VLSI,
nor have we conducted a physical inspection of the properties and facilities of
the Company. With respect to the financial forecasts and projections made
available to us and used in our analysis, we have assumed that they reflect
management's best currently available estimates and judgments of the expected
future financial performance of VLSI. For purposes of this opinion, we have
assumed that VLSI is not a party to any pending transactions, including external
financings, recapitalizations or material merger discussions, other than the
Philips Offer and those activities undertaken in the ordinary course of
conducting its business. Our opinion is necessarily based upon market, economic,
financial and other conditions as they exist and can be
<PAGE>
The Board of Directors
VLSI Technology, Inc.
Page 3
evaluated as of the date of this letter and any change in such conditions would
require a reevaluation of this opinion.
It is understood that this letter is for the information of the Board of
Directors and may not be used for any other purpose without our prior written
consent; provided, however, that this letter may be reproduced in full in any
filing made by the Company in respect of the Philips Offer or otherwise required
with the Securities and Exchange Commission. This letter does not constitute a
recommendation to any stockholder as to whether to tender shares of Common Stock
pursuant to the Philips Offer.
Based upon and subject to the foregoing and after considering such other matters
as we deem relevant, we are of the opinion that as of the date hereof the
Philips Offer is inadequate from a financial point of view to the holders of
Common Stock other than Philips and its affiliates.
Very truly yours,
HAMBRECHT & QUIST LLC
By /s/ Paul B. Cleveland
- -------------------------------------------
Paul B. Cleveland
Managing Director
