<PAGE>   1
 
                                                                    EXHIBIT 10.2
 
                                   AGREEMENT
 
     This Agreement, entered into as of October 31, 1995 (the "Effective Date")
by and between VLSI TECHNOLOGY, INC., a Delaware corporation, located at 1109
McKay Drive, San Jose, California 95131, hereinafter referred to as "VLSI" and
ALFRED J. STEIN, 410 Old Oak Court, Los Altos, California 94022, hereinafter
referred to as "Employee".
 
     WHEREAS, VLSI desires to compensate Employee for management and consulting
services to be performed in the future, such services being of a special,
unique, unusual, extraordinary, and intellectual character that gives them a
substantial value;
 
     WHEREAS, Employee has developed numerous and substantial relationships with
VLSI's customers and vendors which are of substantial value to VLSI and are
expected to contribute to the growth and success of VLSI in the future;
 
     WHEREAS, Employee desires to continue providing management and consulting
services for at least the period specified herein;
 
                                   ARTICLE 1.
 
                      SERVICES TO BE PROVIDED BY EMPLOYEE
 
     (a) Employee agrees to continue making his management services available to
VLSI, on a full time basis, for a period of at least three (3) years from the
Effective Date.
 
     (b) Following, and in the event of, Employee's departure after three years
from the Effective Date, Employee shall provide VLSI with the services described
in Article 1(c) for a minimum of 52 days per year and shall continue to do so
throughout the period beginning with his departure date and ending ten years
from the Effective Date.
 
     (c) Services to be provided by Employee to VLSI during the period set forth
in Article 1(b) hereof shall consist of general consulting services for the
Chief Executive Officer, the Board of Directors, or VLSI as requested from time
to time. The parties agree that such services shall not require full time
service.
 
     (d) Nothing in this Agreement is intended to prevent Employee from
accepting employment with another employer after his departure from VLSI.
 
                                   ARTICLE 2.
 
                              PAYMENTS TO EMPLOYEE
 
     (a) VLSI agrees to make annual payments as provided in Exhibit A hereto to
Employee, or such person or persons as Employee may designate, for so long as
Employee continues to provide services either as an employee or as a consultant
as set forth in Article 1 hereof.
 
     (b) Except as otherwise provided in Article 2(c) below, in the event that
Employee ceases to fulfill his obligations under Article 1 hereof, VLSI shall
have no further obligation to make payments to Employee under this Agreement.
 
     (c) In the event that fewer than all payments set forth in Exhibit A have
been made to Employee and (i) Employee becomes disabled as defined in Article
5(c) hereof, (ii) VLSI undergoes a Change in Control (as defined in Article 5(b)
hereof) or (iii) VLSI notifies Employee that it no longer desires that Employee
perform the services required under Article 1 hereof, VLSI shall make a single
lump-sum payment to Employee equal to the sum of the present values of all
payments provided in Exhibit A which have not been paid to Employee at the time
of such disability, Change in Control or notification and Employee shall have no
further obligations under Article 1 hereof.
 
     (d) The lump sum payment payable under Article 2(c) hereof shall be
calculated based on the assumptions set forth in section 2(A) of Exhibit A with
a discount rate equal to the lesser of the prime rate on the date of termination
and 5.5%.
 
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<PAGE>   2
 
     (e) All payments payable under this Article 2 shall be grossed up, and made
free and clear of and without deduction, for any and all present or future
income taxes, payroll taxes, excise taxes, deductions, charges or withholdings,
and all liabilities with respect thereto, (all such taxes, deductions, charges,
withholdings and liabilities being hereinafter referred to as "Taxes"). If VLSI
shall be required by law to deduct any Taxes from or in respect of a payment,
(i) the payment shall be increased as may be necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section) the payment shall be made in an amount equal to the amount
payable had no such deductions been made, (ii) VLSI shall make such deductions
and (iii) VLSI shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law.
 
     (f) For purposes of computing increases in payments payable hereunder, VLSI
shall, in all cases, assume that Employee is taxable at the highest marginal tax
rate applicable to an individual.
 
     (g) In the event that Employee is taxable at a marginal tax rate less than
the rate assumed in Article 2(f) hereof, Employee shall reimburse VLSI for the
excess of such increase paid to Employee over the increase computed on the basis
of Employee's actual marginal tax rate.
 
                                   ARTICLE 3.
 
                                      TERM
 
     This term of this Agreement shall extend from the Effective Date to the
later of (i) the date that the final payment due hereunder is made by VLSI and
(ii) the date that Employee's obligations under Article 1 hereof are satisfied.
 
                                   ARTICLE 4.
 
                               EMPLOYEE EXPENSES
 
     VLSI agrees to reimburse Employee for all reasonable expenses incurred by
Employee in the nature of consulting and legal fees associated with the
development, negotiation and preparation of this Agreement.
 
                                   ARTICLE 5.
 
                               GENERAL PROVISIONS
 
     (a) Acquisition, Merger, Consolidation, Change in Control, Etc.  The rights
and obligations of the parties as set forth herein shall be unaffected by a
Change in Control of VLSI or a merger or consolidation of VLSI with or into
another entity or any similar transaction.
 
     (b) Change in Control.  For purposes of this Agreement, a "Change in
Control" shall be deemed to have occurred if: (i) the stockholders of VLSI
approve a merger or consolidation of VLSI with any other corporation, other than
a merger or consolidation which would result in the voting securities of VLSI
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of VLSI or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of VLSI approve a plan of liquidation or dissolution of VLSI or an agreement for
the sale, lease, exchange or other transfer or disposition by VLSI of all or
substantially all (more than fifty percent (50%)) of VLSI's assets; (ii) any
person (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), is or becomes the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act)
directly or indirectly of 50% or more of VLSI's outstanding Common Stock, or
(iii) a change in the composition of the Board of Directors of VLSI within a
three (3) year period, as a result of which fewer than a majority of the
directors are Incumbent Directors. "Incumbent Directors" shall mean directors
who either (A) are directors of VLSI as of the date hereof, or (B) are elected,
or nominated for election, to the Board of Directors of VLSI with the
affirmative votes of at least a majority of the Incumbent Directors at the time
of such election or nomination (but shall not include an individual whose
election or nomination is in connection with an actual or threatened proxy
contest relating to the election of directors to VLSI).
 
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<PAGE>   3
 
     (c) Disabled. For purposes of this Agreement, Employee shall be considered
"disabled" in the event that a physician mutually acceptable to Employee and
VLSI determines that Employee is no longer capable of providing services as
required under Article 1 hereof due to any physical or mental illness or injury.
 
     (d) Arbitration. (i) Any controversy between VLSI and Employee involving
the construction or application of any of the terms, provisions, or conditions
of this Agreement shall on the written request of either party served on the
other be submitted to arbitration. Arbitration shall comply with and be governed
by the provisions of the California Arbitration Act.
 
     (ii) VLSI and Employee shall each appoint one person to hear and determine
the dispute. If the two persons so appointed are unable to agree, then those
persons shall select a third impartial arbitrator whose decision shall be final
and conclusive upon both parties.
 
     (iii) The cost of arbitration shall be borne by VLSI or in such proportions
as the arbitrators decide.
 
     (e) Entire Agreement. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the subject matter hereof and contains all of the covenants and agreements
between the parties with respect thereto. Each party to this Agreement
acknowledges that no representation, inducements, promises, or agreements,
orally or otherwise, have been made by any party, or anyone acting on behalf of
any party, which are not embodied herein, and that no other agreement,
statement, or promise not contained in this Agreement shall be valid or binding
on either party.
 
     (f) Modifications. Any modification of this Agreement will be effective
only if it is in writing and signed by the party to be charged.
 
     (g) Effect of Waiver. The failure of either party to insist on strict
compliance with any of the terms, covenants, or conditions of this Agreement by
the other party shall not be deemed a waiver of that term, covenant, or
condition, nor shall any waiver or relinquishment of any right or power at any
one time or times be deemed a waiver or relinquishment of that right or power
for all or any other times.
 
     (h) Partial Invalidity. If any provision in this Agreement is held by a
court of competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions shall nevertheless continue in full force without being
impaired or invalidated in any way.
 
     (i) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
 
VLSI TECHNOLOGY, INC.
 
<TABLE>
<S>                                               <C>
              /s/  JAMES J. KIM                               /s/  ALFRED J. STEIN
---------------------------------------------     --------------------------------------------
  James J. Kim, Board of Directors of VLSI                      Alfred J. Stein

            Date:  March 8, 1996                              Date:  March 8, 1996



           /s/  ROBERT P. DILWORTH
---------------------------------------------
  Robert P. Dilworth, Board of Directors of
                     VLSI

            Date:  March 8, 1996
</TABLE>
 
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<PAGE>   4
 
                                   EXHIBIT A
 
PAYMENTS UNDER SECTION 2(A) OF THE AGREEMENT
 
     1. Number of payments. Ten annual payments made on or before October 31 of
each year, beginning on October 31, 1995.
 
     2. Amount of each payment.
 
     (A) An amount equal to the annual premium necessary to endow a single life
policy (Corporate Universal Life) on the life of Employee issued by the
Specialized Benefit Resources division of Metropolitan Life Insurance Company
(MetLife) and based on the following policy assumptions:
 
        - level death benefit of $5 million
        - premiums payable for 10 years
        - policy crediting rate assumption equal to 7%
        - current mortality rates and loads
        - nonsmoker unisex rates
        - standard risk based on full underwriting
 
     (B) The amount of the annual premium necessary to endow the policy
described above will be adjusted upward or downward annually in view of the
actual policy crediting rate in effect for the year.
 
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